Deutsche EuroShop AG (DEQ) Earnings Call Transcript & Summary

Ladies and gentlemen, thank you for standing by. My name is Emma, your Chorus Call operator. Welcome, and thank you for joining the H1 2020 results. [Operator Instructions] And I would now like to turn the conference over to Mr. Wilhelm Wellner. Please go ahead, sir.

Ladies and gentlemen, good morning from Hamburg. This is a team from Deutsche EuroShop, and I'm here together with our CFO, Olaf Borkers; and Patrick Kiss, our Head of Investor Relations. Today, we present you our results for the first half year of 2020, and we'll inform you about the situation in our centers. For sure, you will continue to follow the news and general developments around the corona pandemic over the last weeks and the impact on the economy, the behavior of people and very important directly for our retailers and indirectly for us, the price consumption. You, as well as our regular customer, will surely experience the big improvements after the lockdown in that respect. Firstly, and most importantly, the spread of the virus in the countries where we are operating has substantially reduced to a low level, which seems to be under reasonable control of the governmental authorities. Most of our shops are open again for business, and as expected, people come back to our centers. That's good news. However, it's fair to mention that for the operation of the retailers in the shops as well as for our centers, there are still substantial impediments, which have a detrimental impact on the retail business. This is especially true for certain segments such as cinemas, most of them still being closed; gastronomy, impacted by lower dwell time and strict security regulations; travel agencies; and also the fashion retailers. For us, besides the general economic conditions, which has a negative impact on consumption levels, the center of the discussion evolves around the duty to wear masks in the shops and in the mall areas and the impact of such health regulations on footfall and retail turnovers. Up to now, such mask requirements for shopping centers operations has, for the countries of our portfolio, been abolished in full only in the Czech Republic since beginning of July. It has been partially reduced for Austria as well as a few federal states in Germany, e.g., the states of Lower Saxony and Thuringia. In these countries, and federal states, the masks only must be worn in the shops. On case of Austria, in certain type of shops, such as grocery stores, hair dressing shops or opticians. We appreciate this improvement. However, in Germany with a constant regionally changing situation, the population sometimes is not up-to-date about the individual situation in a given city, which can create confusions around and in our malls as many of our mask-wearing customers in the mall wonder about other customers without a mask, for example, due to medical reasons. A situation, which is not ideal, but which should improve and disappear over time. Nevertheless, the good news is that a process has started to gradually reduce the mask wearing obligations in the malls, which we believe is one major factor to improve footfalls and thereby turnover in our centers. We support and encourage the process, of course, always under consideration of the regional infection levels. We are confident that our shopping centers with the air conditioning and cleaning system, advanced and controlled health safety procedures and spacious mall areas can be operated at least as safely as [indiscernible], which in contrast to mall areas do not require to wear masks. Coming now to the operating numbers, starting on Page 4 of the presentation right after the summary on our business activities. On average, approximately 98% of our shops in Germany, Austria and Czech Republic are open. For Poland, such number was 96%; and for Hungary, 95%. The remainder of the shops come from sectors that are still most affected by the corona pandemic, e.g. travel agencies and correspondingly safe requirements such as cinemas. On Page 6, you can see that since our last reporting date, the customer footfall has further improved to now 77% end of July on average. The footfall numbers vary among the centers between 65% and 100%. However, most centers are rather close to the average number. Currently, the footfall remains at a level of around 80%. And As I outlined before, we think that besides the tightening general economic situation, it is impacted -- and its impact on consumption, the mandatory wearing of mask is a major influence sector that impedes a faster recovery. One example that supports that assumption is how our center in Klagenfurt, which recovered quickly to almost 100% of its normal footfall until mid of July, falling back to 77% right in the 2 weeks after the mandatory wearing of masks was reintroduced in Austria on 21st July after the infection rate went up again in the country. Currently, we have to accept for some more time that our customers in the retail industry have to live with the masks and the impact on the shopping experience