Aroundtown SA (AT1) Earnings Call Transcript & Summary

Dear ladies and gentlemen, welcome to the full year 2019 results presentation of Aroundtown SA. At our customer's request, this conference will be recorded. [Operator Instructions] May I now hand you over to Oschrie Massatschi, who will lead you through this conference. Please go ahead.

Good morning, everyone. Actually, it's Andrew Wallis starting this call. So good morning. I'm the Deputy CEO of Aroundtown, and thank you for joining us for our full year 2019 results call. Normally, Sylvie Lagies, our Head of ESG, would lead this introduction, but we decided to keep those attending this call in person to an absolute minimum. Sylvie, like over 85% of our staff, is working effectively from home. You should have received our press release and can view this presentation on Aroundtown's website, either on the Home section or under the Financial Reports of the Investor Relations section. In addition, you hopefully have had time to review the preliminary results that we released last Wednesday, the 18th of March. I will be hosting this call today, and I'm joined by the CEO, Mr. Shmuel Mayo; the CFO, Mr. Eyal Ben David; Mr. Oschrie Massatschi, the member of the Board of Directors; and Mr. Yakir Gabay. [Operator Instructions] The e-mail address is [email protected]. Again, [email protected]. These are very demanding and uncertain times with the virus impacting us all, both in our personal day-to-day activities as well as in our professional environment. Our primary concern is the health and well-being of our staff as well as all our stakeholders, such as tenants, suppliers, partners and investors. We hope you will all remain healthy through this pandemic. We will review the 2019 results that we've already released last week on Wednesday. We will then take a closer look at our liquidity and debt positions, followed by a more focused look at our portfolio and especially the hotel portfolio. Please go to Slide 3, which shows a cockpit view of our 2019 results. 2019 was again, a very strong and successful year for our company, with year-over-year growth in FFO I at 24%. EPRA NAV per share growth of 16%, including dividends, and this was achieved whilst further strengthening our financial profile. Eyal will expand on the key 2019 financial numbers in a moment. On Slide 4, we show a summarized view of our high-quality acquisitions in 2019, which again totaled just over EUR 3 billion in value and at an average multiple of 21x. The assets shown represent close to 80% of our total 2019 acquisitions and are in very strong locations, including Munich, Berlin, Frankfurt and Paris. By clicking on the asset, you'll automatically open Google Maps, giving you its exact location. Continuing on to Slide 5, this highlights some of the prime TLG assets that have now become part of our overall group of investment assets, which now totals EUR 26 billion in value, including our 39% stake in Grand City Properties. Not only are these assets in very strong locations, and mainly in Central Berlin, but also exhibit a very strong overlap to our current portfolio. Again, by clicking on the asset, you'll see its exact location on Google Maps. Slide 6 summarizes some of our main corporate milestones in 2019 and year-to-date. Once again, EPRA awarded Aroundtown the Gold Award for its high standard of financial reporting and also [ Gold ] for its sustainability initiatives. In 2019, Aroundtown was added to the S&P Europe 350 Index as well as the FTSE EuroFirst 300. Earlier this month, Aroundtown became a founding member of the new DAX 50 ESG Index, which has been created to include those companies that have the highest market cap, highest liquidity and the highest ESG ratings. Aroundtown is the highest-rated real estate company in this industry and is ranked 10th overall. I'll now hand you over to Eyal, who'll go through the key financial slides.

Thanks, Andy. Please go to Slide 8. Recurring long-term net rental income in 2019 stood at EUR 756 million, up from EUR 614 million in 2018, growth of 23%. The annualized December 2019 recurring long-term net rental income was EUR 823 million. These impressive income growth figures were achieved through accretive acquisitions and by strong operational asset management activity. Our like-for-like rental growth was 4.2%, remaining very consistent throughout the year. Occupancy rental growth was 0.6% and in-place rental income grew by 3.6%. Please go to Slide 9. Adjusted EBITDA grew in 2019 to EUR 773 million, up from EUR 606 million in 2018, growth year-over-year of 28%. Looking back to 2016, our CAGR adjusted EBITDA growth was been impressive 42%. On Slide 10, we highlight our FFO numbers. Our FFO I grew in 2019 to EUR 504 million, up from EUR 406 million in 2018. This gives us an FFO I per share of EUR 0.43, which was at the top end of our guidance and give us a current FFO I yield of 9.7%. Our dividend policy is to pay out 65% of the FFO I per share, and subject to the necessary approvals at the AGM later this year, would equate to a dividend per share of EUR 0.28 for 2019. This would currently give a dividend yield of 6.3%. Profit from disposal gains totaled EUR 311 million in 2019, giving us an FFO II of EUR 814 million, up from EUR 575 million in 2018, an increase of 42%. Slide 11 shows how the size of our total assets has developed over 2019, and now we stand year-to-date post the merger with TLG. The merger with TLG is finalized and completed, further strengthening our diversified German portfolio, especially in Berlin office sector. As of now, our post-TLG merger total assets stand at EUR 31 billion, creating Europe's largest diversified real estate company invested mainly in offices, hotels and residential. Moving to Slide 12. We update you on our net asset value. At the end of 2019, our EPRA NAV totaled EUR 10.6 billion, up from EUR 8.7 billion as of the end of '18. This equates to year-end 2019 EPRA NAV per share of EUR 8.7, up from EUR 7.7 as of December 2018. An overview of the 2019 maintenance CapEx and AFFO is summarized on Slide 13. Total CapEx invested in 2019 amounted to EUR 233 million, representing 1.3% of investment property. I will now hand you back to Andy for the next part of the presentation.

