Deutsche Euroshop Ag Akt

I'm Hans-Peter Kneipp, Executive Director at Deutsch Euroshop. I'm very much looking forward to this call after unfortunately not being able to make the last one in March due to illness. Thankfully, Patrick, who is with me today, took over this call in his usual experienced manner and guided you through our annual results for 2022. Now that we have gone through most of 2023, let's take a glance at the nine-month figures and the developments in the company together. Clearly, our team's constant hard work is reflected in our nine months 2023 financial results, and I'm happy to take you through them and address any questions you may have. Let's dive into our performance and future prospects. Thank you for your time, and let's get started. You can find an update on our business activities on slides two and three. Compared to the first nine months of 2022, we have seen an encouraging increase in footfall of 11%, and 7.4% in the retail sales of our tenants. As a result, our tenants are generating sales that are higher than in the pre-COVID period. It is probably the last time we compare with pre-COVID era, as that comparison seems less and less appropriate. Shopping and the corresponding environment have evolved in the meantime, and we are well advised to now focus on future opportunities. Our revenues went up by 28.1% to 203.2 million euros and FFO increased by 34.5% to now 129.7 million euros. In terms of financing, we are in a very good position with an LTV of 32.4% and a cash position of 280.6 million euros. We have a steady funding situation and all our financings for this year are completed. Our next loan is only due in 2025, with major financing only coming up from 2026 on. As you know, we have paid out a dividend of 191.2 million euros in September. On slide four, we have a closer look into our centers. In Q3, footfall went up by 0.7%, and the turnover of our tenants by 4.3% compared to the prior year period. As already mentioned, looking on the first nine months of this year, we have seen a plus of 7.4% in footfall and 11% in turnover, as shown in the yellow bar chart. Consumption continues to be impacted by the effects of inflation and the war in the Ukraine, and the problematic conflict in the Middle East has certainly burdened the mood in the recent weeks. Nevertheless, we are optimistic about the Christmas business, which will soon be entering its peak phase. Before I come to the financial results of the first nine months, I would like to remind you that we acquired additional shares in six of our shopping centers early in January. 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 1st of January 2023. When describing the results of operations, financial position and net assets of the group, I will provide this information 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. So now let's start with the revenues on slide five. These came out slightly higher at 203.2 million euros after 197.5 million euros in the first nine months of 2022. This is a pro forma plus of 2.9%, which essentially comes from index adjustments and higher turnover rents. The breakdown between Germany and abroad has shifted slightly in favor of foreign countries, where we now have a 20% share. On slide six, you see that the EBT adjusted for the valuation increased from 109.1 million euros to 135.4 million euros which is a pro forma plus of 24.1% due to income from reversal of provisions for ancillary costs and maintenance, as well as lower value adjustments and consultancy expenses. Another positive impact came from the interest income with plus 3.7 million euros. Please follow me now to page 7 and to the development of the FFO. The FFO pro forma increased from 111 million euros to now 129.7 million euros or on a per share basis from 1 euro 49 to 1 euro 74 due to high operating results. I'm now coming to the balance sheet on page 8 where we naturally also see the effects of the acquisitions. Our total assets amount to 4.6 billion euros. This is a change of 344.1 million euros compared with the reporting date end of 2022. Our consolidated liquidity as of 30th September 2023 stands at 280.6 million euros, that is a minus of 54.4 million euros. Please keep in mind that we paid out a dividend of 191.2 million euros in September. Total equity, including minorities, increased by 170.5 million euros. As of 30th September 2023, current and non-current financial liabilities stood at 1.63 billion euros, which was 151.3 million euros higher than at the end of 2022. In particular, due to the liabilities from the minority acquisitions. Non-current deferred tax liabilities increased by 5.9 million euros to 340.3 million euros. Our equity ratio decreased slightly, but still stands at a very solid 55.2%, and the consolidated LTV now stands at a low 32.4%. The APRA LTV calculated proportionally according to the group share in all assets, so to say on a look-through basis, stands at 34.1%, a continued very low level. On page 9, we give you some information on our debt. There are no expiring loans this nor next year. Currently, our consolidated debt bears an average interest rate of 2.34%. The weighted maturity of our loan portfolio now stands at six years. Coming to some news on our portfolio on slide 10. As you know, we published new investment plans for the Main-Taunus-Zentrum, one of the largest and highest turnover shopping centers in Germany and among the jewels in our portfolio. A new highlight is to be added to the MTZ, giving it a new lively and urban center with a high quality, varied restaurant and food offering. New freestanding restaurant buildings are to be built until 2024, some with roof terraces, some with outdoor terraces, attractive landscaped exterior areas, and sophisticated architecture. The new food garden will be built on an area of around 7,000 square meters in the heart of the shopping center in place of a former department store building. The corresponding investment is around 28 million euros. Construction work has started, and I'm very happy to tell you that we are already almost completely pre-led with high-quality tenants. The grand opening is planned for spring 2025. Excuse me. There is also good news from Vierenheim, where the Rhein-Neckar Centrum is located. You will see those on slide 11. From next February on, a new and modern freestanding Losteria will provide culinary highlights from Italian cuisine. In addition, three exciting tenants will move into the completely renovated former Bauhaus building in the middle of the year, providing plenty of retail-tainment, as we say. An interactive indoor entertainment concept a trampoline park and a successful cycling store will each be an attraction. Already opened and only a few meters away is the indoor skydiving center, which has started very promisingly. All these tenants will positively benefit from each other and give the entire center a further boost. On slide 12, we want to show you that we play an active role in promoting the settlement of promising new tenants constantly adapt and enrich our portfolio. Here's just one example. In the last few months, the European retailer Pepco has moved into various spaces left vacant from an insolvent shoe retail chain. Pepco offers a wide range of clothing, household goods, and decorative items for the whole family at very competitive prices, corresponding to the current demand and providing even more variety to our shopping centers. This shows once more our constant commitment to continuously increase the attractiveness of our centers. Finally, I would like to come to slide 13 and the outlook. With 2023 as the first year without COVID-related restrictions, we expected and meanwhile see a continued improvement of the operational business. We will further strengthen our competitive position with forward-looking investments in our shopping centers. ESG investments are naturally becoming increasingly important and a strategic focus. Furthermore, we plan a focused optimization and diversification of our financing structure, depending, of course, on the further market and financing environment. After raising our forecast for 2023 in August and posting business performance in line with expectations in the third quarter, we are confirming our forecast for funds from operations of €2.08 to €2.18 per share for the full year 2023. Ladies and gentlemen, we remain optimistic in the face of changing markets and habits, which also present us with unprecedented opportunities. Our company is well prepared, and we welcome our participation in this endeavor. So far, my presentation. Thank you for listening. I'm happy to take your questions now. Sandra, please take over.

