Deutsche Euroshop Ag Akt

Very good morning, ladies and gentlemen, and moin from Hamburg. This is Hans-Peter Kneipp speaking. I'm pleased to welcome you to today's conference call and to present our financial results for the 2024 fiscal year, along with an update on the company's recent developments. As you may have noticed, we've made adjustments to our financial calendar this year. Our objective was to provide audited figures in a comprehensive financial report at an earlier stage. In previous years, we have typically shared preliminary figures at this time of the year. With the revised schedule this year, we are waiving the only exception that we take up under the German Corporate Governance Code by publishing our results within 90 instead of 120 days of the financial year end. Given our specific corporate structure, the relatively small size of our team, and potential additional reporting requirements in the future, this is an ambitious undertaking, but one we are confident in achieving. Thank you for your time this morning and for your continued interest in Deutsche Euroshop. The title of our presentation and financial report already figures some images from our comprehensive annual report, which will be published in one month, on 29th of April to be precise. Under the motto, the small life, it will offer an engaging journey through the daily life of our 21 shopping centers. Let me take this opportunity to reiterate, our full financial report is already available on our website as of today. First and foremost, I would like to acknowledge the outstanding work of the Deutsche Euroshop team and our asset manager and partner ECE. Achieving these results in a demanding market environment is by no means a given. It is the outcome of the committed efforts of very strong teams, both here in Hamburg and on site at our 21 shopping centers. With this, let's move on and dive directly into our financial results. After my presentation, I will be happy to 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 once again seen a positive development of our operational business with results slightly above the full year forecast, which had already been raised on the basis of the nine month figures. Compared to 2023, footfall and retail sales of our tenants have increased by 0.6% and 2.5% respectively. Our revenues slightly came down by 0.7% to €271.4 million, whereas EBIT has increased by 1.7% to €216.3 million, and FFO came down by 8.3% to now €157.1 million. As you know from our previous presentations, these figures have been impacted by temporary vacancies as a result of investment measures, as well as one-off effects in the previous year. notably from the purchase of additional shopping center shares and the recovery of ancillary cost receivables from the coronavirus period. The valuation of our real estate portfolio has remained largely stable again at around 4.1 billion euros, as it did at the last external valuation. And I'm pleased to report a further increased portfolio occupancy of now 95.4%, as most of our larger investment projects at several locations were completed on time and on budget. I will share some details on those later. As shown on slide three, for financial year 2024, we will propose a dividend of one euro per share to the AGM, which is planned for the 27th of June. In terms of financing, we are in a very good position, even after the latest financing measures and dividend payments with an LTV of 39.2% and a cash position of €212.4 million. As you are aware, we distributed a total of €346.6 million in dividends in January and September 2024. Our funding position remains solid and all financings for this year have been already successfully completed. The next refinancing requirements will only arise from June 2026 onward. Furthermore, Our share buyback program was successfully completed by the end of the year 2024. In total, we repurchased approximately 720,000 shares, representing a volume of 15 million euros. On slide four, we take a closer look at the performance of our shopping centers. Over the last three years, we have seen a continued positive development of retail turnover and footfall. In Q4 2024, Footfall increased by 1.7% year-on-year, while our tenant turnover rose by 3.9% compared to the same quarter of the previous year. As already mentioned, looking at the full year 2024, we have seen a plus of 0.6% in footfall and 2.5% in retail sales. Inflation eased significantly compared to previous years and moved closer to the 2% target in 2024. Interest rates declined in 2024, and despite ongoing geopolitical conflicts and continued uncertainty, private consumption in Germany has seen a slight increase. At the moment, it is still difficult to say how current political developments in the United States will affect consumer behavior here. In Germany, we are closely monitoring the formation of the new government and, of course, hope to see consumer-friendly policy measures that support economic stability and growth. I would now like to take a closer look at the individual retail sectors and their development in Germany in 2024 on slide five. This overview shows not only the development of turnover in the individual sectors, but also the respective share of total tenant turnover and floor space, as well as the occupancy cost ratio. Compared to 2023, our tenants in the German portfolio in the health and beauty segment performed well, achieving a 6.1% increase in sales. In particular, drugstores like the EM Drogeriemarkt 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 in Germany, with a share of around 30% of sales and 45% of retail space, is fashion textiles. which was able to achieve an average increase of 2.3%. Electronics retailers went down 0.5% and food catering came down similarly by 0.4%. Overall, our tenants in Germany last year increased their like-for-like sales by 2.3%, while our tenants abroad were slightly negative at minus 1%. The decline abroad is impacted by negative currency effects and, moreover, foreign sales had grown at a significantly above average rate in 2023. In total, we have seen an increase of 1.6% across our entire portfolio. In absolute terms, our tenants generated 2.5% higher sales, as already outlined previously. 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 11.3%. 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. Please follow me on slide 6 for a look at the maturity distribution of our rental contracts. The wage maturity of the portfolio stands unchanged at 4.7 years. 