Hello, and welcome to Deutsche Konsum REIT-AG Financial Year Results 2021, 2022. My name is Sarah, and I will be your coordinator for today's event. Please note this conference is being recorded, and for the duration of the talk, your lines will be on listen only. However, you will have the opportunity to ask questions. This can be done by pressing star one on your telephone keypad to register your question. If you require assistance at any point, please press star zero and you will be connected to an operator. I will now hand you over to your host, Mr. Rolf Elgeti, to begin today's conference. Thank you. Hi. Good morning, everyone. It's Rolf here from Deutsche Konsum. Welcome to our earnings call. Thank you for your interest. What we will do is, as per usual, we will run very briefly through two or three slides of the presentation, literally, touching on the highlights. Then there'll be ample time for any questions and comments you may have. I just start maybe on page four, where we summarize the highlights for the last fiscal year, which ended in September 2022. In short, the numbers were nine. Our rental income was up 7% year-on-year, going to just over EUR 74 million. That has led to an FFO of just over EUR 41 million, in line with our forecast range. As we have not changed the number of shares, of course, the FFO per share at 1.17 has also been exactly sort of in line. Why has the FFO not risen faster than the rental income? Well, the main reason is that we, of course, have sold some properties, and we also have spent a little bit more on maintenance for one or two, as we are repositioning some. I'll talk about this more in a second. In particular, this is true for Strausberg and for Kommern and in particular in the last quarter, and therefore the AFFO, i.e., the FFO post CapEx was down very slightly. But of course at EUR 0.64 a share is still very strong. It's worth noting that most of our leases are CPI linked, as you know, and that has led to rent increases by 3.5% alone over the last year, which of course, is the highest rental growth we've ever had. That's the operations, strong, solid, but basically in line. A second point we talk about is the portfolio revaluation here. That's a change to the prior years. We've actually had to value or value the properties twice in the last year. As you know, we normally value our asset once a year for the fiscal Q3, i.e., calendar Q2, so by the end of June, and then use this valuation for the end of September final accounts to kind of de-stress the entire process. This year we've had the asset revaluation by as of end of June that we published in the last quarter. However, due to the change in interest rates and discount rates being affected for the fair value models and all that, together with our auditors, we decided to revalue the properties again, so just a quarter later. Obviously we've devalued them slightly relative to the June number. Year on year, they're still up some 4.9%, which is not too far away from the rental increase. I guess that somehow makes sense. That leads us to a current portfolio valuation of about 14.1 or 14.2x the annual rent, depending on how you round, or give or take about 7.0% yield on the book values. That's where we stand on the valuations. Third point, again, no change to the last quarter, just worth highlighting here for the annual numbers. We have acquired and we have sold. It's important that, sort of which is we always refer to this as a bit of an icing on the cake of our business model, that we can occasionally sell at tighter yields than we acquire. We sold in the in the financial year, eight properties, for a total yield of 5.2%. In fact, some of these were vacant, so the yield was actually tighter than the 5.2% as a result. We acquired at 8.2%, give or take about the same amount. We acquired for just under EUR 100 million and sold for about EUR 100 million. That's not huge, but of course, it still moves the needle in terms of redeploying capital at a higher yield than where we can sell. Of course, it won't surprise you to hear that given the current market environment, our acquisition pipeline is strong at even more attractive yields. At the same time, that may surprise you to hear. At the same time, the sales pipeline is also intact and we are negotiating exits at still about the same yields, sort of five point a little bit basically, that we see here. That is unchanged and is a very attractive environment for us because we can make accretive transactions both in terms of acquiring and in disposing assets, which is not very standard, I guess. Let's move on to the balance sheet. Our balance sheet remains very solid, you could say boring. Our LTV is at 49.7%. Our target LTV is 50, so we are more or less there. We are at this level of LTV even after the dividend payment of EUR 0.40 a share earlier this year, and even after the minor devaluations in the last quarter. Still more or less exactly where we want to be in terms of the LTV ratio, our interest cover is over 5x EBITDA, so that's very solid too. We show you here that we have refinanced some loans earlier this year at interest rates of way below 2%, fortunately. That brings us to a weighted average debt cost of 1.98 still. Of course, this will go up gradually going forward. Moving to the dividend. We announced on the dividend a few days ago. We, I mean, it feels a bit awkward to apologize that we increased the dividend by only 20% in this environment. Well, the dividend proposal, I guess it is for now, we suggest we increase the dividend by less than we previously guided purely out of considerations for the current market environment and everything that's going on there. Of course, the