Ladies and gentlemen, welcome to the Q1 2020 Results Presentation of Aroundtown SA. At our customers' request, this conference will be recorded. As a reminder, all participants will be in a listen-only mode. After the presentation, there will be an opportunity to ask questions. If any participant has difficulty hearing the conference, please press star key, followed by zero on your telephone for operator assistance. May I now hand you over to Mrs. Sylvie Lagies, Head of Communications and ESG, who will start today's conference. Please go ahead.
Good morning, everybody. Thank you for joining us for our first quarter 2020 results call for Aroundtown SA. 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 am Sylvie Lagies, Aroundtown's Head of Communications and ESG. Our CEO, Shmuel Mayo, CFO, Eyal Ben David, Executive Director, Oschrie Massatschi, Head of Investor Relations, Timothy Wright, and Yakir Gabay, will guide you through the presentation and answer your questions. 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. As already mentioned in our announcement, please send us your questions via email, also during the presentation. The email address is info@aroundtown.de. With that, I will now hand the call over to Oschrie. Please go ahead.
Thank you very much, Sylvie. Good morning, everyone, and welcome. Needless to say, the COVID-19 pandemic continues to have a lock on the global economy, and our top priority remains the health and well-being of our employees and stakeholders. Since our last earnings call at the end of March 2020, we overcame challenging times with a peak of the strictest lockdown measures in April, and have since been observing a trend to recovery in all our asset classes. Across Europe, we see governments carefully starting to ease some of the self-imposed lockdown measures, and sectors that were completely closed start to open the door slowly. We are going to review the Q1 2020 results, of course, and give more emphasis on the operational performance and impact on each asset class.
We will cover our line of thought on the share buyback program, dividend policy, and why Aroundtown sees itself well prepared for the next cycle post the lockdown. Please go to slide three. Summarizes the relevant KPIs of our Q1 2020 results. We finalized successfully the merger with TLG on February 19, 2020, with a high ratio of tender shares of 78%, and continued with the planning and integration of our operational teams and management. The integration is slightly delayed due to the recent lockdown. However, we intend to finalize most of the implementation during the second half of the year. We have fully consolidated TLG as of February 19, 2020, and are happy to present a complete picture of the impact.
Following the successful results of the full year 2019, Q1 2020 saw limited impact from the lockdown, which started to take hold from mid-March onwards. Our KPIs reinforce the defensiveness of our balance sheet, especially our healthy capital structure. EUR 17 billion of unencumbered assets and EUR 3 billion of liquidity balance. They provide not just a sound financial security, but also the flexibility to take advantage of unique and accretive acquisition targets, which are not uncommon to arise during times of a crisis. I'll now hand you over to Eyal, who will guide you through the key financials before we move on to our current operations.
Thank you, Oschrie . Please go to slide five. In the first quarter of 2020, the net rental income stood at EUR 233 million, up from EUR 176 million in the same period of 2019. Taking into account the full consolidation effect of TLG, the annualized March 2020 net rental income amounts to EUR 1 billion and EUR 52 million, 13% higher than the Q1 2020 annualized rental income. Our like-for-like rental growth for the period was 3.7%, and is made up of 3.2% from in-place rental growth and 0.5% from occupancy improvements. Net profits for the period amounted to EUR 246 million, and the earnings per share resulted in EUR 0.14.
The decrease from the comparable period is mainly driven by the negative non-recurring impact from the increase in the fair taxes, expenses, and other financial results in the first quarter of 2020. Nevertheless, the recurring operational profitability demonstrated a strong growth, reflected in a 25% increase in FFO 1, which you will see on the next slide. During Q1 2020, we didn't have any valuation performed on our hotel properties due to the current uncertainty in the market. We expect to perform these valuations in the next quarters. Please move to slide six. Adjusted EBITDA grew in Q1 2020 to EUR 237 million, up from EUR 180 million in the same period of 2019, a growth year-over-year of 32%.
On an annualized basis, the adjusted EBITDA results in EUR 949 million, with a solid CAGR of 42% since 2017. Slide seven provides an overview of our funds from operations. During the first three months of 2020, our FFO 1 grew to EUR 147 million, up from EUR 118 million in 2019. This led to an FFO per share of EUR 0.114, and EUR 0.46 on an annualized level. FFO 1 per share, after perpetual attribution, increased to EUR 0.098 in Q1, and EUR 0.39 on an annualized basis, which reflect a yield of 8% to the current share price.
The Q1 2020 FFO 2 came in at EUR 170 million, resulting from FFO 1, plus EUR 22 million profits from disposals in value of EUR 55 million, which reflects a premium of 5% to book value, and 68% over total cost, including CapEx. After successfully disposing EUR 1.5 billion worth of assets in the last two years, we continue our capital recycling in 2020, to sell further non-core and stabilized assets, and currently have an active sell pipeline exceeding EUR 0.5 billion. The funds from our disposals will be used for new accretive acquisitions with stronger upside potential, and thus, higher long-term shareholder value creation. Continuing to slide 8. After merging TLG's with Aroundtown's portfolio, we reached a total asset size of EUR 32.3 billion at the end of March 2020.
Investment properties amounted to EUR 23.2 billion at the same point in time this year. Thanks to our large network with sellers globally, we continue to see many deals in our acquisition pipeline. However, at this point in time, we believe it's the best to preserve our excess cash until we see special investment situations opening up due to the current crisis. Crisis situations can bring up very unique opportunities, as we expect some players to get into financial distress if the crisis continues. We experienced these opportunities in the global financial crisis of 2008 and 2009, where in the following years, we completed many great transactions, which created substantial long-term shareholders returns. Moving to slide nine.