and our business. However, with the masks going away, there should be a further push on footfall. On Page 7, you will find the current status of the regulations concerning the mandatory wearing of masks in the various centers. On Page 8, you can see that also the turnover of our tenants have improved further. For the month of June, the reported turnover of our tenants were on average at 18% of their previous year level. Furthermore, the conversion rate is higher compared to normal times as customers are now determined to spend money -- more money in the centers once they have entered them. So as expected, with the stabilization of the corona pandemic life and business is coming back to our centers, that is the good news. However, it's fair to say that the impact of the corona pandemic is still substantial, and the tenant turnovers, which while much improved, are still materially below comparing numbers from normal times, and this is true especially in certain segments. Coming to our cash collection ratio on the next page. In the background of the economical and the legal situation, resulting from various governmental relief measures for tenants and the severe impact on -- of the pandemic on the commercials and financials of our tenants, our collection ratio for the second quarter was only 48%. However, and most -- the most impacted month of April, the collection ratio showed a continuous and positive trend. As you will notice, a number of tenants paid their rents for previous months subsequently and improved the numbers we published in June. End of July, after main special tenant relief measures in Germany, Czech Republic and Hungary ended, the number improved to 78%. We are in close consultations with ECE, which is in turn in constant talks with the tenants to find commercial feasible solutions in this extraordinary situation. As reported before, special arrangements with tenants are being considered and negotiated and may vary from rent deferrals and rent holidays to operational cost-saving measures. In general, for granting concessions on the rent payments, we are, in turn, requiring considerations from tenants, e.g., the extension of lease terms, adjustment of turnover-based rents or adjustment of contracts to new and approved legal standards. In the process of finding fair and sustainable solutions with the retailers, we also take into consideration guidelines that were developed between the major industry associations in that respect. Nevertheless, all cases are handled on a case-by-case basis, in general, the negotiations are handled in cooperative spirit. However, it's not easy for both sides. Since the start of the corona crisis, the number of tenants has -- the number of tenants have already filed for insolvency among them, Galeria Karstadt Kaufhof, Karstadt Sports as well as Esprit, Hallhuber, AppelrathCüpper and Sinn, just to name some of them. All these tenants plan to restructure and continue their business, and we are optimistic that we can keep a substantial number of them in our centers. Such tenant account on a proportional basis for 6% of our rent. This number did not increase since our last business update reported at the AGM mid of June. But there is, of course, a risk that we'll experience more insolvencies in autumn when certain legal and financial relief measures will end. After the update of the current situation in our centers, let me come to the financial results in the first half year of 2020, which show the substantial impact of the corona pandemic on our business. Let's start with the valuation of our shopping centers on Page 10. As announced, and for the first time, we carried out our valuation for our shopping centers mid-year as the extraordinary conditions require the review of the fair values of the shopping centers by our external appraiser, Jones Lang LaSalle. Since the last valuation, there was little investment activity for shopping centers. Already before the breakout of the coronavirus, transaction volumes had slowed down significantly due to the special market sentiment concerning e-commerce and which is comprehensible, demand reduced further in the second quarter as the retail and shopping business was -- shopping center business was hit hard by the lockdown. However, important worth to be mentioned, the market did not come to a standstill. Certain sizable or even landmark shopping center transaction could be signed or closed recently in France, Germany and Switzerland that is after the start of the corona pandemic. Nevertheless, the current situation and the pandemic had an impact on shopping center yields and thereby on discount and capitalization rates. Furthermore, market rents were adjusted slightly downwards whereas assumptions for re-leasing times and CapEx requirements were increased. All those factors led to a negative valuation result of EUR 217.9 million, this corresponds to an average devaluation of 5.5% in a range of minus 3.1% to minus 9.9%. The stabilized net initial yield for our portfolio came up by 27 basis points and now stands at 5.39%. The sensitivity