Aroundtown SA (AT1) Earnings Call Transcript & Summary

Good morning to all of you. Thank you for joining us for Aroundtown's 9 months 2024 results call. You can view this presentation on Aroundtown's website, either on the Home section or under Financial Reports of the Investor Relations section. I am Katrin Petersen, Aroundtown's Group Head of Communications and with me today will be CEO, Barak Bar-Hen; CFO, Eyal Ben David; Chief Capital Markets Officer, Oschrie Massatschi; Executive Director, Frank Roseen; Head of Investor Relations, Timothy Wright; Chief Sustainability Officer, Limor Bermann and representatives from Grand City Properties are also present. [Operator Instructions] But please feel free to send us your questions via e-mail or also during the presentation. The e-mail address is [email protected]. With that, I would like to hand you over to Barak to start with the presentation.

Thank you, Katrin, and a very good morning, everyone. With the improving macroeconomic and capital market sentiment, we believe the outlook for the real estate market is now more positive. ECB started its rate cut cycle, which has helped foster optimism and transaction activity is picking up again, providing greater stability and certainty to property values. Subject to market not experiencing another setback, we are seeing signs that in average, we have reached the bottom of the current cycle with the H1 revaluation. During this time, we continue disposing properties around book value and managing our leverage and will continue to do so in the coming periods as we look to strengthen our balance sheet and further reduce leverage. Looking ahead, we see that the environment is now more supportive for deleveraging measures with stable to slightly increasing values and more active transaction markets. Over the 9-month period, we also continue to take proactive steps to strengthening our financial position. Notably, we successfully executed several capital market transactions, including perpetual notes, exchanges and tenders offers in Q2 and Q3 as well as senior unsecured bond issuances in Q3. This transaction has received strong investor demand and positive feedback, reinforcing our standing in the market and the perpetual exchanges allowed us to regain equity content with the exchanged perpetuals under S&P rating methodology while also reducing future coupon payments, thereby supporting the FFO. While in recent periods, the focus has been mainly on deleveraging, we continue to execute on our operational strategy. As we mentioned in our H1 results, we reopened 3 large hotels in Brussels, Rome and Paris. We are also upgrading hotels and converting selected office properties into service apartments, which will allow us to lift the internal potential within our portfolio. We will provide more details on this later in the presentation. On Slide 4, we summarize our financial performance for the period. Net rental income decreased only by 1% year-over-year despite disposals as we achieved a 3% like-for-like growth in net rental income as of September 2024, and despite this decline, adjusted EBITDA saw a 1% increase year-over-year. Our FFO I amounted to EUR 236 million and the FFO I per share stood at EUR 0.22, down 4% year-over-year as our internal growth and operational gains were offset by higher perpetual coupons levels and increased finance expenses. Our 9 months results will position us to meet the upper end of the guidance range, which was already increased with the publication of the H1 2024 results. The combination of robust operational results and reduced cost of debt is driving better bottom line results. We continue to maintain a conservative debt profile with significant headroom to our bond covenants,LTV of 44% as of September 2024 and a strong liquidity position of EUR 3.3 billion, covering 23% of our debt. With EUR 1.5 billion of financing raised year-to-date across bonds and bank loans, we maintain access to all our diverse funding sources, thereby eliminating the refinancing risk over the past years. We did not revalue the portfolio in Q3, but we'll conduct a full portfolio valuation as part of our full year report. Further details on our financial position and our KPIs will be covered in the upcoming slides. Oschrie, please continue.