In Q1 2020, we have been able to increase our EPRA NAV up to EUR 12.1 billion, up from EUR 10.6 billion, mainly due to the merger with TLG, while increasing the EPRA NAV per share to EUR 8.8, as we did a share-to-share offer on the basis of EPRA NAV of both companies. EPRA NAV, including perpetual notes, increased to EUR 11 per share in the same period, mainly due to the perpetual notes from TLG being fully consolidated. We reiterate that Aroundtown's perpetual notes are equity instrument, as they are fully subordinated to debt without any maturity date, no default rights or covenants, and it should become clearer in the current situation that these instruments provide a safety cushion in the same way as equity does. I will now hand you back to Oschrie for the next part of the presentation.
Thanks, Eyal, and please move to slide 10 now. This slide summarizes our ongoing healthy capital structure. Our LTV at the end of Q1 2020 stood at 36%, well below our board limit and covenants. The interest cover ratio remained constant year-over-year, at the strong level of 4.7x , same as our average cost of debt of 1.6%, and average maturity of 6.5 years. Our unencumbered assets increased to EUR 16.6 billion in value, and represent 74% of the investment properties at the end of March. As always, we monitor our funding options across different issuances and currencies globally, to time the market, and always have sufficient liquidity at hand for growth opportunities and economic challenges.
Slide 11 highlights the key covenants from our EMTN program and compares them with our recorded March 2020 covenant levels. As you can see from the table, we have substantial headroom to each of these covenants. Total net debt to total net asset needs to be below or equal to 60%, currently at 33%. Secured debt to total assets needs to be at or below 45%, currently at - 4%. Please do not misinterpret this - 4%. It is very strong, meaning our cash balance is higher than our secured debt balance. Unencumbered assets or unsecured debt needs to be at or over 125%, currently at 288%. And adjusted EBITDA over net cash interest needs to be equal or over 1.8x , and is currently at 5.2x .
Please be aware that the just mentioned covenants methodologies are market standards and are clearly laid out in our EMTN documentation. Moving on to slide 13, we provide a breakdown of our assets by segment and city based on their value. Thanks to our high degree of diversification, we see the strong portfolio resilience during the current crisis. Office, hotels, and residential remain our main asset classes. German and Dutch office assets appear to be, so far, resilient and are only limitedly impacted by the lockdown. Since April, we did experience a slowdown in new lettings. However, the vast majority of expiring lease contracts were renewed. Now that the lockdown is lifted, we start to see the demand for new lettings growing. Our retail portfolio only makes up 9% of our portfolio and consists mainly of food-anchored retail boxes.
Germany and the Netherlands, which hold the majority of our retail portfolio, have already started to lift the lockdown for retail stores from May. Our hotel assets represent 23% of our total portfolio, and after a decade of continued growth, they are directly impacted by forced lockdowns and travel bans. There will be more to come on this asset class in the next slides. I'd like to ask Shmuel now to continue with the next session of the presentation.
Thanks, Oschrie. Moving on slide 14, provide a glance of the highly diversified and defensive tenancy structure, with our overall combined weighted average lease term of 8.1 years. In total, we have over 4,000 tenants across the full spectrum of commerce, with our top 10 tenants representing only 20% of our net rent. In addition, the merger with TLG has given us a larger footprint in our key cities, such as Berlin and Frankfurt. On slide 15, we provide a view of our office sector, representing 49% of the portfolio by value. Due to the large number of tenants we have, each of our location serves different key industries, giving us, again, a high degree of income diversity. Berlin, Frankfurt, and Munich account for 55% of the office share.
Three of the most important cities in Germany, along with the strong imbalance between supply and demand in central locations. The biggest industry sector in our office portfolio is governmental and agencies, making up 22% of office tenants. While it's less than 1% of office tenants are related to air travel, oil, or tourism, which are most severely impacted by the lockdown. Also, less than 1% are related to the co-working sector and no exposure to WeWork. The weighted average lease term on our office portfolio is 4.5 years. I'll now hand you back to Oschrie for the next part of our presentation.
Thank you, Shmuel. Continuing with slide 16, the office sector, combined with our residential exposure through our stake in Grand City Properties, represents a total of 61% of the overall portfolio value. In April 2020, the impact on our collection rates in offices and residential was limited, with over 92% collected in offices and over 95% collected in residential. Residential assets being more resilient in these times compared to offices. As most of you will know, the German government gave permission to all tenants of any asset class to defer rental payments of Q2 2020 for up to two years. If they can demonstrate that they have been financially negatively impacted by the current crisis, the interest on the deferred amount is 8%.
As the majority of retail properties cater essential goods such as groceries, the April collection rate has been reasonable at approximately 80%. You can see on slide 17, the remaining tenants, which were directly impacted by the lockdown, used the right for deferral, as just explained. Logistics and wholesale tenants, accounting for 7% of the portfolio, saw an outperformance during April, and we were able to collect all rents due. So as you can see, the diversification is key in times like this. There are asset classes such as residential, logistics, offices, and essential goods retailers, which are relatively resilient. And other classes, asset classes, such as hotels, which suffer in the short term, but in our opinion, are resilient mid to long term.
As every industry and country is also affected differently, our operational performance was good in relation to how this crisis has played out so far. Please move to slide 18. Over the last several weeks, the majority of rent deferral and waiver requests received were related to our hotel sector. The reason is quite clear. Around the world, governments have forced a shutdown of these businesses for an undefined duration, either directly or indirectly, through the shutdown of the travel and tourism industries. Our hotel properties account for 23% of the overall portfolio value. All 176 hotels are externally operated and represent over 30 different experience and quality operators, with an average lease duration of 15.4 years. Our rental agreements with the hotel tenants are fixed, plus CPI-linked without a variable component.
