Earnings Call: Q1 2021

May 27, 2021

Everybody. Thank you for joining us for Aroundtown's first quarter 2021 results call. You should have received our press release and can view this presentation on Aroundtown's website, either on the home section or under financial reports of the investor relations section. I'm Sylvie Lagies, Aroundtown's Head of Sustainability. With me today will be CEO Barak Bar-Hen, CFO Eyal Ben-David, Chief Capital Markets Officer Oschrie Massatschi, and our Executive Board Member Frank Roseen. For the duration of the call, all participants will be on a listen-only mode. Following our presentation, you will have the opportunity to ask questions. Please feel free to send us your questions via email also during the presentation. The email address is info@aroundtown.de. I'd like to pass you over to Oschrie Massatschi, who will start presenting you our results. Many thanks, Sylvie. Good morning, everyone, and welcome to our first quarter 2021 earnings call for Aroundtown. Before diving into the Q1 results, I want to say that in the past few weeks, we have started to see a continuous trend of improvement to the imposed restrictions across our main locations as a result of the accelerated rollout of vaccines. Although our offices, retail, residential, and logistic properties proved highly resilient during the pandemic and restrictions, as you all may know, the hotel industry suffered from a significant impact. The U.K. have already started to lift lockdowns and restrictions, allowing people to slowly return to a life pre-pandemic. Last week in Germany, restaurants have opened their outdoor spaces for guests again. Theme parks across the country operate under strict hygiene concepts, and in some parts of the country, leisure travelers are flocking to the hotels. In the Netherlands, we see a similar picture with restaurants and cafes open for the third week now, but still lifting further restrictions in a very cautious manner. We see this trend as a very positive signal and hope it will be the beginning of the recovery of our hotel portfolio. Q1 together with April and May were still difficult in terms of restrictions and travel bans under the pandemic, as most hotels could not fully operate, which is reflected in the hotel properties performance. Once again, the diversification in attractive asset classes in top locations has served us well as a protection during the COVID-19 pandemic and will also support a healthy recovery over the coming period. In our presentation, we will emphasize the main results of our business financially and operationally and highlight the strengths of our diversified portfolio. Let's start on slide four, where we summarize our financial performance highlights for the first quarter of 2021. Starting with our net rental income, this resulted in EUR 233 million, a decrease of 1% year-over-year, mainly due to our enhanced disposal activity. Our FFO1 before COVID-19 adjustments amounts to EUR 125 million, a slight decrease in comparison to the comparable period. After impact of the extraordinary provision, mainly related to the hotel properties, our FFO1 decreased to EUR 87 million. Respectively, the FFO1 per share came in 26% lower year-over-year at EUR 0.073 per share, in line with our 2021 guidance. We will provide you a breakdown of the different FFO metrics later in the presentation. The like-for-like net rent income growth excluding hotels amounted to 1.3% in the first quarter and including hotels was leveled at 0.1%. The EPRA NTA for Q1 '21 stood at EUR 11.4 billion or EUR 9.6 per share. We maintain our strong financial and liquidity position and kept our cash and liquid asset position at EUR 3.1 billion. We will go into more details of each KPI as we go through the presentation. Moving to slide five, we see an overview of the continuation of our disposal and share buyback program year to date. As the transaction markets remain competitive, we see yields tightening, prices increasing, hence we seek the opportunity to identify further mature and non-core assets for sale. In 2021, to date, we signed properties disposals above book value in the amount of over EUR 970 million and a rent multiple of 23 times. Of which EUR 420 million have been closed in Q1 at a 52% margin over total cost and a 6% margin over book value. Disposing non-core and mature assets above book value across all asset types and locations is a strong validation of our conservative valuations and upside potential of our portfolio. 39% of disposals were non-core retail and logistics assets across several non-core locations in Germany and the Netherlands. Whilst the majority of disposals were made up of 53% of offices located in the key eastern cities of Germany: Berlin, Leipzig, and Dresden. The remaining 8% were hotel disposals. Our assets held for sale as of March 2021 amount to EUR 1 billion, of which over 50% is signed year to date. Through our successful disposal program, we capitalize on significant value creation and recycle the freed up funds to strengthen our balance sheet. We pay shorter, more expensive debt, and execute accretive share buybacks at significant discount to NAV. As already announced end of March, we continue with our current share buyback program of up to EUR 500 million until the end of this year, of which 24% has been executed as of 21st of May. That amounts to EUR 120 million at an average share price of EUR 6.4 and reflects a discount to EPRA NTA of 33%. Moving on to our operations and the portfolio overview. Please turn to slide seven. We continue to focus on our two core markets, namely Germany and the Netherlands, which make up the vast majority of our asset locations with 86% of our commercial portfolio value. 64% of the portfolio is concentrated on the top cities alone in these two countries such as Berlin, North Rhine-Westphalia, Munich, Frankfurt, Amsterdam, and Rotterdam. For over a decade, we have focused on these two strongest economies in the EU with a moderate unemployment level due to flexible employment regulations, a strong governmental financial support system, and very low debt levels. Both countries appear to recover from a stronger base than other EU member states. Although both of these countries were not the fastest in terms of vaccinating their populations, we expect the economic rebound to be faster and with less negative long-term effects from the pandemic. Our diversified investment strategy into top European locations has always been one of our competitive advantages, especially in combination with a strong diversifications across asset types, micro locations, and tenant mix. On the right-hand side of slide eight, you can see a breakdown of the geographic distribution as well as the composition by asset class, of which the office portfolio is our largest asset segment, making up 51% by value and 65% combined with the residential assets through our proportional holding in Grand City Properties. The hotel properties, which are still negatively affected by the lockdowns, account for 24%. Our high diversification elements protect us to some extent against macroeconomic or domestic uncertainties, which in turn will not have a negative impact on our complete portfolio. In Q1 2021, in line with our view to dispose non-strategic assets, we were able to reduce our retail exposure alongside office assets and maintain this at 7% of the portfolio value through many successful disposals above book values. At the same time, the exposure to logistics and industrial assets was kept at 4% after successful value creation and selling these assets above their book values. This allows us to focus more capacities on our three core asset classes: offices, hotel, and residential. As seen on slide nine, we present you our tenant diversity with around 3,500 tenants from various industries across our properties with limited exposure to any single tenant. The rental income of our largest 10 tenants accounts for 20% of our group's total rental income. Our overall