Deutsche Euroshop Ag Akt

Good morning, ladies and gentlemen. This is Hans-Peter Kneipp speaking. With the first nine months of 2024 behind us, I'm delighted to have this conference call with you to share our results as of the 30th September and the latest development of our company. And as always, I'm happy to answer any questions you may have after my short presentation. On behalf of the management board and the entire Deutsche Euroshop team, Thank you for taking the time and for your continued interest in Deutsche Euroshop. Before we start, a brief word of thanks for the great work of my Deutsche Euroshop team. It is to their credit that after an absence of two years, we returned to the SDAX on 23rd of September and belong once again to the largest listed companies on the Frankfurt Stock Exchange. This re-inclusion will help us to stimulate interest in our share in the future and to put our strategic and operational progress in the spotlight. But let me now start with an update on our business activities on slide two and three. Compared to the first nine months of 2023, we have seen a modest increase in footfall of 0.2% and our tenants achieved an increase of 1.9% in their sales. I will give you more details, including a sectoral breakdown in a moment. Our revenues came down by 1.6% to 200 million euros and FFO by 7.7% to 119.7 million euros, whereas EBIT has increased by 4.7% to 162.8 million euros. As you know, there were notable one-off effects in the previous year that had positive and negative impacts on these figures. I'm pleased to report that most of our larger investment projects at several locations were completed on time and on budget, and I will share some details on those later. In terms of financing, we are in a good position, even after the latest financing measures and dividend payments, with an LTV of 39.9% and a cash position of €198.7 million. As you know, we paid out a dividend of €2.60 per share, a total of €198.8 million in early September this year. We have a steady funding situation and all our financings for this year are completed. Our next loan is due in 2025 with larger financings only coming up from 2026 on. Our share buyback program is fully on track and we have bought back around 640,000 shares meanwhile. The program will likely run until the end of the year. On slide four, we take a closer look at our centers. In Q3, footfall came down by 1.6%, whereas the turnover of our tenants increased by 1.9% compared to the prior year period. As already mentioned, looking at the first nine months of this year, we have seen a plus of 0.2% in footfall and 1.9% in turnover. In particular, consumer spending in our main market Germany remains characterized by economic uncertainty. The war in Ukraine, the conflict in the Middle East and of course inflation continue to play a role here. The election result in the US and the collapse of the German government coalition certainly also have an impact on current consumer behavior. However, early new elections in Germany in February will hopefully restore stability and improve retail and consumer confidence. In any case, we and our tenants are looking ahead to the Christmas business with optimism. peak shopping season will start in the next two days. As previously announced, I would now like to take a closer look at the individual retail sectors and their development on slide 5. Many of you will remember that we have shown this slide in the past and we thought it made sense to build on it. This overview shows not only the development of the individual sectors but also the respective share of our rental income and floor space as well as the occupancy cost ratio. Compared to the first nine months of the previous year, our tenants in the German portfolio in the health and beauty segment performed well, achieving a 6.2% increase in sales. In particular, drugstores are the main drivers here and continue their success story. Shoes and leather goods also posted a respectable increase, as did general retail. This segment includes bookstores, toys, household goods, and jewelry, as well as one department store. Our largest tenant group with a share of almost 55% of retail space is fashion textiles, which was able to achieve an average of plus 2.4%. Electronics retailers went down 3.7% and services and food