Earnings Call: Q2 2021

Aug 25, 2021

Good morning, everybody. Thank you for joining us for Around Town's First Half twenty twenty one Results Call. You should have received our press release and can view this presentation on Around Town's website, either on the Home section or under Financial Reports of the Investor Relations section. I'm Sylvie Laggis, Around Town's Head of Communications and Sustainability. With me today will be CEO, Barak Barhen CFO, Eyal Ben David Chief Capital Markets Officer, Oshri Masachi and our Executive Board member, Frank Rosen. 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. But please feel free to send us your questions via e mail also during the presentation. The e mail address is info aroundtown. De. With that, I'd like to pass you over to Oshri Masakji, who will start presenting you our results. Many thanks, Sylvie. Good morning, everyone, and welcome to our first half twenty twenty one earnings call for Around Town. Once again, the diversification in attractive asset classes in top locations has served us well as a protection during the COVID-nineteen pandemic. Offices, logistics and retail properties have nearly reached pre pandemic collection rates and show good resilience during the latest lockdown periods. The pandemic and the recent lifting of lockdowns have an asymmetric impact on our hotel portfolio with a good recovery in domestic leisure hotels during the But demand from domestic business and international travel remain to be low. Hotels depending on business travelers Require more reassurance of a safe and controllable environment to rebound, and we will further elaborate later in the presentation. We will also emphasize the main results of our business financially and operationally and highlight the strengths of our diversified portfolio. On Slide 4, we start with our business and financial performance highlights of the first half of twenty twenty one. The net rental income came in lower at EUR 458,000,000 as we enhanced our disposal activity and we now start to see the full effect from our significant disposals last year. Our FFO I before COVID adjustment amounts to EUR 247,000,000 After the impact of the extraordinary provision we put in place for this year, our FFO one amounted to EUR 172,000,000 The share buyback offset the decrease partially, which resulted in an FFO one per share of $0.15 and in line with our 2021 guidance. As in the past, we will provide a breakdown of the different FFO metrics later in the presentation. The like for like net rental income growth, excluding hotels, resulted in +0.8 percent For the first half and including the like for like effect of our hotels amounted to a minus 0.7%. Moving to Slide 5, we summarize the achievements of our disposal and share buyback programs during the first half of this year. The transaction markets remain competitive also after lockdowns being lifted at the end of Q2, which is reflected By high demand for real assets and very high liquidity in the markets remaining. We therefore continue to identify further mature and non core assets In H1 'twenty one, we sold properties in the amount of over €1,100,000,000 above book value At an average rent multiple of 23 times and a 51% margin over total cost with 3% margin over book value. Continuing to dispose noncore and mature assets above book value well into 2021 is a strong validation of the valuations of our portfolio. 41% of disposals were classified as noncore retail or logistics assets across several noncore locations in Germany. The majority of disposals, however, were made up of 53% of offices and the remaining 6% were hotel disposals. As demonstrated in 2020, by means of the successful disposal program, we capitalize on significant value creation And recycle the funds to strengthen our balance sheet, repay shorter and more expensive debt as well as execute accretive share buybacks A significant discount to our April NTA. We continue with our share buyback program for the remainder of the year of up to €500,000,000 announced back in March, 37% of which have been already executed as of August 20 this year. That amounts to approximately €190,000,000 at an average share price of €6,500,000 and reflects a discount to our April NTA of over 30%. This share buyback program allows us to reinvest capital from disposals into our own portfolio at higher quality with a significant discount to the NTA per share, representing a good alternative in the absence of accretive acquisition targets. Let's continue on Slide 7 with our operations and the portfolio overview. Our strategy is to focus on our 2 core markets, Germany and the Netherlands, Which make up the lion's share of our asset locations with 85% of our commercial portfolio value. 64% of the portfolio in these two countries is concentrated on the top cities alone such as Berlin, Munich, Frankfurt and Amsterdam. Since early days, Around Town focused on these 2 strong EU economies. Both markets better withstand the economic impact of the pandemic And recover from a stronger base compared to most other EU member states. With a moderate unemployment level due to flexible employment regulations, A strong governmental financial support system and still low debt levels. They both also hold a AAA sovereign credit rating. Having caught up on the vaccinations in recent months, both countries show high vaccine penetration levels across their populations and below average number of infections per capita across Europe. Therefore, we would expect the economic rebound To be faster and with less negative long term effects from the pandemic. 1 of our key competitive Strength has always been our diversified investment strategy into top European locations that we break down on Slide 8. This diversification is a combination of strong asset types, key locations and a healthy tenant structure without any dependency on a single tenant or industry. These elements of diversification Protect us to some degree in volatile times linked to macroeconomic or domestic uncertainties, but also during times of political change. Such events will therefore not have a negative impact on our entire portfolio equally. On the right hand side of Slide 8, You can find the breakdown of the geographic distribution as well as the composition by asset class. The office portfolio remains our dominant asset segment 51% by value and 66% combined with the residential assets through our proportionate holding in Grand City Properties, which we will start to consolidate from July of this year. The hotel assets, which continue to be negatively affected by domestic business And international travel restrictions account for 24%. During H1, we were able to successfully both additional noncore retail assets above book value alongside other asset classes and could maintain the exposure of the segment at 7% of the portfolio value. Our intention is to reduce this exposure even further in the coming years. At the same time, the exposure to logistics and industrial assets was reduced to only 3% after successful value Creation and selling these assets above their book values. Going forward, this allows us to focus more capacities On our 3 core asset classes, offices, residentials and hotels, where we see the greatest value creation potential in the long term. As illustrated on Slide 9, we present our tenant diversity with around 3,500 tenants from various industries cross properties with