Good morning, ladies and gentlemen. Thank you for standing by. I am Francie, your course call operator. Welcome, and thank you for joining the Half Year Financial Report 2022. Business information transparency is very important for the Deutsche EuroShop. For this reason, the conference will be recorded and shared on the Internet. All participants will be in a listen-only mode. The presentation will be followed by a question-and-answer session. If you would like to ask a question, you may press star followed by one on your touchtone telephone. Press the star key followed by zero for operator assistance. It is my pleasure, and I would now like to turn the conference over to the Sole Director of Deutsche EuroShop, Mr. Olaf Borkers. Please go ahead, sir.
Thank you, operator. Hello, and good morning from the team of Deutsche EuroShop in Hamburg. This is Olaf Borkert speaking. With me in this call is our investor relations team. Thank you for attending the presentation of our results for the first half of 2022, including an update on the situation in our centers and on the development of Deutsche EuroShop Group. Let's start with our business activities. For an executive summary of H1 2022, please see slides two and three. After two years overshadowed by the pandemic, we are confident that 2022 will be impacted to a much less extent. We expect this year to be a transition year on the way to a new normal, operationally, as well as in terms of how we deal with the virus.
Reliable forecasts are hard to make, however, given the uncertainty caused by the war in the Ukraine. What happens in our centers? On slide four, we have a look on our footfall. After a difficult start into the new year with various restrictions, the footfall numbers have improved sustainably since April. At the end of July, we were able to reach a level of 87% of the comparable pre-pandemic period in 2019. This means people are enjoying the regained shopping freedom and a certain normality. They are returning to the city centers, shopping malls, and shops. This is so far despite a certain reluctance of consumers in view of rising prices and the war in Ukraine, which is also not favorable for consumption. Coming to the retail turnover on slide five.
Looking at our portfolio as a whole, tenant turnover is back on the levels of 2019. In Germany, it's only slightly lower at 95.2%. Our overall tenant sales average approximately 89% of 2019 levels. These figures also make us optimistic. It is worth mentioning that people are more afraid for their own income perspective since the beginning of the war in the Ukraine than they were at the peak of the pandemic. In addition, their propensity to buy is at a new record low. The rising prices, especially for energy, leave less room for consumption. On slide six, you can see our collection ratio since the beginning of the pandemic, which initially followed the pattern of the consumer footfall and is strongly correlating with the lockdown periods.
The Collection Ratio represents the ratio of received to invoiced rents, service charges, and marketing contributions. For 2021, the number was 95%. From the Q3 of 2021 onwards, the Collection Ratio improved further and is now close to normality. In H1 2022, the Collection Ratio was at 98%, with only very limited rent concessions granted, resulting from some cleanup for 2021. We assume that the value for June will also be corrected slightly upwards, as experience shows that incoming payments can still be expected here, so that we would reach a level of almost 100% too. So far, the update on the situation in our centers. I now come to the financial results of H1 2022, and we'll start with the valuation of our shopping centers on slide seven.
The valuations of our shopping centers were on average almost unchanged, including investment costs. The valuation result before taxes was EUR -8.2 million as of end of the first six months. This corresponds to an average decrease of only 0.2%. The stabilized and our net initial yield for our portfolio is slightly up and now stands at 5.54%. The sensitivity of the valuation results to changes of the main value drivers is provided in the table in the lower part of the slide. I now come to the revenues on slide eight. This came out nearly unchanged at EUR 105.5 million after EUR 104.9 million in H1 2022.
In contrast to the previous year, which was significantly affected by shop closures due to the pandemic, all of our tenants were allowed to open their shops in the first six months of 2022. Looking at the bridge, you see that H1 2021 was influenced by temporary legal rent suspensions in Poland, which was EUR 2.4 million. The continuing effects of the corona pandemic, such as defaults of tenants and payment difficulties, lower turnover rents, as well as longer reletting periods and higher vacancy rates, mean that revenues are still below the pre-pandemic level. On page nine, we show you the development of our EBIT, which was increased to EUR 76 million, which is a plus of 7.8%. The major financial effect resulting from the pandemic last year was reflected in the allowances for rent receivables.