commercial portfolio amounted to EUR 21 billion, not including assets held for sale in the amount of EUR 1 billion. End of Q1, the rental yield stood at 4.6% and the vacancy rate at 8.9%. Both similar compared to end of 2020 with a slightly longer WALT of nine years. We continue to work relentlessly on our letting activities in order to reduce vacancies in the coming periods. The collection rates for all our asset types, except hotels, recovered fast after the lockdown in Q2 of last year and was lifted and nearly leveled off at pre-pandemic levels. On slide 10, we want to highlight our revisionary upside potential in our existing commercial portfolio. Our March 2021 rental income run rate, excluding the assets held for sale, amounts to EUR 866 million on an annualized basis. If we don't assume any changes to today's market rents in the locations of our assets with similar asset quality, the gap to market rent results in a 22% rental growth potential, including filling our vacancies. The majority of that potential is recognized in our office portfolio and will be a key driver of our future organic growth as a majority of this upside will flow directly to the FFO1. This upside potential also serves us as a strong downside protection from the existing gap to market rent levels reflected in the 22% just highlighted. This upside ensures our in-place rents have a strong buffer in case of weakening rents. A long WALT of nine years and current asset valuations of less than half the replacement costs in our locations further ensure long-term stable rental income and valuations in the long term. Our March 2021 redevelopment rights and projects, valued at EUR 1.9 billion, have not been included in this revisionary potential and would add further growth opportunities. On slide 11, we want to highlight the resilience we experienced in the German and Dutch office markets during the pandemic. The two economies entered the pandemic in a very strong position, which has supported the resilience throughout the pandemic and will contribute to a relatively fast recovery. The gap seen between 2007 and December 2020 in the top German cities plus Amsterdam highlight that during the midst of the pandemic in December 2020, the vacancy, prime rents, and pre-let ratios were all at much stronger levels when comparing to pre-global financial crisis levels in 2007. When comparing the same times of data points, values are further supported today by historically large spreads between prime yields to government bond yields. Stated by the rating agency Standard & Poor's last month, European real estate companies rated by S&P were resilient during the pandemic and should prove resilient during the rest of the pandemic. As shown on slide 12, with 51% in value, our office assets represent the largest portion of our group portfolio. We continue to focus on central locations in top-tier cities such as Berlin, Munich, Frankfurt, and Amsterdam. They alone account for 60% of our office portfolio. The chart on the left reflects the further diversification into additional top-tier cities across Germany and the Netherlands. With a WALT of 4.7 years and no significant dependency on a single tenant or location, we maintain a well-diversified and robust tenant structure. Nearly half of the office rents comes from tenants in the strongest industries such as governmental, infrastructure, health, or energy. Our largest office tenant is the public sector with 28% of the rent and includes heavyweights like the Allianz, Deutsche Bundesbank, Orange, the German and Dutch governments, and other insurance companies. From a letting activity perspective, we have seen since the beginning of the year, stronger pickup in demand for office space in comparison to former quarters. We do see more caution in terms of space and length for which prospective tenants have enhanced sensitivity. We will have more to share later in the year when more restrictions will be lifted and the economic uncertainties start to fade. Our strategic investment in the residential sector through GCP is reflected on slide 13. Residential assets account for 14% by value of our group portfolio share and have an average lease length of nine years. This diversification to residential assets in the top German cities continues to prove its strength and resilience, while capital values increased further in Q1 of this year. GCP achieved a 1.8% like-for-like rental growth while decreasing vacancies and values further appreciating. Residential rents in locations with high demand continued to increase, with the exception of Berlin, where rents were negatively impacted by the highly criticized rental cap until April this year. As most of you will be aware, the rental cap in Berlin has been removed last month, and we expect a catch-up effect in rents in Berlin over the coming periods. Capital values for German residential continued to increase across almost all main and secondary cities, including Berlin, also during the pandemic and lockdowns. I will now hand you over to Barak, who will continue with the hotel portfolio. Thanks, Oshri Friedman. On slide 14, we give a summary of the hotel portfolio. We continue to believe in the accretion of our hotel investment in the mid to long term that are located across top European cities like Berlin, Cologne, Frankfurt, London, Brussels, and many other key cities. We are focusing on a healthy mix of geographic diversification, which is also characterized by 85% of four-star hotels, which capture the largest demand segment. All of our double and triple net leases have fixed plus CPI-linked rents without a variable component. With more than 30 different but experienced third-party operators and further improved WALT of 17.2 years. Our largest tenant in the hotel portfolio is Center Parcs, with 7% of the group's rental income. The seven Center Parcs properties we own are now open again and unfold the reopening roadmaps. Q1 2021 was still very much impacted by those lockdowns and high numbers of infections. The Q1 2021 collection rate for hotels came in at 32%. April saw the slight increase to 35%. In addition, we were able to extend several lease contracts at higher rent levels with our operators during the pandemic in return for rent incentives. We see many signs of easing from lengthy lockdown periods due to the COVID-19 pandemic and the resulting travel bans. On slide 15, we show how the easing of the restriction crystallizes across our hotel investment markets as numbers of COVID patients decrease in Europe. U.K. is clearly leading the way out ahead of continental Europe, but the Benelux also just recently lifted restrictions for hotels. As the restrictions for hotels in the U.K. and the Benelux, which combined make up 39% of our hotels, have been lifted, our tenants are experiencing a recovery supported by domestic demand. The restrictions for hotels in Germany have not been lifted so far, but based on the good progress in infection and vaccination rates, we do expect this to be lifted soon. By the end of May, about 90% of all of our hotels will be open and nearly 100% of hotels in the U.K. This is most likely the effect of faster vaccine rollout compared to continental Europe. In Germany, the hotel currently only hosts business travelers in most cities. Our historically high ratio of domestic hotel demand in Germany, the Netherlands, and the U.K. from leisure and business travelers will eventually act as catalysts for recovery once lockdowns are lifted. We already experienced that rebound effect in the summer of last year. As indicated in the beginning of the presentation, we remain cautious for the first half of this year of our hotel business. We estimate that this segment will perform again once the threat of infections can be controlled, and people will gain back confidence in traveling. Hopefully, this positive impact will be felt already in more countries across Europe in the second half of this year. This rebound will be led by leisure hotels, whilst businesses