of the valuation results to changes of the main value drivers are provided in the table at the lower part of this slide. Now let's come to the P&L, starting with the revenues on Page 11. The numbers after the first 6 months of 2020 show only a small part of the economic impact of the corona pandemic as most brands were invoiced according to the respective lease contract. The only exception here comes from our Polish center where the specific legal situation led to a temporary suspension of rent for the period of the lockdown. Correspondingly, revenues decreased only slightly by 2.2% year-on-year to now EUR 109.4 million. On Page 12, we show you the development of our EBIT. The major financial effects resulting from the corona pandemic is now here reflected in the high increase of the operational costs. And this increase mainly comes from the allowances for rent receivables due end of June. These allowances were made in relation to expected losses of rent in connection with expected tenant support measures, e.g., rent concessions or in relation to actual or likely insolvency. Such allowances amount to EUR 19 million. Correspondingly, the EBIT decreased by EUR 20.1 million to now EUR 78.5 million. The allowances for rent receivables have been estimated on the basis of various criteria, such as the magnitude of the impact of the crisis on certain types of tenants and their capabilities to cope with this extraordinary situation. On a side note, it is important to mention that the final P&L impact of any rent concession on the current and/or future financial yields, will be depend on the content and timing of a final contractual agreement with the tenants. We are regularly requiring considerations from the tenants in return for rent concessions such as the extension of lease agreements. A major change to an existing contract will, according to IFRS, lead to a new evaluation of the rental contract and the linearization of the new overall rent over the new term, thereby shifting the financial impact also into future fiscal years. Next is our financial results. Here, you can track the changes on Page 13. That results remained almost unchanged at 16 -- minus EUR 16.4 million, several input factors neutralized each other while interest savings of EUR 3.2 million and a lower minority result of EUR 3.1 million improved the financial results. On the contrary, the at-equity result came in lower by EUR 3.7 million due to corona-related decline in revenues and higher allowances here in our JV companies. The remainder can be explained by the exceptional tax-related one-off interest income of EUR 2.7 million last year. This leads us to the EBT adjusted for the valuation result on Page 14. EBT, without valuation, came down to EUR 81.9 million -- sorry, from EUR 81.9 million to EUR 62.1 million, which is a minus of 24.2%. Also here, the main input factors were the corona-related lower operating results, the interest savings and the tax-related one-off item. Looking at the EPRA earnings on Page 15, that means the following. The earnings declined by EUR 24.5 million to now EUR 59.8 million. And besides the just mentioned lower operating result, also the one-off tax refund and the related interest income were the main drivers for the change. EPRA earnings per share decreased from EUR 1.37 to EUR 0.97. I would like to come to the consolidated result of the group on the next page, and the result decreased by EUR 195.5 million to minus EUR 129.3 million. The main impact here came from the valuation result that contributed minus EUR 172.6 million. The standing assets contributed a further minus EUR 15.3 million to the change, and again, you see the effect from the tax-related one-offs. Earnings per share decreased from EUR 1.07 to minus EUR 2.09. On Page 17, we have outlined the development of the FFO. And for the first 6 months of the year, the FFO, which excludes the valuation results and the one-offs, decreased from EUR 75.9 million to EUR 95.9 million all on a per share basis from EUR 1.22 to EUR 0.97. This is again mainly due to the corona-related lower results and higher allowances for receivables. And you will find the detailed calculation on the right side of the slide. It should be mentioned that the FFO is calculated as usually earnings base and, therefore, does not reflect the untypical high receivables outstanding. So in consideration or in considering the actual cash flow of the company, one should analyze the consolidated cash flow statement and other cash-based indicators such as our now much-improved cash collection ratio. Coming from the P&L to our continued very solid balance sheet on Page 18. Our total assets amount to EUR 4.38 billion, this is a decrease of EUR 178.4 million compared with the reporting date end of 2019, and this is mainly due to the lower market values of our properties. Due to the lower cash collection ratio in Q2, receivables after allowances increased by EUR 21 million. Our consolidated liquidity currently stands comfortably at a stable EUR 178.8 million, much unchanged compared to the level end of