These allowances were made in relation to the realized and/or expected losses of rent in connection with tenant support measures. For example, rent concessions, or in relation to the latter, respectively, likely insolvencies. In H1 2022, these allowances came down to EUR 5.4 million compared to EUR 18.1 million in the first half of 2021. I now turn to page 10 and to the financial result. It improved by EUR 3.5 million or 23.4%. Interest savings of EUR 2.4 million due to thorough refinancings of our Billstedt-Center Hamburg, our City-Galerie Wolfsburg, and our Altmarkt-Galerie Dresden, and an increased at equity operating profit of EUR +3.3 million had a positive impact on the financial result. The minority profit share was EUR 2.2 million higher than in the first half of 2021.
On slide 11, you see that the EBT, adjusted for the valuation, increased from EUR 55.7 million to EUR 64.7 million, which is a plus of 16.1% due to the high operating result of EUR +6.6 million. Another positive impact came from interest savings. These amounted to EUR 2.4 million. Let us look at the operating profit, the EPRA earnings, on page 12. EPRA earnings improved by EUR 6.5 million to now EUR 60.8 million, an increase of 12%. On a per share basis, the EPRA earnings increased from EUR 0.88 to EUR 0.98. I now come to the consolidated result of the group on slide 13. The consolidated profit increased from EUR 36.8 million to EUR 46.2 million.
The main impact for the change came from a higher result from the standing assets, a plus of EUR 6.6 million. Correspondingly, the EPS increased by 25% from EUR 0.60 to EUR 0.75 in H1 2022. Please follow me to now to page 14 and to the development of the FFO, which excludes the valuation result. The FFO increased strongly from EUR 45.3 million to now EUR 66.7 million, or on a per share basis from EUR 0.88 to EUR 1.08. In the FFO calculation, we excluded the one-off expenses in connection with the takeover offer, an amount of EUR 5.9 million. I'm now coming to the balance sheet on page 15, where you will only see small changes compared to the figures of December 2021.
Our total assets amounted to EUR 4.3 billion. This is just a change of EUR 42.5 million compared with the reporting date end of 2021. Our consolidated liquidity as of the 19 June 2022 stands at EUR 377.8 million. That is a plus of EUR 48.9 million in six months. The buildup of cash was influenced by the normalization of the payment behavior of the tenants. Total equity, including minorities, increased by EUR 45.9 million. At the end of the first half year of 2022, current and non-current financial liabilities stood at EUR 1.5 billion, which was EUR 6.2 million lower than at the end of 2021, influenced by scheduled redemptions.
Non-current deferred tax liabilities increased by EUR 8.8 million to EUR 341.8 million. Our equity ratio increased slightly and now stands at a solid 56.3%, and the consolidated loan to value now stands at a low 29%. On a look-through basis, that is the LTV calculated fully proportionally according to the group share in all assets. The LTV now stands at 31.7%. Also a continued very reasonable and low level. While earnings and profits are still below pre-corona levels, our balance sheet today is stronger than before corona. On pages 16 and 17, we give you some information on our debt. Approximately EUR 17.8 million, or only 4.2% of our consolidated bank loans is left to expire this year and will be repaid to the banks.
Currently, our consolidated debt bears an average interest rate of 2.23%. The weighted maturity of our loan portfolio now stands at 5.9 years. Including our non-consolidated loans, the weighted maturity of the portfolio now stands at 6.2 years, with an average interest rate of 2.19%. On the right side of page 17, you will see that we have fixed this year three loans with a total of EUR 260 million, with an average interest rate of 2.98% compared to former 3.26%. News from the portfolio are shown on slides 18 and 19. We recently published new investment plans for the Main-Taunus-Zentrum, one of the largest and strongest turnover shopping center in Germany and a jewel in our portfolio.
A new highlight is to be added to the Main-Taunus-Zentrum, giving it a new lively and urban center with a high quality, the right restaurant and food offering. Five new freestanding restaurant buildings are to be built until 2024, some with roofed terraces, some with outdoor terraces, attractive landscaped exterior areas, and sophisticated architecture. The new Food Garden will be built on an area of around 7,000 sq m in the heart of the shopping center in place of a former department store building. The investment volume amounts to approximately EUR 25 million. In the meantime, numerous food trucks around the construction site provide a varied offer. The offer is very well welcomed by the visitors. As of now, another highlight in the Main-Taunus-Zentrum is the TAIYO concept. Please see slides 20 and 21.