catering also came down. Overall, our tenants in Germany increased their like-for-like sales by 2.1% in the first nine months of the year compared to the same period of the previous year. where our tenants abroad lost 1.3% of their sales. The decline abroad must be seen in context, however, as foreign turnover had shown above average growth in the previous year. In total, we have seen an increase of 1.3% across our entire portfolio. In absolute terms, it generated 1.9% higher sales. And finally, this page shows that the average occupancy cost ratio, the so-called OCR, which is the ratio of rents and ancillary costs to be borne by our tenants relative to their revenues, is only 11.4%, a healthy ratio that enables our tenants to be successful in our shopping centers over the long term, and that shows you that our portfolio is well-balanced and not over-rented. Let us now turn to the financials and look at our revenues on slide 6. These came out slightly lower at 200 million euros after 203.2 million euros in the first nine months of 2023. This is a decrease of 1.6%, which essentially comes from temporary vacancies resulting from current investments in the portfolio, lower turnover rents and settlement payments, as well as some cases of lower for lower rents. The breakdown between Germany and abroad has shifted slightly in favor of foreign countries, where we now have a 22% share. For our EBIT, let's have a look at slide seven. With an increase of 4.7%, our EBIT came out at 162.8 million euros. A main driver here was the impact on earnings from the change in the scope of consolidation in 2023 in the other operating income and other operating expenses. Furthermore, operating and administrative costs for property declined due to higher maintenance expenses in the prior year period and cost optimizations in our shopping center marketing. Write downs of receivables have also reduced further. The bridge at the bottom of the page provides a detailed transition. On slide eight, you can see that the EBT adjusted for the valuation increased from 122.2 million euros to 125 million euros, which is a plus of 2.3%. The increase in EBIT just outlined was partly offset by a 4.5 million euros lower financial result, which is mainly due to the recent loan increases. Please follow me now to page 9 and to the development of the FFO. The FFO decreased from 129.7 million euros to now 119.7 million euros, or on a per share basis, from €1.74 to €1.57, essentially due to the extraordinary income in 2023 from additional ancillary cost payments and the lower financial result. I'm now coming to the balance sheet on page 10. Our total assets amount to €4.32 billion. This is a change of minus €140.8 million compared with the reporting date end of 2023. Our consolidated liquidity as of 30th September 2024 stands at 198.7 million euros. That is a minus of 137.4 million euros. Please keep in mind that we paid out dividends of 346.6 million euros in total in January and September of this year. Total equity, including minorities, decreased by 274.8 million euros. As of 30 September 2024, current and non-current financial liabilities stood at 1.81 billion euros, which was 134.9 million euros higher than at the end of 2023, in particular due to loan increases of 148.3 million euros. Non-current deferred tax liabilities increased by 10.8 million euros to 342.8 million euros. Our equity ratio decreased to 48.7%, and the consolidated LTV now stands at 39.9%. The APRA LTV calculated proportionally according to the group share in all assets, so to say on a look-through basis, stands at 42%. On page 11, let me now give you some updated information on our financing structure. As just shown in the balance sheet, Total debt amounts to 1.81 billion euros. On the 30th of September, our average interest rate stood at a low 2.6% and the weighted maturity at a comfortable 5.4 years. Even after the latest loan increases and dividend payments, we remain in a good position with strong investment-grade credit metrics, including an LTV of 39.9%, net debt to EBITDA of 7.3 times and interest coverage of 5.2 times. On the right-hand side, you can see Deutsche Euroshop's long-term diversified loan maturity profile in more detail. And I'm happy to repeat myself here, largest refinancings are only upcoming from 2026 onwards.