limited exposure to any single tenant. In spite of the large disposal volume, We achieved since last year our tenant dependency remains low as the rental income of our largest 10 tenants accounts for less than 20% of our group's total rental income. Our overall commercial portfolio amounts to EUR 21,000,000,000 With a world of 8.9 years. End of H1, the rental yield stood at 4.5% And the vacancy rate at 8.9%, both similar compared to the end of 2020. We continue to work relentlessly on our letting activities in order to reduce vacancies in the coming periods. On Slide 10, we reiterate our revisionary upside potential in our existing commercial portfolio. The June 2021 rental Income run rate, excluding assets held for sale, amounted to €861,000,000 on an annualized basis. Assuming no further acquisition and disposals and no changes to today's market rents in the locations of our assets, The get to market rent results in a 21% rental growth potential, including filling our vacancies. This upside potential also serves us as a strong downside protection from the existing gap to market rent levels And ensures our in place rents have a strong buffer in case of weakening rents. The long vault of 8.9 years and current asset valuations of less than half the replacement costs in our locations Further ensures stable rental income and valuations in the long term. On Slide 11, we illustrate the resilience we Continued to see in the top 8 German and Amsterdam office markets since Q4 2019. Just months away from the outbreak of the pandemic, These main metropolitan cities entered the pandemic in a very strong shape, which has mitigated the impact of the pandemic, And we have not experienced signs of material long term impact by the effects of the pandemic. When comparing Q2 2020 to Q2 2021, we noticed a 20% increase in the office take up since the dip last year. Meanwhile, Vacancy levels increased only marginally and remain at record low levels of about 5% on average compared to 11% just before entering the global financial crisis in 2,008. Due to high liquidity levels in the market, Stable demand and continuous undersupply from new developments, prime rents as well as yields even slightly strengthened Throughout the pandemic without any significant fluctuation, we can observe a similar pattern for pre lead ratios of new developments. As shown on Slide 12, our office assets represent the largest portion of our group portfolio with 51%. We continue to focus on central locations in top tier cities of Germany and the Netherlands, such as Berlin, Munich, Frankfurt, Amsterdam or Rotterdam. They alone account for 63% of our office portfolio. Further diversification into additional top tier This can be seen on the pie chart. With a world of 4.7 years and no significant dependency on any single tenant or location, We continue to maintain a well diversified and robust tenant structure. Nearly half of the office rent comes from the tenants in the strongest industries, Such as insurance, banking, governmental, infrastructure, health or energy. The public sector continues To represent by far our largest tenant segment with 29% of the rent. And some of our top office tenants are well known names Such as the German and Dutch governments, the Bundesbank, Siemens, Deutsche Bahn and many more. We have seen an improvement in the markets since the low levels of H1 last year. The opening up of markets and the recovery of certain industries Resulted in a lack of workforce, materials as well as components. We also experienced a pickup in demand for new lettings after tenants have been very hesitant last year and preferred to prolong existing leases instead of signing new spaces. But as the first half of this year was mostly marked by the ongoing lockdowns that started last November, The letting activities remain below pre pandemic levels. After the home office regulation has been abolished, We also see employees welcoming the option to go back to the office and employers change their views and preference to bring workforce back to a centralized office. New office tenants expect more flexibility in terms of lease durations, and we noticed a Stronger pickup in demand during summertime as lockdowns have been removed again. Our long term holding in residential sector through Grand City Properties is reflected on Slide 13. The diversification to residential assets In the top German cities plus London continues to be a strong element of our long term investment strategy. The Asset segment has proven to be very resilient throughout the pandemic, whilst capital values further gained in the first half. And by the end of Q2, this segment accounted for 15% by value of our group portfolio share. Around Town will start to fully consolidate Grand City Properties as of Q3 this year, which will be illustrated first time in the Q3 Financial reports. The consolidation creates a stronger position for Rownton over a portfolio of the strongest and most resilient real estate class In Europe, the impact on our KPIs and other financial metrics will be immaterial as we continue to include only the proportionate share in our operational results. Grand City and Around Town both have a focus on a conservative capital structure and similar leverage levels. The ownership level in Grand City currently stands at over 44%. Grand City reached A 2% like for like rent to growth in the first half, whilst achieving 13% premium to book value on its EUR 300,000,000 strong asset The value of its portfolio grew by 2% and embeds a high revisionary potential, which can create long term value with continuous New and re lettings. Berlin saw the abolishment of the highly controversial rental cap last April and gave way to new residential rental growth in the capital. However, rents in all locations with high demand continued to increase Due to a shortage of new supply and further regulation tightening, which makes it more difficult to become homeowner. In face of a housing shortage, increased rent levels and low interest environment, we continue to see strong demand for condominiums And in turn, growing capital values for German residential assets across almost all main and secondary cities during the pandemic and lockdowns. I'll now hand you over to Barak, who will continue with the hotel portfolio. Thanks, Jose. On Slide 14, we give a summary of the hotel portfolio. The past 18 months have been challenging for hotel operators, But we are convinced of the accretion of our hotel investment in the medium to long term. The portfolio is located across top European cities such as Berlin, London, Paris, Brussels, Frankfurt and many other key cities. We focused on strong geographic diversification that spans across operations and hotel types. The core of our hotel portfolio is 85% of 4 star hotels, which capture the both segments, leisure and business travelers. All our double and triple net leases have fixed Plus CPI linked trends without a variable component with more than 30 different experienced third party operators and stable vault of 17 years. Our largest tenant in hotel portfolio remains centerparks with 6% of the group's rental income. All our parks are open during this summer period and enjoy from the strong demand in the leisure travelers. On Slide 15, we highlight the drivers for an asymmetric recovery of the hotel business As there are diverse factors that support specific aspects of the hotel demand from