March and this even after the very low cash collection ratio of 48% experienced in Q2, again, and for the record end of July, this number climbed to 78% already. Due to the negative valuation results, total equity, including minorities, decreased by EUR 147.5 million. And as of 30th of July 2020 -- sorry, 30th of June 2020, current and noncurrent financial liabilities stood at EUR 1.5 billion, which was EUR 0.9 million lower than at the end of 2019. Scheduled repayments were offset by an increase of a loan by EUR 7.4 million to refinance investments in our center [ HN ], close to Berlin. The switch between the short-term and long-term liabilities result from 2 loans that are scheduled to expire by the end of June 2021. I will elaborate on that a little at the end of the presentation. Noncurrent deferred tax liabilities decreased visibly by EUR 27.7 million to now EUR 351 million, resulting from the reduced fair values of the investment properties. Our equity ratio remains at a strong 56%, and the consolidated LTV now stands at 32.5%. On a look-through basis, that is the LTV calculated fully proportionally according to the group share in all assets, the LTV now stands at 34.8%, still very reasonable and lower level even after the devaluations. On the next page, we show our EPRA net asset value, which decreased to EUR 39.37 (sic) [ 39.73 ] per share, resulting from the lower property values, that is a minus of 6.1%. Now let's come to our financial debt on the Pages 20 and 21, where we give some more information concerning that topic. And as before, some EUR 600 million of our consolidated bank debt matures in the next 5 years. We still see we have potential for some reductions of our interest cost over the next few years. And there's the assumption that the corona pandemic situation stays under control as the situation stabilizes further. Currently, our consolidated debt bears an average interest rate of 2.34%, given the current interest rate environment and actual quotations from the banks, we could still refinance our debt around 1.5% interest rate for 10 years in Germany. Our weighted maturity for our loan portfolio now stands at 5.2 years, and on the right side of Page 21, you will see a gain what we have fixed already this year, a loan of EUR 70 million at a rate of 1.37% interest rate for 10 years for City Arkaden in Wuppertal and that was end of March. Coming to the outlook. You will find a summary of the outlook points on Slide 22. On the leasing side, we see that the market is understandably still weak and the condition has to improve further, but we continue to sign lease agreements that come up for re-leasing, though currently at a lower pace. For example, we just have agreed with an important and big anchor tenant at our City Arkaden Wuppertal to extend the lease contract by 20 years already -- and on terms already discussed long before corona. For Rhein-Neckar-Zentrum, which some of you might have visited during our Deutsche Euroshop summer last year, we have just agreed with the new and attractive indoor entertainment concept called skydive, also at the same terms as discussed pre-corona. So if things work out fine and as planned, this concept could open as early as end of last year. Concerning the digital mall, the numbers improved further by now approximately 2.8 million products in the ECE portfolio are available for online research. You can find the latest number at the end of the presentation. However, it's fair to say that while tenants' interest has increased further even after corona or just because of corona, it's currently very demanding for many tenants to operationally prioritize that topic. So the speed of development is not as fast as it could be in normal times. Nevertheless, it is progressing. Lastly, but very important, let's have a look at the financing activities. As mentioned before, we renewed our credit line of EUR 150 million for 4 years in January already. And we have signed, amidst the lockdown, a loan agreement for the refinancing of EUR 70 million for our City Arkaden Wuppertal, which becomes due end of this year. We also made good progress on the refinancing of a loan in an amount of EUR 70 million due mid next year for our center in Wolfsburg, the signing is scheduled to take place soon. For the second loan due next year, negotiations on refinancing will start in the coming weeks. And as of today, we are confident here that we can agree with the bank's contracts refinancing. Coming to the financial outlook. Even though almost of our shops are open again, and we come closer to more normal level of business activities, given the uncertainty around the duration and the magnitude of the impact of the corona pandemic and the current economic situation as well as the development of the turnovers of our tenants and the outcome of the tenant negotiations, a forecast for the financial year 2020 is not possible. A new forecast will be issued as soon as it is feasible. That was my presentation. Thank you for listening, and we're happy to take your questions now. Operator, please go ahead.