Ladies and gentlemen, at this time we will begin the question and answer session. Our first question comes from Andre Remke from Baader Bank. Please go ahead.

Good morning, sirs. A couple of questions from my side. First, thank you for the presentation. um the first question is on your vacancy um what is current vacancy and do you face any changes here today during the third quarter and what are your expectations regarding uh can see going forward with the first question please thanks andre for um for for this question um as you know we have um

posted quite stable vacancy figures in the past and we'll come up with new figures towards our annual figures. So far, the portfolio has been very stable and very robust in terms of vacancy. We're just hovering around 5% to 6% overall. And we currently estimate that this will remain stable. Of course, you know, and there have been a few examples also in the presentation, that we are in construction works in some of our centers. So part of the vacancy of those 5, 6% we've posted over the last few quarters are also due to concrete measures we are taking on in our portfolio. But overall, you can assume that vacancy will remain stable. on a stable basis.

Could you be a bit more precise what part of the 5% to 6% is due to the construction or new development?

Historically, if you follow Deutsch-Europe for a while, the long-term vacancy has always been around 2% to 3%. You see a higher vacancy of 5% to 6%. And, of course, a part of this is due to an overall sector shift, maybe half of this change. So maybe that one or two percent may just be due to a changed market and environment, and another one to two percent is due to the fact that we are constantly working and developing our portfolio. So that's how I would put it.

Perfect, thank you. Then looking to your FFO guidance, you already reached more than 80% after nine months of the FFO guidance. Do you expect a quite weaker fourth quarter? And if so, what are the main drivers for that?

Indeed, we have reached over 80% of the FFO guidance we have posted for the year. As you know, seasonality plays a role, especially in terms of construction work, maintenance work, so there may be some of the costs which may be a bit higher towards the end of the year. So there's no, we don't see any lagging in terms of our operational business, but more, a little bit higher on the cost side. So that's certainly the main impact we're seeing here, but of course you are right in assuming that we are optimistic that we may reach the upper end of the guidance.

Okay, perfect, thank you. Brings me to another question. In former times, you provided the guidance for the upcoming year quite early. So now it seems that you will only provide guidance for next year and spring next year. How could I read this? Is the visibility simply lower nowadays? And I'm not asking for a concrete figure for next year, but what are the main drivers for FFO next year?