Thank you, Eyal. Please move to Slide 14. For a number of years, we have consistently reiterated our strategy around 4 main diversification pillars: asset classes, locations, tenants and finance sources. This was always wrapped up by a blanket of high liquidity, thus preparing us for opportunistic acquisitions and also for difficult periods of the business cycle. We will now look at all of these aspects. None of us sat here today could have foreseen what we, Europe, and the world are facing today. But we've also never been in such a strong position as we are today in terms of our immediate cash liquidity and in our debt profile. This slide gives an updated position of our very strong excess liquidity position for the next 24 months. I repeat, the next 24 months. The world is avidly waiting for a COVID-19 vaccine. How long that will take, we don't know, but most experts predict between 12 to 18 months. Let's hope it's sooner. How long our personal mobility, in particular, our ability to interact, go to shops, restaurants, travel, hotel, holidays or meet in the pub will be restricted, we again, do not know. This uncertainty around time is the market's biggest issue. Will it be Q2? Will it be the next 6 months? Will it run until the end of the year? No one knows. So what do we know? We know that our current cash position stands at EUR 2.8 billion, and we are more than ready to use part of it for opportunistic accretive transactions while, if worse comes to worse, withstand a substantial fall in our hotel sector income throughout the next periods and still remain in a very strong liquidity position. We believe we have one of the strongest, if not the strongest, liquidity positions in the European real estate sector. In our portfolio, the main direct impact of the pandemic has hit our hotel sector. The vast majority of our tenants went into this crisis in good shape, and therefore, we expect most of them to be able to fulfill their contractual obligations over the longer term. But some will need our support to delay and therefore, accrue payments to a later date. What level of support they will need and the resulting impact on our income is still uncertain and will heavily depend on how long this crisis will last. Government support is also being actively put in place to support businesses and operators, making sure they can remain going concerns over this period, becoming active again as soon as possible post restrictions. Our current contractual FFO I rate over the next 2 years, based on 2020, multiplied by 2, is around EUR 1.25 billion. This does not include any further internal or external growth nor any further efficiency gains for the entire 24-month period, but also doesn't include any potential impact from the pandemic. On the right side of the slide, we show the uses of liquidity over the next 24 months. Contractual debt repayments totaled EUR 387 million until the end of March 2022. Dividend payments for the 24-month period will total around EUR 810 million, but is still subject to approval at the relevant AGMs. Perpetual notes and mandatory convertible payments for the 20-month for -- 24-month period totaled EUR 207 million. Current committed acquisitions and CapEx totaled EUR 150 million over the 24-month period. When netted off against each other, our starting point for excess liquidity for this 24-month period is around EUR 2.5 billion. Naturally, the question we all ask is what this pandemic will do to our actual FFO? How big will the impact be? Over what time frame before we get back to some form of normality? We will look at the FFO run rates later in this presentation. We, like all of you, are still trying to assess how long this pandemic will impact our business. But we do currently see as possible onetime delay to our 2020 results. The majority of our portfolio is still functioning well and expected to pay their respective rents. In addition to the current cash liquidity, and as mentioned at the bottom of this slide, we have over EUR 16 billion of unencumbered assets within the group. This is another source of liquidity, if needed. We will look at ways of further strengthening our liquidity. This would put us in an extremely strong position for future acquisition opportunities, which we believe will become open to us in the coming future. Please go to Slide 15. One of the pillars mentioned earlier was in relation to the capital structure. Many of you are familiar with this slide. Our current pro forma leverage, including TLG, is below 36%, very low compared to our Board limits and covenants. Our ICR coverage is very strong at 4.8x. As just mentioned, we have over EUR 16 billion of unencumbered assets by value, which is almost 75% of the total portfolio by rent. Including TLG, the average cost of debt is 1.6%, with an average maturity of 6.8 years, with 97% being fully hedged. Almost since our listing in 2015, Aroundtown has pursued a strategy to increase its reach into numerous global pools of capital as well as into various financial products. We have proven time and again that we are very successful in this aspect, with capital market products issued in euros, sterling, U.S. dollars, Canadian, Australian dollars, Swiss francs, Norwegian krone and Japanese yen. These have not just included senior unsecured bonds, but Schuldscheins, convertibles, mandatory convertibles, hybrid perpetuals and equity, all of which hedge back mainly to euros and some in sterling. In addition, we have maintained strong and lasting relationships with many financial institutions and along with our unencumbered assets, will prove highly valuable when needing future secured debt or mortgage financing. Slide 16 highlights the key covenants of our EMTN program and is readily available on our website. We have substantial headroom to each of these covenants and are as follows. Total net debt to total net assets needs to be below or equal to 60%. Currently, we are at 31%, 3-1 percent. Secured debt to total assets need to be at or below 45%. Currently, at minus 9%. Please do not misinterpret this minus 9%. It is very strong, meaning we have substantially more cash than our secured debt. Unencumbered assets over unsecured debt needs to be at or over 125%. Currently, we are at 294%. And adjusted EBITDA over net cash interest needs to be equal or over to 1.8x and is currently at 5.3x. Please be aware that calculation methods can vary, but all of the just mentioned covenants, methodologies are market standard and are clearly laid out in our EMTN documentation. Slide 17 reaffirms the long-standing financial policy of the group. We are -- see ourselves as a very strong BBB+, which was recently reaffirmed by S&P's almost immediate upgrade of TLG's rating to BBB+ after our successful merger. I'll now turn it over to Shmuel Mayo for the next part of the presentation.