travelers. We are glad to see that the majority of hotels in our portfolio have been open for business since the last lockdowns came to an end mid June. This has allowed particularly the leisure hotels to capture the high pent up domestic leisure demand from tourists from summer holiday season. The demand from domestic business and international travel remains very low. Corporates need more clarity in order to adjust their travel policies and pre bookings. Potential further lockdowns or travel restrictions, Such as quarantining, especially with increasing infections rates from virus variants, retain uncertainty in the market. We expect the demand from this segment to not recover this year and only partially next year. The first half collection rate of our hotel portfolio came into at 34%, bearing in mind that almost all of the first half of this year impacted by the lockdown and high numbers of infection across Europe as the vaccination progress started to pick up speed in late Q2. Looking at the 1st month after the lockdowns have been removed, we see an improvement in July's collection rate To 45% in comparison to 33% in July last year. Our historically high ratio of domestic Travel demand in Germany, the Netherlands and the UK from leisure and business travelers act as a support for the current recovery we see. Nevertheless, we remain cautious for the second half of this year as we still don't see a significant amount of domestic business and international travelers Many large events being planned yet. Corporate travel will take longer to rebound in significant volume. Moreover, the spike in leisure traveling will most likely level again to some degree after the summer holiday season comes to an end. We estimate that the business travel segment will perform better once the threat of inspection can be controlled and people do not fear to undergo quarantine or lengthy waiting periods at airports. As explained in previous calls, we use the time of lockdowns to bring forward refurbishment And repositioning works in several hotels, which were originally planned for the next years. This asset improvement results in decrease of current trends due to work interruptions or in some cases incomplete closure of the hotel, But once completed, will lead to a higher return in margin as we improve the quality or increase the lettable space variable of the hotel 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. Orsley, please continue. Please move to Slide 16, where we summarize our remaining logistics and retail portfolios. We continue to see a strong transaction market for these asset types as a result of the accelerated transition to stronger e commerce and essential goods fueled by the pandemic. Whilst we continue to view these assets in general as noncore, We identified further non core and mature assets within these segments and achieved additional successful asset disposals during the first half. Our updated remaining position of these asset types at the end of the first half stood as follows. The retail portfolio accounts for 7% of the group portfolio value and logistics for 3%, Less than half of what it was 15 months earlier. Their waltz were 4.9 years 5.1 years, respectively. The top investment location for both asset classes remains Berlin with well over 40% of the asset's value in each segment. Over 40% of the remaining retail assets are essential goods stores such as supermarkets, pharmacies or drugstores. They continue to experience high demand even during times of lockdowns. We present on Slide 17 the composition of our And building rights portfolio. The Development segment makes up only 6% of our total assets and is therefore not material on a group level, But implies significant upside potential given the shortage in new developments across many prime locations. The composition is illustrated in the 2 pie charts on the right hand side with Berlin as the most attractive single location With nearly 50% of the value embedded. In terms of asset type breakdown, also half Of this segment are offices, which matches the undersupply of office space in several prime locations, Including Berlin, Dresden and Frankfurt. These 3 hubs together make up 2 thirds of the segment. In most cases, we aim to sell these building permits. However, if we see significant yield potential and strong tenants With long term pre let agreements, we will also undertake projects ourselves for which we employ 3rd party developers, 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 cumbersome and slow process in many instances, and we only publish projects with high execution certainties. I will now hand you over to Eyal to present you the financial results. Thank you, Oshri. On Slide 19, we present the profit and loss results for the first half of the year. Our recurring net rental income in H1 Resulted in €442,000,000 a decline of about 11% year over 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 the positive cash flow. Our like for like net rental income excluding hotels Amounted to plus 0.8 percent in June. However, after 2 additional quarters of lockdowns, the hotel segment Push down the like for like growth to minus 0.7 percent overall year over year, of which minus 0.2% comes from in place rents And minus 0.5 percent from occupancy decrease. We evaluated only a quarter of the portfolio during the 1st 6 months, for which we recorded a property revaluation and capital gains of over €109,000,000 As every year, We evaluate each asset once per year and plan the remainder of the portfolio to be evaluated during the second half of this year. Capital gains came in at €33,000,000 for the first half, fueled by strong disposals above book value. Due to the challenging start of the year, the collection in hotel rents remained low and we booked an extraordinary provision in the net amount €75,000,000 for the 1st 6 months. Operating expenses came in somehow lower than the comparable period of last year And in line with the recorded revenues. Administration and other expenses remained stable, while finance expenses Decreased substantially due to our debt optimization efforts in the last periods. The deferred taxes decreased significantly from €178,000,000 to just €13,000,000 year over year, €78,000,000 to just €13,000,000 year over year, mainly because of our evaluations have been delayed to H2 2021. Finally, the net profit for the period amounted to €362,000,000 generating $0.25 earnings per share Moving to slide 20. The adjusted EBITDA amounted to €452,000,000 In the first half of this year, down 10% compared to the same period last year. Again, this negative change was driven to a large extent From the successful disposal program, which allows us to recycle capital into new acquisitions with higher upside potential. The adjusted EBITDA calculation is already after excluding €9,000,000 contributions of assets held for sale and therefore referring only to the recurring long term portfolio. Positive contribution derived from our proportional holding in GCP and other investments, which contributed €83,000,000 in the 1st 6 months. Slide 21 provides a detailed view of our funds from operation. Our FFO one amounts to €172,000,000 in H1 or 0 point 15 dollars per share. Both figures are in line with our full year 2021 guidance range. The decrease is once again related to our successful disposals As well as the provision for uncollected rents, which we only