and conference hotels continue to depend on conferences and meetings taking place, which we anticipate to take longer to recover under the current circumstances. With the current development of the restrictions being slowly lifted, we expect an improvement in the collection rate for the second half of this year, assuming that no additional restriction will be implemented again. The roadmap to recovery has been illustrated by the U.K. on slide 16. Since last week, May 17, hotels reopened, and after a five-week transition period, all legal limits on social contacts and remaining lockdowns on the economy will be removed. The two graphs on this slide demonstrate the pent-up demand being released particularly for event bookings, resulting in over 80% occupancy amongst hotels in certain locations. Oshri Friedman, please continue. Thanks, Barak. Following additional disposals above book value in Q1 2021 of industrial, logistic, and retail assets, we have updated our remaining positions of these asset types on slide 17. We continue to see a strong transaction market for these assets as an effect of the accelerated transition to online shopping, as well as essential retail fueled by the pandemic. We continue to view these assets in general as non-core. At the end of the first quarter, the retail portfolio stood at 7% of the group portfolio value and logistics at 4%. Their WALTs were 4.9 years and 5.4 years respectively. The top investment location for both asset classes remains Berlin, with almost half the asset value. Over 40% of the remaining retail assets are essential goods stores, such as supermarkets, pharmacies, or drugstores. We present on slide 18 the composition of our development and building rights portfolio. The development segment makes up only 6%-7% of our total assets and is therefore not material on a group level but implies upside potential. The composition is illustrated in the two pie charts on the right-hand side, with Berlin as the most attractive single location, with nearly 50% of the value. In terms of asset type breakdown, also around half of the segment are offices, which matches the shortage of office supply in several prime locations, including Berlin. We don't plan to develop all these properties and rights ourselves. In most cases, we aim to sell these building permits. However, if we see significant yield potential and strong tenants with long-term prelet agreements, we will also undertake projects ourselves for which we employ third-party developers. As explained in previous calls, we used the time of lockdowns to bring forward refurbishment and repositioning works in several hotels, which were originally planned for the next years. These asset improvements resulted in a decrease of current rents due to work interruptions, or in some cases, in a complete stop of the hotel operations. Once completed, will lead to a higher return and margin as we improve the quality or increasing the lettable space available of the hotel. In all the works planned, we ensure the flexibility and modularity of the renovated hotels to be used also for alternative purposes such as residential, long-term stay, micro apartments, and more. We will continue to update you on the development and refurbishment projects in the future. Some of which you can find already in the appendix of this presentation. These are long-term projects as the approval process with municipalities can be a slow process in many instances. We only publish projects with high execution certainties. On slide 20, we want to highlight some further ESG achievements. Since May this year, Aroundtown is included in the S&P Europe 350 ESG Index, in addition to our recent inclusions in the DAX 50 ESG and GPR Sustainable Real Estate Index. We also published three new sustainability reports, which you can find on our website via the hyperlinks provided on this slide. Under these links, you will find many more sources on our five focus areas: tenants, employees, environment, society, and governance. Regarding our carbon reduction measures, our teams are working relentlessly to create a long-term and sustainable plan for carbon reduction that includes Scope 1, 2, and 3. Some of these action points are photovoltaic rooftop systems, electric vehicle charging stations, net zero energy building, and energy efficiency standards for reconstruction, tenant information system and meter digitalization, and many more. Additionally, at the appendix of this presentation, we elaborate in more detail our commitment to ESG, our long-term targets, and an update on some achievements. I'll now hand you over to Eyal to present to you the financials. Thank you, Oshri Friedman. On Slide 22, we present the profit and loss results. Our recurring net rental income in Q1 resulted in EUR 226 million, a marginal decrease of 3% from Q1 last year, resulting mainly from the many successful disposals above book value we achieved since then. In this figure, as well as the adjusted EBITDA and FFO, we exclude the impact of the assets that are already marked for sale despite their positive cash flows. As the pandemic restrictions remained in place throughout Q1 this year, and no significant market development or acquisition took place, we only reevaluated small parts of the portfolio. Recorded in Q1 2021, properties revaluations and capital gains of over EUR 130 million, including CapEx, and EUR 57 million net of CapEx. We plan the majority of the portfolio to be reevaluated during the second half of this year. Hopefully by then, most of the restrictions will be lifted. Capital gains came in at EUR 25 million for the first quarter, fueled by disposals above book value. Our like-for-like rental income, excluding hotels, amounted to 1.3% for Q1 2021, coming from an increase in interest rents. The hotel segment pushed down the like-for-like growth to 0.1%, of which 0.4% came from interest rents and -0.3% from occupancy decrease. Due to the low collection rate in the hotel, we recorded again an extraordinary provision in an amount of EUR 38 million, which is in line with our guidance range expectation. Operating expenses came in similar to the comparable period and in line with the recorded revenues. Administration expenses slightly decreased, reflecting partially the synergies effect from the combination with TLG. The net profit for the period amounted to EUR 146 million, generating EUR 0.09 earnings per share for the first quarter. Moving to Slide 23. The adjusted EBITDA amounted to EUR 230 million in the first quarter of this year, down 3% from EUR 237 million in Q1 of 2020. This slight negative change in quarter-over-quarter results was driven to a large extent from our successful disposal program, which allows us to recycle the capital into new acquisition with higher upside potential. The adjusted EBITDA calculation is already after excluding EUR 5 million contribution of assets classified as held for sale, therefore, referring only to the recurring long-term portfolio. Positive contribution derived from our proportional holding in GCP and other investments, which constitute EUR 41 million this quarter. Slide 24 provides a detailed view of our funds from operations. Our FFO1, previously defined as FFO1 after perpetual COVID-19 adjusted, amounted to EUR 87 million in Q1 2021, or EUR 0.073 per share, in line with our 2021 guidance range. The decrease is related to disposals as well as EUR 38 million provision for uncollected rents, which we didn't record in the first quarter of 2020. The FFO1 before extraordinary COVID-19 adjustments amounted to EUR 125 million, a very slight decrease in comparison to Q1 2020. On a per share basis, the FFO1 before extraordinary COVID-19 adjustments increased to EUR 0.105, up from EUR 0.098 in the first quarter of 2020, which indicates the performance that can be achieved once restrictions are removed and the economy rebounds. Due to further successful disposals in the first quarter in the amount of EUR 420 million, the FFO 2 increased to EUR 