Deutsche EuroShop AG

XETRA:DEQ

Earnings Call Transcript 2020-Q1

[Operator]

Ladies and gentlemen, thank you for standing by. I'm Stuart, your chorus call operator. Welcome and thank you for joining the Q1 2020 results call. [Operator Instructions] I would now like to turn the conference over to Mr. Wilhelm Wellner. Please go ahead.

[Wilhelm Wellner, CEO & Member of Executive Board]

Ladies and gentlemen, a good and healthy, good morning from Hamburg. This is Wilhelm Wellner speaking. I'm here together with my colleague, Olaf Borkers and Nicolas Lissner. Today, we want to present to you our results for the first 3 months of 2020. But as it is of major interest and importance, we are starting with an update of the current situation for our portfolio. As all of you surely follow the daily news, I will have seen that many jurisdictions in Europe have slowly started to open up from the lockdown and started their way to normality, a new normality, as it is set by many experts. The first shop openings we saw since 20th of April and some of the German federal states. However, such openings were still very much limited, as they were subject to many restrictions. The most controversial discussed limitation was the so-called 800-square-meter GLA rule, hindering the bigger and also the anchor tenants to start business again.Leaving aside a lengthy discussion about the rationality of such restriction, this rule was, of course, very disappointing for our tenants and also for us. This German 800-square-meter rule was only removed over time and state-by-state, with Hamburg being among the last states to abolish it just the day before yesterday. Now generally, most of our tenants in our portfolio countries can open up again. Restrictions still apply for certain concepts, e.g., cinemas, [ hairdresser ], beauty salons, fitness studios and also gastronomy. As the governmental decision sometimes come with very short notice, it takes some time for maintenance to open up. One should bear in mind that the shops have been closed for weeks and logistics, human resources and health security issues have to be managed and secured at the same time. This is especially true for gastronomy, which just recently was permitted to open up again in some regions in Germany, but still subject to strong health restrictions. Talking about some security restrictions. For example, in most markets, there are still and will be for the foreseeable future, some restrictions for the operations of shops and the shopping centers, e.g., it is mandatory to wear masks, face masks; the distance between people shall be at least 1.5 meter at any time; number of customers in the shop is restricted to a certain number per GLA; and also, the shops areas are divided to manage the customer flow to avoid health risks. While people seemed to have very responsibly adjusted and accepted this as part of the current new normality, it is still needless to say, a big impediment for the retail business. Managing this unlocking process and the corresponding health and security restrictions is a very important and complex task. We are impressed by the fact that the people that we are -- that are engaged with the operation of our shopping centers are doing everything they can objectively and responsibly and with the greatest personal commitment to safely resume business operations under these special circumstances. Our special thanks and respects go to them.Coming now to some operating numbers in this reopening phase. On average, as of the beginning of this week, approximately 85% of our shops in Germany and Austria were open again. For Poland such number was around 75% and for the Czech Republic and Hungary, about -- around 60%. Such numbers are now to be increased day by day. The customer frequency are, of course, still lagging behind. But on average, for our portfolio we have, just shortly after the start of the appreciable reopenings, reached the frequency of a good 50% of normal levels. We see a clear positive trend. Depending on region and deferring opening processes by region, such frequencies vary among the centers between 30% and 70%. So life is coming back to the centers. This is a good news. However, the impact of the corona pandemia on tenants and, therefore, on us, was and still is very substantial. It is clear that the tenant [ turnover ], especially in some segments, will still be low compared to normal times.Given the economical and legal situation resulting from various governmental relief measures for tenants, our collection ratio for May and April was around 30%. Such numbers are still subject to change. We are, of course, in close consultations with ECE, which in turn is in constant talks with the tenants to find commercially feasible solutions. Taking into effect the magnitude of the negative impact of the pandemia on [ station in Rio ] in general and on our [ budget ] business, such special arrangements with tenants may, among others, vary from rent deferrals and rent holidays to cost-saving measures and temporary limitations in opening hours. The cases are handled on a case-by-case basis and as good as possible and a cooperative spirit. However, such negotiations are not easy for both sides.Having said that, you will have noticed that already by now and since the start of the corona crisis, some well-known tenants have filed for insolvency, among them Karstadt Kaufhof and Karstadt Sports as well as [indiscernible]. Such tenants account on a proportionate basis for around 4.6% of our rents and all these tenants plan to restructure and continue their business. Even though the centers have started to open up and come back to life, given the current economic situation, the unpredictable customer behavior and the development of turnovers of our tenants and the outcome of the tenant negotiations, the forecast of 2020 is not possible as we have communicated before. But on that background, we have also, as already announced before, decided to propose to the AGM to cancel the dividend for 2019 to further strengthen our liquidity. And on a consolidated basis, our liquidity position currently stands at EUR 883 million. Also, it's very important we continue to have very trustful incorporated talks with our banks to inform them about the situation and its development and also to secure the upcoming refinancings. More to that later in the call.After the update of the current situation in our centers and concerning the Deutsche EuroShop Group, let me now come to the results of the first quarter of 2020. Such first quarter marks a turning point for us with still very limited negative impacts from the crisis situation. Accordingly, we still can present satisfactory financial figures for the first 3 months of this year.Let's start with some operating numbers for Q1. Due to the corona impact and the fact that not all of our tenants were able to provide us with the numbers, it does not make sense -- too much sense to compare them with previous year. Nevertheless, we, of course, want to provide them to you. On Slide 4, you'll see the retail turnover of our tenants in the first 3 months of this year, with a big minus of 15.9% on a like-for-like basis for Germany and a similar number abroad. As you can see, all segments saw unsurprisingly negative turnover developments due to the impact of the corona pandemia starting early and mid-March. Until then, many retailers commented that in January and February didn't start to bad, anyway, the numbers are as they are.Coming from the operations to the financials, starting with the revenues on Page 5. The numbers after the first 3 months of 2020 show the first impact of the pandemic. Revenues decreased just slightly by 0.9% to now EUR 55.8 million as a result of a special legal situation abroad. Most jurisdictions knew and sometimes very complicated emergency