Thank you, Barak. On Slide 5, we provide a short summary of key achievements and trends with a strong momentum and positive outlook. Our operational performance has been robust, particularly in the residential and hotel portfolios as a result of strong demand and operational improvements, which make up the majority of our portfolio. We achieved in this period a 2% positive rental income like-for-like in our office portfolio and believe demand will pick up once the German economy will grow again supported by rate cuts. Early elections in February next year may prove itself as a positive catalyst for this turnaround. While we experienced some devaluation in the first half of the year, the momentum has reduced significantly, and we believe we have reached trough levels. And going forward, the outlook is more positive. We believe there is a potential for value increase driven by operational growth. On the green front, as part of our initiatives to certify the whole portfolio, we've also begun implementing green building certifications across our hotel portfolio. On the disposal side, we continue to make progress, which is further strengthening our balance sheet and enhancing our financial flexibility. Finally, with a successful completion of recent capital market transactions, we've effectively removed refinancing risk, ensuring greater flexibility to utilize our cash. Moving to Slide 7. We provide an update on our disposal progress. Year-to-date, we signed EUR 630 million in disposals around book value. Over the 9 months period of 2024, we completed EUR 440 million of disposals around book value, achieving an average rental multiple of 17x. These sales span across all asset types with the majority being residential and office properties as well as building rights and are primarily in London, Berlin, Rotterdam and noncore locations. While transaction activity has slowed significantly since interest rates began rising in 2022 we've consistently managed to sell across all asset classes in the portfolio, highlighting the strength of our diversified portfolio. Additionally, we continue to capitalize on development rights in top locations. As land and development rights remains scarce in prime areas, we are able to attract interested buyers for these rights, allowing us to further crystallize the value created in the portfolio from obtaining these rights. On Slide 8, we present an overview of our portfolio, which has remained broadly unchanged. The portfolio continues to be well distributed across prime locations in Germany, the Netherlands and London, which together represent 89% of the total portfolio. Within these key regions, the portfolio is further diversified across top-tier cities. Berlin makes up 24%, London 8% and both Frankfurt and Munich each account for 7%. These cities remain our largest market, where we continue to see strong long-term fundamentals and significant upside potential, especially in the mid- to long term. Further detailed breakdowns can be found in the appendix. Moving to Slide 9. We provide an update on our key portfolio metrics and tenant base. As of September 2024, the portfolio is valued at EUR 24 billion with an annualized recurring net rental income of EUR 1.15 billion, reflecting a rental yield of 5.1%. The portfolio's world remained strong at over 7 years. The maturity schedule is well balanced with no significant concentration of leases expiring in any single year. Vacancies stands at 7.6%, slightly lower compared to December '23, while in-place rent is slightly higher at EUR 10.9 per square meter. With 25% reversionary potential across the portfolio, we continue to have significant internal growth potential to extract in the coming years while also providing downside protection. Our tenant base remains highly diversified with over 3,000 commercial tenants and further supported by a highly granular residential segment. The top 10 tenants continue to account for less than 20% of total rental income with very low dependency on any single tenant. On Slide 10, we provide an update on our office portfolio. The majority of our office portfolio remains concentrated in our top 4 locations, Berlin, Frankfurt, Munich and Amsterdam, which together represents 60% of the total office portfolio, 58% of our office portfolio is BREEAM certified, reflecting a steady increase from 29% just 1 year ago. As of September '24, we've seen like-for-like rental growth of 2% in the office portfolio, driven by indexation and rent reversion. Vacancy levels have reduced slightly over the quarter. The tenant structure continues to be strong and well diversified with around 75% of tenants coming from the public sector as well as multinational corporations and large domestic companies. With improving macroeconomic indicators and sentiment, we anticipate positive momentum in the office market. Although we expect some lag in the recovery consistent with patterns seen in previous cycles. We are further exploring conversion options and selected office assets into service departments. In addition, we started to identify assets that might fit to be used as data centers. Both asset classes could benefit from the strong locations of our portfolio. We've identified several sites for service departments, and we are in negotiations with several strong national and international potential tenants. For data center conversions, we are currently analyzing the ideal structure, how to extract that upside potential, either through powered or shell or core locations and hyperscalers. We see significant upside potential for this asset type, and we follow our proven approach to analyze, identify and get all relevant permits, including power to lift the value potential. We are currently in an early stage and will update you further once we progress to build a long-term strategy. On Slide 11, we highlight the ongoing normalization of work patterns in our office markets, particularly in Germany, where return to office rates have nearly returned to pre-pandemic levels. In fact, Germany is leading the way in its 7 largest office markets with an 89% return to office rate compared to pre-pandemic levels. The current average attendance rate in Germany's Big 7 cities stands at 72%, which represents a 10% increase from 2023, equating to approximately 3.5 days per week in the office. This is significantly higher than the European average of 60% and well above the U.K. and U.S. where rates remain lower. To put this in perspective, the U.S. return to office rate is currently just 66% with some major cities like San Francisco and New York seeing attendance rates below 30%. This contrasts sharply with the trend in Germany, where there is stronger demand for office attendance. Among the top 7 German cities, Frankfurt stands out with the second highest attendance rate, defying early expectations that remote working would disrupt office demand in this market. We do believe that a hybrid working model of office attendants as well as remote working options will be the concept to stay, but the impact of demand will be softer than previously anticipated. Several large corporations have recently announced a call back to the office, reinforcing the growing trend of traditional office work patterns returning. As a result, we are seeing a strong recovery in office attendance particularly in markets like Germany, where the supply of office space remains healthy compared to regions like London and North America. On Slide 12, we are pleased to introduce ATworld, our innovative user experience platform designed to redefine the way we engage with real estate. ATworld goes beyond simply offering physical space. It leverages technology and digital solutions to transform properties and the real estate industry as a whole. By reimagining how spaces are designed, used and interconnected. ATworld will aim to meet the evolving needs of tomorrow's workforce while enhancing the tenant experience today. Through the ATworld app, tenants gain access to a very large network of flexible workspaces across hundreds of locations throughout Europe, leveraging Aroundtown's large portfolio and network. Platform allows users to easily find the suitable spot to work and collaborate and provide our tenants with options to attract new employees without being dependent on a single location, increasing flexibility collaboration and employee satisfaction. We expect to expand the platform, including third-party space providers and open it up to B2C members in the future. Moving to Slide 13. Our residential portfolio continues to demonstrate strong operational performance. As of September '24, we've seen like-for-like rental growth of 3.7% year-over-year primarily driven by strong and increasing in-place rental growth. This is largely due to the ongoing supply/demand imbalance in the market. New completions remain at low levels and are expected to decrease further while demand continues to rise. In the first 9 months of '24, building permits for new construction have dropped by 23% totaling 15,000 apartments compared to the same period last year. According to the German Real Estate Association, ZIA, there's currently a gap of around 600,000 units, which is expected to grow to 830,000 units by '27. This persistent shortage of supply is expected to continue driving long-term rental growth, though significant changes would be required to address the gap. Moreover, the nature of Germany's regulated rental system means that inflationary pressures are reflected more slowly in rents, providing additional tailwind for midterm rental growth. Meanwhile, the London portfolio, which operates without rent control has seen a faster capture of inflation and market rent. As of September '24, like-for-like rental growth in London was around 5%, further underlining the strength of the market. In both Germany and London, the residential market dynamics remained strong and sustainable, positioning us for continued rental growth and long-term cash flow expansion. Frank, please continue with the next slides.