Thanks, Andy. Please go to Slide 19. This slide provide an overview of the assets class breakdown. As a combined group, Aroundtown and TLG, we have a very high degree of assets class diversification with our largest sector being offices, hotels and residential. Over 85% of the portfolio is located in Germany and the Netherlands, the strongest 2 economies in Europe. These 2 economies are also showing a better resilience so far in coping with this virus. Hotel properties, which are very sensitive to the current pandemic, represent 24% of our portfolio. While offices and residential, which are significantly more resilient to the situation, together, account for 60% of the portfolio. Our focus remain on central location in the top-tier cities, with our top 3 cities being Berlin, Munich and Frankfurt. Further on from this, Slide 20 shows the highly diversified and defensive tenancy structure, with our overall combined weighted average lease term of 7.9 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. Please go to Slide 21, where we will look at the office sector in more details. 54% of our combined office portfolio is located in Berlin, Frankfurt and Munich. As just mentioned, with over 4,000 commercial tenants, each of our locations serves different key industries, giving us, again, a high degree of income diversity. Our top 10 office industry sector represent over 50% of our office income and are all regarded as resilience to the pandemic. The biggest industry sector in our office portfolio is governmental and represent 15% of our office income. We have in our office portfolio an insignificant, being less than 1% to highly exposed COVID-19 industry sectors, such as air travel, oil and tourism. The weighted average lease term on our office portfolio is 4.5 years. I'll now hand you over to Oschrie Massatschi for the next part of our presentation.

Thank you, Shmuel. Let's move on to Slide 22, where we will begin the overview of our hotel portfolio. In our portfolio, this is the sector that currently exhibits the most uncertainty amongst landlords, operators and investors. As mentioned, the hotel portfolio represents 24% of our total portfolio, comprising of 177 hotels. The hotel portfolio is highly diversified across the major cities of Germany and Europe, with 84% in the more affordable 4-star category. In our view and based on our actual real-time experiences from the financial crisis of 2008 and 2009, the hotel sector will see a significant rebound in demand once restrictions are lifted. Hotel operators have reacted very quickly to this pandemic, reducing costs sharply, both within the hotels and at the head office. 2010 and 2011 were extremely profitable years for hotel operators as their businesses were extremely lean coming out of the financial crisis and demand picking up very quickly. We see the same occurring once restrictions are lifted and actually at a faster rate than in 2010 as pent-up demand remains strong and booking systems are even more advanced. Our lease agreements are fixed. They have no variable element linked to the operational results and have very long lease terms. On average, the weighted average lease term of our hotel portfolio is almost 15 years, with our longest lease running for 25 years. Slide 23 shows our tenants and what brands we are exposed to. These operators are strong, experienced, relatively resilient and many of them came through the 2008, 2009 financial crisis. Once again, our diversification across so many operators and limited dependency on any one operator further dilutes our risk. Some of our tenants may have temporary difficulties due to complete shutdowns of the operations. To counter this impact, various support and compensation measures are being put in place by government, which, for example, include support in payroll payments and subsidized loans. In addition, some of the operators have very recently succeeded in signing sub-rental agreements with government-related agencies that will serve the needs of hospital teams for the military, individuals quarantined or as temporary hospitals. Many of the operators are also currently negotiating further agreements and some are at advanced stage to create alternative income during this period of general shutdown. Slide 24 gives an overview of some of our leading hotels and their locations. Slide 25 looks at the remaining sectors within our portfolio. 12% of our portfolio is in residential, all of which is represented through our investment in Grand City Properties. German residential is regarded as the most resilient sector in the real estate arena. 10% of our portfolio is in retail properties. The majority of which is leased to food-anchored tenants such as Edeka, Netto, REWE, Penny, Lidl or Kaufland, and who are experiencing unprecedented demand due to the pandemic, and we expect them to remain fully functioning throughout this crisis period and beyond. Finally, 7% of our portfolio is exposed to the logistic and wholesale segment. As like the food retail sector, this is also experiencing very strong demand, and we also expect this to remain resilient throughout the pandemic. I'll now hand you back to Andy for the final part of our presentation.