[Operator Instructions] Your first question comes from the line of Jaap Kuin with Kempen.

And maybe you could elaborate a bit on the interesting statements you made on the range of the valuations of the centers between 3 and 10. Could you maybe shed some light on the kind of key drivers that made centers end up either at the bottom or the top end of that range?

Yes. There are, of course, always various and a number of input factors. But what could be observed is, if we talk about general observations, is that smaller centers -- or put it the other way around, centers in smaller cities, having a lower reach for customers and smaller catchment areas so higher devaluations than others. For example, cities like Passau, or Hameln or Neunkirchen. And this is an expectation of or observation of the valuators that, of course, in such a dramatic situation where the industry is of course, interest for higher, bigger -- or, let's say, more profile, bigger shopping centers in bigger catchment areas or bigger cities is expected to have less suffered than in others.

Yes that makes sense. And is there any inclination or increase thereof from your side to maybe dispose of those smaller centers?

Of course, with our usual buy-and-hold strategy in such a situation where we are in, we, of course, consider what we have done before, whether or not it makes sense to sell an asset at a certain point of time. Looking at our stock price, the liquidity position, of course, it makes sense to ask this question also in this time, which we will do and what we have done before. I think it's a much or a bit too early to really think about effectively doing something in that direction. However, we might prepare in that respect because it's a differentiation between pricing on the stock market and on the, let's say, investment markets, there's such a big difference. It's worth always to look deeper into that. However, I said there were transactions but of course, it's not a highly liquid market at the moment. So I think we'll have to wait till top lines and the cash flow or cash collection ratios will stabilize more. But of course, we ask ourselves the questions. And of course, we'll look into the centers in detail, which would be eligible to be among the first, looking at that, yes. So we are not really active on a selling strategy here. But of course, selectively, we might take that into consideration.

Yes. That makes sense, especially given the discount you're trading at. And then on the write-downs you've provided for in the operational expenses. That seems to be roughly 1-month of kind of rent on average or maybe a bit larger percentage taken from the -- excluding the rents you actually have collected. I mean you say you adhere to the code of conduct set up by 2 organizations to share the pain. Is that code of conduct or is that method going to end up in 1 to 2 months of burden sharing from your end? Or how should I interpret this?

I cannot give you a number. We run here various scenarios, but just seeing how much risk we can afford, and we are very stable on that end, to put it that way. But for example, the German Associations from the retailer side and the shopping center industry side, have tried to come up with something, and they came up with something which is unstable, rather weak. I said, let's share the problem, that is the rent for the period where really the closing was effective and less afterwards. Yes. So this was also done because regulators and also the German government was thinking about doing something like in Poland has been done or so, and the industries wanted to avoid that. And everybody wanted to avoid to start hundreds and thousands of lawsuits. So there's an understanding. So we take that a little bit as guideline. However, the range goes from -- there's nothing to be done until where you have companies close to insolvency, where you do much more. So the outcome is more, as you said, on average, this one month of rent is indeed right observation, but this was a result, because we did that tenant by tenant, the allowances. And you will see that a further 1-month is delayed. So that's why the receivables went up by EUR 20 million, roughly, which is accounting for roughly another 1 month of rent, so which is at stake at the moment and which is being negotiated, considered. However, this is until end of the first half. Situation is improving, but it's tough for many tenants, especially in the textile segment. And that's why we also are not able to give a guidance on that end.

Okay. Great. And then maybe my final question on your vacancies and your indication of tenants or rental currently insolvency procedures. I mean you saw a small uptick in vacancy first half, probably that will be a bit more given that, that 6%, and could you give an indication? Do you think that will lead to kind of 50% of that into actual vacancy? And for the ones that actually -- for the part that actually comes back as normal rent paying tenants, I mean, what type of haircuts do you normally foresee after restructuring?

It's hard to comment on really numbers on that end. Also, I mean, you don't want to have those number quoted because everybody reads the newspaper and comes up in negotiations on that end. But we expect that the really visibly major part of the tenants we can keep if they can manage to, let's say, continue the operation and get the insolvency solved because it's -- we are just one part of the equation. They have to talk to suppliers, to banks and so on. So I wouldn't see the -- from the current situation, the vacancy to go up too much on that end. However, this will cause some rent numbers, I can't give you on that end. But we have an interest to keep the tenants also in our centers because leasing market is in a tough condition. So we rather compromise. They're also sometimes temporarily only on rents to keep the centers and the tenants in the center. Yes.

And is -- are those negotiations or the expectation of those negotiations already reflected in valuations?

Yes, of course. We have shared the information of the accounting date with our valuators up to date. Yes. Yes. And of course, they do own assumptions. Yes, that's also very important to see.

Your next question comes from the line of Andre Remke with Baader Bank.

So also a first follow-up question on the portfolio valuation on the individual sense of valuations. Is there a general difference between the German centers and the centers abroad? And further on, on the valuation, I know it's difficult to adjust as market transactions are limited. But maybe in general, do you expect that it could be a gradual yield decompression for years until, let's say, more stable pricing, it sounds in this industry? This is the first question, please.