Thank you, Oschrie. Moving to Slide 14. We provide an update on our hotel portfolio that continues to perform well. Our hotel portfolio comprises over 150 properties and is well diversified across key European tourists and business destinations. These hotels are leased to third-party operators and the long-term fixed leases, which are more linked to inflation or include step-up rents. As of September 2024, we have recorded 4% like-for-like rental growth, reflecting the positive momentum within this asset class. The third quarter has been particularly good for the hotel sector, driven by major events and a significant increase in corporate and group travel. Looking ahead, it is expected that the recent strong growth in RevPAR has now stabilized and will continue at a moderate long-term growth rate. This environment is also supporting the rent growth in our portfolio. On Slide 15, we focus on the significant internal growth that we have captured through a series of successful hotel repositioning. Thanks to these initiatives, we will capture around EUR 60 million in annual rental upside over the next few years, which is only partially already included in the run rate. For Rome and Brussels, we have completed full refurbishments and rebranding into the Autograph Collection by Marriott with further potential from additional rooms in Rome. Paris underwent a soft refurb under the Marriott Red brand and is now home to the largest events and conference hotel in Paris, which we opened before the Olympics. In Hilton Berlin, we converted underutilized spaces into 22 service apartments catering to prime rental location demand. We're also rebranding several hotels to better align with post-pandemic trends, focusing on digital services, service apartments and long-term stays. Finally, we're exploring office conversions into hotels, service apartments, and long stays to meet shifting location dynamics, providing additional upside potential. On Slide 16, we provide an overview of the initial progress of the green building certification within hotel portfolio. After our steady progress to certify the office portfolio, we have now begun certifying our first hotels. We are leveraging the knowledge and experience gained from our office certifications to accelerate this process within the hotel portfolio. As of today, 12% of our hotel properties are certified, and we expect gradual progress moving forward, similar to the track record we have established with our office certifications. On Slide 17, we illustrate a brief summary of ATechX Aroundtown's PropTech Accelerator, developed in collaboration with two of the most prominent PropTech venture capital firms globally namely Fifthwall and noa, the world's and Europe's largest built world venture capital firms, respectively. ATechX aims to accelerate the growth of innovative PropTech start-ups by providing them with access to Aroundtown's extensive real estate portfolio, network resources and expertise. Our goal here is to make a substantial impact on the real estate industry, foster breakthroughs and enable start-ups to scale rapidly. We believe that many problems and challenges that the real estate industry is facing today should eventually be solved by innovation solutions. In this regard, we're referring mailing to energy intensity and decarbonization. For Aroundtown, ATechX offers several strategic benefits. It gives us access to promising PropTech solutions that can be enhanced our operations create opportunities for investment with the potential of outsized returns and position Aroundtown as an innovation-first real estate company. ATechX focuses on key areas such as CO2 emission reduction, building digitalization, ESG optimization and generating ancillary revenue, all aimed at shaping the future of real estate industry through technology and innovation. We strongly believe that the key to making the real estate future-proof is through technological and digital innovations. With that, let me hand it over to Eyal.