233 million from EUR 149 million 12 months before. Slide 25 illustrates graphically all three EPRA NAV metrics and the change since end of last year. Since December 2020, all three KPIs improved slightly on a total level as well as on a per share level. The EPRA NAV amounted to €11.4 billion or €9.6 per share. As mentioned before, the relative discount of the share price to the EPRA NAV per share in the face of our disposals above book values presents how accretive the ongoing share buyback is. With that now back to Oshri Friedman to conclude the final part of the presentation. Thanks, Eyal. Let's continue on slide 26. As always, we make every effort to maintain a conservative capital structure to strengthen our fundamentals, not just during this pandemic, but also long before. As you can see from the debt maturity profile, until the end of 2024, there are no major debt expiries coming up except for one EUR 600 million senior bond with a very low coupon of 0.375% expiring in July of next year. Our cash cover ratio for the next three years resulted to three times. In Q1 2021, we maintained our defensive loan to value level of 34%, whilst keeping our low average cost of debt at 1.4% with an average maturity of six years and a strengthened interest cover ratio of 4.9 times. 80% or EUR 15.9 billion of our assets remained unencumbered, providing additional sources of capital if required. As a result, these conservative financial ratios ensure a large headroom to all our covenants. At the end of Q1 2021, we still had a strong liquidity position available in the amount of EUR 3.1 billion for external growth opportunities, debt repayments, and further economic challenges. We also see already more activity in the deal pipeline compared to last year, but we remain selective and patient for the right time to reinvest our capital into accretive acquisition opportunities. We continue to reiterate our long term rating target upgrade to A from currently BBB+, which was reconfirmed by S&P in December. You can find a more comprehensive list of our financial policies in the appendix. I'd like to conclude this presentation with the outlook for the full year 2021 guidance on Slide 28. Q1 results are in line with our guidance figures for 2021, presented already at the full year 2020 results, which therefore still applies. We expect the FFO1 for 2021 to be in the range of EUR 340 million-EUR 370 million. For our guidance, we maintain our moderate view at the hotel industry and our hotel properties performances for this year by assuming collection provisions of EUR 90 million-EUR 120 million. Having successfully completed our share buyback program in the amount of EUR 1 billion last year, and the ongoing share buyback of up to EUR 500 million this year, we will see the full effect on the per share growth only later in the year. Therefore, we expect the FFO1 per share to be in the range of EUR 0.29-EUR 0.31, up from EUR 0.27 in 2020, which reflects an increase of 7.5%-15%. This calculation does not include the current buyback program as we cannot estimate yet timing and how much of the €500 million will be bought back eventually, and at what average price. So far, we reached to approximately 25% of the maximum amount. Finally, we see our expected 2021 dividends per share in the range of €0.22 to €0.24, based on a 75% dividend payout ratio. That concludes our Q1 2021 presentation. We regularly update the information in the appendix and encourage you to take a look. I'll now hand you over to Sylvie, who will lead the Q&A session. Thank you, Oshri. Before we invite your direct telephone questions, we would like to answer questions that we have received by email prior to this call. For simplicity reasons, we have taken liberty to group similar questions in order to answer as many questions as possible. Allow me now to read out these questions. First question: How did the office market in Germany and the Netherlands develop year to date? Do you see signs of recovery? What can we expect going forward? Looking one year into the pandemic, the office market in Germany and the Netherlands have withstood the impact of the pandemic relatively well so far. After the initial market response to the pandemic in Q1 last year, with a halted letting and transaction market, the first quarter of 2021 has shown increase in take-up levels as a result of release of pent-up demand in previous quarters. We see the importance of focusing on strong locations within the two strongest economies in Europe, namely Germany and the Netherlands. When looking at recent economic data, we see these two markets strongly outperforming with strong rebounds in employment, which were already less severely impacted, as well as relatively modest government deficits, allowing debt to GDP ratios to remain strong among the lowest in Europe, and which provide both economies more breathing room and a stronger base for the coming years. The German and Dutch office market entered the pandemic in a very good state with low vacancies, with high demand and low supply. Although vacancy rates increased slightly, prime rents remained stable. The pandemic impacted the demand to some extent, but the demand supply gap remained, as future supply has been delayed or reduced. This is validated by take-up levels recovering across German top cities and by strong transaction market characterized by decreasing yields and increased prices. Furthermore, the German and Dutch office markets have a competitive advantage as rents are comparatively lower compared to other strong office markets in Western Europe, while replacement costs are similar across all. This leads to high continuous demand and a low amount of speculative construction. Our vacancy rate remained at 8.9% as of March 2021, similar to the level of December. While the rent like for like, excluding the hotels, amounted to 1.3%. This is the first time that we have a full year effect of the pandemic, which validates the resilience of the portfolio. In addition to the collection rate of the office portfolio remained very high at over 95%. During Q1 2021, we signed new leases for over 86,000 sq m at EUR 23 per sq m in place rent. In comparison to our EUR 11.2 per sq m average at a WALT of seven years and prolonged 60,000 sq m at an in place rent of EUR 14.7 per sq m and a WALT of 4.5 years. The demand we see so far is for shorter WALTs as before, still reflecting the uncertainties of the future impacts of the pandemic. We continue to work closely with our existing tenants towards prolongation of their leases in order to secure and strengthen our lease structure. Looking ahead, we remain confident about the recovery of the office market and prepare ourselves to more flexibility in the future. Next question. Do you see any shift in the working from home trend, and is any significant impact expected? Our assessment about working from home did not change from our previous quarters. Working from home has existed prior to the pandemic, although it has opened up the perception of many employers to this working style. We are expecting that a hybrid model of working in an office with flexibility to home office will become a more popular trend in the future. We expect the trend to be more substantial in offices located in high price cities with long commuting times for employees. Offices in Germany and Netherlands are in international standards more affordable, and employees have shorter commuting times. Thus, we don't expect a significant impact on our office portfolio. Also, we have a very diverse mix of tenant industries. We expect to see the office market developing into more flexible and digital solutions in the future. We also believe this change won't come fast and easy. We believe that the main driver for office demand will continue to be economic growth and increased employment and see this reflected in cities such as Amsterdam, which have had high rates of teleworking already prior to the pandemic, but still saw very strong office market