Thanks, Oschrie. Please, everyone, go to Slide 26. We find ourselves in very uncertain times, but we at Aroundtown believe that with our incredibly strong liquidity and balance sheet position, that we will not only come through this crisis, but find great opportunities along the way to further strengthen and grow our business. The key to this crisis, in our view, is how long will it take. We are ready, if necessary, for the long haul. We are, however, optimistic that we'll get back on track this year. Finally, on Slide 27. We are, for a short period, replacing guidance with our portfolio run rate. We feel it will be unprofessional in these circumstances to give full year guidance when so much uncertainty, especially in the hotel sector, still exists. We will give guidance in due course once we have a better understanding of the impact on the economic shutdown and its probable length. The figures shown are the current contractual rental income figures. We reiterate, the figures shown do not include any positive effects from future acquisitions, cost and efficiency savings or like-for-like rental growth. In addition, any potential impact of the economic shutdown is also not included in these run rate figures. We see this as having a potential onetime impact on our 2020 results. Aroundtown's February FFO run rate was EUR 624 million and is 24% above the 2019 full year figure. That concludes the presentation. The appendix holds plenty more information for you all to look at. I'll hand you over to Oschrie now, who will lead the Q&A session.

Thank you, Andy. 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 group similar questions in order to answer as many questions as possible. Allow me now to read out these questions. Question number one: what is your view on the current market situation, considering the impact from the coronavirus on your business?

Yes. Although the market showed strong signs of stability until March, the outbreak of the virus threatens to lead to a slowdown of clear. [ Births ] expect slowdown to escalate as long as the virus continues to shut down the economies. It's too early to assess the full impact of the coronavirus. There is an uncertainty referring to the time a cure can be found or if the virus can be mitigated and when the market will work in full force again. The initial impact is on airlines, retail and hotel industries. And if the situation will continue for much longer, it will also reach the office sector. Especially in these periods, a diversified portfolio becomes even more meaningful. We are diversified in many different aspects from asset types, locations to tenants and industry to -- and our tenants while focusing on top-tier locations and the robust economies. Our holding and residential real estate reflects here the strongest defensiveness in the current market situation. We see the importance of diversification in a fast recovery also. We expect the recovery to be gradual, and in some locations, to recover faster than others. Therefore, we expect to have a faster bounce back as -- on average. In 2019, office markets particularly showed a good performance with further increasing demand and continuing supply shortage. In the big 7 German cities, office take-up grew again, which is the second best result of all time, reducing the vacancies further and increasing office rents. Some markets such as Berlin and Düsseldorf have seen record take-up in volumes. While other markets, such as Munich and Cologne were restricted by the shortage of available space, but accelerated the rental growth. We estimate that as long as the current market situation remains, we will not see a significant tenant rotation. The office portfolio is our biggest asset type and is 47% of our portfolio. In our view, the impact on the rental income is expected to be limited due to our tenant diversification and immaterial exposure to the industries directly hit by the crisis. There are only 3 industries which make up more than 5% of our office rental income, which are: governmental, 15%; insurance companies, 7%; and Siemens. The top 10 industries represent over 50% of the office rental income and are very defensive versus the pandemic. We currently expect the fundamentals to remain stable and strong, also given the corona outbreak. Once recovery will start, we expect the stronger locations to remain so. Further, supply will continue to stagnate, and the high demand supply gap will remain. We see the importance of focusing on AAA countries, such as Germany and the Netherlands, in which 95% of our office portfolio is located and are expected to withstand this crisis. And Germany shows, so far, relatively better comprehensive response to the impact of the virus in comparison to other European countries. The merger with TLG increased our footprint in the highly performing top-tier cities such as Berlin, Frankfurt and Hamburg. Therefore, office portfolio is well positioned within the strongest European markets. Our locations in Germany and the Netherlands significantly outperformed the European market in office rent growth. In the past 3 years, from the beginning of 2017 until the third quarter of 2019, prime office rents in the top 5 German office markets grew by 24% and in the top 5 office markets in the Netherlands by 22%, while the average growth in Europe was 8% and in North and Western Europe, 13%. Regarding the hotel sector, 2019 has been a strong year in our locations, but currently, the entire industry is experiencing a temporary shutdown. The hotel portfolio represents 24% of our portfolio and include nearly 180 hotels diversified over many different locations with no significant dependency on a specific location. 84% of the hotels are in the 4-star category, which caters for both types, tourism and business travel, which we will -- believe will remain the category with the fastest recovery once the pandemic is over. All of our hotels are fixed long-term rental agreements of between 10 to 25 years, with strong 30 third-party hotel operators, overall represent a weighted average lease term of 14.8 years. The rental agreements are double or triple net, fixed plus linked CPI. The lease agreements include a set of strong securities ranging from bank guarantees, parent guarantees, pledge over bank accounts, pledge over [ FME ] accounts and more. We have over 30 tenants, which are long-standing third-party hotel operators, who have a strong track record in successful operations through numerous cycles, including the 2008-'09 crisis and have operated successfully since. The feedback we're receiving from the operators is that demand has just decreased significantly since February. Hotel operators focus currently on extreme measures to minimize costs and plan the recovery once markets will open again. Many hotels were forced by the government to close and some closed due to the occupancy and demand. Some hotels used the existing situation to accelerate CapEx planned for the remainder of this year or even the year after in order to be better prepared for the reopening of the market. Some operators sublease the hotels for the use of hospitals or other governmental use. And many hotels are now in negotiations with government agencies for a sublease for various public needs due to the current crisis and for government compensation for forced shutdowns. At the moment, it is not possible to evaluate the full effect on the hotel sector, which was directly hit by the pandemic as it depends on the length of this shutdown. We continue to monitor the hotel tenants very closely and try as much as possible to support them in this situation, including potential delay of partial rental payments, but no cancellations or reduced rents at this point in time. The retail portfolio represents about 10% of the portfolio, the largest subsector, with half of the rental income is focused on food-anchored properties, catering for strong and stable demand from local residential neighborhoods. Food-anchored properties are mainly long leased retail boxes and locations with limited competition, such as the Edekas, Nettos, REWEs, Pennys and Lidls. The residential portfolio through our holding in Grand City provides another angle of diversification, especially in a very stable and resilient asset class of German residential real estate. Macroeconomic fundamentals such as population, net migration and number of households continues to show positive elements in the past few years. New construction is also not keeping up pace with demand. Also Grand City follows a strongly diversified approach and there was no dependency on any single location. The major locations of North Rhine-Westphalia, Berlin, Dresden/Leipzig/Halle and also London, a market with a very strong and stable fundamentals, where the Grand City has had incredible achievements since it entered the market a few years ago. Considering the recently initiated Berlin rent cap, diversification also shows an advantage here. On the wholesale and logistics sector, we don't anticipate material impact as this is mainly last mile activity, which is in high demand in the current situation. Overall, although we cannot quantify the impact of the pandemic, we see the impact on our business as a onetime impact on the 2020 results. We'll use our strength, which represents -- which is represented by our strong liquidity, no significant debt maturity in the coming years, diversified portfolio and tenants to find the right opportunities for value creation for our shareholders. As we are very prepared and resilient for this -- the big event, we believe we are positioned very well to come out relatively stronger from this current situation.

