Tag Immobilien Ag

Ladies and gentlemen, welcome to the publication of Half Year Report 2024 conference call. I am Shari, the chorus call operator. I would like to remind you that all participants will be in listen-only mode and the conference is being recorded. The presentation will be followed by a Q&A session. You can register for questions at any time by pressing star and 1 on your telephone. For operator assistance, please press star and 0. the conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Mr. Martin Thiel, CFO. Please go ahead.

Good morning all and many thanks for dialing in. This is Martin from THG. I'm very happy to guide you through our half-year results. I will try to make it quite condensed and short so that we have enough time for Q&A afterwards. Let's start on page number four, which summarizes the highlights of the first half in 2024. Looking at our results, FFO1 came in at 88.1 million. That's nearly exactly the level that we had last year, despite the disposals we made in the German portfolio during the financial year 2023, which are now effective in full and also to a certain part in the first half of 2024. A contribution to this very stable letting result was an increased like-for-like rental growth in the German portfolio of 2.7% that compares to 2.3% in the previous year, third year, stronger like-for-like rental growth so far this year. And also the vacancy rate developed very well. We stand now at 4.2% at the end of the first half, and that compares to 4.7% one year ago. Also in the Polish portfolio, the like-for-like rental growth is still very good at 4.5% after 10.8% last year. Clearly, this is a reduction, but as we said in a previous call, we expected that this like-for-like rental growth is to a certain extent normalizing after two very strong and exceptionally strong years, 2022 with more than 20% and 2023 with more than 10% like-for-like rental growth. So we're still very pleased that like-for-like rental growth came out at more than 4%. Looking into the sales results, the main driver for the sales result is clearly the business in Poland. The adjusted net income from sales in Poland was stronger than in the previous year, so increased by 9% to now $34.1 million after $23.2 million yesterday. than in the year before. We handed over more than 1,300 units compared to a little bit more than 860 units in the previous period. Looking at the current sales business, the number of sold units was lower, so 1,056 units we have sold compared to 1,817 in the previous period. But the sales volume, thanks to increasing prices, was still at nearly 200 million compared to 222 million in H1 2023. So a lower number of units sold, but on the other side, as already indicated in the course before, sales prices in Poland have seen a very strong increase, an increase of 20% year-on-year is still observable. Very important for this results call is to give you the message that the portfolio valuation loss in Germany was really moderate at 2.7%. And we clearly see the portfolio valuation losses coming down. And we expect that the values now have reached a trough. So the valuation loss in the German portfolio was 2.7%. in H1 2024 after more than 4% in the last half year valuation and more than 7% in the comparable period of the previous year. So all in all, in the last two years, we have devalued the portfolio in Germany by nearly 20%, 19% to be more precise, and the portfolio valuation stands now at 1,040 euros per square meter or a 6.5% gross yield. Looking at disposal results in Germany, we continued to sell in the portfolio. We achieved total sales prices of 78.4 million and expect net cash proceeds, so after repayments of bank loans, of more than 66 million. The average gross yield of units sold was at 5.2%. That was even more than the previous financial year, where the average gross yield of sold units was 4.3%. Please be aware that the closing of roughly 720 units with net cash proceeds of 58.8 million occurred after the balance sheet date, so therefore we will have additional cash inflows after the balance sheet date, which is not yet reflected in full in the balance sheet as of end of June 2024. Despite the portfolio devaluation in Germany, the LTV was further reduced. At the balance sheet date, it was 46.6%. If you take into account the closing of the disposals after the balance sheet date, we are already at 46.3%. That means we are very close to our LTV target of 45%. And as we know that we will produce still good cash flows from the operation of business in the second half of the year, that we will have perhaps additional sales in Germany, we are very confident that we achieve the LTV target by year-end. Net debt to EBITDR and the ICR are still at very strong levels, so nine times net debt to EBITDR and 6.7 times the ICR. And we are also very pleased that the rating agencies confirmed our very stable financing structure, so we received, I'm sure you have seen this, an upgrade in credit rating to BA3 from Moody's back in May, and also Standard & Poor's stabilized Yardbook from the BBB minus rating already in March. So that means we have two investment grade ratings available again. And this is, of course, a good tool for us to diversify our financing options. On pages five and six, you find more details on the highlights. I will not go into every number here. So let's go to page number eight. That gives an overview about the development of the EBITDR, FFO, and AFFO. Just some comments on this. So we saw a reduction, if you look at the half-year numbers in the EBITDA, by a little bit more than 1 million. So 120.1 million was the EBITDA for the first half of 2024, compared to 1.7 million more in the previous year. This is mostly due to the disposals in the German portfolios. As I said, FFO1 from the rental side was quite stable, despite the disposals, and we saw a higher AFFO as the modernization capex in the first half was a little bit lower than in the previous year, but we don't see this as a trend, so for a full year, you should expect a capex roughly on the level of 2023. On the right side, you see the calculation of the adjusted net income from sales last In Poland, again, half year 2024 was much longer than the previous year. So we came out at 34 million compared to 23 million. That means we're also on a good way to achieve our guidance here, especially the FFO2 guidance. And also for FFO1, if you take the first half of 2024, already $88 million. Analyze this, so the full guidance stands between $170 and $174 million. That should be very much achievable. Page 9 shows the APRA NTA calculation. Basically, APRA NTA is flat, so a $0.02 increase despite the valuation losses we recorded in the first half as our business still produces good cash from the operational business. Page number 10 shows the financing structure. So the average cost of debt is slightly increased to 2.3%. After 2.2% at the beginning of the year, the LTV, as I said, is already close to the LTV target. Now it's 46.6 and pro forma including the disposals after the balance sheet date at 46.3%, so very close to our target. As I said, good strength to investment-grade ratings back. And as I mentioned in the past, the investment-grade ratings were not so much needed for refinancing purposes, but of course, for us, investment-grade ratings are a good tool on one