partially recorded during the same period of 2020 as the pandemic hit our market In March 2020, the first time. The FFO1 per share before COVID adjustments It increased by 5% to $0.21 year over year, which emphasized the positive effects of the share buyback program and indicates the performance that can be achieved once the pandemic is under control and the economy rebounds. As a result of further successful disposals In the Q2, the total profit from disposals in H1 amounted to €376,000,000 The FFO2 Therefore, increased to €548,000,000 from €340,000,000 12 months before. On Slide 22, we provide a detailed breakdown of all three EPRA NAV metrics and change and the change since end of last year. Since December 2020, all three KPIs remained stable on a total level, Maurice, on a per share level, we saw small improvements, which are partially an impact of the share buyback program we have executed over the last 6 months. The EPRA NTA amounted to €11,200,000,000 or €9,600,000 per share. The ongoing relative discount of the share price to the Aper NTA per share in the face of our disposals above book values presents how accretive the ongoing share buyback is to all shareholders. With that, now back to Orfri to conclude the final part of the presentation. Thanks, Rael. Maintaining a healthy capital structure continues to be a priority for us in the long term. Strong fundamentals and conservative financial ratios built the basis for our strategy. Thus, our debt maturity profile on Slide 23 Shows no major debt expiries coming up until the beginning of 2025, except for EUR 600,000,000 Senior bond expiring in July next year. As a result, our cash cover ratio for the next 3 years stands at 3 times. We continue to maintain a moderate LTV level and reduced it further to 33% throughout the first half of this year, What's keeping our low average cost of debt at 1.4% with an average maturity of 5.8 years And a robust interest cover ratio of 5 times, up from 4.5 times 12 months before. We increased the holding of our assets free of any debt to 81% or EUR 16,100,000,000 which provide additional sources of capital for us if required. These conservative financial ratios allow us to maintain a large to all our covenants, which we see crucial during these times of greater uncertainty in the markets. Our strong liquidity position stood at EUR 3,200,000,000 at the end of Q2, which will allow us to quickly act on attractive external growth Gaining further traction, and we continue to participate in many tender and due diligence processes, but remain cautious And reinvest our capital into accretive acquisition opportunities only when we see sufficient upside potential to the current market. Once again, we continue to reiterate our long term rating target upgrade to A from currently BBB plus which was reconfirmed by Standard and Poor's last December. We see the consolidation with Grand City Properties As a positive support to our long term rating in terms of size and asset type. You can find a more comprehensive list of our financial policies in the appendix. In conclusion, we can confirm the guidance provided The first half results are in line with our guidance figures presented already at the full year 2020 results, But lays on the lower side due to the significant effect on the hotel sector. We continue to expect the FFO one For 2021 to be in the range of €340,000,000 to €370,000,000 As the first half This year was again marked by lockdowns, which negatively impacted our hotel portfolio. We maintain our moderate guidance view at the hotel industry and our hotel properties performances for the remainder of this year by assuming a collection provision in a net amount of about EUR 120,000,000 So far, we have successfully completed a share buyback program in the amount of EUR 1,000,000,000 last year And an additional 37% of the ongoing share buyback of up to EUR 500,000,000 until the end of this year. The full effect of the buyback programs on a per share growth level will start to fully reveal only later in the year. Therefore, we still expect the FFO one per share to be in the range of €0.29 to €0.31 Up from EUR 0.27 in 2020. As a reminder, this calculation does not include the ongoing buyback program As we cannot estimate the timing and how much of the €500,000,000 will be bought back eventually or at what average price. 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 first half twenty twenty one presentation. We regularly update the information in the appendix and, as always, encourage you to take a look. I'll now hand you over to Sylvie, who will lead the Q and A session. Thank you, Audrey. Before we invite your direct telephone questions, We would like to answer questions that we have received by e mail prior to this call. For simplicity reasons, we have taken liberty to prove similar 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? The economies of Germany and the Netherlands are experiencing a Partial recovery after the demand shock last year. In some industries, the recovery resulted in a lack of workforce, materials and components. Market expectations also guide for good GDP recovery for the next quarters. We experienced a similar development in terms of new lettings With a trough in Q2 and Q3 of last year, which were significantly impacted by the outbreak of the pandemic and the related lockdown. We started to see a slight pickup of new lettings, but these are still below pre pandemic levels. The demand for letting is picking up, supported by pent up demand from tenants who decided last year to postpone letting decisions. We see the impact From home office reverting after the lockdowns were lifted with corporates and much of the workforce welcoming to go back to the office after long lockdowns. Prospective tenants are looking to rent new spaces for a shorter period of 3 to 5 years compared to 5 years and longer before the pandemic. We managed to stabilize our vacancy rates with office vacancies slightly decreasing to 11.2% in June 2021 compared to 11.3% in March 2021. We signed in the first half this year new lettings For 90,000 square meter at an average rent of €20 per square meter, which is onethree more space assigned in comparison To the first half of twenty twenty, prolongations in the first half twenty twenty one were similar to the first half twenty twenty. We prolonged 110,000 square meter at an average rent of €14,000 per square meter. Our new lettings lease lengths are around 7 years, while prolongations are at 5 years. It is difficult to assess the future developments, But so far, it looks like the momentum is positive, and we hope it won't be interrupted by another lockdown or other virus, variant effects. The longer the pandemic and social distance will remain, the higher the challenge will be. We get confidence from the top location and high quality office portfolio, which is focused on the strongest and most resilient economies of Europe, paired with relatively low rent and high replacement costs in comparison to other European markets, which leads to high demand and low supply. Next question. Can you please provide an update on the hotel market? How is the recovery progressing? And how do you assess it will develop? The hospitality industry remains to be highly impacted by the continued effect of the pandemic. The impact is very asymmetric with laser travel Recovering fast this summer due to the holiday season and