Thank you, Frank. Please move to Slide 19. Net rental income amounted to EUR 883 million, reflecting a 1% decrease year-over-year due to disposals. This was partially offset by a positive like-for-like rent growth of 3%. Operating and other income, which mainly includes recoverable expenses from tenants, decreased by 13% year-over-year, in line with the reduction in operating expenses. As a result, total revenue for the period decreased by 4% compared to last year. We didn't conduct a portfolio reevaluation in Q3 and will perform the full portfolio revaluations as part of our full year financials. That said, property revaluations and capital gains amounted to a loss of EUR 591 million in the 9 months period, driven mainly by the valuation declines recorded in H1 and slight capital gains from property disposals, which were executed at a slight premium of around 2% to book value. Total property operating expenses decreased by 17%, mainly due to the lower utility cost and the absence of the extraordinary provision for uncollected hotel rents that impacted last year's figures, along with the impact of disposals. Finance expenses totaled EUR 179 million, reflecting an 8% increase year-over-year. This increase was primarily driven by the higher interest rate environment, which impacted the cost of new debt issued for refinancing purposes. The new debt was raised at a higher cost compared to the existing debt. Additionally, the expiry of certain hedging instruments since the beginning of 2023 resulted in some of the debt transitioning into variable rates, which are now higher than before. The higher interest rates also affected the cap portion of the debt, contributing further to the rise in the finance expenses. These higher expenses were partially offset by interest income earned on our liquidity balance, bond buybacks at a slight discount and debt redemptions. Furthermore, during the period, we hedged and fixed variable and cap debt at lower fixed rates as we decided to wait until we saw rates to reduce, allowing us to reduce interest expenses further. Overall, the loss for the period amounted to EUR 154 million. On a per share basis, this results in EUR 0.21. On Slide 20, we present the development of adjusted EBITDA and FFO. Adjusted EBITDA increased by 1%, reaching EUR 758 million, despite the decline in rental income due to disposals. This growth was driven by our efficiency measures as well as higher contribution from JVs, which helped offset the impact of lower rental income. FFO I decreased to EUR 236 million. This decline was mainly due to the higher finance expenses and perpetual notes attribution, offsetting the adjusted EBITDA growth. On a per share basis, FFO I amounted to EUR 0.22, down 4% year-over-year and reflecting an FFO yield of 10% over the current share price. These results are in line with our confirmed guidance. On Slide 21, we highlight the key drivers that support our FFO in both the short and long term. Our continued focus on balance sheet strength and reducing refinancing risk has positioned us well to unlock the operational growth potential embedded in our portfolio. As of September '24, our revision in potential stands at 25% which we plan to realize over the coming years through letting at lease expiry, further indexation and vacancy reduction, all supported by positive market momentum and improved outlook. Additional growth will be driven by the targeted repositioning of properties through tenant structure optimization, hotel upgrades and aligning our hotels with key demand drivers. Furthermore, selective CapEx investments into redevelopment, refurbishments and building upgrades provide high return at a relatively low risk. As a result of our efficient operation cost structure, this top line growth translates into a high conversion rate into FFO. In addition to these long-term growth drivers, we have taken proactive steps to mitigate the short-term pressures. The perpetual loss exchanges and tender offers will support FFO with accretive effects starting in 2025, while providing clarity on future coupon payments. We have used the decreased interest levels and effectively hedged our interest and foreign currency exposure, securing lower fixed rates. As interest rates normalize in the coming periods, we will benefit from lower cost on the portion of our debt that is still capped variable. In the meantime, our strong cash position continues to generate interest income, which helps to offset higher interest costs while providing us with ample financial flexibility. On Slide 23, we highlight our EPRA NAV metrics, which decreased primarily as a result of the devaluation in the first half of the year. The EPRA NAV amounted to EUR 9.6 billion or EUR 8.8 per share as of September 2024. The EPRA NTA amounted to EUR 7.8 billion or EUR 7.1 per share as of September 2024. Oschrie, please continue with the rest of the presentation.

Thank you, Eyal. In the 9-month period of '24, we have shown our continued strong access to the capital markets. We've issued EUR 1.15 billion in senior unsecured bonds and EUR 2.6 billion in perpetual notes with strong investor demand our bond issuances were 7x oversubscribed and our perpetual exchanges saw 85% acceptance rate. We also signed EUR 325 million of bank debt year-to-date. The proceeds have been focused on liability management, including EUR 710 million in bond buybacks and EUR 445 million in redemptions, optimizing our debt structure and extending our average debt maturity. We've also reduced our perpetual notes balance by EUR 300 million, further strengthening our financial position. Moving to Slide 25. We provide key metrics regarding our conservative capital structure. Our LTV ratio has increased slightly to 44% from December '23, but decreased slightly by 1% since June this year primarily due to the impact of devaluations in the first half of the year. As a result of the positive effects of disposal proceeds and operational profit, we were able to mitigate much of this impact. We remain committed to taking proactive measures to reduce leverage in the coming periods. We continue to maintain a strong balance of unencumbered assets totaling EUR 16.9 billion or 72% of our rental income. Our average cost of debt is 2%, a decrease compared to December '23, reflecting the proactive steps we've taken to manage and mitigate interest expenses. The average debt maturity is 4 years. It's important to note that these figures do not account for our strong cash position, which in the current environment is generating positive interest income that offsets part of our interest expenses. As of September '24, cash and liquid assets covered 23% of our debt effectively extending the debt maturity profile. After factoring in our liquidity balance, the effective debt maturity increases to 5 years. Through proactive hedging activities in the 9-month period, 98% of our debt is now hedged with the majority either fixed or swapped and 3% covered by caps. The remaining 2% of our debt is variable. As a result, any decline in interest rates would benefit the 5% variable and cap debt. Our interest cover ratio for the 9 months of '24 was 4x and our net debt-to-EBITDA ratio stood at 11x. On Slide 26, we provide an update on our maturity schedule. As previously mentioned, we have executed several capital market transactions that have strengthened our debt maturity profile. Our liquidity position remains robust with EUR 3.3 billion of cash and liquid assets as of September '24 -- as of 30th September '24 further supported by undrawn revolving credit facilities with EUR 650 million recently extended for an average maturity of 4 years. Turning to our guidance on Slide 26 -- 28. Following a strong 9 months in '24 and with a more positive outlook for the remainder of the year, we confirm the full year '24 guidance and expect to be at the upper end of the guidance range which is between EUR 290 million and EUR 320 million, reflecting EUR 0.27 to EUR 0.29 per share. This concludes our presentation. As always, you can find further materials in our appendix. With that, we would like to start the Q&A.