dynamics with high demand for office space and limited supply. Next question. Do you see any sign of the hotel market recovering? What is your assessment, how and when it will recover? Do you assess the hospitality industry to be permanently damaged or potentially going back to pre-COVID levels? It is hard to predict the duration and the continued effect of the pandemic on the continental Europe hospitality industry. A decreasing infection and increasing vaccination rate will probably have positive effect. As some restrictions are currently being lifted, we estimate that the hotel industry will be able to be open for leisure and business travels once infection rates will be immaterial. This will also depend on the development of the mutation and how effective existing vaccinations are against those. For full recovery, it is also not sufficient that hotels will be simply be open. It is necessary that restrictions are fully lifted, enabling hotels to operate at full capacities and all the other supportive industries are working in full power, such as restaurants, flights, entertainment, et cetera. Currently, travel restrictions, minimum distance restrictions, as well as other restrictions continue to negatively impact the hotel market. Most of our hotel in continental Europe remain under lockdown and are limited to business travel and essential workers. The U.K. has made tremendous vaccination progress, which significantly reduced the infection rates. The government decided on step plan to open the economies again, and since beginning of last week, hotels in the U.K. are fully open for leisure travel as well. Practically, our hotel in the U.K. have also reopened, which make up 20% of our portfolio, and our tenants are experiencing strong bookings also for events such as weddings. The pent-up demand in the U.K. gives the indication of a recovery similar as we have seen last summer when infections were low and leisure traveling was allowed. Similarly, in the Netherlands, restrictions have been recently lifted and domestic leisure travel, among others, is now allowed again. We expect that countries with high share of domestic demands such as Germany, U.K., and the Netherlands will probably recover faster than Southern European countries such as Spain and Italy, as we see domestic travel restrictions being lifted earlier than international restrictions. This will likely further benefit the staycation trend. However, we do assess an asymmetric recovery of leisure and business travel as demand for business travel, conferences, and airport hotels will take significantly longer to recover. Within Europe, we believe Germany is one of the more resilient markets due to the German government support measures of financial aid and flexible employment regulation. As hotel operators suffer less and have lower risk of insolvencies, the outlook of Germany's hospitality industry is more positive in European comparison. The survival of the hospitality industry continues to depend on the financial aid and the duration of the lockdown. So far, the operators did not receive the financial aid to a large extent, which was also kept significantly. We do see more bureaucratic walls now falling away and aid is starting to be delivered. Since we entered the another wave in Q4 last year, the majority of our hotel tenants are not able to pay their rent. Therefore, we have conservatively made a rental extraordinary provision in amount of EUR 38 million in the first quarter of 2021. We want to remind you again that our lease agreements are all fixed and do not depend on variable revenues of the hotel's operations, which is crucial for fast rebound. Although this currently does not result in a different outcome, in case of a variable lease agreement, these are completely lost without any reimbursement option. When there will be partial recovery of the hotel market, we will receive faster full rent payments, while variable rents will always be connected to actual results. However, we assume conservatively that our hotels will not be able to pay their rent immediately after reopening, as the rent payment ability depends on the level of pent-up demand, which will drive the pace of recovery. Next question. Do you expect the rent collection of your hotel portfolio to increase now that the U.K. and Benelux have opened? It is too early to forecast how the recovery will unfold as hotels in the U.K. and Benelux only opened in the recent weeks. Although the infection rates in particular in the U.K. significantly reduced, we cannot assess the potential impact of mutations, which might lead into another lockdown. The booking demand gives an indication of recovery, but we stay conservative and assume current situation, and we will see how the easing of measures develops. Conservatively, as we don't have full visibility yet, we assume that it will take more time for the hotels to be able to fully pay the rent. Additionally, the largest part of our portfolio is in Germany, which is still under lockdown, for which we cannot assess the reopening timing. We expect the German market to open soon as infection rates are decreasing and vaccination rates increase. However, it is not clear how and when the hotels will open. For the hotel business, it is crucial to open and operate relatively freely before the summer starts. Therefore, in the next quarter, we will be able to make a better assessment. For now, we continue with our base case that the market in 2021 will develop similar to 2020 and assume the €90 million-€120 million of extraordinary rent provision in the 2021 guidance. Your rent like-for-like was only 0.1%. What is the reason for the flat result, and what do you expect in the coming months/periods? Excluding the impact of the hotels, the rent like-for-like resulted in 1.3% positive, mainly for an increase in investments. The largest contribution is from the office portfolio, which had a like-for-like performance of 1.7% from new lettings as well as prolongations at above average rents, which were offset nearly completely from the negative 2.2% like-for-like in the hotel portfolio. The like-for-like results are coming comparing to the rents in the beginning of the pandemic in March 2020 to the rents in March 2021. Although the results are below our average in the recent years, they do reflect the stability and the strength of our portfolio and our platform in the currently challenging environment. The last 12 months were marked by grave uncertainty. We are seeing demand for new lettings picking up. We feel that the hesitation for new letting during the last 12 months created a large amount of pent-up demand, which we believe will drive the demand after lockdown restrictions will be lifted and when the uncertainty connected to the effect of the pandemic becomes less. Including hotels, the overall like-for-like for the period was basically flat. In selected cases of our hotel tenants, we agree on small rent reductions, which had a negative impact on the overall like-for-like. The largest like-for-like increases were in Berlin, Dresden, Leipzig, Utrecht, and Hamburg. It is currently very difficult to reasonably assess the performance going forward, as it depends largely on the restrictions being lifted and the economic impact of the pandemic on the market. Some restrictions are being lifted, uncertainty remains, and we believe a high rate of vaccinations are necessary for infection rates to stay low permanently until a change in the trend will set in. We therefore conservatively expect the like-for-like to remain leveled this year. Next question: What are your measures to reduce your greenhouse gas emissions, and what is your target of reducing CO2 by 40% by 2030 based on? Please see slide 41 of the presentation. We have an energy-saving investment program where we install energy-saving and renewable energy sources in our properties. Our energy department is hands-on with different ways to reduce carbon, and our long-term plan includes investing and