Yeah. to be transparent, the operational business as such has not really changed compared to the former time. So there you still see ongoing high stability, especially looking at our numbers, you see that in most of the parameters, we are back to pre-COVID levels. So the the business as such is stable as it used to be with maybe the exception that of course we're still in a phase where market movements and movements with our retailers are quite significant. So that's certainly one aspect that overall the operating business is stable. What we are of course doing, and I mentioned this on further occasions, that we are reviewing our portfolio strategically of what we can, and also from a financial side, you know that we are looking at our financing and capital structure, which may have some impact on a potential guidance. So therefore, that's the, I would say, the real reason on why we are giving out guidance later than maybe in the past as we are looking both on our portfolio and financing side with a little more flexibility and open-mindedness. And this is for us the main reason.

Okay, thank you. You mentioned to be optimistic on the Christmas business. What I heard from the retail associations for this year's Christmas business, they are less optimistic. This is both my impression. What makes you more optimistic? Does it relate to your specific tenant structure or what is the reason for that?

Yeah, two points on this. You remember we had exactly this discussion one year ago, and there was quite substantial pessimism last year on the Christmas business and also this Black Week, Black Friday, and it turned out that it was much better than expected. We had been optimistic already last year on this, and we still are this year. We know that some estimates, also from other research associations, are always very cautious when they look at the Christmas business in Germany. But at least last year, we were proven right in being optimistic. And we think the situation compared to last year hasn't really changed. So, of course, there are still headwinds. We all know that. And there are good reasons for consumers to still be hesitant regarding their spending. Inflation is still a big topic, but we also see positive effects. Inflation has reduced, especially on the energy side. I think there's more transparency and more clarity on what will happen. So there are also positive signs which may impact consumer spending in a good way. And then, of course, the second aspect is that I think the structure of our portfolios and the retailers we have in our portfolio do represent usually a very good fit within this region where they are placed in. There's no secret about, and you may also refer to those numbers, that many research associations say, okay, that Christmas business, Germans intend to spend less overall on Christmas presents. But for example, with the settlement of Pepco and other more competitive price retailers, that's exactly what consumers are looking for at the moment. And those are posting very strong results. You may have seen that in the press recently. that if you have the right retailers in your portfolio, you can achieve a very strong outcome. So therefore, yes, we are optimistic on the Christmas season. And of course, we're always happy to catch afterwards if we were right this time as well.

Okay, thank you. And the last question on your portfolio valuation, what are your expectations at year-end? Any indications you already have received from appraisers or from market transactions? What is your view on that?

Yeah, no indication really yet on the valuation. However, what we see is that the transaction market for retail and shopping centers seems to pick up. but it's still a little bit too early to read this because there have been a low number of shopping centers that are either put on the market or is there some price sounding exercises going on. And of course, our valuer is currently quite actively investigating on what the price expectations may be. In the end, you know that valuers will have to look at concrete transaction pricings. There, unfortunately, there's not more evidence compared to the previous nine months. So there are still not a notable number of transactions, especially comparable to our portfolio. So it may be a little bit too early, but there are further transactions or at least processes coming up, which will certainly provide a cross-read for our portfolio over the next few months.

Okay, excellent. Thank you very much, Peter, and good Christmas business.

Thanks, Andrea.

The next question comes from Andrea Plaisir from Barbrook Research. Please go ahead.

Good morning, Mr. Kneipp. Hello, Patrick. I have two questions left after topics of evaluation we already touched. Firstly, on footfall, we have a lower growth momentum in Q3 of only 0.7. When you compare this level with 2019, where are we now? Because you mentioned earlier that you are in terms of sales of your tenants, you are already above 2019. That's the first question. And second one is in terms of write-downs on receivables. What do you expect here level in the coming years? We still see insolvencies, and we have in 2019 a level of 8 million. This year probably the same figure. Is this a run rate probably for the next years?

Thanks, Andreas, for the two questions. Yes, indeed. So we have posted very positive footfall growth over 2022. And also we have published that we are clearly above in terms of revenues, but not in terms of footfall. So on footfall, of course, it depends a little bit on the centers we are looking at, but overall, there we are still a little bit behind 2019 numbers. Roughly flat, I would say. But I think the point to take away is that the uptick is clearly on the revenue of our tenants and less in terms of the footfall. So this From our perspective, of course, you can never reach customers' minds exactly. There's two effects which can be read out of this. The first one is, of course, there is inflation, no doubt about it. So those numbers of turnover are nominal. So this may be one explanation on why relatively turnover is higher compared to the footfall, which is just the 2019 numbers. And the other explanation may be that customers are coming less, but then in a more focused way. Most likely, reality is somewhere in between. But bottom line is that in terms of footfall, also night growth, but roughly around 2019 levels and not significantly above as the turnover numbers. I know that's a little bit longer answer compared to rather short questions, but we always believe that footfall and revenues have to be seen in conjunctions to see the real picture.