40% of our rental contracts only mature in 2030 or onwards. The occupancy rate increased significantly by 2.4 percentage points to 95.4% following the completion of major investment projects and stands at a high level. We invested extensively in modernizing and enhancing the attractiveness of several centers in the 2024 financial year. The opening of new shops in the A10 Center, the Rhein-Neckar Zentrum, the Stadtgalerie Hameln, and the Citygalerie Wolfsburg, among others, contributed significantly to the increase in the occupancy rate. In the Main-Taunus Zentrum, the construction of the new food garden is nearing completion and will welcome guests from the 10th of April. And of course, I will give you some more details about the food garden later. On slide 7, you will find our top 10 tenants with only minor changes. Our biggest tenant, H&M, has a share of 2.7%, followed by Deichmann and New Yorker with 2.4% each. The 10 largest tenants only account for 20% at about 21% of our rental income. Our sector mix, as shown on slide 8, confirms our balanced sector diversification. Fashion remains a focal point of our shopping centers, and it attracts as many customers as ever. Beyond fashion, our portfolio offers a retailing mix with a high component of groceries, daily necessities, and further non-discretionary spend retailing. This is a strong advantage, and visitors particularly appreciate our well-balanced tenant mix, even or especially in an era of growing online retail. Contrary to popular belief, a well-curated fashion offering remains a strong draw for visitors, creating positive spillover effects for other retail segments within our centers. At the same time, we are actively working to further diversify our sector mix by expanding gastronomy and entertainment options, which are equally popular and contribute to longer visited world times. That concludes my update on the current situation in our shopping centers. I would now like to present the financial results for 2024 and would like to start by addressing the valuation of our investment properties on slide nine. Property values remained largely stable with the valuation result of our shopping centers being slightly negative. The stabilization of interest rates on higher levels and the only gradual recovery of the real estate investment market in 2024 had a muted impact on the valuation resulting in a valuation loss of 14.6 million euros. This compares favorably with the previous year when a substantial loss of 209.1 million euros was still recorded. Real estate assets increased in value by 0.7% in the financial year after a decrease of 4.2% in 2023, mainly due to ongoing investments on the one hand and small losses from changes in market value on the other. An extension plot in Gdansk in Poland has been sold successfully in 2024 at around 10% above book value. The net initial yield for our portfolio stands at 6.24%, almost unchanged compared to the previous year. The APRA net initial yield stands at 5.84%, down from 5.91% in 2023. The sensitivity of the valuation results to changes in the main value drivers is shown in the table in the lower right part of the slide. Let us now look at our revenues on slide 10. These came out slightly lower at 271.4 million euros after 273.3 million euros in 2023. This is a decrease of 0.7%, which essentially comes from temporary vacancies resulting from current investments in the portfolio as well as settlement payments in the prior year. Turnover ends increased compared to the prior year, which is a positive sign for the state of our tenants and corresponds with the increase in tenant turnover that I presented to you at the beginning of my presentation. The breakdown between Germany and abroad has shifted slightly in favor of the international portfolio, where we now have a 21% share. For EBIT, let's have a look at slide 11, With an increase of 1.7%, our EBIT came out 216.3 million euros. The bridge at the bottom left of the page provides a detailed transition. The main driver here was the rise in the NOI, resulting from lower operating center expenses, which have overcompensated the year-on-year decline in revenues. Our financial result on slide 12 decreased by 7.9 million euros or 18.3% to now minus 51.1 million euros. Our interest expenses went up by 5.8 million euros due to further loan increases and higher interest rates for follow-up loans. The equity operating profit increased by 0.3 million euros. The other financial result decreased by 1.9 million euros mainly due to the termination of a swap in the course of the long-term refinancing and loan increase for Ali Center Hub. On slide 13, you can see that the EBT adjusted for valuation decreased from €169.5 million to €165.2 million, which is a minus of 2.5%. This is attributable to the downturn in the financial results, which, as just shown, was mainly due to the increase in interest expenses and other financial expenses. Interest income from bank deposits was pretty much in line with 2023 at 5.4 million euros. On slide 14, you will find our consolidated result, which increased by 161.8 million euros and came out at 123.5 million euros after minus 38.3 million euros in 2023. The significant increase stems from the improved valuation result of plus 194.5 million euros. The higher taxes are mainly related to increased deferred taxes. Please follow me now to slide 15 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 decreased by 8.3% from €171.3 million to now €157.1 million, or, on a per share basis, from €2.28 to €2.06, essentially due to the extraordinary income in 2023 from additional ancillary cost payments and the lower financial result. With an FFO of €157.1 million, We thus exceeded our already increased forecast of 151 to 155 million euros. I'm now coming to the balance sheet on page 16. Our total assets amount to 4.36 billion euros. This is a change of minus 95.8 million euros compared with the reporting date end of 2023. Our consolidated liquidity as of 31st December 2024 stands at 212.4 million euros. That's a minus of 123.6 million euros. Please keep in mind that we paid out dividends of 346.6 million euros in total in January and September last year. Total equity, including minorities, decreased by 233.4 million euros. As of 31st December 2024, current and non-current financial liabilities stood at 1.81 billion euros, which was 130.8 million euros higher than at the end of 2023, in particular due to further net loan increases. Non-current deferred tax liabilities increased by 19 million euros to 350.9 million euros. Our equity ratio decreased to 49.2% and the consolidated LTV now stands at 39.2%. The APRA LTV calculated proportionally according to the group share in all assets, so to say on a look-through basis, stands at 41.1%. On slide 17, we have our APRA MTA, which due to dividend payments decreased