laws were introduced by governments to cushion the effects of the virus for tenants, ranging from temporary suspension of rents to the deferral of rents or a combination of both. Without this first corona impact, the revenues would have increased by 0.5%. You can see on the lower right-hand part of the slide, our share of domestic and international sales slightly changed. This is due to the temporary suspension of rents in Poland.On Page 6, we show you the development of our EBIT and EBIT follows rents and decreased by -- to now EUR 48.3 million, which is a minus 2% due again to the decline in rents and also some higher operating expenses. Here to mention, it's worth, especially the one-off effect from financing costs in relation to the extension of our credit line this year and also some higher consultancy expenses. The cost ratio was 10.3% and further components of this -- of the EBIT are the center operational costs comprising the center management fees and nonrecoverable ancillary costs.Next is our financial results. Here, you can track the changes on Page 7. The financial result deteriorated by EUR 0.6 million to now minus EUR 5.7 million, including a one-off effect. Major -- partially offsetting input factors for the change were the exceptional tax-related one-off interest income of EUR 2.5 million last year and to the positive interest savings of EUR 1.5 million this year. This leads us to the EBT adjusted for valuation on Page 8. Such result came down from EUR 42.3 million to EUR 40.8 million, which is minus of 3.7%. Also here, the main inflow factors were the interest savings on the one hand side, and the tax-related one-off interest income last year. Excluding the one-offs, the EBIT adjusted for valuation would have increased by 2.6%.Looking at the EPRA earnings on the next page. They declined by EUR 9.1 million, now EUR 38.5 million. Here, the one-off tax refund and again, as just mentioned, the related interest income were the major influence factors. EPRA earnings per share decreased from EUR 0.77 to now EUR 0.62. And excluding the one-offs, they would have remained closely to the previous year level at EUR 0.62 per share.Now I'd like to come to the consolidated profit of the group on the next page. This decreased by EUR 11.4 million to now EUR 28 million. Again, you see the same effects from the tax-related one-offs of minus EUR 8.9 million. And additionally, we had higher investment costs in an amount of EUR 2.9 million, smaller other changes resulted from the standing assets and other deferred taxes. Earnings per share decreased from EUR 0.64 to EUR 0.45, excluding the one-off items, EPS would have decreased by EUR 0.04 from -- coming from EUR 0.49. On Page 11, we have outlined the development of the FFO. For the first 3 months of the year, the FFO, which excludes valuation results and the one-off tax items, it decreased slightly from EUR 0.63 to EUR 0.62. This is mainly due to the corona-related lower revenues and some higher operational expenses. And you can find the detailed calculation on the right-hand side, the slide.Coming from the P&L to our very solid balance sheet on Page 12. Our total assets were slightly higher, now standing at EUR 4.59 billion. That's an increase of EUR 35 million compared with the reporting date end of 2019. As of March -- end of March 2020, current and noncurrent financial liabilities stood at EUR 1.5 billion. This was EUR 3.1 million higher than at the end of 2019. Here, scheduled repayments were offset by the increase of a loan by EUR 7.5 million for the financing of investments in the A10 center. Noncurrent deferred tax liabilities increased by EUR 4.9 million to now EUR 383.6 million, resulting from the regular tax depreciation or other current and noncurrent liabilities, and provisions also remained rather unchanged. Total equity, including minorities, increased by EUR 30 million, and our equity ratio remains at a very strong 57.3%. And the consolidated LTV now stands at 30.7%. On a look-through basis, this number is now 32.9%, also a very reasonable and low level.Let's now come to the financial debt on the next 2 pages, where we give you some more information. Some EUR 700 million of our consolidated bank debt mature in the next 5 years. We still see, as in the past, potential for some reductions in our interest costs over the next years, under the assumption that the corona pandemia situation stays under control and the situation stabilize further. Currently, our consolidated debt give us an average interest rate of 2.36%. And for your information, given the current interest rate environment and actual quotations from banks, we still could refinance our debt around 1.5% for 10 years in Germany. Our weighted maturity of our loan portfolio now stands at 4 -- 5.4 years. And on the right-hand side of Page 14, you will see that we just have fixed a loan of EUR 70 million at a rate of 1.37% interest rate, and that is even including a forward fee for 10 years for our City Arkaden in Wuppertal.Coming now to the outlook. After the status report about the immediate impact of the pandemic and the current situation, we are, besides all pain, looking confident ahead. And as business [ lines awaits ] and continues, we want to give you a short outlook on our so-called normal operations and our financing activities. You will find a summary of the major points on Slide 15. On the leasing side, we see that the market is understandably in a very weak condition, but re-leasing activities continue to a certain extent. We are very happy that we just have recently and also amidst the lockdown, signed a lease agreement with Kaufland for replacement of a big and important anchor tenant Real in the A10 Center. This is very important and also a good signal for the regular re-leasing process of the center.Looking at CapEx. We are, of course, going to further review and postpone nonessential programs, among them also some At-your Service and Mall Beautification investments. But for sure, we will go on with all essential and required investments like for new shops or for necessary infrastructure. We're also happy that all of our German centers are now connected to the Digital Mall since end of last year. While the online availability check is working for approximately 1.9 million products in the ECE portfolio, the next steps will be the possibility to click and reserve products. Here, the corona pandemia has slowed down the activities on the one hand for [ DES' ] business. However, on the other hand, the crisis facilitates the digitalization of the overall retail business, as the crisis has shown how important it is for retailers to be part of the omni-channel world. This surely will have been noticed by most tenants, which we need to participate in the Digital Mall to make it even more attractive.Lastly, let's have a look at the financing activities. Already in January, we have extended our credit line for EUR 150 million for 4 years. And amidst the lockdown, we have signed a loan agreement for the refinancing of EUR 70 million for the City Arkaden, Wuppertal, which became -- or become due end of this year. So far, we are also making good progress on 2 refinancing for a total amount of EUR 136 million, which becomes due only mid of next year, but which we want to secure in due course. All banks we are working with have confirmed us that they continue to work on such refinancings also under the current extraordinary situation. We're happy to report to you that we have such continued trustful and cooperative talks with our banking partners. This was my presentation.As a final and closing remark, and based on what I've said before, the management of Deutsche EuroShop is confident looking ahead, even though this is an unprecedented and challenging situation for all of us. Keep well, and thank you for listening.