way to get there is to reduce the profits on that German GAAP. You know, as a REIT, we have to distribute at least 90% of the German GAAP profits. We therefore have booked a few sort of precautionary items in our German GAAP accounts, devaluing some properties, making booking provisions, and also booking a provision for a minor tax dispute we're having for the very early years of the foundation of Deutsche Konsum. That has reduced the German GAAP profit to a degree that the dividend is therefore only growing by 20%. Those are the highlights. I'd like to just point you to a very few other slides. Let's maybe start with page 12. In flicking through, you will see the various acquisitions that we've done, but it's basically more of the same, so not really worth mentioning. I'd like to point you to this table here, a couple of numbers. First, and most importantly, the lowest line, where we show you the WALT, the weighted average lease term. This is still, and I say this at every earnings call, but I say it again because it's, I think it's more relevant now than than in normal times. The weighted average lease term is still more or less stable, always oscillating just over the five-year mark. That's just to underscore that still, we are able to extend the leases at more or less the same terms. I mean, higher rents, of course, but it's still about the same lease durations. Don't forget, this is post. This is not, this is not like for like. This is post us having sold kind of more mature assets where we reduced vacancies and extended leases and post us having acquired assets with higher vacancies and shorter lease terms. This is still completely intact. You see that our valuation, as we get it on the books now, is just under EUR 1,000 per square meter. You also know that just building our kind of product costs at least EUR 2,000 plus the cost of land. It's fair to say that our book value is less than half of replacement cost, whatever that means. I think it's an interesting data point. Our rent in place is currently at €6.65. I mention this, I think for two reasons. I think first it's worth reminding ourselves that this number is so low that it doesn't justify new construction. I mean, in particular, not in this interest rate environment anymore, and in particular, with the current cost of production for any sort of building stock. As a result, I think at this rent level, we can conclude that there is simply no supply function. Either rents will have to go up or there will be supply. I think that that's sort of a very comforting position to be in terms of just the microeconomic supply and demand balance or should I say imbalance in this case. That's reassuring. The second reason I just bore you with this number is that we often get asked the question, well, leases are index linked, are tenants actually able to pay this? Are they happy with this? Of course, they're not happy with this, but it's very clear that at €6.65, that may then become €6.80 or €6.90. I mean, no one is really going to complain plausibly because these rent levels are simply affordable and very low in comparison with the European peer group. That's unchanged to prior quarters. I wanted to highlight this given what's going on. Again, many things haven't changed. I want to highlight page 15 briefly. It's a bit rather simple chart, but important in message, which is that 84% of our rents are CPI linked. Also just to remind you that contrary to some other European countries, there's no cap on these CPI links, like in the UK, for instance. If you been a regular follower of our calls, then you will have seen that the number 84% has also grown over the last quarter. The percentage of our CPI linked leases has grown over the last quarters, which I think shows you something. I mean, most importantly, it shows you not only that we're looking at this, but also it shows you that the market simply accepts this because there is really no plausible counterargument against that. I think that that's probably where I'd like to stop. Obviously, if you have detailed questions on the P&L and balance sheet, we're happy to answer them. My two colleagues are with me, I'll stop here and let us know if you have any questions that we can answer. As a reminder, if you would like to ask a question or make a contribution on today's call, please press star one on your telephone keypad. To withdraw your question, please press star two. Please ensure your lines are unmuted locally as you will be advised when to ask your question. The first question comes from the line of Kai Klose from Berenberg. Please go ahead. Yes. Yes, good morning, gentlemen. Sorry. May I can ask three, four questions? The first one, could you remind us of the total vacancy rates, how much contributes to the move out of Real in this year or the previous year? What are your plans there and how if and by how much you would like to expect reduce that in the current fiscal year? Second question, could you give an indication on maintenance and particularly CapEx investments for the current fiscal year? The last question would be on page 19 regarding the debt expiry profile. Just to clarify, 2022 means the current fiscal year, 2022, or is it the calendar year, what you have to renew that was up for renewal with EUR 58.4 million? Thank you. Yeah. Thank you, Kai. I'll start with a few. The debt on page 29, that's the calendar year. i.e., the next 10 days. The reason it states this there is that we've literally have to sign the documents that are on our desk, of which we signed. There's 2 loans, one we signed yesterday, and the other we have on our desk now as we speak. This is being extended. It's two loans. In terms of