Thanks to digital sales technology, consumers can shop right here around the clock, seven days a week. With the help of installed self-scanning checkouts and a specially developed app, customers can access a well-assorted range of 950 products on a space of only 50 square meters. Finally, I would like to come to slide 22 and a look to the transaction market and financing activities. Financing first. As already mentioned in our last call, we have agreed with banks on a EUR 107.4 million loan with 10 years maturity and a fixed interest rate on 2.5% to refinance a loan for our Altmarkt-Galerie Dresden that became due end of March 2022. Meanwhile, we have concluded all our upcoming refinancings for this year.
This includes a group level loan of EUR 52 million, as well as financing for the City-Point Kassel, which is EUR 55 million. A credit tranche of EUR 10 million for the Allee-Center Hamm will be repaid at the end of September. The signed contracts mean that in the future we will profit from interest savings of approximately half a million EUR per year. The interest expenses for 2022 will be approximately EUR 3.2 million less than in the previous year. This is essentially a result of refinancing undertakings in 2021 and 2022, totaling around EUR 400 million. As mentioned, we do not face any further loan maturities this year.
For the only refinancing due in 2023 at EUR 209 million for the Main-Taunus-Zentrum, the company has already agreed on a term sheet for a EUR 221 million loan with a banking consortium. That's for refinancing EUR 209 million and EUR 12 million to finance the Food Garden investment. The interest rate for the current loan is 2.99%. After this, there is no further refinancing due until September 2025. The latest interest rate increases come as no surprise to us, although we did not expect them quite to this extent. For 2022, we are anticipating interest costs of around EUR 37 million in the group. This is comparable with our interest costs in 2006, which were around EUR 39 million.
However, our sales in 2006 were only around EUR 93 million, whereas for 2022, we are anticipating a revenue of over EUR 200 million. The transaction market has been not surprisingly in the given situation, rather dry. However, there are signs that the transaction market is slowly coming back, even though it is currently again affected by the terrible Ukrainian war. The shopping center Boulevard Berlin was sold end of 2021, and Gera Arcaden in Gera, Germany in the Q1 2022 at, as we have heard, fair prices. If the impact of the Ukrainian war on investors and their financing bank stays limited, one may expect to see some further transactions. As we hear from the market, some transactions are currently being prepared. For example, one in Munich.
The yield differential between shopping center assets and the other real estate asset classes, for example office, residential, and logistics, seems to be just too big to be ignored. The spike in interest rates may support the shift of demand among real estate classes. Let's come to the financial outlook, sorry, on slide 23. We confirm our forecast and expect an FFO of 1.95 EUR to 2.05 EUR per share for the full year. 2022 will be, in our expectation, a transitional year on the way to normality after corona. Accordingly, we have applied a bit more cautious assumptions on rent write-downs in comparison to pre-corona times. This forecast again assumes that the pandemic situation can be brought under lasting control without further store closures or significant restrictions on center operations.
A continued uptick in private consumer spending and an associated further recovery of the tenant turnovers, as well as the preservation of recovered high collection ratios. We are therefore pleased with the German government's recent decisions not to impose lockdowns in the future. The war in Ukraine and its consequences could have a negative impact on consumer behavior, supply chains, and ultimately our business. This has not yet been reflected in our forecast, as the potential impact cannot be estimated at present. Indexation of our rents is lagging behind inflation. Though indexation at full inflation is agreed, we are in a lot of discussions with our tenants. Ladies and gentlemen, we remain optimistic as before, even though there is still some way ahead of us to come. Our company is very well prepared. Finally, I would like to say a few personal words.
In July, Wilhelm Wellner and I reached an agreement with the supervisory board that following the takeover by Oaktree and CURA, which has now been fully completed, we will no longer be available to Deutsche EuroShop for a long-term continuation of our cooperation as executive board members. After 17 exciting and great years in the service of Deutsche EuroShop with a small and effective team, I will say goodbye on 13 September 2022 , and thank you for your trust. I wish the future executive board every success and you all the best and lots of fun with shopping. So far my presentation. Thank you for listening. I'm happy to take your questions now. I hope you will understand that I cannot respond to questions about the company's future strategy in connection with the takeover more than we have published in our 60-page official statement.