[Operator]

[Operator Instructions] The first question is from the line of Rob Virdee from Green Street Advisors.

[Rubinder Singh Virdee, Analyst of Research]

It's Rob Virdee. So first of all -- I have a few questions, but first of all, I know 85% of your stores are open, but can you tell me how much of the theoretical rent has now opened?

[Wilhelm Wellner, CEO & Member of Executive Board]

Rob, the situation is changing really day by day. So this is by numbers. And for the purpose of estimation, you probably would -- also could easily use also roughly 85%. However, as it's changing daily, and we need to see the economical impact, who is really actually paying and who's asking for properly reductions and deferrals, it would be probably not the -- an easy back of the envelope calculation, if you would translate that into who would be paying tomorrow morning again. I need to say that frankly, otherwise, probably collection ratio could have been a bit higher. So as tenants have gotten some reliefs supported by legal activities of the government, there is now some time to negotiate with them to come back to more normal levels of collection ratios and rent levels. This is what I could tell you so far, if this is the direction of your question, yes? And of course, we hope and assume that with the opening up of the shops, the collection ratio moves that way, but it probably will not be that quickly.

[Rubinder Singh Virdee, Analyst of Research]

Sure. So how -- I know a lot of shops are allowed to open now. Have all of the shops that are allowed to open by legislation actually opened?

[Wilhelm Wellner, CEO & Member of Executive Board]

No, not yet. So this is really the number that are open, not the ones that are allowed to open. Because for some of them, as I said before, they need to shuffle their logistics, their people and to open up. So that's why I say, I -- hopefully, it's changing daily. So this so-called 800-square-meter rule just has been removed by -- in some states in the last 48 hours. So I hope, besides gastronomy, that we can increase that number good day by day. But it's not a bad number, yes? Talking about that we just have opened up, let's say, in the last 1 week or 2 weeks, a substantial amount of shops are allowed to open up the bigger stores, yes? So of course, it is behind all tenants to motivate them to open up as soon as possible. But on the other hand, it needs to be done safely, yes, and as we have those requirements within the shopping centers and the shops. But most of the tenants are really behind to really open up as soon as possible.