Next question, what would be the impact on FFO if hotels remain closed for 3 months?

In such case, the impacts on Aroundtown's FFO will not be too high. The hotels are leased to third-party operators with long-term fixed leases. The operators are profitable. Plus the lease agreements include a set of securities, ranging from bank guarantees, as I mentioned, parent guarantees and including deposits. There will also be a timing impact due to some delays in the timing of rent payments.

How well are you internally prepared for the virus? Our internal operations have always been very flexible in terms of the location where our employees are working from and the connectivity with the team. We have revisited our procedures to identify any potential weaknesses so we can be prepared. We are not majorly dependent on any supply chain, which can be affected by the virus. And also geographically, we are set up very diversified with various local offices throughout Germany and also other cities, such as Amsterdam, London and many more. We reduced the employee count per single office through home office options. We believe we are well prepared and believe there will be no material impact on our daily operations. How does the acquisition pipeline look like? Would you still consider buying hotels in such market conditions?

Our pipeline is very strong and amounts to over EUR 1 billion of properties, mainly offices and hotels. Due to the market conditions, we've decided to wait with the execution of the existing pipeline until more clarity about the market will become apparent. With cash balances of over EUR 2.8 billion at hand and EUR 16.2 billion of unencumbered assets, we believe the current market will enable us to find acquisition opportunities with better yields and value creation potential to our shareholders. We are fully committed to our financial policy and our strategy. In any potential acquisition, we assess the fundamentals of each property in terms of rent, occupancy demand, scheduled or potential new supply, cost structure, et cetera. We still believe that hotel assets are a strong asset class with very stable and long-term characteristics. As mentioned before, we will wait for more clarity over the market and for the right opportunity to be executed. Please note that a crisis such as the current one is not predictable and part of our due diligence will also check conversion potential in a specific location of the subject property. Hotels in top-tier locations can also be converted into small residential units. Overall, we will continue to annualize acquisitions on a case-by-case basis.