to now €29.02 on a per share basis. That's a minus of 8.1% compared to the previous year, and applies a discount of around 31% to the Deutsche Euroshop share price. On page 18, let me 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 31st December, our average interest rate stood at a low 2.76% and the weighted maturity at comfortable 5.5 years. Even after the latest loan increases and dividend payments, we remain in a good position with strong investment credit metrics, including an LTV of 39.2%, net debt to EBITDA of 7.4 times, and interest coverage of 4.4 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. Refinancing are only upcoming from 2026 onwards. Coming to some news on our portfolio, starting on slide 19. Starting with Fiernheim, where the Rhein-Neckar Centrum is located. A new and modern freestanding L'Osteria has opened in 2024, offering our visitors delicious food from the Italian kitchen. In addition, three exciting new tenants moved into the completely renovated former Bauhaus building, enriching the entertainment options for our customers. 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 very shortly. Only a few meters away, you can find the indoor skydiving center, which is running very successfully. All these tenants are benefiting from each other and give the entire shopping center a further boost. On slide 20 and 21, we look at our Stadtgalerie in Hameln and the Attend Center in Wildau near Berlin. In Hameln, two major tenants opened in fall 2024 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-discounter action opened its doors, as you can see, with long queues in front of the store throughout the entire first week. 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 a media market in October. Both spaces here were also previously part of a former real supermarket, which had already been replaced partly by a Kaufland some time ago. All four tenants are very pleased with visitor numbers and sales, and we can see that both centers are benefiting strategically from the new rental concept, just as we had planned. Now coming to page 22. I had promised to give you a few more details about the food garden. It's the new highlight of the Main Taunus Zentrum, giving it a lively and urban atmosphere. The high-quality, varied restaurant and food area will be open to the public from the 10th of April, also fully according to our plan. New freestanding restaurant buildings were built, some with roof terraces, some with outdoor terraces, attractive landscaped exterior areas, and sophisticated architecture. The food garden was built on an area of around 7,000 square meter 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 was fully pre-led to high quality tenants within a very short period of time. We will have a big grand opening party in the evening of the 9th of April and we hope to see you there. Those of you who have not yet confirmed their attendance are welcome to contact us at short notice. Starting from slide 23, I would like to provide more details on our ESG initiatives, as climate protection remains a top priority for Deutsche Euroshop. We firmly believe that sustainability and profitability are not mutually exclusive. just as a compelling shopping experience and environmental responsibility can go hand in hand. We closely monitor our carbon dioxide emissions and electricity consumption and take actions to reduce these in the future. And as you know, we actively support a diverse range of local and regional initiatives across environmental, social and economic areas. On slide 24, you can see that 20 of our 21 properties currently have the prestigious gold certificate from the German Sustainable Building Council, DGNB, and one has been awarded platinum. TÜV Süd has certified the electricity we use in all our German properties with the EcoPower green electricity label. And we have been awarded the Sustainability Best Practice Recommendations Gold Award by the APRA for the eighth time in a row. On slide 25, you can see just one example of our environmental commitment in the form of a photovoltaic system that we installed on the roof of the Rhein-Neckar Centrum last year. We invested 1.1 million euros here, which will save 139,000 euros in electricity costs every year. Coming to slide 26 now. I'm happy to tell you that this morning, we have published a green finance framework for the first time. This framework combines our sustainability strategy with our financing strategy and emphasizes Deutsche Euroshop's contribution to overarching sustainability goals, such as the EU's environmental goals and the UN's sustainable development goals. With the Green Finance Framework, we are creating the basis for the possible use of green financing instruments in the future. Among other information, the framework provides details on our sustainability strategy, potential user financing proceeds, and the process for project evaluation and selection. You will find this document together with a second party opinion from Sustainable Fitch on our website. The framework has been rated excellent by Fitch, which is the highest possible rating. Finally, I would like to come to slide 27 and the outlook. For the 2025 financial year, we are once again publishing a guidance for our four most important key figures, revenue, EBIT, EBT, and FFO. We are overall positive about the development of the 2025 financial year and anticipate a stable to slightly upward trend in revenue and EBIT. For EBT, excluding measurement gains or losses, or an FFO, we expect a slight decline compared to the 2024 financial year due to a planned lower financial result. In more detail, we forecast funds from operations of €1.91 to €2.02 per share, or in total between €145 and €153 million. This forecast is based on an expected revenue between €268 and €276 million, an EBIT from €209 to €217 million, and an EBT excluding valuation from 150 to 158 million euros. Ladies and gentlemen, in line with our strategy, we are working tirelessly on our portfolio with new tenants, new ideas, and new investments. This is how shopping centers truly come to life, to a vibrant, small life. The shopping center enthusiasts among you will look forward to our full annual report titled The Small Life, which much more information as well as stories and impressions from the portfolio to be published on 29th of April. Ladies and gentlemen, I'm delighted to look back on a successful year 2024. Building on this, we can confidently face the challenges and opportunities that 2025 will bring for Deutsche Euroshop. That concludes my presentation. Thank you very much for your attention. I'm now happy to take your questions. Sergen, back to you.

