Deutsche Euroshop Ag Akt

Ladies and gentlemen, good morning. This is the team of Deutsche Euroshop and I'm here on this call together with our CFO Olaf Borkas and our investor relations team. Thank you for joining us. We'll present you our results for the first nine months of this year and we'll give you an update on the situation in our centers. Before we look at financials and come to an outlook, let me first start with a short look back on the last now 20 months of the pandemic. This will be useful to get or to put the numbers and information that are contained in this presentation into perspective. The pandemic had, as known, a severe impact on Deutsche Wirtschaft's business. This impact is shown on slide six, and here you can see the long closing, shop closing periods in our countries of business. Our home market Germany, which accounts for approximately 80% of our income, was affected very hard with 187 days of complete lockdown. The Czech Republic suffered from even more, 235 days of closing, Poland 159, Austria 111 and Hungary 68 days. These were only the full lockdown days for non-essential shops, yet it is important to mention that the periods between and right after the hard lockdowns were and still are subject to limitations and impediments, which continue to have, depending on the segment, substantial influence on the business. Currently, we continue to see different governmental corona regulations among countries and German federal states, as you can see on slide seven. For example, Hungary has lifted the duty to wear a mask in shops beginning of July. Austria followed that route three weeks later, but stopped that relief just recently. Poland, the Czech Republic and Germany also still stick to this restriction. Here really, the mask wearing requirement, besides some cultural effects, seem to make the difference as countries that have abolished that requirement performed much better. What are the developments in our centers? Since the reopening's end of Q2, we see a similar pattern in the operational numbers as we have seen it in the summer 2020 after the first lockdowns. People are enjoying the newly regained freedom and a certain kind of normality. What we see is that the people return to the malls and shops even though there are, and will be for some time, destructive restrictions in place. In the third quarter, the footfall remained at approximately 75% of pre-corona levels. For October, the number improved slightly further to 77%. This level is still visibly below pre-corona period because of the extraordinary circumstances. You'll see the development of the footfall on page 8. The long closing periods had also a dramatic impact on the tenant turnovers, as it is shown here on slide 9 and is known. Compared to the 2019 levels, the turnover of our tenants decreased on average to 35% in Q1 to 58% in Q2. In the third quarter, the turnover level improved to 90% for our total portfolio and to 88% for our German centers. Here, we see as before that the people who come to the centers are on average more determined to buy goods and services in the centers, while the customers that spend dwell time in the centers are still lagging in numbers. On slide 10, you can see our collection ratios since the start of the pandemic. which follows the pattern of the customer footfall and is strongly depending on the lockdown periods. The collection ratio represents the ratio of the received to invoiced rents, service charges and marketing contributions after corona-related concessions. For the first nine months of 2021, the number was 90%, For the third quarter, the collection ratio improved further to 98%, close to normality. So far the update on the situation in our centers. I'll now come to the financial results for the first nine months of this year, and we'll start with the valuation of our shopping centers on page 11. The valuation result for our shopping centers was nearly unchanged, including investment costs. The valuation result was minus 37.6 million as of end of September 2021. This corresponds to an average devaluation of 1.1% and also includes a positive valuation effect of 2.7 million from the revaluation of an undeveloped plot, which is currently unused and is in the vicinity of one of our centers. The stabilized net initial yield for our portfolio is slightly up and now stands at 5.45% and the sensitivities to the valuation results to changes in the main value drivers is provided as usual in the table at the lower part of this slide. As reported before and especially from the beginning of the pandemic, there was very little investment activity in the shopping center market and looking at our specific segment, transaction activities could only be observed in regions which were much less affected from shop closings or for very few landmark shopping centers. In the course of 2020, the pandemic and the increased uncertainty already had an immediate impact on shopping center yields. In 2021, the yields and thereby the discount and cap rates have been so far rather stable. So the main impact on valuation in 2021 comes from the adjustment of market rents. We had experienced these effects already in our valuation end of 2020 with, according to our appraiser, Jones Lang, only slight changes in the first three quarters of this year. Let's come to the revenues, which are shown on page 12. Compared to the prior year periods, the first nine months of 2021, were substantially more affected by the pandemic, as just mentioned. Again, most rents were invoiced according to their respective lease contracts. The major exception in that respect came from our Polish center, where the specific legal situation led to a temporary suspension of rents for the periods of lockdown. This accounted for minus 2.4 million. The overall decrease of rent, which amounts to a total of 10.9 million, Euro was also influenced by lower shop rents as well as reduced mall market and income, the loss