maintenance and CapEx, I think there's no reason to assume that maintenance will change materially for the next year. Maybe of course, there's some cost inflation clearly, but that cost inflation is going down compared to earlier this calendar year. For the CapEx, we expect a reduction in CapEx because, you know, the big repositioning projects are more or less done. This is very likely to be significantly less in the coming year. As for the Real vacancy, we are in the process of selling this asset. It's the short answer. My colleagues laugh. I don't know why, but in terms of another super colleague basically tells me that the Real vacancy is 1.1%. Percentage points, I guess that is of our vacancy. Okay. Thank you very much. Maybe two very last ones. You mentioned that according to German GAAP, you did some precautionary adjustments. Could you quantify or specify the total amount, including the impairments or provisions for the taxes? The last one from my side would be, there was a request from the BaFin, if I remember correctly. Could you maybe give an update what the status there? Thanks. Yeah. We have had basically three key items in the German GAAP where we reduced the profits. The biggest one, with over EUR 10 million, is we have written down properties. That sounds very strange because we actually have massive hidden reserves in the German GAAP accounts. As you may know these, you cannot sort of counterbalance the various evaluations. Out of the almost 200 properties that we've got, we have valued down, I think five or three. Basically the way this works is you have the German GAAP sort of book value, and then we do the market valuation or what is called market valuation, but fair value for the IFRS accounts. Then of course, for the entire balance sheet, you simply see the total, the total sum, and it goes up and it has gone up and will likely to keep going up. In the accounts, we also have a sort of fair value check for every single property. And sort of as and when sort of leases sort of shorten, the fair value sometimes go down year on year. In particular for those properties where we sort of earn a big sort of repositioning exercise, like where someone moved out, the vacancy has gone up as a result. There's CapEx, later on it will be relet, like the spot mark-to-market valuation, will or can, in those circumstances, go down so that we have occasionally, we also had this in prior years, by the way, that we occasionally have to write down the German GAAP book value because very rarely, but of course for 200 properties it happens occasionally. Very rarely the IFRS fair value is lower than the historic sort of cost accounted German GAAP book value, in particular for those reposition assets. We simply write them down to the lower value, thereby sort of in total, of course, increasing the hidden reserves. On an individual basis, this reduces the German GAAP profits because you have those write downs and all the hundreds of millions of sort of higher values that go the other way. They of course, they are not booked on a German GAAP. Just over EUR 10 million. Then we have a tax dispute, where basically the tax authorities claim that we were not a REIT initially, and therefore, we should pay corporation tax. We, we think that's of course, totally wrong and ridiculous. Under German GAAP, we provision for this with I think EUR 3.7 million, which is the potential tax damage for those years. On the IFRS, if you read the accounts carefully, you will see that because we think it's so unlikely that this will happen, we have a claim on the asset side of the balance sheet to counterbalance. Again, on the German GAAP, it's more cautious booking. We book the provision only and no counterbalancing claims for that. That's EUR 3.7 million. We have booked higher receivables as higher depreciations on receivables. That includes the loans, and that also brings me to your BaFin question, we still don't know what BaFin actually wants. We have provided them with the information they've asked for. We're waiting to hear back from them. We have in any case, we have decided to sort of book those loans more sort of, more cautiously, and therefore have taken these kind of non-cash devaluations for those loans. Again, also to reduce the German GAAP profits. Those are the three key items. Re BaFin, there's no news. We're expecting to hear from them sometime. Okay. Okay, many thanks. The very last one, After you have done these adjustments according to German GAAP, will that materially impact your future dividend payment or ability to pay out all of the hidden reserves after you've taken that these adjustments materially? That's a very good question. The answer is it does not because if in future years and realistically next year, when these sort of sort of revitalizations have been affected, and if that's then reflected in the new market value, you can then even under German GAAP, sort of revalue the property back to the historic cost value. We'll effectively be able to catch up with that. Therefore this will increase the dividend capacity for the next year. In fact, that's true for all of these items that I mentioned because, you know, I mean it's self-explanatory. Understood. Thanks so much. The next question comes from the line of Manuel Martin from Oddo BHF. Please go ahead. Thank you. Good morning, Rolf. Four questions if I may. The first one, unfortunately, I tried to use the crystal ball. Maybe you can help me. When it comes to valuation, I mean, in the fourth quarter, there was a correction of valuations in your portfolios as far as I can see. Do you have any feeling or indications from appraisers what could happen next year in terms of valuations? Many