Next question, is there an insurance you have for the health crisis? Well, we have all risk insurance covers, which covers potential damage to the buildings, but not to the profit of the tenant. Our tenants have all risk insurance, including business interruption, which according to our tenants might cover part of the operational profit. For instance, from natural disasters such as earthquake, infection diseases and terrorism, amongst others. It is not yet clear what is the opinion of the insurance companies referring to the current situation. It is also not clear if and how there will be government support to the sector, especially in cases of forced shutdown by the government. Did you receive tenants' requests for a reduction or delay in rents? From which sectors? Our management is in continuous communication with our tenants. The main discussions are with some of the tenants in the hotel sector which suffer directly from the pandemic. Our hotel tenants are operationally very profitable, and with a long track record, able to cross recession periods as they did in 2008 and 2009 without any special requests. A complete shutdown with no clear end will force them to take extreme measures to ensure their successful recovery once the market is open again. So far, our discussions with our tenants were updates about the measures for reducing the operational costs. The tenants are aware and respect their contractual obligations with the company. Nevertheless, we received several requests for certain benefits, which, in their view, will assist them to cross this crisis successfully. The request ranging from holiday to deposits of FFE reserves, releasing existing CapEx reserves, change from full quarterly prepayments to monthly prepayments and delay of rent until hotels can be reopened. The request in other sectors are so far insignificant. Next question, one of the rationale of the merger with TLG was a rating increase. When do you expect that to happen?

The merger is credit rating supportive due to the stronger business profile from a larger size, stronger asset classes, larger footprint in the top cities in Germany, lower vacancy, lower tenant dependency, et cetera. We believe these factors will support a rating increase. The timing, as this is dependent on the rating agencies. We believe that the current shutdown created significant uncertainties in the markets. In our opinion, any rating discussions will be delayed until uncertainties and the impact of the crisis are clear.

What are your next steps with TLG? Do you consider a squeeze-out, domination agreement or delisting? What is the composition of the future management of the group? How's implementation of synergies progressing? Is your guidance about the cost savings still in place? And when will you publish consolidated figures, including TLG?

Our next steps are taking measures to extract the synergies of both company operations and implementing the governance updates as presented in business combination agreement. Squeeze-out, domination agreement or delisting are currently not in our focus. 22% minority remains. As we have control, we will consolidate the TLG, starting at the 19th of February of this year. The future management of Aroundtown will consist of Aroundtown's existing senior management. And in addition, Mr. Barak Bar-Hen and Mr. Klaus Krägel nominated by TLG. We reiterate the synergy potential which we identified and part of the implementation process to analyze the best way to lift the operational synergies. Financial synergies will be implemented in a more stable market in the future. We will consolidate TLG starting from the 19th of February. The results will be included in the first quarter 2020 results, which we'll publish at the end of May.

Why did you recently buy back part of your outstanding bonds?

This is part of our strategy to proactively optimize our debt profile, which is also part of our financial policy. We have issued longer-term debt and now repay shorter-term debt in order to extend our debt maturity profile. We generally refinance ahead of maturity, if the opportunity is favorable instead of waiting until maturity, when you lose flexibility in the markets.

Question, can you please provide details about acquisitions you managed to complete in 2020? For which locations and asset types do you still see opportunities to buy? With the current market conditions and opportunities and with your current liquid position, would you consider further any merger and acquisitions?

We remain to see currently a lot of opportunities. Our deal-sourcing network has widened over the year due to our reputation and the size we've achieved. We're also not limited to single location. We're being offered deals outside of Germany and Netherlands, but Germany and the Netherlands will remain the focus locations. In 2020, so far, we've had an immaterial amount of acquisitions of EUR 50 million. We focused on the completion of the merger with TLG, which has a portfolio of over EUR 4.7 billion and mainly offices with almost 50% of the portfolio's location in Berlin and a strong development pipeline. We fully control TLG and the portfolio will be fully consolidating started in Q1 of 2020. In the presentation, we present you a consolidated view already, which is based on TLG's last published information. The merger has strengthened our presence in Germany, especially in Berlin. Additionally, we are currently looking at a deal pipeline of above EUR 1 billion. Nevertheless, we decided to hold the executions of existing pipeline until clarity in the market condition will appear. We believe the additional and maybe even better acquisition opportunities may arise in the current market situation. Our acquisition strategy didn't change, however, and we remain focused on office and hotels in locations with strong fundamentals, which have a strong value-add potential from a high rent revisionary potential. Our expected long-term unlevered NOI yield on total cost, which formally accounted to around 6% to 7% over total cost,, will need to be adjusted to the current market conditions. More updates will follow in the next periods. Our firepower remains strong, and we have capacity to acquire over EUR 2 billion of properties. M&A is, for us, not different than any other acquisition consideration. The asset quality has to be high, the portfolio has to be strongly cash-flow producing and embed a value-add potential so we are able to create shareholder value, and all within our conservative capital structure. But please bear in mind, we do not set ourselves any acquisition targets but strike when the opportunity arises, and the current market conditions will probably open up significant opportunities. Due to our wide diversification and very strong cash position, we believe we might see special opportunities in case the current conditions will remain. These kind of market conditions are our unique expertise, especially in times of crisis.