Thank you. So before we invite your direct telephone questions, we would like to answer questions that we proceed to the e-mail prior to this call. For simplicity reasons, the team has taken liberty to group similar questions in order to answer as many questions as possible. Allow me now to read out these questions. Could you provide an update on the hotel portfolio?

Thank you for the question. The hotel portfolio saw 4% like-for-like rental growth as of September 2024, reflecting the continued strength in the hotel market. We are experiencing sustainable positive momentum in this asset class, further boosted by a significant increase of corporate and group travel as well as international travel. The strong like-for-like result was driven by several hotel repositioning efforts. This includes soft refurbishments, rebranding and a rating of hotels. Altogether, these efforts are going to capture approximately EUR 60 million in rental income increase over the next few years, while only any significant amount is included in 9 months 2024 operational results. Additionally, we're exploring digital solutions to support our tenants in reducing costs by generating efficiencies. Looking forward, we expect that our hotel assets will continue to drive internal growth with strong and increasing cash flows and will become a strong growth engine for the company's top and bottom line.

Could you provide some color on the letting activity in the office sector? What is your plan with the portfolio under the current market situation? Oschrie?

Yes. The demand for office space continues to be affected by the sluggish German economy, but confidence is slowly beginning to return on the occupier side. Offices are also supported by normalizing work patterns, especially in Germany, where the return to office rate has almost fully recovered. Despite normalization, some degree of flexibility in terms of office space requirements will remain going forward. And as a result, to respond to this new demand, we are also creating a flexible office space concept across hundreds of locations across our portfolio, offering tenants to benefit from adjustable space options and in the future, we want to enter the B2C market, which follows different demand drivers. We expect the letting market to pick up further once the economy returns to a higher level of growth in line with previous cycles. This will further be supported by the smaller amount of new construction and limited new supply in the office space coming to the market in the coming periods and the conversion of existing office space to other users. We are also working on converting offices to service apartments and analyzing the potential in converting offices into data centers. Our reversionary potential, diversified and granular tenant base and long-term average leases provide a safeguard against a rapid increase in vacancy rates under current market conditions. The gap to market rent enhances our competitiveness by enabling us to offer more affordable options while gradually unlocking our reversionary rent potential. Currently, our primary focus is on sustaining occupancy levels rather than fully realizing the reversionary upside. Like-for-like rent performance for our offices continue to be driven by rent indexation and step-up capturing inflation from prior periods. Resulting in 2% rental income growth in our office portfolio. Vacancy in the office portfolio stood stable at 12.8%. In the 9 months of '24, we extended 240,000 square meter of leases with an average WALT of 5 years at an average in-place rent of EUR 14 per square meter. Furthermore, we signed new leases for 65,000 square meters with the world of 6.5 years and an in-place rent of EUR 14.5 per square meter. We are confident in our ability to navigate the current challenges with a controlled impact on total office rent on a like-for-like basis. Our staggered lease terms and extended average lease durations helped mitigate the effects of the current economic slowdown. If the market rebounds, pent-up demand could spark a swift and significant recovery.

Could you provide more information on your rent like-for-like performance? What are your expectations going forward?

The like-for-like rental growth for the total portfolio was 3% as of September '24, with 2.7% coming from net rental growth. The like-for-like rental growth in the residential portfolio was 3.7%, 2% for office and 4% for hotel. We expect the residential and hotel like-for-like to be a strong driver in the upcoming periods, continuing the positive trajectory we're experiencing in the recent periods. In the office sector, in place rent increase continues to drive growth which we expect will continue also going forward.

Could you provide some more details on your current valuations and expectations for valuation results for the upcoming periods? Eyal?

Thanks, Katrin. We didn't carry out revaluations in the third quarter. In H1, the momentum of valuation declines have reduced significantly as operational growth has offset a significant portion of the slowing yield expansion. Now in H2, we expect to see rental growth starting to create stabilization in values. The continuation of the ECB rate cut cycle and stabilization in interest rates over the long term should continue to be supportive. We are selling properties around book value and see a similar trend in transaction market, which is a strong validation to the pivot in the value trend to positive territory. The entire portfolio will be revalued as of the full year report. Looking forward to 2025, we expect the valuation momentum to be positive, driven by operational growth. Meanwhile, new supply remains limited due to the elevated construction costs, with interest rates cuts and expectation of further reductions, we anticipate an increase in real estate transaction volumes moving forward. Additionally, the reopening of the capital markets brings greater certainty to the sector. Overall, these factors, combined with our strong operational momentum indicate that we have reached the bottom -- the market bottom. That being said, we remain conservative and focused on extracting the portfolio's operational potential to support value going forward as well as on disposals around book value to support the balance sheet.