competitors are very cautious on valuations indicating for valuation losses. Is there anything what you could indicate to us? Yeah, I think that's good question. Actually, there's two things we can say. I think the first is that I think the discount rate damage to the valuations in the third quarter was of course quite severe. That has partly gone the other way in Q4. Just purely in terms of cost of capital and discount rate, you should actually expect a minor sort of improvement to valuations sort of quarter-on-quarter. I mean, if it was that strict, but of course it isn't, because, you know, everyone, the valuers including included sort of tried to smooth this process a little bit, but very technically speaking, the discount rate has sort of improved a little bit. What it will do the next couple of quarters is anybody's guess. We also don't have the crystal ball. If rates stay where they are, then you should actually see from the end of September level a minor improvement from that. Much more importantly for us, contrary to many other peers in other market niches, we of course have the indexation of the rents. The rents will very likely keep growing strongly. In fact, it's very likely they will grow even faster than in the last quarter, just, I mean, just purely how these indexations work. We will have, you know, whatever a percentage of rental growth and if there's no change to yields and discount rates, then obviously, then it's very clear that everything else being equal, that the valuations should sort of grow in line with that. In line with rental growth, and that's before we talk sort of our asset management alpha that we hoped to achieve, and that alone should give us sort of revaluations of 5%-6%, everything else being equal. Who knows whether it will be equal. I think that that should give us a rough indication in terms of the methodology. If we look at the market, then obviously, I'm just looking at my colleagues, but I can't think of any property we would sell at 14x rent. Yeah, they're shaking their heads too. I mean, so clearly, I mean, but, you know, we said this in prior calls. That is a very low valuation and, you know, all our historic sales, and there have been now quite a few that you can't really say they were flukes. You know, they have happened at significantly higher valuations. As I mentioned earlier, we are still in talks to potential buyers of our assets at significantly higher valuations than the book values. Mm-hmm. Okay. That brings me to my second question. The transactions. Apparently, you are very confident to conduct transactions, either on the acquisition and on the disposal side. What is the reason for being so confident? Because transaction market for a lot of people is dried up. Don't you experience any problems or delays or buyers shying away, or sellers not wanting whatever? Yeah. Look, I mean, what can I say? I mean, we've experienced problems and difficulties and delays and, you know, people being painful for the last three years. Therefore, this is nothing new. I think in terms of. Let's start with the acquisitions first. In terms of the acquisitions, what helps us, of course, is that we don't need bank debt before we acquire, because we always buy out of cash and then refinance later. That gives us a significant sort of timing advantage and speed advantage. That, that's very clear and that's now even more relevant than before. I wouldn't say that there's distress out there, but there's maybe a little bit sort of semi stress in one or two sort of sub-segments, I think in particular for slightly bigger assets. Which is actually great because we would like to own a few more bigger assets, everything else being equal. You know, our positioning vis-a-vis sort of potential sellers has improved as a result. Also, let's not forget, I mean, we are a tiny player. We are a really small player in a huge market and therefore, you know, we don't need to buy big portfolios, and we don't need lots of transactions. We just need to be successful a few times. We have a very strong team that can actually deliver that. Therefore, you know, the acquisitions have always been strong. If, and if anything, I guess it's probably clear that in this environment, the acquisition pipeline is stronger than before. If we're looking at the disposals, I think that is probably more surprising or less intuitive why there's a disposals pipeline. There are still sort of many, there's property developers, there's, in some cases, the tenants themselves that are happy to acquire these locations at very tight yields. There's still the odd funds out there that are looking for things. You know, we're effectively benefiting from the fact that the market is so heterogeneous and so fragmented and intransparent. You know, when you have 200 properties, there's always someone who likes a particular property for a particular reason. Therefore, I'm not saying we're selling the entire portfolio tomorrow, but, you know, we constantly get approached. You know, often people think they can make a bargain and then we clarify the situation. You know, it happens and it's, you know, this market isn't dead. I mean, we're not talking billion-dollar portfolios, we're talking individual assets, and that market is not dead at all. Therefore, you know, we're not promising anything, but we are reasonably confident on achieving both acquisitions and disposals at a very attractive yield gap. Okay. Okay. Thanks. Very useful. Just the other two questions which are rather short from my side. The first one is on your financing. Given the high interest rate environment that we see, your marginal cost might have gone up. Can you share with us