[Rubinder Singh Virdee, Analyst of Research]

Okay. And if we just go to the actual rent collection, so I appreciate you said 30% of April and May. So are those months actually due right now? Or have you pushed out the payment deadlines into the second half? And then how are you thinking about the rent that has not been collected? In your mind, has this all been provided for as a bad debt? Or do you think it's deferred and it will be collected in second half or maybe 2021? And what conversations are you having with your tenants then about this rent?

[Wilhelm Wellner, CEO & Member of Executive Board]

Yes. First of all, the system here we have -- for the whole of the portfolios that we have monthly rent to being paid upfront at the beginning of the month. So that's why we have a very good collection ratio still for March because the trouble really started in the second week of March. So this tells you that we do it month by month. As this only happened in the second quarter, you wouldn't see that in the numbers, besides the small effect from Poland that you have seen for 2 weeks' time in Poland. So we will have to carefully look at each individual deferred payment when we do the Q2 numbers. And of course, treat insolvency cases differently as other strong tenants that probably don't want to pay and others that can pay will be delicate task for the end of Q2, but we will, of course, do it like that and decide how we treat it. So it depends then on the strengths of the tenant and the expectation we have concerning them.

[Rubinder Singh Virdee, Analyst of Research]

One final one, please, just on the layout of centers post-COVID-19 and how you guys are thinking about it. Because obviously, I think the gastronomy and entertainment, leisure has been quite impacted, but this was the way shopping centers were moving. How do you think this will play out for the medium term, at least?

[Wilhelm Wellner, CEO & Member of Executive Board]

I strongly believe -- besides, as I said before, the pain we have now and maybe for the next 2, 3, 4 months, I strongly believe that people, if the coronavirus becomes under control, they like to live. They like to go out, and they like to meet and entertain. And I was extremely surprised to see pictures on the Internet from Australian shopping centers that were packed just last week and they were packed like pre-Christmas times in normal times. I'm not expecting that we jump to back to that right away, but I expect we will come back to a much more normal life. It will take some time. Everybody is losing in the intermediate and the long-term outcome is not clear yet. But I do believe people will come back. They might behave a bit different and this is a new normality we're all talking about and not knowing what it is. And it's crucial that it's not coming as quickly back as we all would hope for, but I think we'll come back. People forget, to be honest, and they want to live. They want to go out.

[Operator]

Next question comes from the line of Georg Kanders from Bankhaus Lampe.

[Georg Kanders, Investment Analyst]

You have this big, yes, large variety in the footfall in the different centers. So I would like to know what are the best and the worst centers. Is this more due to ease of regulation? Or is this the location of [ other ] centers.

[Wilhelm Wellner, CEO & Member of Executive Board]

No, I would really allocate this to the timing of the process where those centers are in. For example, at the lower end is our center in Passau, which is a really great center, but [ that area ] was one of the most strict ones in Germany. So they just come a little behind, yes? So they are not all concerning [ category ] candidates. I think people behave in most of the areas the same. So we see the same effects in Poland, for example, and in Czech Republic, whenever they come into the market. Really, frequency is coming back. And the question is how quick, how fast will -- they will come back to more normal times, yes?

[Georg Kanders, Investment Analyst]

And what would be the best centers?

[Wilhelm Wellner, CEO & Member of Executive Board]

Yes. We have very good numbers for the MTZ, for example, so Main-Taunus-Zentrum of Frankfurt, but we have all seen something very good at the A10. We saw something very good in Magdeburg already. So we don't see a clear pattern here. So we really think it's more of the process when the individual federal states came up with their relief measures or the opening-up measures. So it's better to see in 4 weeks' time, 6 weeks' time, then we see whether somebody would be left behind or so.

[Georg Kanders, Investment Analyst]

So definitely, it's more or less a question of the easing of the regulation, yes? Okay.

[Operator]

Next question is from the line of Kai Klose from Berenberg.

[Kai Malte Klose, Analyst]

I've got 3 questions, if I may. The first one is regarding the minus 0.5% reduction in revenues adjusted by the crisis. Could you indicate where this came from? And what was the average rent from new win from lease renewals or lease extensions. Was that much lower? Or could you maybe indicate what was the level there?