installing electric vehicle charging stations, PV rooftop systems, CHP systems, tenant information systems, and meter digitalization, and many more. These installations, in combination with replacing or upgrading fossil fuel heating systems and switching to climate-neutral energy providers, will help to reduce our property's carbon footprint. Additionally, the governmental subsidies for energetic and modernizations provide a strong incentive to upgrade the building's energy consumption. We are currently analyzing and checking the conditions of the subsidies. The new subsidies seem to be supportive for development and may increase the attractiveness of developing certain projects. However, we are still in an initial stage. We believe in the future, properties with a lower energy consumption will have a competitive advantage as the energy costs and carbon tax will be lower, and tenants will also look to reduce their carbon footprint. We are also trying to incentivize our tenants' behavior towards energy, water, and waste consumption. If possible, we agree on green lease elements, and our renewable energy sources installation provide the tenant with the option to become greener. We see increasing demand from tenants in the Netherlands to engage with landlords to become greener, and the demand for building with green certificates is also increasing. The demand for greener building from tenants in Germany is currently limited, but we expect the demand to pick up as well. We just started a pilot project in the Netherlands to get our buildings certified, and we will utilize the knowledge from this pilot project to apply it to our other portfolio locations. When engaging in new development or large refurbishment measures, we also aim to get a green building certification. Currently, in the German market, we do not see higher rents to be achieved from offering green certified buildings, but we do see the certification to yield positively in the real estate transaction markets. We set ourselves the target to reduce CO2 emissions based on our 2018 level by 40% until 2030. The emission target covers Scope 1 and 2. Measuring and influencing Scope 3 emissions is currently very difficult as these concern the energy consumption of our tenants. Our energy investment program is targeted at reducing Scope 3 emissions, but until the market has matured and technological solutions will support tracking and reduction measures, we currently cannot commit to specific targets. The road to achieving the European goals of carbon neutrality will be difficult and take time, but we are committed to do our part. Next question: Seems that the acquisition activity is still low. What is the reason, and when do you expect to buy again? What is your current firepower? Since the outbreak of the crisis, we have not seen any significant deals which fit our acquisition criteria. The transaction markets are competitive, and we continue to see tightening yields and increasing prices. We realize this also with our disposals. Especially transactions in German offices have been strong during the crisis, and the unique value upside opportunities at discounted prices have become very rare. We continue to scan deals and participate in tenders, but so far, we have not seen the market providing us the opportunities we seek. We are very well prepared to capture opportunities when they arise, but the current pricing levels do not enable large scale acquisitions. In addition, we continue to execute our high quality development pipeline and have several projects running in parallel, which will create future cash flows once constructions and refurbishments are finalized and the properties are back in the market. On the other hand, we're using a very unique situation currently and buy back our shares, which trade at significant discount to the net asset value while disposing properties above book value. As we explore this discrepancy between the transaction and the equity markets, we're creating accretive long-term shareholder value, which is our goal when analyzing acquisition deals. Currently, we are looking at acquisition pipeline of over EUR 500 million, and we currently have a significant firepower of approximately EUR 2 billion. Can you please elaborate more on your revaluation gains of the periods, and what do you expect going forward? For the first quarter, we recorded revaluation gains of over EUR 100 million before CapEx and EUR 31.5 million net of CapEx. Capital gains from disposals over book value at 6% disposal margins resulted in EUR 25 million in Q1. The lockdown restrictions persisted during Q1 and partially in Q2, we expect to value a significantly larger part of our portfolio during the second half of the year, especially the hotel portfolio, assuming by then most of the restrictions will be lifted. We have had our portfolio fully evaluated during the lockdown periods last year, we don't expect any material value changes on the long term, subject that the restrictions will be lifted, which will support the hotel industry recovery. What is the status with your development pipeline? Our value creation strategy is to identify unused land or underutilized space of existing properties or land, for which we can obtain building rights or rights for conversion of properties. These rights we can sell at high gains or selectively execute the development ourselves in top central locations at low risk with high prelet ratios. Additionally, our portfolio has properties with high upside potential, which can be unlocked from refurbishment and modernization measures. These works are also primarily carried out once we secure a large tenant. We present on slide 18 of the presentation an overview of our development portfolio, where you see that around half of our development values lies in Berlin and around half is for offices. The total amount of building rights development reflects only around 6.5% of our total assets, and committed is currently EUR 200 million, which is less than 1% of the portfolio value. Currently, we have several projects under construction and refurbishment, which we present on slide 52 to 62 in the presentation. We just obtained in Q2 building rights for a 37,000 sq m office space in Berlin, Mediaspree, close to the headquarter of several large corporations such as Zalando. In addition, we started the refurbishment for several hotels. We used the opportunity of being forced to close to bring forward the refurbishment measures. We will start executing more of these projects in due time. The construction for the 15,000 sq m office property in Dresden, THE NEO, has been finalized in December, and in Q1, tenants moved in, and the property is now almost fully leased at 94%, with blue-chip and government tenants at very long leases. The construction progress for the second 25,000 sq m office development project in Dresden, next to the historic palace and opera house, is well on track, and we expect completion next year. 30% is prelet, and further 40% we are in advanced negotiations with. The office market in Dresden has a strong demand, and vacancies reduced further in 2020 to 3%, which is a historic low level and reflects the demand we are seeing. Prime rents increased by 16% in 2020 and average rents by over 10%. We are therefore very confident to achieve a high prelet ratio prior to finalizing construction. Our largest development pipeline is the office property on Alexanderplatz, a triple A location in Berlin, with the potential to create triple the amount of current sq m space. We have a pre-permit and are currently in discussion with the city regarding the implementation of the plans, and due to the extent and prominent place of this project, we expect the city has a high interest in the development of the location. However, the asset is currently generating rent as it is leased to several tenants at short-term leases. Therefore, we maintain our flexibility to work in parallel and benefit both from current cash flow and maximizing the