Now that values are stabilizing, do you plan to deploy cash to make acquisitions? How do you plan to use your large liquidity position? Frank?

Thank you, Katrin. While continuing to maintain a strong liquidity position is of strategic importance, we have seen a positive shift in momentum and clearly an improving overall environment. As a result, it is no longer necessary to sustain a very high liquidity at the current elevated levels. Our first priority is to use the cash to repay debt, either through liability management initiatives or when that comes due. Our focus remains on managing our balance sheet and leverage, and therefore, we will not take actions that will adversely affect our overall credit metrics. In regards of acquisitions, we have recently established an equity fund in which once completed, Aroundtown will be a minority with the majority of the funds to be funded from institutional investors. This fund will carry accretive acquisitions in the real estate sector with a goal to utilize distress opportunities once they arise. Aroundtown will benefit from the retention of the funds plus promote as the general partner of the funds.

Could you provide an update on your disposal activity? Will you become more selective in selling assets as valuations seem to show signs of stabilization?

Thanks, Katrin. We completed around EUR 440 million of disposals in the first 9 months of '24 and signed disposals amounting to around EUR 630 million in '24 year-to-date. In line with the current strategy, we continue to focus on reducing our loan-to-value and expect to continue selling properties on a case-by-case basis for the right terms also in the upcoming periods. We have a large pipeline for disposals and expect to continue with our disposal activity to reach our deleveraging targets faster. These disposals will enable us to support the strong liquidity position, credit rating and reduce the need to refinance at relatively higher rates.

How do you expect your LTV to evolve?

We are committed to maintaining our conservative financial profile, which includes maintaining ample headroom to our Board limit of 45% on a sustainable basis, which is stricter than our covenant. As of September '24, we have a loan-to-value ratio of 44% below the Board guidance. And going forward, we expect LTV to trend down as we will continue to take actions that will support the balance sheet strength. We are committed to our rating thresholds, which still require us to reduce leverage, and we are confident we are in the path to reach these levels. The reduction in LTV will be further supported by the repayment of vendor loans. Moreover, the stabilization seen in property values and the increased activity in transaction markets, positioning us well going forward.

Did you plan to pay a dividend for the financial year 2024? If not, what are the conditions for reinstating dividend?

The decision regarding the payment of dividend for 2024 has not yet been made and is also subject to approval at the AGM in June 2025. Factors influencing the decision include the macroeconomic environment, alongside the company's financial position, which includes leverage relative to the Board of Directors internal guidelines and alignment with credit rating metrics. As we are committed to our S&P rating, which currently has a negative outlook, we would need to see sufficient improvement to be comfortable to pay dividends. Although we do see some early optimistic signs like the stabilization of values, reopening of the capital markets and the decreasing path of the interest rates, we would still like to get more clarity over the coming periods, including the valuation results for the full year 2024 before making a decision.

What is the status on green building certification? How long will it take to have the full portfolio certified?

We started the certification of our hotels with already 12% of the hotel portfolio certified. We leverage the knowledge and the experience gained from our office certification to quickly begin certifying our hotel assets, and we'll continue to gradually increase the share of certified properties across the portfolio. Furthermore, we continued to increase the share of office portfolio certified with now close to 60% of the portfolio green certified. While we are continuously working to make progress and have improved our processes, we have experienced some bottleneck problems with the certifying body in Germany. As such, we expect we will need a few years to get the full portfolio certified.

Can you give more details on ATechX? What do you expect to achieve with your accelerator? How much do you contribute?

ATechX is our accelerator focused on PropTech. We will develop in collaboration with Fifthwall and noa, 2 of the most distinguished PropTech venture capital firms in the world. Given our large and diverse portfolio and knowledge and our partners' experience, we see these collaborations and the accelerator as a great opportunity to generate value-creating synergies. Aroundtown is in a great position to enable start-ups to scale more rapidly, which allows us to benefit from innovative PropTech solutions that can improve the operational efficiency and unlock new ways to create value. The focus on ATechX lies within some of the key areas in the real estate industry, where we see a lot of potential and need for innovative solutions, such as digitalization, CO2 emission reductions and ESG optimization, but also in ways that can generate ancillary revenue. We see especially digital and smart solutions as a driving force in the future to reduce carbon emissions. These solutions will not only enable to find a feasible pathway but also create more creative ideas. The investment requirements are not significant on our level. Our involvement focuses primarily on mentorship and support. Mentorship refers to business, each startup will assign the business mentor. This will be someone of our operational team who is in position to implement tests and mentor the startup to help them get ready for a potential pilot. We plan to have 5 startups per cohort and a cohort to run in progress -- in programs of around 4 months. We closed the first cohort and open application for the second one just now. This is a clear win-win and as it provides opportunities to start-up involved, while also providing us with an immediate feedback as to what type of solutions could create value for long run.