Yes. Firstly, on the foreign centers, we fit well into this range, probably more at the mid part of it, yes. I said that rather smaller centers were hit more than the bigger centers. Among them, of course, is Dessau, which is also a rather small catchment area city, big enough but compared with our others cities, a smaller one. And there, we, of course, have the extra effect that Karstadt is closing there, which is a rather bigger event for that center. So this has been priced in, as I just told to Jaap from Kempen that we shared this information and our assumptions there also. Yes. So they fit well within. To be honest, any statement to forecast is not possible at the moment. We have seen a shift now. If you look at our net initial yield, we might look at others. We feel comfortable with this going forward, not knowing the direction, but we do not feel coming from extremely high-priced situation. Looking at the true and fair viewpoint on that topic. So of course, it will be tough for the market, but others might see if top lines normalize maybe on a new level. And we don't know where it is, but probably maybe a little lower level that they say now, now it's over. The repricing has been effected. Rents are on a new level, why not look into that? So -- and I even was also surprised to see 3 bigger transactions. They were really big transactions in 3 countries amid lockdown. So for what one sees as a risk, other see as a chance.

And what is [indiscernible] from your end? And do you see it as already attractive to have new acquisitions on your radar screen? Or it's full concentrated at the moment on the operating business and keep the liquidity. It is not only the question regarding the new shopping centers, but also any discussions with other shareholders or stakeholders in your existing joint venture centers, are there discussions on that topic?

Yes. I mean 100% of our focus is on the existing portfolio, preserving the rents, stabilizing the situations, agreeing with tenants, keeping our liquidity, and we were cash flow stable, probably in the worst quarter. That's the second quarter. That's the good news and then look forward. If at some point in time, we think we have excess cash to do something then, of course, we think about dividend again, we have to think about share buyback. But an acquisition at normal yields would not be that attractive, yes. So -- and -- but let me say, we are not looking at the moment at the share buyback, but the cash you -- at some point in time, think you have free cash available would then probably more go to, again, the dividend strategy set up again and -- or, let's say, evaluating on that. And I mean, mathematically, the share buyback in those days is always a better thing to do than buying a shopping center at the moment. If it's not a very good one, it's a highly depressed price. But it is too early, much too early.

Okay. And then thinking about future lease contracts or lease in general, the structure on that. I would assume that tenants driving for, let's say, higher turnover base rent. What is your view on that? Are you willing to take the risk of the operating business?

Yes. Also there, it's much too early to tell a general -- or to make a general statement to that. And already before the interest of tenants was to have a higher share of turnover base trend instead of having minimum fixed rents. But at those stages, they were willing to share a higher proportion of that turnover. So there could be also a positive side on our end. After corona, yes, the topic will stay there, but it's a question of, let's say, negotiation power. We still have interest to have a high proportion of minimum rents. But of course, here or there might also find it attractive, especially for new concepts that they aren't sure where the developments go -- in which direction they go. But it's too early. It's a question of really negotiations and the balance of power, what's the outcome is.

Okay. So a very last question. You already mentioned one property or one asset related to Kaufhof center, well according to the press, some landlords were able to find solutions and already commented on that to prevent closures. What is the status for your contracts? What do you think?

Yes. First of all, what you read in the news is -- should read. We have really made far-reaching offers to Karstadt Kaufhof and that's already before to mention that. And we tried to preserve also the Karstadt in Dessau. But this was refrained from Karstadt, yes. So there was no mean for us to do so. But coming to Dessau, because we just have now 2, let's say, 2 Karstadts that have been affected so far. We already had expected that Karstadt is leaving Dessau at some point in time, yes. The next stage for that would have been in roughly 2 years. So we have been -- we are preparing something and we had that in mind already when we bought that Karstadt some 5, 6 -- yes, 5 years ago roughly. However, it comes a bit sudden now. And they will operate it, that's what's being discussed until January. So we, of course, talk of the tenants -- talk with the tenants, we had talked before. But their date to end of the center was in 2 years' time. So we have to see how we bridge that and how we can agree on them. So we have a strategy on that. And it has been priced in the valuation already. To some extent, we see a bit of a hit here now over the market hit in Dessau, but we are confident that we will find a good solution there. And the only other one that is really becoming a vacancy is -- and maybe in another summer event, German real estate summer event. We have been sitting right next to it, it's in the middle of the mall in the Main-Taunus-Zentrum. And we can do something with that space. It would cost some investment, but it's not a headache. What's unfortunate is that it's now coming surprising and not with the preparation time of 1 or 2 years because the duration of the contract was for roughly another 5 years. So also there, we have an idea, very good ideas, by the way. And we will come up with the solution but of course, we have temporary vacancy on that end. So on the other Karstadt, I couldn't comment too much, but we expect, and this is my understanding that we all keep them and that we are in agreement with them, such agreement being verbally so far, of course, as the insolvency procedures have not been closed. So that's our exposure, yes.