building rights. Please note that obtaining building rights is a lengthy process, and it depends on the municipalities not fully in our control. Next question. Can you provide more information about the disposed activity in Q1 and going forward? Year to date in 2021, we signed disposals in the amount of over EUR 1 billion, of which over EUR 400 million have been completed in Q1 2021. Of our EUR 1 billion held for sale portfolio, approximately half is signed for disposal. Our disposal activities focus on selling non-core properties, which increases the overall portfolio quality, and disposing mature properties which upside has been mainly lifted. Therefore, freeing up funds and resources for the remaining portfolio and providing us with cash liquidity to increase shareholder return with measures such as debt repayments, buy back our shares, and for potential future property acquisitions. The completed disposals in Q1 were mainly offices and logistics and retail. The office disposals have been located in Leipzig, Dresden, and London, while the retail and logistics properties in various locations in Germany, such as Berlin and North Rhine-Westphalia, and other non-core locations in East Germany, Saxony-Anhalt, Saxony, and Thuringia, and as well in the Netherlands, near Rotterdam, cities in the north, and Maastricht. The average vacancy is 7%, the weight is over 6 years, and the average net rent multiple is 23x, of which 27x for the offices and 23x for logistics, hotels 15x, and 15x for retail properties. Please note that the signed properties and held-for-sale properties are already excluded from our portfolio overview, recurring net rent, adjusted EBITDA, and FFO, as their impact is not recurring. For the guidance, we already accounted for the signed deals. Please note that at this stage, we did not include acquisitions in our guidance. We will update the guidance along significant new acquisitions and further disposals. We expect to continue and dispose properties on an opportunistic basis. We see the strength of the transaction market as an opportunity to dispose properties with lower upside and to increase the quality of the portfolio. We have a significant disposal pipeline of over EUR 1 billion and will dispose further properties at the right pricing. The current discrepancy of the transaction markets, where we sell properties above book value and buy back our own shares at a deep discount, creates a very accretive long-term shareholder value, and we fully utilize this unique situation. Recently, you bought back debt and perpetual notes. Will you continue to buy back more debt, and what are your plans with the large cash balance? We generally always put a large focus on debt optimization to lower our cost of debt, and thus reduce ongoing finance expenses, which increases shareholder profitability, while in parallel extending our average debt maturity, which makes us less dependent on rising maturities. Lower financing expenses increase the FFO, and thus the dividend long term. We utilize opportunities when market conditions are favorable to refinance at lower rates, which reduces our time dependency on market conditions when our debt matures. For example, in December, we issued a EUR 1 billion bond at 0% coupon with a maturity of six years and bought back EUR 600 million bonds at an average coupon of around 1.5% with an average maturity of three years. Our cash balances are also utilized for acquisitions. We currently reduced our property acquisition activities with the outbreaks of the crisis. Instead, we have been, and are currently buying back our shares, which are traded at a significant discount to our net asset value. Effectively, we are thus acquiring our portfolio at a significant discount, which is thus creating long-term shareholder value. Does Aroundtown plan to pay dividends this year? Will you offer a scrip dividend like in the last years? We will suggest to the AGM, which will be held end of June, a dividend of EUR 0.22 per share for 2020, which is based on our previous payout policy of 65% of FFO1 per share before perpetuals after the COVID-19 adjustments. Note that we adjusted our payout policy going forward as we adjusted our FFO classification. The new payout policy is 75% based on the FFO1 per share, which is after the perpetual notes. This updated policy is also applied to our 2021 guidance, where we guide a dividend of EUR 0.22-EUR 0.24 per share. In previous years, we will also offer a scrip dividend again. We will publish all documents related to the scrip dividend shortly after the AGM. After a share buyback of €1 billion in 2020, you are currently executing another buyback program in the amount of €500 million. How much of the current program has been executed, and will you do more buybacks after the current program is over? What is your intention to keep the shares in treasury? After buying back 1 billion of our shares last year, we are currently buying back up to €500 million, of which nearly 25% has been utilized so far. According to the approval we received in the AGM in May 2020, we can buy back up to 20% of our share capital. Share buybacks enable us to benefit from the current pricing discrepancy and allows us to reinvest in our company and create significant internal growth on a per share basis. The treasury shares can be used for future scrip dividends, acquisitions, capital increases, et cetera. Please note that treasury shares do not carry any voting rights, are not entitled to dividends, and are also deducted from the per share KPIs, thus increasing each shareholder's share in the company. Do you have any time expectation when to enter the DAX index? The DAX index is being extended to 40 companies from currently 30, and therefore provides an easier entry opportunity. With our share price recovering to over €8, we will probably be able to enter based on the current rankings, which would still be below our April NTA. STOXX index regular inclusion dates have been also extended to twice a year in March and September from previously once a year, and the month prior to these inclusion months is a relevant review of the market cap. Which synergies have you been able to extract from the merger with TLG so far? Do you expect further synergies? We have been able to extract operational as well as financial synergies so far. The current crisis proved that both of our portfolio combined are more resilient, and our conservative capital structure is the backbone of our strong property portfolio. Our latest bond and perpetual issuances at record low coupon rates are testimony of our combined stronger portfolio with an even higher presence in our top markets, mainly Berlin, where we are the largest publicly traded office landlord. The process of the issuances have been used partially to repay debt with higher coupon from TLG, which had lower credit rating prior to the merger. In effect, we decreased finance expenses and thus increased the long-term FFO and dividends going forward. On the operational side, we implemented several cost reduction measures, which are mainly the result of our overlapping portfolios, for which property management efforts has been reduced and our large size increased our economics of scale. In the transaction markets, our standing increased, and we were able to execute a large disposal pipeline very successfully. The TLG was provided with the network Aroundtown has successfully built up over the last one and a half decades, and both teams worked well together to efficiently handle all processes till completion. We also expect to extract further synergies in the following periods, and as we also incurred one off cost, the full synergetic impact will become more evident in the following period. We remain to believe that the largest synergy potential lies in a credit rating upgrade from S&P as the merger had many rating supported criteria. We expect a potential rating upgrade to be delayed until the impact of the current crisis and ongoing uncertainties can