Thank you. Can we add a bit color on what to expect for the 2025 guidance? Eyal? And how do you see it?

Thanks, Katrin. As we have done in the past years, we will provide guidance for the next year within the publication of the full year results. We still have some moving parts, which would impact the guidance, such as the momentum of the disposals and market rates and more. However, the trends of 2025 are as follows: we expect to continue and see strong like-for-like rental growth in the range of 2% to 3%, coupled with operational cost optimization which both will support increase in EBITDA and accretive internal growth. Furthermore, higher rents from hotel reopening, which are coming in at high operational margins will support internal growth as well. Net financing is expected to slightly increase as we expect to see a full year impact of the debt rates in 2024. While interest income is expected to reduce as rates are decreasing and cash is used for repayments. On the other hand, we will have a full year impact of the 2024 debt repayments plus from the scheduled debt impairments in 2025. The fact that we have a large liquidity balance and are not -- in no need to refinance in 2025 is supportive to keep the net financing cost stable. Perpetual notes are expected to increase slightly in 2025 due to the full impact of the exchanges and coupons resets. However, the increase in perpetual notes coupon are significantly lower than was anticipated earlier this year as a result of the successful exchanges. We will have more visibility on where all these moving parts meet and we'll come out with 2025 guidance with our full year results next March.

Next question, how do you see the development of the ICR? When do you see the bottom at what level?

We expect the ICR to remain stable in the upcoming periods. We do expect a certain increase on finance expenses, as I just said, which would be positively offset by increase in EBITDA. In the longer term, we expect EBITDA to continue to grow, while finance expenses stabilize, which shall support increase in ICR.

Thank you. So those were the questions that we received prior or during 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.

And the first question comes from Ellis Acklin from First Berlin.

I just have one quick follow-up to the hotel topic and noticed that you had a pretty sizable jump in the like-for-like for the hotel summit to 4% compared to 2.6% at the end of H1. And I was wondering if you could be a bit more specific what was behind that jump?

Thank you. This was basically the reopening of the 3 hotels that we just mentioned that part of their rents start to kick in, in Q3, which impacted positively the like-for-like in the hotel. Thank you.

And our next question comes from Kai Klose from Berenberg.

I've got one question on Page 24 of the presentation, where you say [Technical Difficulty] bank debt. Could you give an indication what was the split of assets you provided as collateral between office, residential and hotel?

Sorry, Kai, we didn't hear the question properly. Can you please repeat?

Yes, I was asking on the amount of bank debt you raised of EUR 325 million as shown on Page 24. What was the split of assets you provided as collateral between office, residential and hotel?

So in the level of, let's say, 2/3 of the total amount that was raised in the rental level. So it means that commercial properties were used as collateral. In terms of -- and about -- and the remaining was in the level of Grand City. So it's 2/3 commercial and 1/3 residential.

And the next question comes from Jonathan Kownator from Goldman Sachs.

Two questions, if I may. First of all, on offices, you've highlighted a number of conversion opportunities. Is that for existing stock that is vacant? Or are you anticipating further departures in your polio? And do you know already departures that you can communicate up to now? So that's the first question. Second question, sorry, I have three. You've highlighted a fund potential acquisitions, should we understand that this is going to be now your primary vehicle for acquisitions? Or would you continue to undertake acquisitions at the Aroundtown level? And do you have any idea of that fund in terms of target size and your share? Second question. And then the last question and very appreciative. You've already given us some indication for 2025 in terms of guidance and you need to land there. But just conceptually are we looking at FFO stabilizing? Do you still expect going forward FFO to be lower given your interest costs? Or do you have a sense that FFO could rise given the optimization that you have in interest costs?

Thank you, Jonathan. For the office conversions, we are talking on our existing stock. So basically taking from the existing stock and make the conversions when we see it's relevant and appropriately yielding. For the last question about the FFO, as I just answered there are several still moving parts before we can actually give a clear guidance where we are. And we will use the next periods until the publication to give a much more clear guidance. But we do see things positively. So there are several trends on one hand, we do see interest expenses going increasing a bit. But on the other hand, we also see the EBITDA growth. So with the more knowledge will have by the publication on disposals and the pipeline, we'll be able to really see where things are met and then we will update. About acquisitions, we will use the fund as our acquisition vehicle for our, let's say, nearer acquisitions. We really want to use our deal sourcing and all our experience in the last 20 years to find those deals that are in very good location, but just mismanaged that gives value. We are not able with our current balance sheet with our goals to deliver to take the full acquisitions on our own. So with this vehicle, we are able to, on one hand, do the acquisition, benefit from the yield, also get promote and be in the market. Regarding sizes, I mean, sizes are relatively flexible. We are not expected to be the majority in fund. We actually expect it to be the minority once it's completed. So we don't also expect to have any major outflows in terms of liquidity. Thank you.