Our hotel portfolio is very well diversified across the metropolitan regions in Europe. The lease agreements are double or triple net, include different types of securities and guarantees. In light of a doomsday scenario, or basically an extensive shutdown period that could extend over several quarters, we also have the possibility to convert many of the hotels into residential micro units. Now, continuing on slide 19. In Q2 of this year, many hotel operators took advantage of the available governmental support subsidies in order to limit the impact of the COVID-19 crisis, as all hotels were directly or indirectly impacted by the lockdown and travel bans. As mentioned earlier, the German government gave permission to affected tenants to defer Q2 2020 rental payments for up to two years, plus an interest of 8% if they can demonstrate that they have been financially negatively impacted by the current crisis.
Moreover, we evaluate on a case-by-case basis where rent deferrals make sense. In Q2, the vast majority of the hotel operators deferred their contractual rents according to the legal permission or based on negotiated deferral agreement with us as a landlord. These rent deferrals bear an interest rate of 5%-8% in most cases. Turning to slide 20, you can see an overview of our hotel portfolio per country by rent. We present this breakdown here, as each country has lifted the lockdowns on hotels and tourism at different times. So Germany, the Netherlands, and Belgium, which make up two-thirds of our portfolio, are either already open or will open in the coming weeks. You can see on the right side also the feedback we got from our hotel tenants when they will open their doors.
By end of May, 75 of our hotels will be open again, which makes up half of our hotel portfolio. By end of June, we will already be at two-thirds of the hotels open. This amount is updated daily, and we hope to see more operators opening their doors during June. So far, our U.K. hotels have not set specific opening times, as the U.K. government did not provide exact dates and said to expect to lift the shutdown by beginning of July. However, already throughout the full duration of the lockdown period, several of our hotels in different countries received demand for alternative usages, which generated income. This demand came from governments, retirement communities, universities, football clubs, police forces, or on behalf of vulnerable people.
It is fair to say that even after the hotels open, it will be a long improvement period before occupancy levels will reach pre-crisis levels. As you can see from the bar chart, the strength of our three core hotel markets, Germany, the Netherlands, and the U.K., are supported by a high share of domestic travel demand. These three countries account for 84% of the total exposure by rent. These markets have naturally a very high ratio of domestic hotel demand from leisure and business travelers alike, and we believe this will act as a catalyst for faster recovery during the second half of this year. So even with air travel restrictions to continue, it can be expected that the demand for hotels in these countries will partially recover due to the strong domestic demand. Center Parcs is well prepared to open all seven Aroundtown properties shortly.
Five German and Dutch locations will open during the course of this week, while the remaining two parks in Belgium will open within the next two weeks. These assets are expected to enjoy high demand from domestic visitors that can travel by car. The reservation volume for summer 2020 in our parks during the last two weeks was higher compared to the same period of last year. Given they differentiate themselves as large outdoor resorts, they enable social distancing and hygiene precautions in a natural way. Based on current booking indications, these resorts are recovering very fast. On slide 21, we see an overview of the well-diversified hotel tenants and brands. These well-known and long-established operators provide a long-standing experience in different market environments, and we don't have any major dependency on a single tenant.
The largest tenant in this segment is Center Parcs, who accounts for nearly 5% of the total rental income. Finally, on slide 22, we demonstrate again how well prepared Aroundtown entered the current crisis. Our strong financial position does not only act as a shield against a prolonged economic downturn, but also serves as a head start to take advantage of acquisition opportunities that will arise from this pandemic. Our goal has always been sustainable accretive shareholder return, and we believe that the postponement of the decision on the dividend payout is currently a prudent approach, as we still don't have a clear view on the length and depth of the crisis. Should the economic shutdown and subsequent downturn not have a material impact on our operational performance, we will reconsider paying the 2019 dividend later in the year.
Additionally, as our share price is trading at a significant discount to our net asset value, we decided to start a share buyback program, which will further benefit our shareholders. More details on this program will be announced in the following weeks. Since the takeover of TLG in February 2020 and the beginning of the pandemic, we have drastically reduced our expenses related to acquisitions, CapEx, and development costs. Over the last few months, the extent of the international lockdown on the world economies has become more tangible, and while we still do not know how long it will last or whether there might be a second or third wave of lockdown periods, we've put in place additional provisions to mitigate risks in order to deal with a potentially persistent crisis.
Our well-diversified portfolio across asset classes and geographies, tenant structures, as well as capital structure, has enabled us to enter the current crisis with one of the strongest profiles amongst public European real estate firms. One of the key elements is to maintain adequate cash liquidity, not only to weather the storm, but also to benefit from special investment situations that will come to the markets. One last point regarding guidance: we still don't have reasonable clarity in order to submit a 2020 guidance. Hopefully, in the coming quarter, we will be able to estimate our 2020 guidance. That concludes the presentation. The appendix holds plenty more information for you all to look at. I'll now hand you over to Sylvie, who will lead the Q&A session.
Thank you, Oschrie. 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 do you view the current situation? What is the impact on your operations?
It is still hard to assess the impact of the full economic shutdown on the market. In the last weeks, there was an easing to the limitations given by governments, but it is hard to assess when they will be completely lifted and when the economy will start to recover. The longer the full or partial lockdown will remain, the larger the impact will be on the global economy. We expect to see recovery vary between sectors once the lockdown and travel bans are over. The current strictest restrictions are on airlines and tourism, under which hotels suffer most. We expect to see companies with weak liquidity and high leverage as vulnerable. Aroundtown, being one of the most liquid players in the market, with EUR 3 billion of liquidity and very little uses in the next periods, can endure a continuous shutdown and have the firepower to pursue acquisitions.