be clearly assessed. What is your strategy with your stake in the public companies GCP, TLG, and Globalworth? Our stake in these companies are long-term and strategic. We are committed to maintain and potentially increase our stake in these companies as their portfolio and business models complement ours very well. TLG is fully consolidated as we hold around 85%. Grand City Properties and Globalworth are both accounted for as equity accounted investees, which is accounting for the cost value plus our proportional profit from each. We launched together with CPI in a joint venture an offer for the outstanding amount of shares in Globalworth. Together with CPI, we hold over 50% already. Also, after the takeover, Globalworth will remain to be accounted for as equity accounted investee, as we will hold 50-50 with CPI in the joint venture, which is holding the shares of both parties, including potential tender shares. Our EBITDA and FFO fully reflect TLG as it is fully consolidated. The minority related to TLG is excluded from the FFO. Grand City Properties and Globalworth contribution we take according to our holding rate. How much are you maximum going to pay for the offer to take over Globalworth? How are you going to pay for it, in shares or in cash? The offer is a cash offer, which means we will pay in cash. The offer is currently running, and the offer price is €7 per share, which means the maximum cash payout, assuming all shareholders tender their shares, will be in the range of €400 million, 13% of our liquidity balance. Inflation expectation is increasing, which could increase interest rates again at some point and could weigh on real estate valuations. What is your assessment and what may be the impact on your business? Inflation rate in Germany in April was 2% compared to last year. The inflation rate in April is distorted when comparing to last year, as the supply and demand shock impacted consumer price very differently, such as prices for essential goods soared, whereas demand for non-essential goods and services significantly decreased, and last year's prices include a lower sales tax in Germany, which was temporarily lowered in 2020 to soften the demand shock. In the European Union overall, the inflation rates look different. As the other economies have been hit harder than in Germany. The expected inflation rate in the EU for 2021 is slightly over 1%, significantly below the ECB's target of 2%. We do not expect any significant changes in interest rates in the mid-term. Also, the ECB's interest rates are in negative territory, which does not give the ECB much more flexibility to maneuver, and the QE program is currently keeping interest rates low and the investment incentive high, thus driving demand for real estate investments. We note that large part of our leases are CPI linked, providing us with the protection against inflation. Next question. German federal and several state elections are being held in September, and real estate is a hot topic, especially among the left parties. Do you expect any negative impact on your business? Party's agenda regarding real estate mainly addresses residential rental regulations. Germany's residential rental market is highly regulated, and regulations have been intensified in the past decade due to the strongly increasing rents from the supply-demand gap in metropolitan locations. We assume further rent regulations will be part of the next government's policies, but to what extent is currently hard to assess. We do not believe that another rent cap, as the Berlin government has tried, will lead to the right result. New construction has to be incentivized, and the bureaucratic hurdles need to be reduced for granted building permits. We experience this long and cumbersome process also for receiving building permits for commercial properties. The process just simply takes much too long, and the system is not supporting new development. We do not expect any material impact on our business as our stake in Grand City is very diversified in relation to our overall portfolio and within Grand City's portfolio. Residential currently makes up 14% of our portfolio, and within Grand City, the portfolio is very diversified among many metropolitan cities in Germany, as well as around one fifth of the portfolio located in London, which provides further regulatory diversification to Germany. Our residential portfolio provides a very long-term, stable, and predictable rent growth potential to our total portfolio. Now that the Berlin rent cap has been ruled as unconstitutional, do you see further upside on your business? In relation to our total portfolio, the Berlin rent cap has had an immaterial impact as our exposure to Berlin residential is held through our stake in GCP, which has a diversified portfolio. Berlin residential makes up around 4% of Aroundtown's portfolio, and the rent freeze impact was around 0.1% on the group's rental income. Generally, we do assume the ruling to be supportive of residential real estate valuations, which will benefit us. Thank you, Oshri. Before we invite your direct telephone questions, those were the questions that we received prior to this call. We can now start the open session for your questions. We would appreciate if you can ask all your questions at once, and we will answer them one by one. Ladies and gentlemen, if you have a question for our speakers, please dial zero and one on your telephone keypad now to enter the queue. Once your name has been announced, you can ask your question. If you find your question has answered before it is your turn to speak, you can dial zero and two to cancel your question. If you are using speaker equipment today, please lift the handset before making your selection. One moment please for the first question. The first question is from Elias Attia, Bank of America. Your line is now open. Please go ahead. Good morning, thank you for the very detailed presentation. I just have one question open still. You noted a 1.3% like-for-like excluding the hotels, and I was wondering if you could just clarify a bit how you arrive at that, considering the -2.2% for hotels versus the overall 0.1%. That's it. Thank you. Hi, Elias. Thank you for the question. The composition is basically 1.7% positive like-for-like for offices. In this period, we have -2% on the retail, which brings together to 1.3%. Thank you very much. The next question is from Manuel Martin of ODDO BHF. Your line is now open. Please go ahead. Gentlemen, thank you for taking my questions. I have two questions, actually. Question one is regarding your valuation gains. As far as I understand that you revalued a very little part of your portfolio. However, could you give us an indication of a like-for-like value uplift? Whether you see a good valuation environment or not, that might be helpful. That's my first question. Second question, I think your property operating expenses in Q1 were relatively low this time. Question is this something sustainable or is it the kind of one-off that we've seen in Q1? Thank you. Thank you, Manuel, for your questions. In terms of valuations, we cannot predict. We didn't do the valuations for the majority of the portfolio. For the ones we saw, we recorded about 0.5% like-for-like valuations. We will record more in Q2, but the majority in H2, to try to reflect more the restrictions uplifts in the valuation. Once this is done, we'll be able to share more information on the future growth. In terms of the property operating expenses, the reduction that you saw, actually the way we kept operational margins is sustainable and is basically a reflection of what we managed to do our synergies with TLG. Thank you for the question. We haven't received any further questions. I hand back to the speakers for closing remarks. Thank you all for your participation and questions submitted via email and during this call. We look forward to speaking to all of you face to face again soon. Until then, stay safe, take care, and goodbye.