The new management will be available to you in the near future. Thank you. Operator, please take over.
Ladies and gentlemen, at this time, we will begin the question and answer session. Anyone who wishes to ask a question may press star followed by one on their touchtone telephone. If you wish to remove yourself from the question queue, you may press star followed by two. Anyone who has a question may press star followed by one at this time. One moment for the first question, please. The first question is from Andre Remke from Baader Bank. Please go ahead, sir.
Yeah, good morning, Deutsche EuroShop team and Mr. Borkers. First, I would like to thank you for the work over the last couple of years. I couldn't believe that it was 17 years. I really would say I personally very much enjoyed the collaboration with you, and I wish you really all the best for any new adventures you may be stepping into. Again, thank you.
Thank you very much.
Welcome. Nonetheless, some questions, maybe on the current situation, not on the future plans, as you described. You are not able to answer that, for good reasons. The first question is, you mentioned in your outlook, that 2022 will be a transition year to a new normality. What personally do you see as a new normality, maybe in terms of rent levels? For the portfolio vacancy. And finally, probably, not given a precise outlook on that, but finally, on the FFO run rate on the existing portfolio. Any views from your side will be very helpful. That's the first question, please.
Again, thank you very much for your warm words, Mr. Remke. I also enjoyed the long cooperation with you as an analyst, having a very close look on our company. Coming to the normal that is reflected in rent levels. We expect that rents in total can be stabilized, which means we still have lower rent levels in new lease agreements. On the other hand, we have this indexation of our lease agreements from which we see that indexation is lagging behind inflation, so it's not possible to increase rents by 5% according to CPI. It's 1.5%, 2% for the individual lease agreement. The combination of all will mean a stable rent income for the next years. This is also supported by a higher occupancy ratio.
Occupancy ratio is roughly at 95%-96%, and we expect it to increase in the next two years to roughly 98%. That is the main impact on turnover. Financing is, as we have shown, fine for us for the next three years. We have this financing of Main-Taunus-Zentrum. The index actual indication is slightly lower than 2.99%. We believe that we can keep costs stable after we have seen higher costs for us in the last two years.
Okay. Thank you. The second question relates to you mentioned refinancing, particularly, if I get it right, the missing point is the fixation of the contract for 2023, about the EUR 209 million.
Exactly.
Does it mean that you already agreed on the maturity, I guess 10 years and already the margin? What is your strategy to fix the condition in terms of, let's say, timing, or is it a job of your successor?
It is exactly what you said. We have agreed on a term sheet, which means 10 years duration. We have agreed on the interest margin. A very interesting and very attractive margin, I have to say. I'm very happy to say that. A very low margin because it is a very attractive shopping center with a very low LTV. I expect that we can sign the loan agreement within the next two weeks. That is still a job for me. Immediately after we have signed the loan agreement, we will also fix the interest rate. Current indication is 2.7%. There is no redemption in the first five years, so also very attractive for us from a cash flow perspective.
The contract will come in place starting when in 2023?
Good question. End of January 2023.
Okay, perfect. Thank you for these details. A third question is, could you elaborate a bit more on the recent negotiations with the tenant? For example, are you able to turn really the CPI-linked agreements into rents? You mentioned only 1.5%-2%. Is this annual run rate? Is it the reason that you agreed on full CPI, but you were simply not able to bring it into a new rent level?
Yeah. This is unfortunately it is the last. We have agreed with every tenant on indexation, which is adapted every two years on the CPI. Starting with this summer, in which indexation would become effective for a lot of tenants, ECE realized that tenants started discussions knowing that we have agreed on this CPI indexation. They said, "Listen, only if our turnover is also getting better, we can accept to start to pay this indexation." Indeed, ECE is negotiating with a lot of tenants about the fact that they can't bear a full indexation as agreed in standing assets. In parallel to that, we still have new lease agreements, some with on the same rent level, but also some with a rent level which is below the old one.
Especially bigger tenants are very hard fighters for their own advantage.
May I ask for the level of such tranche of rents agreed below the former levels? The delta to the previous, is it around 10%, or what is it? I know it's a wide range, presumably, but on average.