Thank you very much. And we have the first question coming from line of Kai Kruse from Birenberg. Please go ahead.

Yes, good morning, gentlemen. I've got a few questions from my side. The first one is on page 10. You mentioned that turnover rents increased, A, what was increased year on year, and was it mainly because we have had more new tenants or were tenants asking for a higher portion of turnover-based rents? Second question, could you comment on last year's lease renewals and new lettings? How was the new rent compared to the previous rent? So what was the average rental uplift? Second question, what were the rental impairments in 2024 compared to 2023? And last one on investments, how much did you spend in total in the calendar year 2024 on these investments? on the improvements in the MTZ-A10 and Rhein-Neckar Centrum and how much of that was capitalized.

Thanks. Thanks very much, Kai, for the questions. I'll start with the turnover rent. So looking back at the last year, we have had around $2 million positive impact on turnover ends. You may have seen our increased guidance that we published with nine month figures and we were positively surprised by turnover ends which were up by two million euros regarding our planning. Regarding the question where does it actually come from, of course there are some but very few tenants who do have a larger proportion of turnover rents in their contracts, but those are very limited. It's rather a broad positive development across the portfolio with our tenants achieving higher turnover and as a result of turnover rents. So that's a positive and encouraging picture going forward. Regarding last year's re-lettings, in terms of the rent contracts we have achieved, it has been pretty much stable. There have been lower follow-on rents in some cases, but those, as you know, are mostly doing this for a purpose by supporting important tenants in our shopping centers, which are key to us. Therefore, on average, this has remained stable. In terms of the rental repayments, I would have to look up in the annual report what the figure is. I can give you this in a minute. Coming to the investments, overall, as a sum, we have invested 47 million euros into the portfolio. Thereof, looking for us on the individual centers you were looking at, there have been in the previous year around 15 million on MTZ, around 12 million on A10, around 6 million on the Rhein-Neckar Centrum, and around 2 million on Wolfsburg. With regard to the rental impairments, I will see if we have this number available. Otherwise, we'll follow up with you directly after the call.

Thank you.

The next question comes from Andre Remke from Bada. Please go ahead.

Good morning and thanks for the presentation. A couple of questions also from my side. A follow-up on the investments. You talked about the Last year, what are your expectations for this year in terms of investment into this portfolio? This is the first question, please.

Thanks, André, for the question. As you've seen, we have invested slightly short of 50 million last year. We said also in the previous course that we are planning with higher capex expenditures also in the following years. So I think good guidance will be 50 million per annum, whereas it may be a little bit higher for 2025 as we have some spillover effects from the 2024 financial year to 2025. CAPEX budget similar to the year we had now at around 50 million is realistic.

Okay, thanks.