And the decision on Main-Taunus-Zentrum was final?

And as I said, until the insolvency procedures have not been concluded, nothing is final. But as I said, this is our expectations and understanding, which, for us, seems to be verbally agreed. Yes. And I -- yes, I expect that this operation will continue in all the other city centers where we have exposure to Karstadt or Karstadt Sports, yes.

Your next question comes from the line of Allison Sun with Green Street.

I just want to double check. Is that you said the government support for the tenants will end in August this year, and that's why you expect an increase of tenant insolvency in the second half? And also, that negatively affects your rent collection that is -- should be -- we shouldn't expect 78% of rent collection for the second half as what you have collected in July?

Yes. The specific reason why there is discussion, not only within Deutsche EuroShop but within the industry or the whole economy, that there are higher insolvencies in -- potentially in autumn is that -- and much of our exposure is in Germany. So I focus on Germany is that the German government had introduced a special shelter for companies that may be in an insolvency situation, giving them more time to file for insolvency under certain conditions. And this law is due, the special shelter, call it that way, is going away as of today, end of September. Yes. So that could be an event where many companies that were really troubled, very much troubled by the corona crisis, would be in a situation end of September, where they, for legal reasons end out of the situation would then have to file for insolvency, which now under the shelter, have the chance and that is good about this law, yes, we should see also a good side on that. Not go right away to the insolvency court and file for insolvency for technical reasons in this very special crisis situation. So this is rather a general situation. On the other hand, it then depends how fast the turnovers for the individual tenants come back also in the autumn business. And then very importantly, will be the Christmas sales. So this is also end of the year. So it's -- this is a rather bigger uncertainty for many tenants looking at the period. We should also mention that other tenants are at 100% and some -- even above 100% of last year's sales. So it's not -- that's why we come up with this average number of 82%, but there are some segments if you just think about cinemas, but also fashion is still hit rather hard that we'll have to see what Autumn brings and Christmas.

[Operator Instructions] Next question comes from the line of Kai Klose with Berenberg.

I've got a question on your opening remarks regarding the face covering masks. You gave the impression that this was quite an important factor for the subdued footfall and sales. So it is then fair to assume as these restrictions are probably not to be lifted that soon that you expect footfall and sales to be subdued also looking ahead? Or is this such an important factor which tenants told you that this is a burden for them?

Yes. I mean this is not a scientific analysis we have done here, but we see the observations. And maybe if you just look at yourself or I've been a couple of days in Austria experiencing a mask free zone and next-day after the 21st of July, experienced that there were masks again. It's a different kind of shopping. And I think everybody is aware about the situation that this hinders somehow the dwell time and people going there and wearing the mask. So yes, we think there's a relation, and we think that mask -- sorry, frequencies or footfall should improve much if masks go away. The counterargument would be as long as mask are there, it's somehow subdued. What is good to see is that the people that come to the shopping centers spend more. So if you not just stroll through a center, what you don't do in those days, if you really go there, you don't go there just to do trial and error, you do what you want to do, you shop, yes. So the net effect is not that negative. If you look on the footfall numbers compared to the turnovers. But on the other hand, I think that's a factor which is important. And we try and really to talk to politicians with the associations. Not just claiming, put the mask way. That would be wrong, if this is a mean to manage corona, but to really check it out and maybe first take it away from the malls as some federal states have done. And then if you find out, there is no big effect. I wouldn't call it a trial and error process, but others do it also like the schools now just to leave it step by step. And I think it would be a big step if you just would release the mask duty for the mall. But again, this is not a scientific situation. It's, I think, common sense that it's hindering you to go into a mall or into an IKEA or to whatever or an airport, if you need to wear masks, yes.