Although the pandemic effect had a severe impact on economies across all countries and segments, we see the importance of diversification on the recoverability and buoyancy. We always focus on a high degree of diversification in terms of asset types, tenants, and locations, which provides to our portfolio a degree of resilience, and since we are focused on the most robust economies in Europe, we expect to see a relatively fast recovery once markets start to fully function. The office, residential, retail, logistics, and other asset types amount to 77% of the portfolio. Nearly all tenants, all of our tenants were functional during the lockdown. This is reflected in a high collection rate of over 90% in April, with the lowest impact on the logistics tenants, which were fully collected. Residential tenants achieved a collection rate of 95%, and office tenants collected over 92%.
Retail collection is at 80% in April, which is much higher than average market collection rate for retail, as the majority of our tenants are essential, such as supermarkets. The remaining rent is deferred, and we expect to collect it in the upcoming periods. We see this collection rate as reasonable, as governments legally enable tenants to defer rent. This result validates the strength of our tenant base. Our hotel portfolio, which makes up 23% of our portfolio, experienced the largest impact, as most of the hotels had to be shut down. The vast majority of the hotel rents were deferred based on the current legal right to do so, or after a deferral agreement with us. The deferrals carry interest rate of 5%-8%. We are working very closely with the hotel operators, sharing knowledge and seeking creative solutions on a case-by-case level.
The operators already reopened part of the hotels and are prepared to open most of them until July. Also, here we see the importance of diversification, as we expect each location to recover at a different pace. We also take into account that the possibility of a second wave and additional shutdowns are still imminent. We are hopeful that the crisis will end soon, but Aroundtown is also prepared for the scenario that the restrictions will be stricter again.
Next question: Can you please give us more color on the impact on the hotel market? How do you see the recovery of your operators?
During March 2020, there has been a European-wide shutdown on hotels. Of our portfolio, initially, 15 remained open, and over 33 of our hotels have continued their operations throughout this time of lockdown. The hotels which remained open, among others, have been in Berlin, Frankfurt, Dortmund, Hamburg, Bremen, and Leipzig. As expected, the operational occupancy has been low for these hotels at around 10%-15% on average. The hotel guests have been business travelers as well as COVID-19-related travelers. These hotels, and also for a specific period of times, are rented to governmental institutions, hospital, essential employees, and other governmental departments operate in the fight against the pandemic.
The income was not a game changer, but assisted operators crossing this lockdown with reduced losses. As mentioned in the past, the hotels are leased to very strong third party hotel operators with fixed long-term rental agreements of 10-25 years, and represent WALT of 15 years. The rental agreements are double or triple net, fixed plus CPI linked. From the beginning of the crisis, we have been in close contact with our tenants and discussed options for cost savings, among other topics. Many of the initial cost saving measures have been on the variable part, but the tenants further reduced expenses and implemented other cost cutting measures for the time the hotel reopened. These cost cutting measures include reducing overhead costs and other variable expenses. In order to avoid gatherings and maintain social distancing, new digital measures, which have been in the pipeline already, have been accelerated.
For example, the entire booking and reception process is made online, and the guest receives information in-room on room number and a code to enter their hotel room. Thus, the hotel significantly reduces the costs and workforce for reception and concierge services. The goal is to keep the local structure intact, also after the crisis is fully over. By the end of May, the lockdown on hotels in Germany has been lifted, which is our largest hotel location, with 50% in terms of rent. In other locations in Europe where our hotels are located, hotels are open as of June for Paris and the Netherlands. Brussels is already open, and the U.K. seems to open earliest in July.
Center Parcs, our biggest hotel tenant, was close to 5% from rental income, has opened last week, one park in the Netherlands, and this week will be opening another park in the Netherlands and Germany. In Belgium, the parks will follow very soon. We see good demand for the Center Parcs hotels, with a number of reservations in the last two weeks being higher than the ones in the same period of last year. We believe that resorts such as Center Parcs will benefit, as people cannot easily travel by air, and will probably travel by land, such as car or train, and to their next destination. Just to give you an idea, the catchment area of a three hour drive around our Center Parcs properties in the Netherlands and Belgium is 21 million people.
Overall, by the end of this month, half of our hotel properties will be open, and during June, this will amount to two-thirds. We expect more updates on this as the lockdown will be lifted. The hotels in the U.K. did not set any opening dates yet, due to the missing certainty of the easing measures and the missing timeline provided by the U.K. government. However, few hotels are open and used for essential employees. In the past weeks, we have learned that it is hard to predict how hotel demand will come back, linked to the continuous changing of government regulations, and even within countries having different adaptation of these regulations state by state. What we have seen is that in Germany, where restrictions have been lifted, hotel demand is returning for both corporate and leisure travel.
There's also some demand returning for meetings. And we are still far away from the situation before the lockdown, but the hotels start to open is encouraging to us. We will stand by our hotel tenants and let them focus on their business in this challenging period. We expect to see the demand for hotels coming from domestic tourism due to the restrictions and difficulties with air travel. The German hotel market is characterized by strong domestic demand, which is a characteristic amongst Northern European countries, where our hotels are located, which are less dependent on summer tourism, like in Southern Europe. Germany has a strong domestic demand of over 80%, and we expect people to adjust their vacation destination to destinations that are within driving distance.
We expect also the demand for hotels and cities not to pick up fast, as we assume travelers will avoid highly dense metropolitans. Also, here, the demand will rely on domestic travel, and we expect cities with relatively low population density, such as Berlin, to recover faster than others. Demand for hotels, which are focused on the event and conference sector, can also be expected to remain challenging until the group gathering bans will be lifted again. We feel that despite the tremendous challenges the industry is currently facing, the hotel industry has proven to be very agile in the past, and the first positive signs of recovery can already be seen. For example, the strong touristic demand in the summer season.