leisure locations performed very well, whereas demand from business travel, Conferences and international travel did not recover. As we experienced last year's summer, we do experience a recovery of domestic leisure Once the lockdown restrictions have been lifted, leisure hotels generally have simple demand drivers, often driven by specific on-site amenities As these kind of demand drivers are quite straightforward, The easing of restrictions has resulted in a fast rebound in demand for those hotels in the summer holidays. Furthermore, as many of these locations Depend more on domestic travelers and are usually accessible by car, restrictions related to international air travel Do not have the same impact as with other types of hotels. Bookings starting to pick up once date has been communicated As to when lockdown restrictions were lifted, indication a high pent up demand. But as the recovery is currently progressing in leisure travel, There is still a lot of progress to make to get back to satisfactory recovery. It is also important that the underlying drivers of demand are available And unrestricted for the hospitality industry to recover and it is hard to estimate the impact of another infection wave. It is not sufficient for the main accommodation to be allowed to open. Amenities such as cultural events and fairs, Spa, restaurants and cultural venues need to be available in order to generate demand for hotel bookings as well. The pandemic has changed the consumer behavior. Less hotel bookings are made in advance, But postponed to shortly before the actual stay. Therefore, there is still low visibility on demand in the next month. Another even more important factor for our portfolio recovery Is the demand from business and international travel, which are still in a very low level. Many companies still have policies in place Aimed at protecting their employees and thus reduce travel to a minimum. International leisure and business travel will only start to recover Once uncertainties about further lockdown or other restrictions such as quarantining after flight will be lifted for travelers and Corporates to start planning. We do see slight increase in inquiries regarding corporate agreements, Which indicates that the underlying demand for business travel is there, but the uncertainties limit companies from actually committing to travel in the current stage. Conferences and corporate events are slowly returning, but these are mostly in reduced size or with hybrid elements As the uncertainties regarding future restrictions make it difficult for such events to be organized to the same extent as the pre pandemic. City hotels, on the other hand, are dependent on a more diverse set of drivers, such as social venues, conferences, events And the like, which create a vibrant urban environment that attracts national and international tourism as well as demand from business travel. It takes longer for such environment to recover in comparison to laser and international travel restrictions have much more significant impact. As a result, these hotels did not recover yet. Currently, it is hard to predict what are the impact of another infection wave and new virus variants We'll have in the future and whether restrictions may come back and to what extent. Therefore, we remain cautious on the recovery and expect 2021 to be weaker than 2020 as the strong 1st month of 2020 prior to the pandemic breakout are missing in 2021. Next question. When do you expect your collection rates to recover? As explained, the hotel market still didn't recover. With leisure tourism has come back fast, the market is still lacking demand from business travel, corporate events, conferences and international travel. City hotels benefit greatly from conferences and events, which take place in the city. And the summer is anyway always a weak season for business travel and conferences. Business travel is not depending on a personal decision, but on a corporate travel policies and corporate travel and event planning. The positive impact of the holiday season can be seen in the increase of our collection rate from 30 4% in age 1 to 45% in July. It is hard for us to estimate the future collection rate as it is hard to estimate hotel performance after the holiday season due to the ongoing uncertainties about virus variants and increasing infection rates. We expect business and international travel not to recover this year and only partially next year, which will weigh on the performance of city and business hotels. Fall and winter months are usually dominated by business travel, conferences and events, and we don't expect this demand as long as infection rates increase. We did expect better performance in 2021 after the vaccination level is increased. So far, we prefer to stay conservative, and We expect extraordinary provision in 2021 guidance to be on the higher level than initially assumed beginning of this year at about €120,000,000 net. Nevertheless, the guidance stays unchanged as the higher The provisions are so far offset with positive effects from synergies with TRG, higher efficiencies and more. Next question. Will you continue the level of disposal activity? What is your disposals pipeline? We disposed in the first half approximately EUR 1,100,000,000 of disposal for all asset types, Offices, retail, logistics as well as hotels at the disposal margin of 3% above book value And 51% above total costs including CapEx. As a reminder, held for sale properties and completed disposal are excluded from our portfolio overview, Recurring net rent, adjusted EBITDA and FFO as their impact is not recurring. We will continue to dispose non core and mature properties When we get attractive offers, which factor in large portions of the future potential and we can thus secure now. We have an advanced disposal pipeline of over $1,000,000,000 The disposal proceeds are utilized to a large extent For debt repayments and for share buybacks, which increases FFO and shareholder value on a per share level. The disposals are carried out above book value and our share is traded at a significant discount to book value and therefore We are able to benefit from this discrepancy. We continue to extract rights and rents from our existing portfolio and believe That such efforts will be seen in the next years, and in parallel, we monitor the markets for attractive deals. Next question. Your growth from acquisitions is muted since the outbreak of the pandemic. When do you expect to restart your external growth? And would you consider further M and A instead or in addition to property acquisitions? We focus on acquiring properties below market prices, which need strong expertise and operational management to lift the upside potential. These opportunities Have become rare as the transaction markets are very competitive. The pandemic and its related stimulus packages from governments and central banks Resulted in a hike in demand and consequently prices, leaving less room for upside and less downside protection. Nevertheless, we are working on several growth opportunities. Our current portfolio holds a large internal upside potential from rent and occupancy increase And development value. The rent revisionary upside is 21%. Lifting this potential will lead to significant FFO and value In the future, although our property acquisition activity has reduced, we continue to scan the markets And thoroughly check for acquisition opportunities. We are well prepared to capture opportunities when they arise. And 2020 was marked by a very large portfolio acquisition through the TLG merger. The merger with TLG added many strong properties to And the non core properties, which comprise mainly retail, are being successfully disposed above book value. So we are further increasing our portfolio quality and are better positioned for future and further upside. 