Okay.

Regarding your second question, so further projection write-down of receivables, So you know that we are still in kind of a transition year, more on the positive side because, of course, many round write-downs of the receivables we had in the past, in the end, we didn't need. So you see a strong uptick in other operating income from the release of this or reversal of those write-downs. So therefore, I wouldn't take this number that you see now as the new run rate. So for the new run rate, we don't publish this figure anymore because it's very, very stable. We have a collection rate of rents of 99% roughly. So there's very few write-downs that are needed. Therefore, as a more stable assumption, assumption we calculate with roughly 2% of the revenues as our internal guidance, as we don't expect that those insolvencies that you mentioned in your questions will continue from there. It may not be the last ones which we have seen, but the worst is over. We have adjusted our portfolio in a sustainable way. We have discussed the vacancy, which is quite low in the portfolio, adjusted for construction. So, therefore, we are optimistic that those 2% write-down cushion will be enough going forward. Therefore, that's something also you could take into account.

Okay, great. Thanks.

Thanks, Andreas.

As a reminder, if you wish to register for a question, please press star followed by 1. The next question comes from Martin Manuel from Odoo. Please go ahead.

Hello, gentlemen. Thank you for taking my questions. Two questions from my side. The first one, maybe one by one. The first one is on rent. Could you give us some indications or flavor on your rent renewables? So are you experiencing lower rent levels when you make a new contract or what's the trend there, maybe to the upside?

Yeah, very good question because as you know there have been quite significant changes also in the past. We have, it's a quite varied picture. So you see that overall we have posted positive revenue figures going forward. And you know that this is due mainly to from indexations and turnover rents. But those are of course predominantly old contracts. In terms of the new contracts, certainly we see, depending on the strength of the center, some contraction in the rents, also lower rents, but also given, depending on the shopping center, significantly higher rents. So it's a quite diverse mix, depending on the center where you're in. So to just give you an example, if we are in our strong centers, which have a very strong competitive position and no vacancy. Of course, we have much more room for negotiation. Therefore, for those new tenants, for example, in the Maitano Centrum or the Altmark Galerie in Dresden or Galleria Baltitschka, which are all fully let, we have a strong bargaining power. And therefore, here we don't really see lower rents, but more... stable or sometimes even higher rents. For example, if you look at the food garden project in the Main Town of Stamford, of course we have higher rents, but also there is capex against it. In locations which are, I would say, more positive to average, of course, we have also had some concessions in terms of rents. you know that this year and the previous year was not an easy one in terms of insolvencies in Germany and across our portfolio and there our priority was always to have the shopping center occupied and to manage vacancy in first place then in order to target the maximum rent. I know there are other strategies and tactics in the market, but that's the way our company functions. So in the end it comes down to the question on what is sustainable and we see in most of our portfolio occupancy rate, cost ratios, i.e. rent to turnover of our customer, which is very sustainable. So we don't expect that from here rents will have to be reduced significantly, but there are still some adjustments to be made. So overall, as of now, I would say rather slightly negative impact from new re-lettings across the portfolio, but also here a stabilizing trend.

Okay. And the second question would be on the empty set in Frankfurt. So according to the presentation, there's a 28 million euro total investment. Can you indicate how much have been spent so far for the food garden there? And what is the rate of return that you expect for this investment more or less?

yeah um so on the on the empty set um we announced that we have just started construction work so um there is um uh the the amount that has been currently spent on the empty set is below five million so that's uh um you know all the the planning and uh run-up costs so that has been been spent already but construction has only started in in october so the most uh capex is still to come on this project. And in terms of yield expectations, we are in a range of roughly 5.5% to 6% for the project, which for the asset MTZ is a good figure. And of course, that's also something you have to take in mind. 28 million, that's the total investment for the entire project. You know that the Maetano Centrum is jointly held. We have a controlling stake of 52%. It's jointly held together with an investment fund. So the our proportion would just be roughly half of it.

Okay, understood. Thank you very much.

Thanks, Manuel.

Gentlemen, there are no more questions on the phone. I hand back to you for closing comments.

Thanks very much for listening to the call and also for your questions. Very much appreciate it. that you continue to follow Deutsche Euros up so closely. So thanks for your time and looking forward to our next call together. Thank you.