side to diversify our financing structure and on the other side to support the growth, especially for the Polish rental portfolio. Let's go to page number 12, where we give more insights On our rental growth and CAPEX allocation, important to point out that the rental growth is on a good way, as already indicated in the previous calls. So analyzing the like-for-like rental growth a little bit further, the like-for-like rental growth without vacancy reduction increased from 1.8% in the previous year now to 2.1%, and including the effects of vacancy reduction, we came out at 2.7%, so also stronger than in the previous year. This is achieved still with moderate maintenance and capex, as shown in the chart on the top right of the page, €22.2 per square meter, and this is really everything, so maintenance and capex, after €25 roughly the two years before. As I said before, you should expect that for the full year, this number will be roughly on the level of the two previous years. PES 13 shows the vacancy reduction, a quite similar development so far in the first half of 2024 compared to previous years. We know that always the first quarter and the first half is a little bit weaker, so the slight increase of 20 basis points in the course of the year is exactly what we have seen last year. So that means for the second half of 2024, we expect a reduction in our vacancy rate. And you know that we have guided for further vacancy rate reduction for the full year. So at year end, we should be clearly below 4% with our vacancy rate. Page number 14 shows more details on the portfolio valuation in Germany. As I said, we have now devalued the portfolio by 19%. And this is a quite extensive devaluation. And we think we are now on a level where we have really reached a trough so where we do not expect any material devaluations anymore. If we look at the historical development on the right side, with a 6.5% gross yield, we are even higher and materially higher than in December 2019 with a gross yield of 6.1%. On a per square meter basis, we're nearly exactly on the same level like four and a half or five years ago. And a 6.5% gross yield, which translates at perhaps something at 5.5, 5.6% net yield. That should be also in a world with high interest rate, a very, very reasonable valuation level. So therefore, we are very optimistic that the periods of devaluation are now behind us. This is also confirmed when we look at transaction prices that we currently see in the market from our own disposals. So we're really now selling very closely to our book values, that means slightly below, slightly above, and that should be also a confirmation for the valuation levels. Just as a side note, also the Polish portfolio was, of course, fully externally valued, at least so far as the rental portfolio is concerned. you know that the sales portfolio is very low cost. In the rental portfolio in Poland, we saw a valuation gain of around 3 to 4% valuation uplift. So contrary to Germany, the portfolio in Poland saw valuation increases, valuation uplifts in the last two years. Yeah, let's look at a bit more at Poland. Page number 16 shows you the detailed data on the rental business. As I said, black flag rental growth after two exceptional strong years now at 4.5%, which would be still a very good number. And the vacancy rate in the portfolio is already quite low. So it was 7.4% in June 2024. But if you look at the details, you will see that in the city of Lodz, the vacancy rate was higher. And this is due to projects that have been finished. and very close to the balance sheet, also one project in Poznań. So therefore, if we look at properties that are longer in the market, so for more than one year in operation, then the vacancy rate is already down to 2.8% as of June 2024. And this is, again, a strong confirmation of the demand in the Polish housing market. Total portfolio stands now at 2,629 units. By year end, we will have a portfolio size of around 3,350 units because also other units are currently under construction. Page 17 of the presentation shows the sales numbers in our business. As I said, the pure unit numbers. are down compared to the previous year, so 1,056 units sold in H1 2024. You know that our guidance for the full year was that we want to sell around 3,000 units. Let's look at the second half. We are still optimistic that sales numbers are picking up in the course of the year, although prices have increased quite strongly in the sales volume. That means the cumulative purchase prices or sales prices are still strong and in a good level. I mean, what do we observe in the Polish market at the moment? It's not the case that the demand is slowing down, but you know that at the end of last year subsidy program for first-time buyers of apartments which granted them cheap loans has ended and the new subsidy program is on the making. It has already been announced and already some details have been published and that would be quite similar like the previous program, perhaps a little bit more targeted on affordable housing, so a little bit more on families with lower income. But now we have simply the scenario that people are clearly waiting, is this new subsidy program coming through? So will it be effective in the third or fourth quarter? And that means we have a period where people simply wait until this decision is made. And the good news, I think, is that even if this new program is not coming, the demand will still be there. So then the uncertainty would be away and people would start to buy again. So therefore, we're still very optimistic that we will achieve good sales numbers, not only in the second half of 2024, also in the years to come. Page 18 shows the revenue recognition. And just to remind you that the revenue recognition depends or is done at a point in time where we hand over the apartment. So we have the completed contract method in the P&L. Once we hand over the keys to the client, the revenue is recognized in the P&L. The first quarters have been already strong, but traditionally, as you see here on this page, the fourth quarter of each year is the strongest, and this is also expected for the year 2024. So therefore, safe results, P&L buys should be also in a good way in 2024. And finally, on page 20 is the overview of our guidance. All guidances, all forecasts are fully confirmed this year. So FFO1 still stands at 170 to 174 million, and the FFO2, including the sales results in Poland, between 2017 and 2023 million. And as the results for the first half show in 2024, we should be on a very good way to achieve this. no new comments or outlooks on a dividend this is still depending on market conditions and as said in the previous course we will definitely come back to this at the latest with the results for the third quarter where we also publish the guidance for next year and if you look at market conditions i already commented on transaction market I already commented on devaluations now reaching the draft. We are optimistic that market conditions are going here into a positive direction. But let's wait how the next weeks and months are developing. And again, we will come back on this in November. That's it from my side as an overview over the half-year results. Thank you so far for listening. And now I'm, of course, very happy to take your questions.