[Wilhelm Wellner, CEO & Member of Executive Board]

Yes. I think we lost -- lost is probably still the wrong word because we don't know yet, but we had to treat some EUR 800,000 rents in Poland that we could not invoice. So if we would account -- due to corona, yes, this is the last 2 weeks in Poland. So if you would account that and adjust that, we would have had a plus 0.5%, yes, not the minus 0.9%, if you're [ adding ] that question, yes? So on the renewal rate, we do not formally publish it, but of course, in Germany, it was a negative like with all of our peers. This was pre-corona, also the case with inflation helping on the one hand with rent. And on the renewals, we would lose a bit, which is also true for some of our peers in Germany and the Netherlands. So this hasn't changed. But we are now at a new -- I wouldn't call it a new game, but this normal KPI now becomes a different -- we need to look at that from a different angle.

[Kai Malte Klose, Analyst]

Second question would be on the other operating expenses. Could you indicate what caused the increase by about EUR 1 million? I think in the interim report, you mentioned that was related to one-off financing costs and higher consultancy costs?

[Wilhelm Wellner, CEO & Member of Executive Board]

Yes, roughly half of it was really the agency fees that we signed up along with signing fee. Another half was also related to some legal costs. So we -- you can imagine that we ramped up here with also on the legal side to tackle the situation, looking at corona, looking at the various jurisdictions, the new legislations being prepared. We were following that day by day, and we, of course, were supported. So the financing is not a one-off because it comes every 4 years. And of course, we don't hope that the legal fees will stay high going forward.

[Kai Malte Klose, Analyst]

And then 2 last questions, on the financing side, could you indicate what is the amount of unrestricted cash? When you say you have EUR 183 million cash, how much of that is unrestricted? And during your calls -- during your talks with bank, how have they, not only progressing, but some way that they -- have they changed -- do ask -- do banks ask maybe for covenants or higher margins? Maybe you could elaborate a bit more on that?

[Wilhelm Wellner, CEO & Member of Executive Board]

I'll take the first part of the question, then give the word to my colleague, Olaf Borkers, here. We are working a bit -- when we -- on the group level, we have some EUR 70 million, EUR 75 million, which you directly could say is unrestricted. But then there's also some unrestricted liquidity in the companies, the SPVs itself. Most of the time, we have one SPV for a shopping center. So part of that is unrestricted. Others might be reserved for investments that have been planned in the long term. And that's how we kept it. So we left the cash first on the level of the companies to be able to cope whatever comes in any reasonable scenario. And we have some, yes, EUR 70 million, EUR 75 million here on top, if you want to say so, in the group, in case of need, yes? But we don't see that at the moment. And our scenarios that we run -- and we are well in that scenarios, but of course, we are just 2 months down the overall situation here. All of our companies are able to cope with their cash on their own, yes? So let's hope that there's no second wave, but then we would have, of course, this extra cash on top here in the group, plus the credit line in which we, under some circumstances, also could use, yes?

[Kai Malte Klose, Analyst]

So maybe a quick one on that. How does the EUR 183 million split up?

[Wilhelm Wellner, CEO & Member of Executive Board]

Yes, 2/3 is free cash, if you want to say so. But the free cash, you always use for something, and it's to be -- going to use to solve these issues here or to get new tenants in, or if it's needed in the SPVs, maybe hand it over to the group, yes? So 2/3, if you want to have that number.

[Olaf G. Borkers, CFO & Member of Executive Board]

And there's no cash reserve for banks as an additional security for loans.

[Wilhelm Wellner, CEO & Member of Executive Board]

If that was the question, yes, maybe. Okay.

[Olaf G. Borkers, CFO & Member of Executive Board]

So it's fully free for us. And coming to the second question, which is a part of the first one. No, we do not have any question from banks asking for higher margins or more or stronger covenants. No, it's more vice versa. Individual -- very individually, banks address to ask and offer to start a negotiation for waiving individual covenants. We are very comfortable with the covenants, but we are very open also for banks asking for -- offering waiver -- waving covenants because it's less work for us. And obviously, there is a general rule from the BaFin, which says that, if banks generally often waivers, then they have softer regulations how to cope with those loans.

[Kai Malte Klose, Analyst]

So just to get that right, so the banks are less restrictive in their lending criteria, and in return, do they ask for a higher margins? I assume they don't give debt for free, so...

[Wilhelm Wellner, CEO & Member of Executive Board]

No, no. Nobody said that they are much more restrictive. We've been -- said to you that we are still in very amicable negotiations with our banks for these 2 loans, which are made during mid-2021. They are continuing their credit process, and the other banks with which we already have loans, they are also amicable with us. Generally speaking, yes, now it would be much more difficult get the refinancing of a loan if you start negotiations today. But saying that again, we started already in October 2019 for these loans. And what we also did is we started in a big information campaign to all of our banks, which means Mr. Wellner and myself visited all of our banks since August 2019 to inform them about our business and our strategy. That was originally due to the online competition and our reaction. But it was now very helpful for what happens today because partially, we had, is the audience, 30 persons in one bank from management, our management down to all the credit analysts. That is very helpful because we had very trustful discussions.