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 construction and refurbishments are finalized and the properties are back on the market. Further, recently, our offer for global worth ended, and our joint venture with CPI now holds together over 60% in global worth. This strong control position opened various options for us, and we will explore opportunities going forward to create more value and synergies. So with TLG and Global Wealth, we closed 2 M and As in the last one and a half years. We look at potential M and As like any other property acquisition, which needs to be accretive, so a strong and high quality portfolio And since we started the first program last year, we have acquired over €1,000,000,000 in value of our shares at significant discounts. The share buyback program is a reinvestment into our portfolio at a very accretive price and as an alternative to acquisitions for achieving growth On a per share basis. Next question. How much of the current share buyback program has been executed? And will you do more buybacks after the current program is over? What is your intention to keep the shares on treasury? Our current program is up to EUR 500,000,000 of which around 37% has been bought back. With our strong cash balance and our shareholders voted for an increase of further potential buyback in the last AGM, We could execute further share buybacks. But first, we will still have to complete the current program and will evaluate the situation afterwards. At this stage, we intend to keep our treasury shares as is and not cancel them, which can provide us flexibility in the future. Are there any updates on your development portfolio? We present in the appendix of our presentation several projects and their status. We have several hotels under full refurbishment as we use the lockdown period to bring forward planned CapEx works. We want to use the time effectively bring their hotels back to the market in their upgraded state earlier than the originally planned pre pandemic. We also have some office developments ongoing. For example, the 25,000 square meter Dresden office next to the historic Palace and Opera House for which pre letting is improving and it is now at 40% With advanced negotiation ongoing for a further 50%. The Dresden office market is Performing very well with vacant office space now in its historically lowest and rents at the highest. We're thus confident to fill up the remaining space Same as with the NARE office asset, which was completed end of December and which is now basically fully let. In addition, we obtained the full building permit for 37,000 square meter office property in Berlin Mediaspre. Generally, our strategy is to obtain the building rights and sell them or on selective basis in top location at the highest pre let ratio We considered to construct and hold the properties. We're exploring how the pre let ratio would develop before making a decision. The Mediaspre location is very strong with many other office properties in the vicinity rented to top tenants such as the headquarter of Zalando. In close proximity, we obtained a pre permit for mixed use office, resi, retail, property and are Currently working on obtaining the full building permit hopefully next year. Obtaining permits is a highly is a lengthy Process and it is dependent on the municipalities and it is fully not in our control. Moreover, the ability to optimize Inflation rates have been increasing significantly. Do you see any impact on your operations? And how do you assess the impact if interest rates will increase? Inflation rates have been increasing as expected due to base effects, e. G. Sales taxes were temporarily lower last And the demand shock last year resulted in temporarily lower prices. Also currently, there is a supply shock after Market reopened and as demand recovered fast. Market expectations are indicating the inflation hike to be short term And we'll normalize when these effects vanish. We do see a certain cost inflation impact on our operation, Some of which are temporary and relate mainly to the cost of materials and CapEx and some are more long term such as personnel expense. We see salaries increasing in the last periods across all functions and departments in our organization, and we expect these levels to remain. The operations cost inflation is offset by increasing efficiencies and from extracting economies of scale. On the income side, we are protected as the majority of our leases are linked to the CPI and therefore, we expect higher rents in case CPI increases. Regarding interest rates, considering that several economies within the EU are still struggling with the pandemic impact, Markets do not expect the ECB to stop their easing programs anytime soon. Either way, interest rate hikes will probably be gradually. Next question. As your portfolio is mainly made up of existing assets and less newbuilds, How much CapEx will be needed to upgrade your portfolio in the future to comply with the energy requirements? While our CapEx investments are targeted at tenant fit out, space expansion and maintaining and or upgrading the asset quality, which includes improving the environmental footprint through insulation, heating systems, etcetera. So our ongoing CapEx spendings are including many of these upgrades. Naturally, the market and with the tenant requirements are changing, and we are adapting accordingly. We see, especially in the Netherlands, an increasing demand from existing and prospective tenants for greener assets, mainly focused on buildings with a green building certification. We expect this demand will translate into higher rental prices. The CapEx spending for the green upgrade could be covered by higher rent, higher demand for those assets, which result in lower vacancies. We don't see overall demand from tenants in Germany on greener leases or buildings yet, but we expect the demand will come. We test started our pilot project in the Netherlands, where we scanned onethree of our office properties for potential green building certifications and identified so far around half of the scanned assets, which can be certified soon. Our goal is to have most of our office portfolio in the Netherlands certified by 2025. We will utilize the experience we will gather from this pilot project to apply to the rest of our portfolio. In addition to our ongoing CapEx spending, we have a target to increase our property's energy efficiency and the generation and storage of renewable energy. In practice, this means installing solar panels, increasing energy utilization through CHP and CCHP, Electric vehicles charging stations, replacing inefficient fossil fuel heating systems, switching to energy providers who provide climate neutral energy and engaging tenants for more conscious energy, water and waste usage and energy saving methods. The energy investment program will be developed gradually and will both enable us to significantly improve the energy efficiency and