At this time, we are still not able to foresee how this positive development will be translated into rental paid, but we are happy that the lockdown is being lifted, and we keep you updated on our meetings and conferences.
Next question: How has the pandemic impacted your overall hotel strategy going forward? How do you see your largely four-star hotel portfolio placed versus luxury hotel assets in a prolonged recession?
Our strategy towards the hotel property market did not change, as these properties are strong cash flow yielding properties. All in all, benefiting from strong demand and the short-term lockdown did not change the long-term characteristics of these properties.
...As we focus on top tier locations, we believe the market will rebound faster in our focus locations, supporting the long-term fundamentals of our properties. We will continue to focus on half hotels that can potentially be converted into micro apartments. We expect some weaker players in the market to become forced sellers as a result of the current crisis, which will potentially become a buying opportunity for us. On average, we see the four-star hotel market to recover faster than the high-priced luxury hotel market, as the four-star category caters the highest demand and most diverse segments from tourism, conferences, and businesses. Especially in times of economic decline, affordable middle class categories will perform better than the high price star categories. This was our experience in the last financial crisis in 2008 and 2010, and strengthens our focus on the four-star segment.
Next question: How is your rent collection affected by the shutdown? Do you expect to still collect this money, or will you have to write it down?
Q1 collection has been in line with previous periods, around 98%. We collected in April, 92% for offices, 100% for also logistics, and 80% for retail. We expect to collect the remaining rents for offices and to reach close to our normal collection rates. We are in discussion with our retail tenants that were directly impacted by the pandemic. Assuming the lockdown will be fully lifted shortly, we will assist our tenants with a comfortable rent deferrals. If the lockdown will continue, we will consider also other solutions. We expect a very limited impact from the retail, since our retail exposure is limited with 9% to the total portfolio, and majority food anchored, as explained before. We have received requests from hotel tenants for temporary deferral of rents, shifting from advanced quarterly payments to monthly payments, and in some cases, rent reductions.
In the current situation, most of the hotel tenants use their legal ability to postpone the three months rents from April to June, up to two years, and pay up to 8% interest on a delayed amount. Note, this doesn't mean canceled or reduced deducted rent, we will collect later with interest. Other tenants came to shorter deferral arrangements with us, which include lower interest than 8%.
Would you consider hotel rent reduction for the duration until the hotel market has recovered?
In the current situation, most of the hotel tenants use their legal ability to postpone their rent payments from April to June, up to two years, with the interest, as just explained. No, this doesn't mean canceled or deducted rent, as we will collect these rents later on with interest. In general, if the lockdown and travel bans would be extended or would be reenacted for a long time, that our hotel tenants would get into material problems, we would also consider a one-time rent reductions on a case-by-case basis, of course, depending on the length and depth of the lockdown and travel bans.
You mentioned the collection rates for the month of April for residential, offices, retail, and logistics, and stated that the collection rates in May are at a similar rate. What is the collection rate for hotels? What is your best estimate for the collection rate for the different asset types in June? How much of the overall rent that has not been collected yet would you categorize as deferred, and what portion do you think will be lost?
The vast majority of the rent of hotels were deferred. Over 10% was already collected. We expect the deferred rents to be collected in the upcoming periods, based on the legal ability of some of the tenants to defer rents up to two years or deferral agreements with other tenants. We expect the June collection rate to continue to be low and increasing only from second half of 2020. The rents are deferred and bear an interest, but not reduced or canceled.
Next question: How is the status with the former Brussels Sheraton?
The hotel is currently under full refurbishment, and we expect to open the hotel by mid-next year.
Where do you see the future of office spaces after many working from home now?
We believe there will not be any material change to the demand for office space. Any impact from home office adaptation could just as likely be offset with a lower workforce density, meaning you can have less people in this, in an office to ensure the distance requirements between your employees. Workspace flexibility will probably be a trend also after the crisis, as many companies try out new technology and learn to work with other parties over a long distance.
Next question: Can you quantify insolvency risks for your hotel portfolio?
There is an extremely low probability of the hotel properties themselves to get insolvency. Regarding the hotel operators, who are the tenants of the hotel properties, they are experienced and have a strong record also performing through a crisis. Due to the lifting of lockdown measures, the probability of the tenant insolvency is relatively low. In case there will be further lockdowns enacted, and for longer times, we expect the overall hotel market. We see many insolvencies, which will also impact our tenants. A certain tenant insolvency creates only temporary damage of unpaid rent. The asset stays intact, as we, as an owner, will find an alternative tenant.
What is the impact on your FFO from the rent deferrals?
In Q1, there was no impact on our FFO. Looking into Q2 and onwards, it is hard to assess, as we cannot assess the upcoming developments. The full impact can only be assessed once the lockdown and travel bans are lifted. Assuming a swift rebound of the economy, we believe to collect the current deferred rents in the next period, and thus no material impact on the FFO. More bleaker scenarios will decrease our ability to collect the deferred rents, and thus reduce our FFO for this year.
... Are you currently still considering to buy properties? If so, what is the pipeline that you're looking at, and how much firepower do you have?
We are currently looking to process a large pipeline, but we have put acquisitions on hold due to the current market situation. We believe that we will start seeing very attractive market opportunities arising from this crisis, and as long as the shutdowns in economies will continue, we will see more distressed properties coming from players with weaker liquidity. We see this current situation as very unique, where certain players may default and very attractive opportunities will arise in top-tier locations, while the long-term fundamentals of these properties remain strong. Our very large liquid position of EUR 3 billion and EUR 16.6 billion unencumbered assets, among us, is among the strongest in the market, both in absolute and proportionate terms. In combination of our wide deal sourcing network and ability to act fast, as an important competitive advantage. This is more than ever important in these times.