Next question, you sold an amount of EUR 750 million in 2019. What is your strategy behind these disposals? And what can we expect going forward? Can you please also give details about the disposals? While we have sold in 2019 mature and noncore properties and development rights of offices, hotels and retails at a value per square meter of approximately EUR 3,500 and at a multiple of 22x, we sold slightly over book value and 72% of our total cost, which includes acquisitions costs plus CapEx. This profit resulted in an FFO II of EUR 814 million and an increase of 42% compared to last year. In 2018, we sold almost as much with over EUR 740 million, but the disposal margin over total cost was lower at approximately 30%. The comparatively higher disposal margin in 2019 testify our significant value-creation capabilities. In Q4, we sold offices, hotels, retail and development rights in Munich, Berlin, London, Frankfurt and [ North ] and various other noncore secondary cities. These disposals were mainly mature assets or retail and also development rights. Additionally, we sold minority stakes in several properties as we are constantly getting attractive offers for our properties and where we have extracted the majority of the potential. After the reporting period, we signed several immaterial disposals. We expect to continue disposing noncore and/or mature properties on an opportunistic basis. Capital recycling has been and will remain part of our strategy in order to improve the overall portfolio quality and also free up resources from 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 will support the company's liquidity reserve. Next question, you recorded EUR 1.2 billion revaluation in 2019. How does the valuation split between the different asset types? How was the split amongst the main locations? What was the like-for-like value? What was the yield compression? What portion of the valuation gains derived from yield compression and how much from operational improvements? Will you postpone any upcoming property revaluation into H2 due to the market turbulence? What is your expectations for revaluations in 2020, considering the current market conditions?

The value like-for-like for the 2019 was 5%, in line with the rental income like-for-like of 4.2%. 2/3 of the revaluations were recorded in the office and 30% in the hotel assets. We have seen positive revaluation across all the location, but in particular, in Munich, Berlin and Amsterdam. Direct operational improvements and additional development rights contribute 2/3. Yield compression by less than 0.1%, which contributed to approximately 1/3 of the valuation gains in the year. The yield compression is the result of the increasing demand of our high-quality office and hotel locations. Our current rental yield is 4.9%, well above comparable market levels of 3% to 4%. Aroundtown's policy is to value each asset once a year and so far, value around the quarter of each of the assets each quarter. TLG policy is to value the portfolio twice a year. We are currently considering with TLG management which policy is the better one for both companies. Referring to the revaluation of 2020, it is too early to assess. And we'll give more information with our Q1 2020 reports.

Next question, 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?

We currently identified, including with TLG, around EUR 1.4 billion of rights accounting for less than 6% of the portfolio's value. Approximately 40% of the development rights are located in Berlin, 30% in Frankfurt and approximately 10% in Munich and Hamburg. The majority of these rights is for office and residential space. But these are not necessarily the final yet as we are optimizing these rights, which includes finding the optimal usage. The merger with TLG did not change our strategy. We will continue to analyze our portfolio and identify unused or underutilized land plots of existing properties and conversion rights where we can get building rights and sell or potentially develop them when the risk is low. In 2019, we have sold development and conversion rights at the amount of over EUR 100 million within the existing property in Munich and going forward, we'll continue to sell on an opportunistic basis. We will consider executing developments in our top locations only if it will meet certain criteria, such as pre-let contracts and more than an 8% unlevered NOI yield over the costs. TLG has a very strong development pipeline of which some are currently in construction. Their largest project is in the middle of the Alexanderplatz in Berlin, where they have a currently yielding office property with over 50,000 square meters. The plot provides a development potential for 150,000 square meters. So there is a large potential in one of the best locations in Berlin in a market where there is basically no office vacancy. In Slide 42 of the presentation, you can see more information on this project. As we have a building adjacent to this project, we can integrate this into the development plan and realize more lettable square meters compared to a stand-alone. We'd like to remind you that receiving building permits is a lengthy process and is independent on the municipalities and also not fully in our control. Extensive experience of our team and the increasing negotiation position from a more development project towards the municipalities will speed up the process, we believe. In the long-term value-creation strategy, which runs alongside the value-add and robust like-for-like rent enhancement of our existing portfolio.

Next question, how high is your exposure to the residential rent freeze in Berlin? The Berlin Mietendeckel became effective February 23 this year. The conditions which led to the implement -- to implementing such a build are the consistently widening supply-demand gap for many years, and the government have been ignoring this problem. This problem can only be solved by increasing the housing supply, including within the affordable housing segment. The rent cap will only widen the gap even further. Therefore, we do not see the new law improving the rental conditions in Berlin. Nevertheless, we reiterate the importance of geography and asset type diversification because enhanced scale and diversification mitigate risk also on a regulatory level. Due to the high diversification in GCP's portfolio and the further diversification within our commercial real estate portfolio, the impact of Berlin's new rent cap has an insignificant impact, with around 0.1% on the group's rental income. How does the recent trading affects your potential inclusion in the DAX Index?