[Kai Malte Klose, Analyst]

And the very last question from us would be, just to understand the 4.6% of insolvencies. From a tenant's perspective, or let's say, from the company who may be advising the tenants who maybe want to stay in your shops -- shopping center. How do [ they ] process on the new rents then will take place? Are tenants in an insolvency in a way better positioned than tenants who ask for rent deferral that they can ask for reduction? Or how does that work clearly?

[Wilhelm Wellner, CEO & Member of Executive Board]

Yes, it's a very individual process, of course. The legal framework is different if you have a tenant that is in an insolvency procedure, nevertheless, we're usually talking about portfolios, and they are always in [ both ] those portfolios, shops that are working better or, let's say, that are in shopping centers we are probably more dominant like in Dresden or like in the Main-Taunus-Zentrum, and the other says they're probably not performing that well. And this then always done, of course, from our portfolio -- that is usual portfolio from a portfolio view. And then it will be a give and take, and we need to judge whether the tenant is worthwhile enough to do how much. And for the tenant, it's then a question to ask -- go looking at its overall business, its whole portfolio, how important the shop is to him. And it's a tough negotiation, yes, shop by shop through the whole portfolio, yes? So there is no general approach. But we are, of course, in those cases, like in the others, very close and constant contact with the ECE, setting up our strategies and then discussing what we can think of, or what we can think of. But these negotiations just have started, yes?

[Operator]

Next question is from the line of Jaap Kuin from Kempen.

[Jaap Kuin, Deputy Head of Real Estate]

My first question would be kind of a follow-up on an earlier question on the kind of midterm outlook for most or maybe even more near-term outlook. So if you look at footfall and the current restrictions in place, traffic control, maximum amount of shoppers per shop. Looking at kind of the recovery potential for your traffic. I mean, let's say that 2019 was kind of the hypothetical or 100%, what do you think is kind of the theoretical maximum -- theoretical level you could reach versus that 100% last year, taking into account all of these restrictions? I mean, what do you see as kind of the practical limit there for the moment?

[Wilhelm Wellner, CEO & Member of Executive Board]

This is a very, very difficult question. And let me be very frank. We don't have a crystal ball, yes? I think when the shops open up, when the restrictions like the mask go away, we hope to come back to old levels again. But to make a prediction, it's very, very difficult, yes? What we hear so far is that, for example, the frequencies are, of course, lower at the moment. But the average ticket -- so the consumption is higher per visitor because, of course, you don't go to a mall today -- in these days to stroll through it, yes, or to just walk. You just want to do something. So the overall outcome is also not clear on that end. I hope that we come close to the old levels. But it's not a prediction. It's very hard to say. This is a new normality. But I mean, we are days before a reasonable reopening, and we are at 50, and we now see 55, 57 days, so we are coming back. I would love to know the number whether we come back to 99% or 100%. I don't know. I think we'll come back to very really good at certain extent.

[Jaap Kuin, Deputy Head of Real Estate]

Okay. And then maybe on the -- you've also highlighted you signed a couple of leases recently. So is there anything you can say on the change in the rent of the leases you've renewed since kind of the start of April?

[Wilhelm Wellner, CEO & Member of Executive Board]

To be honest, there are not too many re-leasing cases since the start of April. There's -- I mean, there are normal extensions, yes? But all those terms usually had agreed on, let's say, before because you don't talk for months and then you sign on. You usually talk about months. So it's too early to see the effects out of that. But of course, it does -- haven't become easier to release at the moment, yes? It's too early.

[Jaap Kuin, Deputy Head of Real Estate]

Okay. That's clear. And then maybe just finally, could you maybe comment on the turnover of the Digital Mall initiative? And then how -- can you describe the economics of that turnover, how the profits are shared there?

[Wilhelm Wellner, CEO & Member of Executive Board]

Yes. It's also not possible. At the moment, it's a marketing tool. It's that the customers and now take aside corona, yes, but of course, it's also true then going forward, are much better informed what they could find in a shopping center that they are not really taking a detour to the Internet to e-commerce right away because they probably love to go to a shopping center, but they have plenty of stores and it's very lengthy to find the right product there. So at the moment, as more marketing tool really steering big frequencies, and thereby turnovers to the mall, but there is no accounting possible at the moment. At a later stage, when the Digital Mall is really successful and really transactions can be done through it, so not just reservations but really transactions, then you can start and put that into proportion of tenant turnovers. And yes, then still, it would be a theoretical number to allocate part of our profit to this new turnover or, let's say, recover turnover, yes?