And the second question is on your expectations on the vacancy rate for this year. Do you see the level of currently 4.5% as a sustainable level or is there even a lower level possible?

Yeah, well, that's one of the questions, of course, we ask ourselves the most. Nowadays, you know, there has been a lot of dynamics going on into our portfolio, so we did replace quite a number of tenants over the past year, with the positive effect that our occupancy has risen to 95%. We think that an awakency rate of around 5%, that this It's most likely a reasonable assumption also looking ahead unless we see some positive development from the market. But that would certainly require a positive overall trend, especially in Germany, regarding consumption. Then certainly one could imagine an even lower vacancy rate. But for the moment, given the current market environment, We think that a 95% occupancy rate is probably a reasonable assumption also going forward and corresponds to a high occupancy for our portfolio.

Okay, excellent. Another question on your dividend proposal of one euro. What are the parameters this is based on and also looking at what is your dividend policy in general?

Yeah, so regarding the dividend policy, you know we have at the moment refrained from giving dividend policy as over the past months and years there was for the dividend a mix of first of all operational cash flow and secondly also from financing increases. You've seen that we have increased our leverage from around 10 percentage points from around 30 to around 40. Therefore, there have been higher dividend payments in the past. I think from an operational standpoint, around one euro is probably the level that Deutsche Euro Shoppe can generate based on an operational perspective. communicated this previously and any addition to that would have to come from financing exercise in a certain direction. So certainly there is maybe some room for more under the more financings but from an operational point of view I think the one euro per share going forward more or less is a good guidance looking at purely the operational business of Deutsche Euroshop.

What do you mean by more potential from financing? I didn't get the point here.

One part of the reallocation of our capital and financing structure It was that we said two years ago we want to increase the LTV from a very low level that Deutsche Euroshop usually had of 30% or even below to a higher level. We are more converging to an LTV range of now around 40% to 45%. And as you've seen, we're still even below 40%. So there's, from our perspective, There is potential in terms of an LTV of up to 45% or slightly beyond. In a nutshell, we are coming more from a very conservative LTV policy to more the market standard. You may have seen that most of our Our peers also in other real estate subsectors are more in the 40% to 55% region. That's also the target we are currently looking at. There's no explicit LTV target that we can communicate today, but we think that between 40% and 45% we are well settled and transferring this to future dividends there may be increased dividends if we are able to have further successful financings. But let me clarify that regarding this, we We remain conservative, so we are still looking for financing opportunities both on the portfolio side and on the capital market side, but we will only execute further financings if those are there for Deutsche Euroshop in the long term and if those come at attractive conditions. Hope that answers your questions, André.

Yeah, yeah. um brings you to the to the last question uh you mentioned the green finance framework will this be accompanied by a credit rating from fitch or another rating agency and what potential rating you are striving for and and what is what could be a potential time frame on on this both to to get a rating and um to place the first bond any any thoughts here would be helpful

Yeah. Well, first of all, regarding the green finance framework, over the past months and years, we realized that there are a lot of investors and banks who are open to offer green financing instruments, whatever they are, be it loans, be it bonds, be it other instruments, offer those at attractive conditions. So therefore, we set ourselves so we wanted to be prepared for that and the best way to execute green financing in the future is to do this in accordance with the ICMA and the LMA principles so this we have done that's how the framework is has been built and also we got a rating from Fitch on this also to demonstrate to the outside world that this is completely in line with the expectations of the market. This will just open up more financing channels for us further down the road. We do not know if and when we will make use of the framework, but we have it, and it's also a signal to our financing parties that we are available for green financing options as well. Regarding your second question, rating as such, so the Fitch rating, Sustainable rating has nothing to do with the potential credit rating. We are also intensively looking at this with different rating agencies and are thinking about such a credit rating. But this would then be associated with a specific financing, or in other words, so we wouldn't just do a rating for the sake of it, but it would then be linked to a specific transaction, be it a loan and a bond. And regarding the latter, we continue to monitor the market pretty actively and can invest it to go into the bond market. into the future, even if there's nothing we can announce today. Lastly, regarding the rating, we would expect that, as we also communicated previously, that with a potential bond or other capital market issue, we would be in the lower investment grade territory.

Excellent. Thank you very much. That's all my side.

Good. I have one follow-on answer for Kai. We had the chance to look up the rental impairments for 2024 and just to confirm that the write-downs for the 2024 financial year have been 7.7 million euros.

As a reminder, if you wish to register for a question, please press star and then one 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, if you have any follow-up questions, please contact our IR team at any time. We truly appreciate your continued interest and engagement with our company. Thank you very much for that and all the best.