of turnover-based rents and higher vacancy resulting from insolvencies. The total revenues decreased by 6.4% year-on-year to 157.8 million. On page 13, we show you the development of our EBIT and the major financial effect resulting from the pandemic is reflected, as last year, in the allowances for rent receivables. These receivables were made in relation to realized and or expected loss of rent in conjunction with tenant support measures, e.g. rent concessions, or in relation to de facto or likely insolvencies. Such allowances amounted to 20.5 million for the first three quarters of this year. Overall, EBIT decreased by 5.6 percent 211.5 million. The allowances for rent receivables have thereby been determined on the basis of the agreements with tenants for the lockdowns starting end of 2020 and in other cases in which receivables were outstanding on the expected net rent reduction for the closing periods. I now come to page 14 and to the financial result. The financial result improved by 3.8 million. Interest savings of 2.9 million and a slightly increased equity profit of plus 1 million had a positive impact on the financial result. The minority share profit ended nearly unchanged with minus 9.9 million. On the next slide, you see that the EBT adjusted for the variation came down from 93.4 million to 90.5 million, which is a minus of 3.1%. Again, corona-related decline in revenues and the rent concessions were partly offset by the just mentioned interest savings. Looking at the operating profit, the April earnings on the next page, that means the following. Such earnings declined by 2.6 million to now 88.2 million. and on a per share basis the IPRO earnings decreased from €1.47 to €1.43. This leads us to the consolidated profit of the group on slide 17. The consolidated result increased from minus €105.5 million to a plus of €44.1 million and the main impact factor for this change came obviously from the valuation result that is a plus of 150.5 million. The EPS increased from minus 1 euro 71 to plus 71 cent in the first nine months. Please follow me now to page 18 and to the development of the FFO which excludes the valuation result. The FFO decreased from 90.9 million to now 88.2 million or on a per share basis from also €1.47 to €1.43. As the FFO is calculated earning space, such numbers should therefore be still analyzed by considering our cash collection ratio, which has improved a lot, but also with the level of receivables, which still are on a comparatively higher level. Again, and for the record, The cash collection ratio was 98% for the first nine months of this year. And now coming to the balance sheet on page 19. Our total assets amounted to 4.26 billion. That is just a small increase by 21.9 million compared with the reporting date end of 2020. Our consolidated liquidity as of end of September stands at 306.1 million euro, that is a plus of 40.5 million, excluding the effect from a repayment of the short-term credit line in an amount of 30 million beginning of this year. The build-up of cash was, besides the normalization of the payment behavior of our tenants, also influenced by substantially lower investments into our assets as the works were largely stopped in the closing periods and our liquidity was also influenced by a drawing of a loan to finance CAPEX. The total equity, including minorities, increased by 49.7 million at the end of September, current and non-current financial liabilities stood at 1.51 billion, which was 35.5 million lower than at the end of 2020, influenced by scheduled redemptions, repayment of the credit line, and the drawing of the capex loan that I just mentioned. Non-current deferred tax liabilities increased by 6.6 million to now 331.6 million. Our equity ratio remains at a strong 55.5% and the consolidated LTV now stands at 31.1%. On a look-through basis, that is the LTV calculated fully proportionally according to our share in all assets, the LTV now stands at 34%, also continued very reasonable and low level. On page 20, we'll find the IPRA NTA. and that increased to now 38.16 Euro per share. That is a slight plus of 2.1% and this is mainly due to higher liquidity, which was partly offset by the lower property values. This equals to discount of the current share price of approximately 54% to IPRA NTA as of beginning of this November 21. On the next two pages, we give you some update and information on our debt. Approximately 430 million of our consolidated bank debt mature in the next two years. Currently, our consolidated debt bears an average interest rate of 2.09% and our weighted maturity of the loan portfolio now sits at 4.9 years. including our non-consolidated loans, the weighted maturity of the portfolio now stands at 5 portfolios with an average interest rate of 2.06%. On the right-hand side of page 22, you will see that we have fixed loans of 191 million recently. There are 70.3 million for our City Gallery Wolfsburg, refinanced on June this year, but already fixed last year. at a rate of 1.18% for 10 years. For the Wilstead Center in Hamburg, we refinanced 71.7 million at a rate of 1.46% also in June this year and also for 10 years. For the Phoenix Center in Hamburg, we refinanced a total of 49 million again for around 10 years at 1.52% on average. that all refinancing due in 2021 are successfully closed and the new financings will contribute close to 5 million of interest savings on a per annum basis. After the presentation of the financial, I would like to give you a short outlook on our operations and on the upcoming refinancing. I'm now on page 23 of the presentation. Leasing activities were, and are of course, the central key in the current situation. Our occupancy ratio decreased during the new lockdown periods in the first half of the year from 95.4 to 93.8%. However, such number improved since summer by 0.9 percentage points and now stands at 94.7%. Besides the insurgencies, since the start of the pandemic, the