And the next question comes from Manuel Martin from ODDO BHF.

I have a couple of questions. My first question is on the contribution from joint ventures. As far as I can see, there has been quite good in the third quarter. Maybe you can tell us a bit about the background of the good contribution. Where does it come from? Is it sustainable to have a bit of color? I think it was something like EUR 30 million or so. That was -- that's the first question. Second question, on your office portfolio. Could you give us some color on what you expect in terms of like-for-like rental growth? Will it drop below 2% given the sluggish German economy? And what's the -- how are the tenant incentives being evolving in your portfolio when you are doing your letting activity. So what is the tenant incentives that you must give basically? And that would be the second question. That's it from my side.

Thank you for the questions. On the positive from the JV front, there was nothing special. So it's pretty much aligned for what we saw also in the last period. It just became stable and good performance from the JVs that are mainly related to real estate and our position. Our minority repositions in real estate properties. On the office side, currently, we saw 2% like-for-like. We see this more or less stable going forward. I -- at the moment, we cannot give, let's say, more than that because we do see some nice pipeline of letting activity that will be supportive. So at the moment, the 2% like-for-like would be a nice guidance for the end of the year. And the tenant incentive also there, we didn't see any material change since the last quarters. Since a few years ago, we do see a slight increase in TIs as we already updated in the last calls. So I would say that TIs that were at the level of about 25% amortizations now are more on the level of the 30% amortization. And so far, it's kept stable. Thank you.

And our next question comes from Pranava Boyidapu.

I have a couple of questions. Firstly, I do notice that your LTV has now started ticking down a little bit one percentage point. I understand as well that your vendor loan balance has finally also started to come down. So I was wondering if you could give us more color on how you see the vendor loan balance evolves. Because if I remember correctly, S&P in the last report in December had assumed that you would get back all of it by the rather high, I think, half by '24 and half by '25. And the second question I have is also in the past, you had mentioned in your charts around the fact that you have enough cash and liquidity to cover maturities until the end of 2026. You don't say that anymore. Obviously, it still is the same intense numbers, I guess. But does that mean that you are now starting to use your cash for other things? And could you give us a little bit more color on how you see that evolving as well?

Thank you for the questions. About the vendor loan and involvement, yes, we did have repayments in the vendor loans in the period, and we do expect this to continue to go down in the next period. We -- what we see today is, although it was an increase of about EUR 80 million. This is net of new vendor loan that was given. So the reduction of the EUR 80 million was after already a vendor loan that we gave in the quarter. The weighted average of the vendor loans is end of 2025. So that's the weighted average. So we do expect to see more repayments next year and also in 2026. I think this is also in line with what S&P is guided and knows from us about the vendor loans. Referring to the cash cover, yes, we are not mentioning it anymore. I mean, it was mentioned in time that capital market was closed and refinancing ability in the capital market was too expensive. Now that our access to capital is proven, and we are able to do liability management whenever we see fit. And in fact, when we also see the yields of our bonds, let's say, improved significantly since the last issuance we did. We did it less with a coupon of nearly 4.8%. Now it's traded at a yield of 4.1%. So it's a very nice movement. We don't think we need to keep a lot of cash in order to cover future maturities and actually slightly before the time or ahead of the repayment time to do a property liability management and refinancing. But to your question, the answer is yes, we do have, at the moment, liquidity to cover our maturities nearly until the end of 2026. Thank you.

And the next question comes from Kanad Mitra from Barclays.

Hello? Hello?

Yes. We are here with you.

Again, continuing on the vendor loans, just wanted to confirm that the interest that you received from the vendor loans is that a part of FFO I? And also, can you give some color on the accretion that you expect from data center conversions, any additional color would be welcome there.

Okay, thanks. Yes, I confirm that the vendor loan income is a part of our FFO I results. And about the data center, it is still early to give more than what we mentioned. It was just important for us to do mention for you that when we are looking for also alternatives for offices and office space, we find that several of our properties and quite a nice chunk of properties could fit to a data center and as we said, we are analyzing the full spectrum of data centers from edge until hyperscalers. We have, let's say, a very good footprint in Frankfurt and in Berlin that both of them are being, let's say, data center hub with high demand from hyperscalers and also from others. And this is still at the early stage. But as you know, once we go into a subject, we really go deep, we will be able to give more color in the year-end results once we have maybe more information from authorities about power. But this is something that we will give more data and more details in our next report. Thank you.

And our next question comes from Mary Pollock from CreditSights.

I'm sorry, I joined a little bit late. So sorry if I missed this, but what is the like-for-like growth in your office portfolio if you strip out the benefits from inflation -- excuse me from indexation?

Yes. I would say that the majority of the like-for-like growth in the office was from the indexation and step-up rents. So the movement in the vacancy was nearly 0. And so the expiries and then the reletting were, let's say, contributed similar and the indexation and step-up rents contributed 2%. Thank you.

With that, we would like to thank all of you that participated in this call and the questions that you have raised before and during the call, of course. Thank you very much all the best, and goodbye.