Second question would be, obviously, you don't show the retail turnover anymore by tenants, which maybe would not have made that much sense for Q2. But could you indicate how the individual retail sector has been performing since the reopening?

Yes. I mean most -- some of them are back to normal or close back to normal, like groceries, they suffer because of lower footfalls a bit. Electronics is doing rather fine, to be honest. So they are not back on old levels, but pretty much close. And not talking about cinemas that closed or so and travel agencies that have a very special situation, but the most affected are really fashion and shoes. Some of them do not report in between the reporting dates, yes. So usually, we get the numbers quarterly, of course, there are talks. But I mean if you read the press, the numbers are between minus 30%, minus 40% still for Q2 in total, some are doing much better. This we hear in private talks and are coming closer to normal levels, but the range there is much, much bigger. So these are not numbers that can be quoted. But if you read all the other news, when you get a piece of information here or there, it still needs to improve much further.

So -- but would you expect these numbers to be reported from the tenants for Q3 again? Or...

Yes. I mean, most of them have a duty and we expect them to do. But as we said, Q2 was just over end of June. And yes, we would expect.

And then in the report, you mentioned that with some tenants negotiations have been completed. Could you indicate what proportion is that, is it 10%, 20% of total talks? And maybe also indicate a bit of how the -- what the outcome was regarding rental levels and lease lengths?

Yes. I cannot report on the last thing, I say so because, I mean, this is also a data news point where other tenants are very interested to just pick that number and say, I ask for this and for that. And probably between, let's say, 10%, 25%, we have, let's say, verbally agreed on something, which is, let's say, manageable, very much manageable, put it that way, but many more to come. The important part is, of course, the signature under that document, which is a lengthy process, as you can imagine. It's not just the rent we are talking, we are asking something in counter extension of terms, new contract regulations, which, at the end, are good for both sides because they clarify things that have been legally been decided over the last months or in 1, 2, 3 years. But they have to be checked on the other hand from the legal side. So it's a lengthy process, and we hope to see much of it in -- signed in Q3 and the remainder in Q4. But I can't give you a number on that end. It's manageable on that end. We are very stable going through that if corona develops as it is, that is it's under control. But numbers would mislead probably for any kind of nonsubstantiated forecast. Sorry to be a bit untransparent on that point.

Okay. And the last question would be on the credit lines you have been working on or have already extended. Could you indicate what is the LTV or what's kind of covenants the banks were asking for? And maybe also -- is there maybe a higher portion of cash you have to put on the reserve bank account? That would be helpful.

Yes, there is 3 covenants for the credit line, which is very normal, DCR, ICR and LTV covenant. And we have a lot of headroom even after the figures as per end of June 2020.

And how have these covenants changed compared to the previous contract?

No. It's the same last 50 -- 10 years. It's always the same. You have to know that the law of the lease is a loan agreement, which we made with the 3 banks, is the same since 10 years [ peak ] because we have renewed. Meanwhile, this credit line 3x.

So yes, maybe the banks have not increased the pressure. The covenants are where they were before. Roughly, yes.

What I can tell you is that we had 19 covenant calculations as per end of June. And we were all fine with all calculations and we expect also positive for the next calculation as per September 2020.

There are no further questions registered at this time. I would like to hand back to Mr. Wellner for closing comments.

Yes. Thank you for participating in the call. Maybe as a small summary. Life is coming back. It stays challenging, but we have a very strong position. We're very actively talking to tenants and banks. And we are confident that our governance keep corona under control. And then business should normalize even though it's hard to predict and forecast what the individual effects for this year are on valuation and numbers. But as we said before, we'll do this task when we can, yes, let's say, estimate it reasonably. So thank you very much. Stay healthy and goodbye.

Ladies and gentlemen, the conference has now concluded and you may disconnect your telephone. Thank you for joining, and have a pleasant day. Goodbye.