Coming to some news on our portfolio on slide 12.

Starting with good news from Wienheim, where the Rhein-Neckar Centrum is located. Since February, a new and modern freestanding Losteria provides highlight from the Italian cuisine to our visitors. In addition, three exciting tenants moved into the completely renovated former Bauhaus building in the middle of the year, providing plenty of retail attainment, as we say. A high-quality trampoline park and a successful cycling store are each an attraction. An interactive indoor entertainment concept with a dark light mini golf course and an escape room experience will open in the next weeks. Only a few meters away, you can find an indoor skydiving center, which is running very successfully. All these tenants will positively benefit from each other and give the entire center a further boost. On flat 13 and 14, we look at our Stadtgalerie in Hameln and the A10 Center in Wildau near Berlin. In Hameln, two important tenants opened a few days ago after extensive construction works. Netto, a discount supermarket of the Edeka Group, is finally bringing food competence back to the Stadtgalerie. Right next to it, the very successful non-food discount action opened its doors. Long queues of customers formed in the basement of the center and the opening was a success. The two spaces were previously occupied by a real supermarket. We were also able to celebrate two successful openings at the A10 Center. In September, the well-known off-price retailer TK Maxx opened, followed by Media Markt in October. Both spaces here were also previously part of a former Real supermarket, which had already been replaced by Kaufland some time ago. All four tenants are very pleased with visitor numbers and sales, and we are firmly convinced that both centers will benefit strategically and sustainably from the new rental concepts. Now coming to page 15. 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 currently being added to the MTZ, giving it a new lively and urban atmosphere with a high quality varied restaurant and food offering. New freestanding restaurant buildings are currently being built, some with roof terraces, some with outdoor terraces, attractive landscaped exterior areas and sophisticated architecture. The new food garden is emerging on an area of around 7,000 square meters. in the heart of the shopping center in place of a former department store building at very high sustainability standards. The corresponding investment volume is around 28 million euros. The food garden is completely pre-led with high quality tenants and the project remains on track for its grand opening planned for spring 2025, as you may be able to tell from the pictures. And we are really looking forward to this event. Finally, I would like to come to slide 16 and the forecast and outlook. After the first nine months, we are now able to refine our forecast and increase the key figures slightly for EBIT, EBT, and FFO. For 2024, we now expect revenue of between 268 million euros and 271 million euros, previously between 268 and 274 million euros. Earnings before interest and taxes of between 207 and 211 million euros, previously between 204 and 210 million euros. Earnings before taxes excluding measurement gains or losses of between 156 and 160 million euros, previously between 149 and 155 million euros. And finally, funds from operations of between 151 million euros and 155 million euros, previously between 146 and 152 million euros. Ladies and gentlemen, we expect a continued successful performance for the rest of the year. Even though the retail environment still has room for improvement due to economic uncertainties, there are good reasons to be optimistic about the rest of 2024 and the coming year 2025. We believe there are interesting opportunities for the retail real estate sector and our shopping centers ahead. driven by declining inflation and interest rate trends. Furthermore, there have been substantial real wage increases recently, which should support future consumption as well. There may also be hope for political stabilization and solutions to geopolitical crisis, improving the environment for consumers and retailers again. And finally, shopping centers have shown that they have a right to exist and play a lasting role in a world with online retailing. or perhaps precisely because of it. We are not alone in seeing this favorable outlook. On the one hand side, the positive expectation is visible in the bank and debt capital market, where significant amounts of capital flowed into shopping center companies in 2024. On the other hand, the transaction market for shopping centers also seems to be slowly picking up again, with a handful of transactions in the past few months, including a benchmark transaction in Munich. Research houses are also taking an increasingly positive view of the sector. You can therefore rely on us to continue investing in our shopping centers in a targeted, strategic, and sustainable manner to create future value for our shareholders. Ladies and gentlemen, based on the positive development of our company, we can look back on encouraging first nine months of 2024 that have slightly exceeded our expectations. We hope you are as pleased as we are and look forward to your continued participation and enthusiasm for our company. So far my presentation. Thank you for listening. I'm happy to take your questions now. Sirchen, back to you.

Ladies and gentlemen, we will now begin the question and answer session. Anyone who wishes to ask a question may press star and then one on the telephone. You will hear a tone to confirm that you have entered the queue. If you wish to remove yourself from the question queue, you may press star and two. Questioners on the phone are requested to disable the loudspeaker mode while asking a question. Anyone who has a question may press star and one at this time. And we have the first question coming from the line of Andreas Pesia from Warburg Research. Please go ahead.

Yeah, good morning, Mr. Kneipp, and thanks for your presentation. I have two questions. Firstly, can you elaborate on your dividend policy? You have a larger payout in September and what are your plans in terms of payout ratio in the coming years? And the second question is in terms of refinancing. I think you have a larger refinancing in 2026, so it's a long time to go, but maybe you have an idea what your financing costs would be if you have to refinance now. So it would be a good idea.

Thanks, Andreas, for your questions. Well, first of all, on our dividend policy, we have refrained from publishing a certain payout ratio As we said, it is kind of in the intermediate more our aim to increase our leverage or our LTV to a more market standard level. As you know and probably better know than we do, most of the companies in the market are currently around between 40% and 45%. And now with the loan increases we have done, And also the dividend payments resulting of this, we are now at roughly 40% LTV. And therefore, at the moment, we are aiming for a 40% to 45% LTV ratio. It's not excluded that this can go higher depending on how the market evolves. But for the moment, that's more the distinctive factor for our dividends up until now. So therefore, until this sustainable LTV ratio is reached, you can expect adequately higher dividend payments. We may think of when this kind of refinancing measures are complete for more sustainable dividend payments, but for the moment, I think it's too early for that. So therefore, there will not be a formal payout ratio also going forward. Regarding your second question on the refinancing, so indeed we have a very small refinancing on 2025 ahead. We have some more in 2026. And actually we have already started the process for an early extension, both of the loans in 2024 and in 2026. So we're optimistic that we can extend those pretty early and to remove maturities pretty early here. And also financing costs have come down quite significantly, especially in terms of interest rates, where we are now in a range, depending on the quality and the setup of this shopping center, of around 4% to 4.5%. So therefore, we are optimistic that we get those maturities extended ahead of time and at reasonable financing costs. Okay, thank you. Thanks very much, Andreas.