where your marginal cost is right now? Manuel, it is Christian. Hi. Yeah. We are also in talks with the banks, obviously. At the moment we get offered rates for short-term refinancings in the range between three and a quarter% to four and a half%. Our strategy is that we, that we try to sign shorter durations for the moment, assuming that interest rates will come down a little bit in the future. We don't want to lock in now five-year durations at the moment. Yeah. Okay. Yeah. Makes sense. Okay. Final question. Thanks. Final question is on the other side, your interest income. Is your interest income going to increase as well with the high interest rate environment? How do you see the default risks in your interest income part? Yeah. The interest income will come down because this is basically the short-term lendings that we have done. As we communicated before, we are sort of in the wind down mode of that and want to actually bring this down to zero over the course of the current fiscal year. Mm-hmm. Okay. It will come down due to smaller volumes, it will come down. Yeah. Okay. I see. Any news on potential defaults or problems in the lending portfolio? Well, there's no actual ones. I mean, we have booked a few provisions, but there's no actual defaults. Okay. Good. Thank you very much, gentlemen. The next question comes from the line of Marc Echard from Pilet & Co. Please go ahead. Yes, gentlemen. Good morning. Thank you for the presentation. A question, a few quarters ago, you did a survey regarding the strategy. It was first question, to keep the strategy buying and selling or to grow the portfolio. It seems to me that you maintain the actual strategy, buying and selling. Yes. In short, yes. I mean, I remember that discussion we had, and it's a very tricky one. But, you know, we have bought and sold, and, you know, ultimately we are driven by the total return per share, and therefore, if we can sell at yields that are accretive, which given the low valuation of the shares, this is now actually quite easy. And if at the same time we can buy accretively, which amazingly is also still possible, then both make sense and therefore we currently do both, without a clear direction in terms of portfolio size. And, you know, until we have a better idea, we'll just do that. We're very open to hear views from you on how you see that, because you could, of course, in this environment say, look, the shares are so cheap that let's just sell and buy back shares or delist the companies. I'm sure there's people around Battery Square that have their Excel spreadsheets open and do those math. What, which of course from a pure sort of corporate finance one-on-one logic would make a lot of sense. We are here, we're managing the company, and we're trying to optimize the total return per share. For that, it's sort of employing capital at higher yields is always sensible and that's what we're doing. Okay. Thank you. Is it also because maybe you are between a rock and a stone because LTV is at almost 50% and the stock price is much lower than the NTA or the NAV, so you cannot create new shares and then you are blocked. That's true. I mean, fortunately, it doesn't matter yet because we have the disposals at those very tight yields that allow us to acquire, size-wise that has been just perfect to fit our acquisition pipeline. Therefore we didn't actually need to raise equity. You're totally right, I mean, it's out of the question, of raising equity at this level. Thank you. It seems to me, you are quite happy with the figures and confident. If you look to the stock price and we know what's also happened to the interest rates, it seems to me that the market doesn't understand quite well, how good you are working. What can you do against that? More communication, more putting the company into the picture? Well, the short answer is if only we knew. I mean, I would think that the transparency we give is actually quite good. I mean, if you go to our website, you can download the entire property portfolio. We show you all the numbers. We do this quarterly call. We go to investor conferences. We have a very good sell side coverage for a company of our size. It is good in terms of number, but also good in terms of quality if, I mean, so may say so vis-a-vis the analyst in the call. All that I think is, you know, is green boxes that are ticked. I think we have the problem that we are a bit small. We're boring. We are real estate in a time when interest rates go up, so we are unpopular there. I think there's only one thing we can do, and this is sort of, you know, de-deliver on our strategy and on our operational performance as well as we can. That's what we're trying to do. I mean, we, I don't think we should sort of put the company into any shop windows or anything. We'll, we'll do our work. We'll try to deliver the numbers, we present them, and then the rest is up for Mr. Market to decide. Okay. Thank you for your answers. I wish you a good end of the year. Thank you. To you. Thank you. As we currently have no further questions on the line, please, as a reminder, if you would like to make a contribution, please press star 1 on your telephone keypad. It seems that we have no further questions, so I will now hand you back to your host for closing remarks. Great. Well, thank you. Thank you again for your time and interest in Deutsche Konsum. Thank you for your questions. If you have any more questions, please do let us know. Very happy to help with anything offline and after the call. If we don't speak, very happy holidays to you and your families and all the best for the new year. Thanks a lot. You may now disconnect your line. Hosts, please stay on the line.