[Jaap Kuin, Deputy Head of Real Estate]

But from my understanding, the -- let's say, in the kind of ownership of this initiative, is that with you or ECE? Or who's the venture owner of this platform?

[Wilhelm Wellner, CEO & Member of Executive Board]

This is ECE. Yes, we're just having, let's say, the infrastructure. And for us, it's a marketing tool. And of course, it's -- the running costs so far will be paid by the tenants through the marketing association. And it's their tool to really connect to the Internet to become really omni-channel, yes? So we have really oversee -- will some infrastructure costs to set up this -- the various stages.

[Jaap Kuin, Deputy Head of Real Estate]

Yes. And then maybe just my final question on valuations. Given that we're not at half year end, of course, but I think you highlighted in the previous calls, you would consider a half year valuation. Is that still the case? And did you already engage in discussions with appraisers? And did that give you any indications where things are moving?

[Wilhelm Wellner, CEO & Member of Executive Board]

Yes, very good question. Of course, we want to do it half year in this special situations, and we plan to do so, so we have engaged them. But of course, we are now in talks and like, let's say, '07, '08 when the market was basically dry, they would have come up to, let's say, a metric how to handle that. But also for them, I think it's too early. We will have to see whether there are some really deals in the market, but I would consider those years more or less not really good comparables because they probably would be distressed. So they wouldn't take them really as a comparable. I think they would have to come up with seeing how, let's say, rent packages look like at this early stage still because 30th of June is a way only in 6 weeks, yes, so it's not that long. We've talked to them, but they are also in the midst, I will be honest with you, but they have to come up for the industry with some guidance. And I'm sure they will make, like the last crisis day where they would have to come up with valuations, yes? But on the one hand is, if you believe in still shopping centers, that people go out and so -- we lose quite a substantial cash flow this year. And the question is what is sustainable rent going forward, but they run discounted cash flows. So the overall impact might not be that big, but of course, it will be visible. That's my expectation, but comparables are not there yet.

[Operator]

Next question is from the line of [ Frank Bellandor from VM ].

[Unknown Analyst]

Yes. I'd like to come back to your negotiations with your tenants. What is the direction of the talks? Could you elaborate on it a little bit more? I mean, for example, is it more a short-duration adjustment for tenants' demand? Or is it a longer-term contract adjustment for the rest of the contract period, for example?

[Wilhelm Wellner, CEO & Member of Executive Board]

Yes. I would like to answer that there's a whole toolbox out that you would have to discuss with the tenants according to their needs. So it could be something that is just -- that you don't do anything, by the way, even though tenants is asking, yes, if it's strong enough. But then you have to bear in mind that sometimes, this lease comes up for releasing, and you need to think what you do. There are others, especially the very small operators where you do need -- probably, you need do something for the first couple of months -- or weeks, sorry, I don't want to prejudge your thoughts, and something more [ sensitive ]. But you can work on also extensions to -- can hook them on for the Digital Mall and things like that. So it's really hard to give you general -- a general mechanic. But I mean, they are experts at ECE, plenty of them, where they have seen crisis before, not in Germany, but in other countries, so they know how to use the toolbox. And it really depends on the needs of the customer and our needs, yes? So sometimes, that makes sense to give in probably on the rent also midterm and then extend and then secure that anchor going forward, yes? So -- and this -- how this runs into numbers, we'll have probably first [ view ] in summer, but this will be still then ongoing, yes? So there's no one size fits all here, yes? There will be certain types of tenants like the small individual shop players, you'll probably need to treat different like the big anchors who behave different, and probably have other wish on their list, and then it's part of tough negotiations. I think they are cooperated, but they are tough, as you can imagine, and it will be true for our peers as well, I strongly believe.

[Unknown Analyst]

Okay. My second question is, do you have any legal rights to demand the shortfalls from the corona crisis, against state or whatever, yes? Have you checked that?

[Wilhelm Wellner, CEO & Member of Executive Board]

Yes, some lawyer came up, but potentially, in the Czech Republic, there's a law that we could sue the state. This is a very, very far move. Legally, I mean the legal situation is different, like the commercial. For example, in Germany, there are no tax -- rent holidays, yes? It's still all the shifting of rents, and you just cannot terminate tenants. So nobody is thinking about termination in that situation because we are partners, yes? We're living in symbiosis. In Poland, there's a difference -- there is a real, let's say, legal tax holiday for the closing period, however, with a clawback clause. So maybe some of the tenants might need to pay back what they haven't paid in March and April, if they do not offer us for extensions. So there are very complex laws. But the [ overwhelming ] effect is the commercial part of the equation. Of course, we look at the legal situation very much, but then, of course, the commercial situation. But I think you clawback against the state -- I think the German association is now trying to get government aid. If we reduce rents that they take part of that, it seems to be very long shot but it's, of course, being tried and I'm part of it. Since recently, there are other initiatives being thought of in the Czech Republic, but they are early stages that the government thinks about something, but this will be just a small proportion of the rent at stake, yes? We'll preserve our legal position in your interest, in our shareholders' interest, but on the other hand, we are beyond just legal argumentation here. And I think you all know that.

