Deutsche Euroshop Uns/Adr

Good morning, ladies and gentlemen. This is Hans-Peter Kneipp speaking. On behalf of the management board of Deutsche Euroshop, I'm delighted to have this conference call with you and share our preliminary results for the financial year 2023 and the development of our company with you. Thank you for taking the time and for your continued interest in Deutsche Euroshop. The cover of the presentation and some of the images it contains already reveal the theme of our annual report 2023, which will be published on the 26th of April 2024. The title will be Eat, Shop, Love, as this time we are focusing on the topic of food and the variety of culinary experiences we offer at our shopping centers. To begin with, the Deutsche Euroshop team, together with our asset manager ECE, have done an excellent job to achieve these results. In the current transformation phase in the real estate and retail sectors, such good results cannot be taken for granted, but are the result of intensive work by our leading team, both at a strategic level and on site in our 21 shopping centers. But enough words of introduction. Let me now take you through our preliminary results and address any questions you may have. Let's get started with an update on our business activities on slides two and three. Overall, we have seen a sustained comeback of our operational business. Compared to 2022, footfall and retail sales of our tenants have increased by 5.7% and 8.6% respectively. As a result of the acquisition of minority interests in our own shopping centers in early 2023, Deutsche Euroshop has considerably strengthened its return profile. Our revenues went up by 28.4%, to 273.3 million euros, and FFO increased by 31.7% to now 171.3 million euros. Even without the acquisitions, revenues and FFO have developed favorably, as we will discuss in detail shortly. In terms of financing, we are in a very good position with an LTV of 33.2%, and a cash position of €336.1 million, shown on slide three. As you know, we have paid out a dividend of €191.2 million, €2.50 per share, in September 2023, and additionally €149.1 million, €1.95 per share, in early January 2024. Adjusted for the dividend in January, the LTV still remains at a low level of approximately 36.9%. We have a steady funding situation, and all our financings for this year are completed. The next loan is due in 2025, with major financings only coming up from 2026 on. Our newly established share buyback program is progressing, and we have bought back over 150,000 shares meanwhile. On slide four, we have a closer look into our shopping centers. In Q4, footfall went up again by 1.6% and the turnover of our tenants by 3.5% compared to the prior year period. As already mentioned before, looking at the entire year, we have seen a plus of 5.7% in footfall and 8.6% in turnover, as shown in the yellow bar chart. The good news is that both inflation and interest rates have stabilized on lower levels in the meantime. However, consumption continues to be influenced by macroeconomic uncertainties, such as fears of recession and inflation, as well as geopolitical conflicts, e.g. in the Ukraine and the Middle East. Insolvencies in the retail sector are still continuing, albeit at a much lower level. The most difficult phase seems to be over in that respect, but the retail sector may not have bottomed out quite yet. Overall, we were satisfied with our retailer's Christmas business, as well as Black Friday and Black Week, although there was no strong development compared to the previous year. On slide 5, you will see that the weighted maturity of our rental contracts is now at 4.7 years after 5.7 years one year before. That reflects shorter lease terms we have been agreeing to for a couple of years. The occupancy rate at the end of the year was 93.3% versus 94.3% in 2022, partly due to temporary vacancies as part of major restructuring measures. I will provide some key examples of this later. On slide six, you will find our top 10 tenants with only minor changes. Our biggest tenant, H&M has a share of 2.6%, followed by New Yorker and Deichmann with 2.3% each. The 10 largest tenants only account for 20% of our rental income. Our sector mix on slide 7 shows that fashion is focus of our malls, as it has always been. And that's a good thing because visitors have proven to value our attractive tenant mix here, also in times of online retailing. As a result, a number of fashion retailers in our portfolio have recently developed strongly and may expand in our centers to replace less popular concepts. Contrary to popular belief, a well-assorted fashion range exerts a strong attraction on visitors from which other segments in shopping centers benefit. At the same time, we aim to diversify our sector mix and, for example, strengthen gastronomy and entertainment offerings in our centers which are similarly popular with visitors and increase the length of stay. So far, the update on the situation in our centers. Before I come to the financial results for 2023, I would like to remind you that we acquired additional shares in six of our shopping centers early in January of last year, which have considerably increased Deutsche Euroshop's revenues and earnings. These acquisitions were financed through a capital increase against cash and non-cash contributions. As a result of the acquisition of additional shares, four property companies previously accounted for using the equity method were fully included in the consolidated financial statements for the first time, with economic effect from the 1st of January 2023. When describing the results of operations, financial positions, and net assets of the group, I will provide this information where appropriate on the basis of a comparable group, i.e. pro forma. The comparable group was prepared under the assumption that the acquisition of the six property companies had already taken place at the beginning of 2022. We have highlighted the effect in red for the 2022 figures on the following pages.

I would like to start by addressing the valuation of our investment properties on slide eight.