Post merger, our free flow increased to almost 80%, and our market cap increased as well, which are both positive criteria for the index assessments. The last ranking Deutsche Börse had published at the end of February ranked Aroundtown as 32nd in terms of market cap, which puts us into the entry range when a company drops out of it. As the market cap of Aroundtown and other peers have decreased significantly in the last few weeks, we will need to wait and see the March ranking and make a better assessment then. As to the trading volume, our trading volume will need to improve slightly more as the rank is based on the last 12 months. As our volume has increased since the merger, we believe to increase our rank over time, which currently stood at 37th place. And you'll need to be a 35th, as a minimum, to be eligible. Of course, the ranking is also dependent on all other companies' performance, especially considering the current market development with the outbreak of the health crisis. So there cannot be a clear prediction. In case you've missed the information, Aroundtown is part of the new DAX ESG Index, which includes company with the highest ESG scoring. According to the ranking published by Deutsche Börse, Aroundtown has the highest ESG ranking amongst the real estate members of the index and is 10th highest -- 10th ranking overall within the index. The inclusion underlines our long-standing and strong commitment to sustainability. The inclusion to the index will create more tradability and visibility in our share and, in turn, more trading volume.

Next question, with regards to the 4.2% like-for-like result, how much is attributed to new lettings? And how much to prolongation of existing contracts? And what was the rent per square meter achieved?

65% of the like-for-like was -- is a result of new lettings. Prolongation contributed 20% and 50% due to CPI indexation. We work very hard on negotiation contracts with existing and prospective tenants and keeping a steady letting activity to make the most of the possibilities that our portfolio presents. In 2019, Aroundtown signed leases for about 570,000 square meter in the office, hotel and retail segment, of which 60% are prolongation and 40% refers to new tenants. The average interest rent for the new letting in the office segment, which accounts to 70% on the total new rent, was EUR 13 per square meter, which affect 25% of former rents with a WALT of 5.4 years. The hotel new lettings accounted to 15% of the total new rent and was in-place rent at EUR 4.1 per square meter with a WALT of 18 years. The remaining lettings were retail-rented at EUR 12.4 per square meter with 8 years WALT. In addition to that, we prolonged 120,000 square meter of logistics space at EUR 6 million per year.

Which share count should be used now post merger?

Post merger, our share count has increased to 1.54 billion from 1.22 billion. But please note, for modeling reasons, you need to reduce the share count which TLG owns in Aroundtown, effectively making them treasury shares. The net amount is 1.35 billion shares.

Next question, are you considering to do a share buyback?

We see the current share price of Aroundtown as extremely attractive and well below the level it should be traded. The considerations whether to carry a share buyback referring mainly also to the share free float. Currently, Aroundtown is preparing a long-term share buyback program to be submitted to the approval of the shareholders, which will enable the company to have the option to react fast in case of significant market volatility.

And how would you describe your accessibility to bank lending? Do you have any recent examples?

We have very strong relation with dozens of banks and maintain banks financing along our capital market activities, especially for such cases that the capital market will not be favorable. We always view the bank financing as additional diversification of financing sources and see this as an important source. We have unencumbered assets in the amount of EUR 16 billion that can be used for mortgage lendings. We are currently in a very advanced position for new bank loans in amount of approximately EUR 500 million and in early stage for additional EUR 500 million. These amounts are not included in the excess liquidity of EUR 2.5 billion in the next 2 years that we present in the presentation.

Thank you very much for submitting your questions. Those were the questions that we received prior to this call. We can now start the open session for your questions. We would appreciate if you can ask all your questions at once, and we will answer them one by one.

[Operator Instructions] And we've received the first question. It is from Kai Klose of Berenberg.

I've got 2 questions. The first one is on Page 9 of the presentation. You mentioned EUR 132 million adjustments for GCPs and other investments adjusted EBITDA contribution. Could you indicate what was the split? How much was from -- how much refers to GCP? And how much refers to the remaining part? And the second question is regarding Page 14. When you mentioned EUR 150 million as committed acquisition and CapEx requirements, does this include the 3 development projects, which TLG started or had started in the last year in Berlin and in Dresden? And what are -- what is the required CapEx for these 3 projects for now?

Kai, for the first question, about EUR 90 million refers to GCP and the remaining for our other investments. Referring the second questions, yes, it's including also other projects.

We have no further questions. I would like to hand back to you for some closing remarks.

Thank you. This is a unique period, an extreme crisis situation that happens once in a generation and possibly in a century. In recent years, we have successfully grown and strengthened Aroundtown in the good times, but in parallel, to also get the company ready and resilient for a period of crisis. We believe we are now ready as one can be and well positioned going into this unchartered event. Many challenges lie ahead, but for Aroundtown, so do many opportunities. The management team at Aroundtown has a very strong proven track record in navigating and operating in difficult and choppy waters. As a team, we are convinced that we will come out the other side even stronger and remain one of Europe's leading real estate companies. We thank you for your time today. Stay safe. Let's hope we can return to some form of normality again soon, whatever normality will mean in the future. Thank you and goodbye.

Ladies and gentlemen, thank you for your attendance. This call has been concluded. You may disconnect.