It is a very wide range. Sometimes in individual cases, it's also more than 10%, perhaps by far more than 10%. Also we have some lease agreement which are stable or which the rent is slightly higher than the last one. Yes, individually, we have to give discounts, heavy discounts.
Yeah.
The idea, the main idea is to keep shopping centers full, and at the end is, as you know, it's the optimization of the rental income.
Yeah. Understood. Okay, a very last question, is the you mentioned the EUR 6 million transaction-related costs in the Q2 . Do we have to expect further costs, which are not provisioned for the Q3?
No. The costs which we mentioned that are the costs for our advisors, investment banks and legal. We do not expect further costs. All the other costs which occur in the near future that are or will be costs for capital market transactions or real operations transactions and payments to the Executive Board because of leaving the company.
Sure. Okay, Mr. Borkers, that's from my side. Again, very happy to say thank you to you and goodbye. Hope to see you again.
Thank you very much. I also just have, I hope to see you again, perhaps in another position or another location. Thank you very much for the good operation in the last year. All the best for you, Mr. Remke.
Thank you.
Bye-bye.
Bye.
The next question is from Manuel Martin from ODDO BHF. Please go ahead, sir.
Thank you. Well, hello, Mr. Borkers and Deutsche EuroShop team. Also, all the best from my part, from my side, for the future. We had always a kind of on/off relationship when it came to coverage. But nevertheless, I always enjoyed the time with you. From my side also kind of one or two questions on operations, if I may, please.
Yes. Thank you very much, Mr. Martin.
On the behavior of tenants and customers which you have described in your presentation. If you identified a difference of behavior of clients and tenants between the centers in your German part of the portfolio and the centers in your foreign countries.
Yes, we do. The shopping centers outside of Germany are performing better, sometimes much more better than in Germany. Especially Hungary is very strong. It's already at pre-corona levels. This exactly means that negotiations of rents and new leases are easily done in Hungary.
Mm-hmm. Mm. Okay.
For Poland, it's slightly more difficult, and also the Czech Republic is doing very well.
Okay. Any idea what could be the reason? Are the consumers in a better shape in these countries or are this government?
We believe that they are more focusing on going into shopping centers. Their consumer behavior is stronger. That is the reason from which we know that that is a fact.
Okay. I see.
There's no other one. It's they like. For them, going in a shopping center is real entertainment. Perhaps not as much alternatives for this, for entertainment in these countries.
Yeah. Good point. Okay. The second question, it's unfortunately looking a bit into the crystal ball, but if we focus our view to upcoming winter, do you hear any views or moods among your tenants or client behavior? Is there kind of people being very cautious or a bit optimistic? If you notice any moods there?
Yeah. Very good question. I think it's like for private individuals and perhaps for like ourselves. In today's temperatures with 30 degrees Celsius, we can't imagine that our apartments and houses will be cold and that there's no energy. I haven't heard that people buy a lot of candles to be prepared. What we have done is we have all our for all our gas and electricity deliveries agreed on fixed prices for a medium-term duration and for a volume which is 100% 2022, and 75%-100% in 2023 and 2024. That's for electricity. We are fixed for 100% of gas in 2022 and 2024, hoping that this can be delivered.
We currently do not see concrete reluctant activities of consumers. I think it's a general mood and general behavior. People will be more hesitant to go shopping, I guess, if it's really cold and if they get their first price information about gas and electricity. That is in October, November, at latest in March and April 2023. I think there will be a lot of people very surprised.
Mm.
Negatively surprised.
I see. Yeah. The ECE Group, you have been very looking forward in fixing gas prices for 2023? Did I understand that correctly?
For our shopping centers, but not individually for the tenants. Every tenant individually for his own shop has to do his agreements for gas and electricity.
Okay. I see. I see.
That's a very important question. Also some of our tenants will see that their costs for electricity and gas will increase enormously, as it has much more or higher running costs.
Good point. Okay. For the contracts for your shopping centers, for yourself, that means.
Yeah. That means we are.
-running-
Yeah.
Running the heating for the center or the air conditioning.
It is agreed at fixed prices. As I told you, 75%-100% for 2023 and 2024 regarding electricity, and 100% for the years 2022-2024 regarding gas.
Yeah. Yeah. Yeah.
As long as gas is available, we our shopping centers will be well-tempered.