is a future value driver. Please see more details in our presentation in the appendix as well as in our sustainability reporting available on our website. Next question. Your rent like for like, excluding hotels, was 0.8%. What is the breakdown of the 0.8% in terms of in place rent and occupancy? What is the reason for the flat results? And what do you expect in the coming periods? Excluding the impact of hotels, the land like for life like increase of 0.8% was driven by an increase in interest rents of 1.4% and supported by new lettings as well as prolongations The above average rents and occupancy decreased by 0.6% on the like for like basis. The largest increase was in the office portfolio And we're in Amsterdam, Dresden, Berlin, Hamburg, Leipzig and Utrecht. The hotel portfolio like for like was negative at minus 3.4%, which brought the average like for like for the total portfolio to a minus 0.7%. The negative hotel like for like is reflecting the large impact The pandemic owned this asset type and is the result of a temporarily reduced trends in certain situations and on a selective basis. Although the results are below our average in the recent years, they do reflect the stability and strength of our portfolio And our platform in the currently challenging environment. Excluding the hotel portfolio, we continue to see positive Like for like performance, increasing our rents and maintain stable occupancy rates. The letting process is longer since the outbreak of the pandemic, Which extends the time needed to increase occupancy and capture the revisionary potential. Next question. Can you please elaborate more on your revaluation gains of the period? And what do you expect going forward? In the first half of twenty twenty one, we have revalued a relatively small amount of the portfolio, approximately 1 quarter. As we have mentioned in our previous call, we plan to carry out evaluation of a larger portion of our portfolio in the second half of twenty twenty one, When we expect to have a better visibility on the market and our portfolio after the relief of in the lockdowns and restrictions. We recorded in the 1st 6 months of 2021 €100,000,000 of revaluation and capital gains equal To over 0.5 percent like for like on the total portfolio, including the portfolio which was not valued yet. In H2 2021, we expect to continue and see stability in our valuations in line with our performance in the last quarters. 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 1 by 1. Thank you. And we will now begin the question and answer session via the telephone line. And the first question we've received is from Manuel Martin, OTOBHF. Your line is now open. Please go ahead. Good morning, gentlemen. Three questions from my side. The first question is Again on hotels, maybe you could give us some flavor on your ongoing rent negotiations, how are they going? That would be question number 1. Question number 2, also in the Hotel segment. I saw in the presentation that You assume to reach pre pandemic levels in Germany in 2023 and in U. K. In 2024. Maybe you can elaborate a bit why U. K. Might come later. Question number 3, it's On the upcoming consolidation of Grand City, is there any beneficial effects for Rownton Because of that and what was the reason of the consolidation. Thank you. Hi, Emmanuel. Thank you for your question. Referring to the hotels, On the market side and the recovery, we follow market researchers and see also how The industry is behaving. And based on these market researchers, it looks like that the recovery is planned To put on pandemic level in 2023 in Germany and in the U. K. In 2024. Referring to rent negotiations with the hotel. So our leases are fixed long term with The increases, so there are not heavy discussions on what should be the rent levels. We are in constant Discussion and communication with the tenants about their operation and their ability to pay rent. We follow the performance Of these hotels, we make sure that we do the right thing. On the other hand, we are looking and to use these times to Maybe make conversions or other types of uses for the properties that will give the best use. Referring to the consolidation with GCP, there were several events in the last Periods that eventually our position in Vancity increased to nearly 45%. It's mainly coming from us Push choosing all the time the scrip dividend and increase our relative position. Grand City in parallel did share buyback and 2 in share buyback, which also we didn't participate and also our position increased. And it reached to a point that we feel or our Board feel that we have the majority in almost Every shareholder meetings, which lead according to IFRS standards to a de facto control, Which will then lead to a technical consolidation of Grand City in our books. We see this consolidation as a good thing as We will present Grand City books and investments in the residential portfolio as part of our investment property and not as part of our JV Investments. Thank you for the question. The next question is from Ben Richford, Societe Generale. Your line is now open. Please go ahead. Great. Thank you. Just a quick follow-up on the consolidation then. I know you said in the initial notes that it was immaterial, but I'm not sure you We answered the question just previously around any beneficial effects. So based on the H1 numbers, what would The difference on the net assets of the company, please. Second question, a little bit more on global worth, what your intentions are there now that you've got over 50% of the voting rights of that company And there's a major shareholder who has refused to tender their shares to you. And then just a third question. You base your share buybacks on NTA, which I think there's a lot of logic to choosing a measure and Being very clear about that to drive your capital allocation, which has been impressive. But I just wondered to what extent you debate whether NTA is the right measure, whether you should use an adjusted number, maybe There's a full amount of transfer tax optimization in there or whether you consider NDV, which is another widely used measure It's more appropriate, which is would be give you a lower benchmark for making buybacks. Thank you, Ben, for your questions. In terms of the consolidation in Grand City, We also announced it as part of the announcement on the consolidation. On if we look at the NAV Post consolidation, we don't expect any material change. On the FFO side, we already include our Group share in the FFO of Grand Cities. So also on the FFO side, we don't expect any material change. And that's why We called to the consolidation, more technical consolidation. We do see a positive side to have the portfolio in our books and presented this more But on the FFO level, the FFO already currently in the guidance presents our group share in GCP's FFO. On Global Wealth, we just completed last month, as you mentioned, the Offer over Global Wealth together with our partner CPI. We We are now starting discussions with Global Wealth Management and together with CPI to Flow potential synergies and cooperations between the groups. We will have more data on such achievements Later in the year, because these discussions just started, we see the full portfolio of global wealth of Complimentary to ours, we like the properties and their main locations and their tenants. So it gives us an additional