The next question comes from the line of Andre Remke from Baader Bank. Please go ahead.

Good morning, Peter. Thanks for the presentation. A couple of questions from my side too. Starting with your higher earnings guidance this year, what are the main triggers here? Are there any special items to mention or is it just the case that you started more conservative into the year? This is the first question, please.

Yeah. So as you've seen in our guidance increase, so we are pretty much in line in terms of revenues, but indeed have seen an increase in EBIT, EBT, and in our FFO expectation. So there are... a few things which have been due to the fact that yes, we have had a conservative guidance here, but there are also different cost savings which which we have achieved. As you may have read in the report, we have optimized and more focused our marketing for our shopping centers. Therefore, this project was pretty successful and we achieved some cost reduction. But then also there are some of the financings we had planned which have not come or will not become upcoming in the year 2024. So also we will see some lower interest expectations compared to our planning that we had. So all in all, some various one-time but also lasting cost savings from EBIT down to FFO and a slightly more conservative approach as well.

Okay, thank you. The second question, looking into the next year. In the past, you provided an outlook for the next year already in November or so. Are the visibility still too low for doing so this year? And even without the concrete guidance, what are your expectations for next year? Is it a flatish rental income and earnings development, what we should assume? Or are there any items we should have in mind?

We will give the outlook as we did over the last years, so only in the beginning of next year. Visibility is getting better, but yes, we are not back at the good old times, so to say. In terms of our expectations, I think I mentioned pretty quickly in my short presentation that we are optimistic for the next year. We are optimistic that revenues will be picking up again. at a slower pace compared to the good old times before COVID, but we see a overall positive development here. The big themes, of course, as you certainly witnessed them in the press and in research, are the economic and the consumption climate, specifically in Germany, which is due to many factors at the moment. And as soon as this recovers even more steadily, and we have seen also insolvencies from retailers, vanishing step by step so also here in 2023 we are not yet completely through. That was also one of the reasons for our cautiousness because of course we had seen that there have been some retailers still in trouble. That should become lower and lower but of course it depends on the overall development in Germany and the consumption climate which is hopefully also improving over the next year. So therefore, for the next year, we are positive and will also hopefully see higher revenues and earnings in the next year.

Okay, thank you. The third question is on your vacancy. What is current vacancy and why you do not mention this in the presentation or in the in the report and what are your expectations going forward in terms of vacancy?

Yeah, so historically we've usually reported vacancy end of the year and half year, so there's no specific rationale on why not including it here. You may remember, especially because of the larger construction projects we had, We started at a vacancy rate of 6.7% beginning of the year, so we're almost up to 7%. And I always said there have been slightly, roughly 2%, which 200 basis points, which are due to the construction works and the new tenants we want to settle. Now in the half year, so we have come closer to this number. We have been at 5.9% and we are targeting around 5% towards the end. And I think looking at our numbers here, we are well on track for reaching this 5% towards the end of the year. Okay.

In terms of portfolio valuation towards year-end, how likely is that the investment costs of so far $26 million as of nine months are covered by higher asset valuation?

Indeed, we have two kinds of points to cover by the valuation. You mentioned one of them. the capex that we have invested so far. And of course then in the year compared to the last year we also have slightly lower revenue. So kind of those are the two points which are not running in our favor. Overall in the half year we have seen a stable valuation. and towards the end of the year, it will be pretty interesting on how also values see and evaluate the transaction market. I think from a business perspective, there are a lot of arguments to have valuation stable towards the end of the year and cover capex. However, there have been a handful of transactions also in the market, some of them with higher yields. So, therefore, as always, we cannot guide towards a certain valuation outcome, but we are positive that the bottom of the valuation is sound.

Sound in H1 or...

currently in H2? Well, found kind of over the next six months, so be it over the year in valuation or half year of 2025, but I think that's the moment where valuations are expected to bottom out.

Okay, perfect. Okay, that's on my side. Thank you very much.

Thank you, André. As a reminder, if you wish to register for a question, please press star and 1 on your telephone. There are no more questions at this time. I would now like to turn the conference back over to Hans-Peter Kneipp for any closing remarks.

Ladies and gentlemen, thank you for your interest and your questions. I hope I have been able to answer them all satisfactorily. As always, please feel free to reach out to our team in case of any further questions. The Deutsche Euroshop team wishes you all a happy and peaceful end to the year. And perhaps we will meet in one of our shopping centers to live out our motto, each shop love together. All the best and cheers from Hamburg.