[Operator]

[Operator Instructions] The next question is from the line of Thomas Martin from HSBC.

[Thomas Martin, Analyst]

Two follow-up from my side. Again, on the lease structures, I hear that what you say and then that all is quite individual. But is it fair to assume that, going forward, the variable component in the lease terms or lease structures becoming more relevant? I mean, so far, you've mainly based rent or fixed rent and the turnover component is quite small. But is it a fair assumption going forward?

[Wilhelm Wellner, CEO & Member of Executive Board]

This statement has been true before corona, yes? Because tenants, like, became more variable, and sometimes they will even share -- willing to share a higher proportion of rent instead of then changing this against a lower minimum rents. So this was just a slight trend. But I think it's fair to assume that this trend continues. The magnitude, I can't tell, yes?

[Thomas Martin, Analyst]

Okay. And then again, on the rents, the deferred rent payments. Can you give us the absolute number of the rent behind or the rental income which is deferred for this year?

[Wilhelm Wellner, CEO & Member of Executive Board]

Yes, for this year, I cannot, but I mean, we have 2 months [ lagging ] behind being mostly affected. And this is some EUR 35 million of extra outstandings. Because if you collect rent, you usually -- not usually, you also collect the ancillary costs, which are quite substantial in shopping center, roughly 20% of rent, and in many cases, we also have the outstandings there. So if you take 70% of 2 months rent, plus 20%, you're roughly at that number, yes? So it's a very rough back on the envelope number. But we are a cash flow-producing entity. And if your customers do not pay for the 2 months, it's a quite visible amount summing up over time, yes?We're very strong enough to sustain this, yes? But I mean, profit wise, if this would all become write-downs, of course, profit wise, this is very painful. But on a, let's say, going-concern basis, we are safe, I should say that, yes? We have no liquidity shortages there, yes?

[Thomas Martin, Analyst]

Sure. And this just brings me to the next -- it's a bit of an accounting question. Maybe I missed something here, but I mean, a deferred rent is not affected in your IFRS top line in revenue normally, right? But it is -- but is impacting the FFO

[Wilhelm Wellner, CEO & Member of Executive Board]

Yes. Indeed, that's a very good question. If you -- and this question was also then asked, I mean, of course, you first book it as rent income, but then you have to judge whether -- what's the value of that, do you need to do some write downs, yes? But then it would go to the FFO in number terms, yes? In number terms, yes, so it's a very interesting question. And the auditors or the audit association like the [ HGB ] I heard, are thinking about how to treat this. Because you probably know, when we have, let's say, incentives in a normal time, they are allocated over time, yes? So let's say, if you have 4 weeks free rent, this is allocated over, let's say, a 10-year contract, so you basically don't see it. If this would be true for the rents that we are now talking about, the deferrals, you would be getting through IFRS very, I wouldn't call it from a cash flow point of view, misleading numbers. So [ HGB ] is now considering whether we should treat it. So not allocated over time, but just booked it as it come in, a little bit like that, yes? So -- but this is still open, and we'll see what comes out at the end of the second quarter. But yes, that's right, then FFO, from a booking point of view, is probably not the cash you really would see then for that specific period of time.

[Thomas Martin, Analyst]

Okay. So it is captured there. So it is -- so that the rent you don't get within the next month or you didn't receive in April and in May, and probably you won't get in June, will not be part of the FFO, so will be in the revenue line mainly, but not in the FFO business?

[Wilhelm Wellner, CEO & Member of Executive Board]

No, it will be also in the FFO.

[Thomas Martin, Analyst]

Also? Okay.

[Wilhelm Wellner, CEO & Member of Executive Board]

Yes. If we don't write it down, yes, for example, if you know there is no economic substance behind. But we will, of course, make it transparent what our audits findings in at the end of the quarter, but otherwise, in our business, FFO basically was 99.5% of the real cash that was happening with us. And this will now deviate. And we will make it transparent, but we have a good feeling what the cash collection ratio is and the outstandings, yes?

[Operator]

There are no further questions at this time. And I would like to hand back to Mr. Wilhelm Wellner for closing comments. Please go ahead.

[Wilhelm Wellner, CEO & Member of Executive Board]

Yes. Thank you for listening and the open questions. I hope you appreciate the open answers. It's, I think, not as grim as it looks, but it's tough times. Stay positive, go out shopping. And we hope to hear you then soon in the latest in the next call. Thank you very much for participating.

[Operator]

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