diversification. The relationship with a third shareholder that didn't tender his shares is good. We are in contact. We see many things eye to eye. And he is part of the consortium That big shareholders of the company, of Global Wealth, and I can say that so far the relationship is good. And it seems that we see what we plan in a good manner. Referring to the NTA, look, I think it's at least from our perspective, the NTA is more or less market standard For replacing the EPRA NAV, which was the main EPRA metric that the market used. I agree that there could be arguments right or left on, let's say, how and when you should use it. I think that we Build up our NTA. Very clearly, we exclude from all the deferred taxes that were added, all the We exclude the developments. We exclude the non core portfolio, mainly retail. So we think that our NTA really reflects the formal NAV on one side. And in terms of the In addition, on the purchaser costs, we only added back 40%, which we feel that From a structure perspective, we can use and 60% we didn't use at all. So we feel very comfortable with the way we present it. And We actually see this as the right a parametric to compare. Thank you for your question. The next question is from Kai Klose, Berenberg. Please go ahead. Your line is now open. Yes. Good morning, gentlemen. May I ask three questions? The first one, could you indicate how much of last year's rent relief you have granted to tenants have been collected Since then, all answer now. The second question would be on the neo office project. You mentioned the 1 in Dresden. Has it now been completed, could you indicate what was the yield on cost which has been achieved there? And last question would be on Page 59 of the presentation on the Haagenstrasse You gave some details regarding the CapEx you're going to spend, therefore, repositioning. Could you indicate how much has been spent and how might be spent this year and how talks with potential tenants It's been progressing so far. And maybe a bit of a time line until when we can get this product being completed. Thanks. Hi, Kai. Good morning. Thank you for your questions. In terms of the rent relief that we gave last year, We did collect some, but very minor part. As you remember, this year also was most of H1 was under lockdown in all In most of the areas where our property is located, so we didn't feel that it's the right time now to put for collecting rents that we gave early from last year. And I think that we will need to see how the market evolve in the next quarters. And If there will be an opportunity, for sure, we will collect more than what we did so far. About the NIO portfolio, so the yield cost so far is 7%. And I will let Barak answer about Hafenstrasse. Regarding Hafenstrasse, so the situation is that we are getting the permits for additional square meters into the building. In general, we're getting more net lettable area of approximately 3,000 square meter. So that is coming in the next hopefully in the next weeks. In addition to that, we're in a pre let situation. So at the end of the day, We will start if we start the project, we'll start it also with, let's say, only with a pre let ratio that will Satisfy our strategy and hopefully we can start it very, very soon. We saw I'm sure that you see comparables in the market. Previous week, we saw sales there for approximately 16,000 square meter. So we're very positive about the project. Thank you for your questions, Karl. The next question is from Jonathan Konotor, Goldman Sachs. Your line is now open. Please go ahead. Good morning. Thank you for taking my questions. I have 4, if I may. The first one And just on vacancy and vacancy reduction, can you just, first of all, confirm if your development projects are included in the vacancy or not? And where are the main points of vacancy today in your portfolio and how you're planning to reduce those? So that's the first question. The second question, can you comment on the impact from Global Wealth acquisition on your financials and is that included in your guidance? And then the third question is actually 3rd and 4th on disposals and capital recycling. Apologies if I missed it. Can you give us a Few thoughts on further disposals in your portfolio in terms of volumes. And also on capital recycling, You have now sold over €1,000,000,000 this year already and share buybacks are only less than €200,000,000 at this stage. So the question is, Are you planning to distribute that capital in another full measure buyback can be more efficient In terms of distributing proceeds back from acquisitions, or do you intend to keep most proceeds for deleveraging? Thank you. Hi. Thank you, Jonathan, for your questions. So the development projects are Not part of the portfolio and are not part of the vacancy. The development projects, some of them are only building rights. So it's not really that you can measure the vacancy on that items. Every time a portfolio or the project is being built, Then it entered into the portfolio and being calculated as part of the vacancy and all the KPIs. Our vacancies in the investment portfolio, which is presented, is allocated across all the portfolio with No specific concentration. We are working together. Our teams are working day and night to work on reletting, I think we presented reletting of in prolongation this H1 Much better than what we did in H1 2020. We see nice and we have nice negotiations on our books As well, we need to see how and when exactly these negotiations are going to be completed. As we said, it takes a bit more time now Than before, tenants are taking a bit more time to decide. There are not so fast increase in spaces. Prolongations are now for a A bit shorter than what they were before. And we will keep you updated on a quarterly basis about the developments of reducing the vacancies and the relating. In terms of the impact of global growth And so what we included so far referring to global growth in our guidance is just the dividend that they are distributing. They're distributing 90% from their EPRA earnings. So this is what is included in the guidance. Referring to disposal volumes going forward, we have negotiations For about €1,000,000,000 of properties currently in the Ed force sale, we have about €600,000,000 that we Expect to dispose in the next 12 months. There are always discussions. Let's see what actually is going to be finalized. And We will update in the next reports. Referring to the disposal of the €1,000,000,000 yes, we so far did €200,000,000 of buybacks Out of a €500,000,000 program, so there's still €300,000,000 to complete. And in addition to that, we are working on repayment of debts, Especially bank debt. And for all the supplies that will come on top, we need to decide when the tie comes. Maybe we Enlarge the program of the buyback, maybe some acquisition will kick in. But we feel very comfortable that in these times, we are sitting on cash and that we have strong liquidity and waiting for additional opportunities to come. Thank you for your questions. Thank you. There are no further questions. So I would like to hand back to you. Thank you all for your time to participate in this call and the many questions you have submitted via e mail and during this call. As always, we are available for further discussions and look forward to speaking to all of you in person as soon as feasible. To then, stay safe and take care.