We are of the opinion that reserving firepower, which currently stands at EUR 3 billion, for very accretive acquisitions, will benefit our shareholders significantly in the mid to long term.
Can we get information on the lettings during the first quarter of 2020? How many square meters were let, and what price level?
In the first quarter of 2020 alone, Aroundtown concluded contracts for about 375,000 sq m and EUR 47 million of annual rent. About 85% of which refer to prolongation of existing tenants, and 15% to new tenants. The letting concentrated in the first quarter, mainly in the wholesale and office segment. The average in-place rent for prolongation in the office segment was 12.5 EUR, with a WALT of 5.5 years. The new letting in the office segment was concluded at 13 EUR per sq m on average, with a WALT of 6.5 years. In the wholesale logistics properties, we saw extension and prolongation of leases with an average WALT of over 10 years, rented at 7 EUR per sq m.
Why is there such a sharp reduction in share of profit from investments and equity-accounted investees?
The decrease in this item is mainly due to, comparatively lower net profits recorded by GCP and other investees. The first quarter of 2019, there were exceptionally high gains driven by a non-recurring item. GCP, around the largest equity accounted investee, recorded less profits in the first quarter of 2020 compared to previous periods. However, the FFO GCP, reflecting the operational profits and excluding this non-recurring, effect, increased by 5% period- over- period.
Are you currently able to fill in any vacancies? How is the letting pipeline? How do you assess the reversionary potential of your portfolio now?
We have had new lettings, but mainly of lettings which have been signed prior to start of the crisis, reflected in the 0.5% like-for-like occupancy performance in the last 12 months. There have not been any renegotiations of already agreed terms and also no cancellations. As we focus on acquiring properties which are under-rented and below market prices, it is easier for us to attract in new tenants or lease extensions, which don't need to be rented at or above market rents in order to yield positively. Our properties are thus providing a competitive advantage in these times. Negotiations of new leases have slowed down as a result of the current uncertainty in the market. We may experience a slower rent increase in the next month.
As the vast majority of our properties are rented below market, so our reversionary upside remains. Due to our long WALT of eight years, lifting our rents to market levels is anyway a lengthy process and provides long-term upside when market rent recovery recover again after the impact of the shutdown. Due to the high demand supply imbalance in the markets we are located, new supply is mainly already pre-let. Thus, we believe that market rents will only start decreasing if the economy shutdown will last for a longer time than only a few months, to have a gross impact on the economy recovery potential. During April and May, we continue our letting processes. New lettings were signed mainly with clients that the letting started prior to the breakout. The main focus was in prolongation. Further information will be provided in the next reporting publication.
What are your current funding sources? Are you considering to issue bonds or receive bank loans, considering your high unencumbered ratio? What are your relationships with banks?
Due to our very strong liquidity position, we are not in need for funding sources. We still maintain our close and strong connection to the capital markets and to financial institutions, which was very successfully built over many years and could tap the markets when needed. We are in parallel in contact with banks for new loans of an amount of approximately EUR 500 million, and this is what we discuss right now with the banks.
Why did you decide to postpone the dividend and do a share buyback instead? You have large cash amounts and should be able to do both, pay the dividend and do further acquisitions. When will you start the share buyback program?
We see the postpone of dividend and buyback program as two different transactions. We decided to postpone the decision for a dividend distribution, as we believe the current situation is very volatile, with high risk on one hand. On the other hand, this could open up a special investment situation. Crisis situations can bring up very unique opportunities, as some players will get into financial distress if this crisis intensifies. We experienced these opportunities in the global financial crisis in 2009, 2008, where in the following years, we had made many very good transactions. We created very long shareholder return. Please note that it may also take time for opportunities to arise in a crisis.
Bankruptcy filing at the beginning of a crisis only arise when companies have been in a dire situation before the crisis already. Our goal has always been sustainable, accretive shareholder return, and we believe this decision will create long-term higher value through future higher FFO, and thus future dividends compared to the dividends now, which are in relation, a short-term return to shareholders. Please note that we would consider to pay the 2019 dividend at a later stage, in case the depth and length of the crisis will be clearer to us. In connection with the current high discount of our share price to our asset values, while we continuously manage to recycle our properties higher than their book values, we see the buyback option as a very attractive investment for our shareholders.
In the last two years, we disposed properties in an amount of EUR 1.5 billion, at higher amounts than book values. We currently have EUR 500 million asset set, sale pipeline at around book value. In the OGM, took place in early May, we received the authorization from our shareholders to execute the buyback program, and therefore we decided to launch program shortly. The buyback is one of the opportunities to create long-term accretive value. We will update soon about the final details of the program.
Did you receive any updates from S&P due to the current pandemic?
We are regularly in touch with S&P in general, and of course, also in our progress through the crisis. There have not been any updates to date. We believe that with our healthy diversification and excellent financial ratios, as well as strong liquidity, our rating won't be affected. We estimate that in the current economic shutdown, and with it, the uncertainties in the market, the strong, diversified, and liquid companies will have a substantial advantage.
Can we get more information on the valuations carried in the first quarter? Was there an impact from COVID-19? Where does the difference to Q1 last year result from? What is the value drivers? How much of the portfolio was valuated? Can you also elaborate on a potential devaluation due to the current crisis, especially for your hotel properties?