Okay. Yeah. No. Yeah. Good detail. I agree maybe for some politicians, they are happy that it's so hot, so it doesn't come to the mind of people that it can be very cold in winter.
Yes. What in Germany nobody can expect has in his mind.
Yeah. Yeah. However.
Yeah.
Um-
Let me also say something.
Yeah.
In addition. For a company like us, which was faced with corona, which means immediately, lockdowns, so no turnover, by far lower rents, we will bear this coming situation because it will be a slower process. Perhaps with a negative impact, but it is a slow impact and that will be much more easier for us to handle like, unlike to the corona impact, which we have seen 2020, and 2021. That was hard.
I understand. Yeah. Okay. Thank you very much.
Martin, thank you for your time.
You're welcome.
For your question. All the best for you.
Okay, bye.
Ladies and gentlemen, as a reminder, if you would like to ask a question, please press star followed by one on your telephone. The next question is from Thomas Neuhold from Kepler. Please go ahead, sir.
Yes. Good morning, Mr. Borkers. Also from my side, thanks a lot for the good cooperation. It has been always a great pleasure working with you, and I also wish you all the best for your personal future. I hope to see you again sometime, somewhere. The two questions I have is, firstly on tenants' behavior when they negotiate the new rental contracts. Is putting a CPI link an issue now, given the high inflation rates you have? Your clients trying to discuss that. Secondly, I was wondering, given soaring energy prices, are clients asking you about the energy efficiency of your shopping centers and electricity costs? Is this a topic?
Yes. There are a lot of discussions regarding to the CPI-linked indexation. As you know, all our lease agreements are linked with CPI in the base rent. ECE told us that, yes, starting in summertime, when this CPI-linked indexation starts for a lot of them, tenants started discussions and said, "We are not able to pay this increase in rent, though we know that we have agreed on this in our lease agreements." ECE, we have to find a way to keep these tenants in the shopping centers to make them pay a higher rent, but it is not 5%. It is more to 1% or 2%.
Mm-hmm.
And-
And, and-
Yes. Energy efficiency, that is not a point which they discuss. As said, we have fixed our gas and electricity prices for the next two years, up to 100%, but that is to cool and to heat the general rooms in the shopping center. Every tenant for himself has to care about his energy supply and to keep prices fixed.
Okay.
Like private individuals, some of them will realize in these days or in 2 months-3 months that energy prices will be much, much, much higher than they have expected.
Mm-hmm.
Their running cost, their operational costs will increase.
Okay. To come back to the first part of my questions. When you renegotiate new rental contracts, are clients asking to or try to negotiate away the CPI link, to put some cap in or something like that? Are they happy with signing a contract where in the long run, in theory, that the rent is linked to the CPI development?
We haven't heard from ECE that tenants started to discuss this CPI-linked indexation. What we have since 3 years-5 years is rent-free periods.
Mm-hmm.
Up to three months. We have upfront payments to the tenants to support investments in the shop. That is also a new normal since three to four years.
Mm-hmm. Okay. Understood. The second question I have is, from your discussion with clients, which client groups do you think will be hit worst by the shrinking purchasing power of the German consumer, given the strong increase in energy costs, electricity costs, et cetera?
I feel that the smaller tenants are more hit by that, because if you have a strong group with a lot of shops, there's one responsible person for energy and all this stuff. I guess they are very prepared. They're very professional. But perhaps individual smaller tenants are not as well prepared as the bigger ones. It's like in the past, it's like negotiating rents. The bigger tenants, the biggest ones are the strong and strongest and difficult, most difficult partners to discuss the rents, though they are not those ones which need rent decreases or something like this.
Okay. Thanks a lot, and again, all the best for your future.
Thank you, Mr. Neuhold. See you.
There are no further questions at this time, and I hand back to Mr. Olaf Borkers for closing comments. Please go ahead.
Yeah. Thank you, operator. I think we have said everything. Thank you for the warm words of some of you. I also enjoyed the work with you. As I said, 17 years, and perhaps we see us in another location, another function again. It was a pleasure also for me to see you on road shows and in conferences. Unfortunately, we haven't seen the last two years, but perhaps times will change also to this. Thank you very much.
Ladies and gentlemen, the conference is now concluded, and you may disconnect your telephones. Thank you for joining, and have a pleasant day.