The valuation result of our shopping centers was again negative in an environment still characterized by downward pressure. Although valuation declines in other subsectors were certainly higher, the retail sector was not exempt from further write-downs. The positive operating performance in our centers was counteracted in particular by higher interest rates, increases in real estate transfer tax, and a nearly stagnant transaction market for shopping centers. Including investment costs, the valuation results before taxes was minus 209.1 million euros as at the end of the year. This corresponds to an average decrease of 4.2% after 3% in 2022. The increased net initial yield for our portfolio now stands at 6.25%, whereas the APRA net initial yield stands at 5.91%. The sensitivity of the valuation results to changes of the main value drivers is provided in the table in the lower part of this slide. Let's come to the revenues on slide nine. These came out slightly higher at 273.3 million euros after 264.7 million euros in 2022. This is a pro forma plus of 3.2%, which essentially comes from index adjustments and higher turnover rates. The breakdown between Germany and abroad is changed. We still have 20% share abroad. The EBIT illustrated on slide 10 amounted to €212.7 million after €194.2 million in 2022. That is a performer plus of 9.5%, which is the result of higher revenues, income from the reversal of provisions, as well as lower value adjustments and consultancy expenses. This increase was partly compensated by higher operating and maintenance costs. The EBIT, more precisely the other operating income, includes a positive one-off effect of around 15 million euros, which is still related to the coronavirus pandemic and therefore not expected to recur in the future. Our financial result on slide 11 improved pro forma by 1.4 million euros, or 3.2%, to now minus 43.2 million euros. Our interest expenses went up by 4.5 million euros due to loan increases and high interest rates for a follow-up loan. In contrast, and also owing to the rise in interest rates, we achieved an increase of 5.2 million euros in interest income from our bank deposits. This financial result, deducted from the EBIT outline just before, results in an increased EBT excluding valuation. As you can see on slide 12, The EBT adjusted for valuation rose from 149.6 million euros to 169.5 million euros, which is a performer plus of 13.3%. On slide 13, you will find our consolidated result, which is a negative territory for 2023, with minus 38.3 million euros. Compared to 2022, the consolidated result decreased by 68.7 million euros. This is due to the negative valuation results discussed earlier, which has overcompensated the overall positive development of the EBT, as well as lower taxes. Please follow me now to page 14 and to the development of the funds from operations. The FFO formed the basis for the distribution of dividends, regular loan amortization and ongoing investments into our portfolio. The FFO increased pro forma by 14.5% from €149.6 million to now €171.3 million or on a per share basis from €1.99 to €2.28. The marked increase in FFO stems from the higher results from operating activities the improved financial result, as well as lower taxes. The FFO eliminated valuation effects, deferred taxes, as well as special one-off items, such as in 2023, the result from changes in the scope of consolidation. With FFO per share of €2.28, Deutsche Euroshop thus exceeded its already increased forecast of €2.08 to €2.18. I'm now coming to the balance sheet on page 15 where we can also see the effects of the acquisitions. Our total assets amount to 4.5 billion euros. This is a change of 252.1 million euros compared with the reporting date end of 2022. Cash and cash equivalents as of the 31st of December 2023 stood at 336.1 million euros at a similar level compared to the end of 2022. As mentioned previously, please keep in mind that we have paid out a dividend shortly after the reporting date in early January, which has reduced consolidated liquidity by €149.1 million. Total equity, including minorities, increased by €35.7 million. At the end of 2023, current and non-current financial liabilities stood at 1.68 billion euros, which was 198.3 million euros higher than at the end of 2022, in particular due to the liabilities assumed from the minority acquisitions. Non-current deferred tax liabilities decreased by 2.5 million euros to 331.9 million euros. Our equity ratio decreased slightly, but still stands at a solid 53.3%, and the consolidated LTV stands at a low 33.2%. The APRA LTV, calculated proportionally according to the group share in all assets, so to say on a look-through basis, stands at 34.8%, a continued very low level. As already mentioned at the beginning of my presentation, the LTV has increased by approximately 370 basis points following the dividend payment in early January. Please have a look on slide 16, where we show the EPRANet tangible assets, which increased by 3.4% from 2.34 billion euros to now 2.41 billion euros. On a per share basis, however, the NTA decreased from 37.81 euros to 31.58 euros, mainly due to the high amount of shares issued following the capital increase in early 2023. The discount of the share price to the APRA NTA as of the 18th of March is 40%. On page 17, we give you some information on our debt. There are no expiring loans this year. Our consolidated debt bears interest at an unchanged average rate of 2.43%. As at the 31st December of 2023, the weighted maturity of our loan portfolio stands at 5.8 years. 30-year shop continues to envisage loan increases and optimizations where appropriate and seeks to manage upcoming maturities in 2025 and 2026 at an early stage.