We had the higher valuation gains in the first quarter of 2020 compared to 2019, due to a strong letting and transaction market, but also as we have a larger portfolio compared to last year. There was a mere 5 basis points yield compression, reflecting the improvement of the portfolio, and the strong market tailwinds in our core locations. Additionally, the valuations were also the result of rent growth and indexing building rents. The value development on a like-for-like basis was, has been 1.5%, as only about 20% was revalued during the period. We have the highest revaluations in Berlin, Munich, and North Rhine-Westphalia. For Q1 2020, we didn't see any significant impact on valuation so far from COVID-19. The valuation gains are mainly from our office portfolio.
Regarding hotels, the transactions market for hotel properties has basically stopped, and thus not providing any reference on market values. We believe the potential negative impact on the valuation is limited, as the evaluators apply a 10-year DCF method to the evaluation process, and the impact of a few months of rent deferral is relatively small. Our hotel leases are very long, and we expect our tenants' performance to support positive valuation. A negative impact can be found from a higher discount rate or a cap rate, but it is too early to assess. We will evaluate the entire portfolio towards the end of the year. Hopefully, by then there will be more data on market transactions and clarity on the long-term impact of the sector, on the sector from the lockdown.
Did you experience any interruptions performing your operations due to the shutdown restrictions?
Our daily operations did not suffer, as we have always had very flexible systems and workforce who are very experienced in working remote. Home office, virtual meetings, and other distancing measures are not unusual for us. When the crisis started, we double-checked our systems and revisited processes and our properties to identify any potential weaknesses. As our business is not very dependent on supply chains or one single geographical locations, we also did not experience any indirect problems.
What is the status with the integration of TLG, and what are your next steps? Would you consider to increase your holding through a squeeze out? What about a domination agreement or delisting?
Both companies have been focusing their resources more on the current crisis, and therefore, the integration is progressing in a slower pace as we planned. Now that the lockdown is lifted, the operational integration effort is renewed, and we are already working on operational synergies. Financial synergies will be implemented in a more stable market in the future. We are very satisfied with the results of the merger, and currently hold close to 80% in TLG. We will consider to increase our holding in the future, especially in the current market environment. A domination agreement, squeeze out, or delisting of TLG is currently not our focus.
How much did you dispose, and do you plan to dispose more?
As mentioned before, during the first quarter of 2020, we disposed EUR 55 million of non-core and mature properties with an 8.68% margin over total cost and 5% margin over the net book value. The properties were disposed at an average multiple of 20x. The properties disposed were offices and hotels properties in cities such as Dresden, The Hague, Halle, and Hanover. We seek to continue dispose properties on an opportunistic basis, as well as to continue and dispose our held for sale portfolio, which is over EUR 250 million. Further disposals will free up resources for mature properties, where the majority of the upside has been realized. The freed up funds will be pooled into properties with high quality and higher upside potential, and also for the buyback program.
Can we get more color on the like-for-like result of 3.7%? Was TLG included in this result? How much is attributed to new lettings, and how much to prolongation and existing contracts? What like-for-like do you expect to achieve in the next periods, including the COVID-19 effect?
The like-for-like for the period was 3.7%, 3.2% from interest rent growth, and 0.5% from occupancy growth. This amount is not including TLG's portfolio. Including TLG, the like-for-like is around 3.5%. We have seen the highest like-for-like performance in Berlin, in Amsterdam, Rotterdam, and Utrecht, Leipzig, and Hanover. 70% of the like-for-like is a result of new letting, prolongation contributed 10%, and 20% due to CPI indexes. Looking forward, it is hard to predict the level of our like-for-like. We expect fluctuation of tenants to be low and see higher prolongation levels. On the other hand, it is more challenging to get new tenants into, in the current market environment and uncertainty.
We see in our core locations a large shortage in supply met with high demand, and therefore expect to see leasing stable in the upcoming months. As only 8% of the lease expires in the next twelve months, we believe that it is manageable with either re-letting or sign new leases.
Can we get an update on the building rights? After the merger with TLG and the development pipeline TLG has, will you change your strategy regarding development? How is the COVID-19 impacting the development portfolio? Are you continuing to carry CapEx works?
As of March 2020, and including TLG, the development rights and investment portfolio amounted to EUR 1.5 billion, accounting for less than 5% of the total assets. Approximately half of the development rights are located in Berlin, 20% in Frankfurt, and approximately 12% in Hamburg. The majority of these rights is for residential and office space. But this is not necessarily final yet, as we are optimizing the rights, which includes finding the optimal usage. TLG's portfolio contributed to the development portfolio with building rights in top locations, especially in Berlin. We will continue to analyze our portfolio and identify unused or underutilized land on plots of existing properties, and conversion rights, where we can get building rights and sell or potentially develop when the risk is low.
The COVID-19 situation does not have a material impact on the process of extracting building rights, and we continue our preparations and discussions with the municipalities. We believe that in the locations of the building rights, the demand will remain strong, and we will consider executing developments in our top locations only if it will meet certain criteria, such as pre-let contracts and more than 10% unlevered NOI yield over the costs. We continue to carry out CapEx in projects which started before the COVID-19, and in most cases could continue works without interruptions. We have postponed works that were scheduled to start, but did not execute and carry out new projects, only on a limited basis. We will continue the works once there will be more clarity, and will do so on a high pre-let basis.
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 a question. If you find your question is answered before it is your turn to speak, you can dial zero and two to cancel your question. If you're using speaker equipment today, please lift the handset before making your selection. One moment, please, for the first question. The first question is from Ellis Acklin, from Berlin. Your line is now open.
Yes. Good morning, gentlemen. Thanks for the very detailed presentation. I just have one follow-up question. I was wondering if you could give us an indication of the bookings from the reopened hotels so far? And is, does that automatically mean that they're ready to start paying rent again? And are you getting some positive signals regarding the demands?