occupation ratio was also mainly influenced by the replacement of larger anchor tenants, e.g. the Real Market and our A10 Center. As reported before, a substantial part of this space could be handed over to Kaufland already, but there is still considerable space to be filled with new attractive tenants in due course. Talks are progressing there. Furthermore, The leaving of Karstadt department stores and two of our centers contributed to the higher vacancies. For our Rathaus Center in Dessau, we could already secure one new anchor tenant and are in advanced negotiations with another new anchor tenant. And for the other center, our Main Townhouse Center, the demolition of the old Karstadt building is underway. There are various ideas for the newly created space, e.g. for attractive events for gastronomy concepts, inspiring in an outdoor environment potentially accompanied by an open platform to be used for entertainment e.g. dance music or other performances. So the ideas and concrete plans and talks and we are working on that. During the pandemic we were able to extend lease contracts with many tenants including our top 10 tenants and other prime retailers such as Apple, Kaufland and or lately also H&M, Rossmann Thalia or C&A. A sample of such tenants is shown on page 23. Additionally, we are in negotiations with our major and well-known anchor tenants to newly move into our shopping centers. In some cases, we even try to relocate them from other retail spaces in the neighborhood of our centers. While we make all the legal progress, it needs to be mentioned that the leasing market conditions in this environment remains challenging and that there is pressure on rents. The first real overall effect on top line rent will become visible once we have finalized our budgeting process for 2022 and after a hopefully successful full Christmas sales as a basis for a new or for further normalization. We expect the overall impact on rents well manageable, though visible. Looking at the digitalization process in the retail business, we connected our first international center, the City Arkaden Klagenfurt in Austria, to the digital mall in the first half of this year. Now, 18 out of 21 of our shopping centers have this valuable link to the omnichannel world. Online availability check is now working for 910 shops and roughly 3.1 million products in the ECE portfolio. One important next step is the testing of deliveries out of the center serving the last mall. The digital mall project is now ongoing with 64 centers live in total. You can see a summary of the participating partners on page 24. Finally, I would like to come to slide 25 and look at the financing activities and our financial forecast for 2021. We are working on the refinancing of four loans with a total amount of 224 million becoming due next year. While the number of banks looking at retail real estate financing, e.g. shopping centers, has decreased lately, We have received good interest in our refinancings in the market and will follow up on that in due course. Furthermore, we continue the regular dialogue with our banks about the impact of the pandemic on our financial governance. And until the reporting date, all of our financial governance were either met or they were, under these extraordinary circumstances, temporarily suspended by the banks. Coming to the financial outlook, we expect, as before, total funds from operation of €1.70 to €1.90 per share for the financial year 2021. It is still too early to position us in or around that forecast, as it is still very much depending on the rent agreements with tenants or the rent concession agreements with tenants. which also relate to earlier quarters of this year, but we are confident to be within that range and that we can manage that. This forecast, however, again assumes that the pandemic situation can be brought and kept under lasting control without further store closures or significant restrictions on center operations. A continued uptick on private consumer spending and an associated further recovery of the tenant turnovers especially during Christmas sales, as well as the preservation of high collection ratios. This forecast is also based on the assumption that the government coronavirus support programs established in Germany are effectively granted and paid out to a significant proportion of our tenants. Ladies and gentlemen, we remain optimistic even though there's still some way ahead of us to come to normality. And even though, as you will be aware by following the public news, the currently increasing corona incidences again lead to a discussion around new restrictions, which could also be relevant for us, e.g. in Germany the so-called 2G or 3G regulations or other. But I will speak about a potential Freedom Day in Germany next spring. So let's keep our fingers crossed that we all can enjoy a beautiful end of the year and the respective season sales, and then we can start into a healthy new year 2021. So for my presentation, thank you for listening, and I'm happy to take your questions now. Operators, please take over.

Thank you. Ladies and gentlemen, at this time, we will begin the question and answer session. Anyone who wishes to ask a question may press star followed by 1 on the touch-down telephone. If you wish to remove yourself from the question queue, you may press star followed by 2. If you are using speaker equipment today, please lift the handset before making your selections. Anyone who has a question may press star followed by 1 at this time. One moment for the first question please. Ladies and gentlemen, as a reminder, if you would like to ask a question, please press star followed by one on your touch-tone telephone. If there are any questions, please press star, followed by one at this time. So there are no further questions.

There are no questions. So again, thank you for joining. Stay healthy. And we're happy to talk to you soon again.