Hi, Ellis. Thank you for the question. For the summer, for the coastal hotels and the leisure hotels, we see from the tenants, a very nice booking and very strong demand. Let's say the decision of they will start paying rent once we see that the occupancy is reaching to a strong level and on a continuous basis. Thank you.
The next question is from Kai Klose, Berenberg. Your line is now open.
Yes, very good morning. I've got a question on page 35 of the Q1 report, regarding the increase in equity-accounted investees. Other equity-accounted investees, you mentioned that was mainly coming from the stake in Globalworth. Maybe you could elaborate a bit more on that, and also what caused the increase, while the stake has almost doubled to more, up to more than EUR 1 billion. Second question would be on TLG's three development projects, NEO, Annenhöfe, and Wriezener Karree. Maybe you could elaborate how much CapEx has already been spent, and how much still needs to be spent, and what the current pre-letting level in these three office developments? And last question would be on the lease expiry schedule. If I understood you correctly, you have 8% of leases coming due within the next twelve months.
Could you give a split for the three or four main segments of Aroundtown's portfolio, where these leases will come due? Thank you.
Hi, Kai. Thank you very much. The increase in the equity investee is predominantly due to the investment in Globalworth. That is now presented as an equity investee due to our 22% position in Globalworth, and the recent change in the shareholder structure that took place in Globalworth in Q1. The total CapEx we spent in Q1 not only for the three specific properties was EUR 70 million in Q1. I will need to check and come back to you with how much spent specifically on this. I don't think it's a material amount, but I will come back to you by email with that answer. The lease expiry is mainly in office and in the retail segment, mainly in the office side. Thank you.
The next question is from Paul May, Barclays. Your line is now open.
Hi, guys. Just a couple from me, moving around a little bit. Just on the capital allocation decisions, your current cash and liquidity position obviously being very strong and has remained quite high for the last few periods. Just wondering, appreciate, I think you're slightly putting aside COVID, but what are you thinking going forward there in terms of buyback? As you mentioned, the dividend being canceled, acquisitions, disposals, and just the general cash position going forwards. It obviously impacts on your FFO returns, holding such a large cash position. Second one is on the TLG revaluations. I think you mentioned in the statement that part of the revaluation in the quarter was to do with TLG. Just wondering what the uplift has been post-acquisition.
And then finally, is it possible to provide a quick reconciliation, just comparing the valuation gain of 1.5%, which gives you a leverage should have probably applied around a 3% NAV movement versus the 1% NAV movement? Just wondering what the counterbalancing factors are there as to why the NAV was basically flat over the quarter. Thanks very much.
Thank you, Paul. About our liquidity, we, at this point of time, in the situation where we are with the pandemic breakout and the lockdown, we prefer to take a conservative approach and keep our liquidity for one, on, on to see what really will be the effect on our business and valuation, and on the other, to use and have a strong firepower to utilize accretive acquisitions. It's true that there is an effect of such liquidity on the FFO, but we think that the upside that might come from utilizing good acquisitions, and if there is a, let's say bad scenario to come, if the crisis will continue, we prefer this situation than having less liquidity on our balance sheet.
On the TLG revaluation, total revaluation by TLG was around EUR 100 million in Q1, which was partially also included in our consolidation. Thank you.
Paul, do you just mind repeating your last question?
I'd say it's just on reconciling, so you had a net valuation movement of around 1.5%, 1%-1.5%, which on a geared basis should have moved the net per NAV by around 3%, give or take. Obviously, our NAV was, was increase was lower than that. I'm just wondering what the sort of counterbalancing the negative figures were as to why your, your NAV grew by less than the, than the revaluation implied?
Hi, hi, Paul. Okay, I'm not sure I understood the question, but, overall, there is a reflection of the, revaluation in our NAV. There is a, a slight growth in NAV of, 1%. Bear in mind that this quarter, we also consolidated TLG on a share-to-share basis, which also has a, an impact on the overall amount of shares that we, issued and that we calculated. But I will dive through this point, and, if there is, any answers, different answer to give you, I will contact you separately. Thank you.
... The next question is from Manuel Martin, ODDO BHF, your line is now open.
Good morning, gentlemen. Thank you for taking my questions. I have three questions, if I may. First question is, could you remind us on the way you evaluate your portfolio? Do it by yourself and the appraiser checks it, maybe you can give some color on that. Second question is, on your tax rate in the first quarter, which was relatively high, maybe you can give us some background details on that. And for the last question, on your 5%-8% interest rate that you might charge on the deferrals, is that something that is sure, or is there some room to negotiate on that with your tenants? Thank you.
Hi, Manuel, thank you for your question. All our valuations are conducted by external valuations- valuators, which we use on an ongoing basis. Question number two, about the tax rate. In this quarter, we had several impacts from prior year, which was relatively minor, but we did have profits in also other jurisdictions that have a higher tax rate than the normal. About the interest rate, interest deferral that we expect to collect, this is an agreed amount. If eventually the tenants would prefer to pay the rents or the deferral rents prior to the two years, we will consider for sure give them discounts on the interest and collect the rent earlier. Thank you.
Thank you all for your questions. These are certainly historic times, and we find all ourselves confronted with new challenges, whether at work or in our private lives. Innovative ideas and the courage to break with old habits will eventually prevail and lead to more efficiencies and a better customer experience. At Aroundtown, for example, during the past six weeks, our team conducted more phone calls with investors than in all of 2019. It was very well received and maintained an open dialogue with our investors. Yet, we hope to see as many of you as possible in person in the not-too-distant future. Thank you for your time today, and stay safe. Goodbye.
Ladies and gentlemen, thank you for your attendance. This call has been concluded. You may disconnect.