We will now begin the question and answer session. Anyone who wishes to ask a question may press star and 1 on their touch-tone telephone. You will hear a tone to confirm that you have entered the queue. If you wish to remove yourself from the question queue, you may press star and 2. Participants are requested to use only hands that will ask a question. Anyone who has a question may press star and 1 at this time. The first question comes from the line of Mariusz Pastu from Bernstein. Please go ahead.

Hi, good morning. Thank you for taking my questions. I've got a few questions my side, mainly related to Poland and also on guidance. Firstly, you referred to the new subsidy programme under discussion in Poland. Any idea what proportion of your buyers could benefit from this based on the current criteria as they stand? Secondly, on your pipeline slide, There appears to be a chunk of the hold pipeline that has now shifted over to the sell category. What's the driver here and could more follow? And then finally, just circling back on your earnings guidance, as you mentioned, FFO2 seems to be quite on the conservative side on an annualized basis. If we're seeing more handovers planned for the second half or a greater weighting to the second half, is there something more specific we need to consider here? Thank you.

Yeah, good morning, Miles. I'm very happy to answer your questions. I'll start with the first one, the new subsidy program. I would say that it's very comparable to the previous subsidy program, which was effective in the second half of 2022 and in the year 2023. So it's more targeted on lower-priced apartments, medium-priced apartments. which is then a smaller proportion of our portfolio. And if I remember well, I think we had in 2023 between 15 and 20% of our buyers that used that program. So that was still a material, but not the full driver of our sales. But anyway, once such a program is in the market, clearly this helps because that creates demand throughout the market and, in fact, also helps us in selling other units. I hope that we have soon more clarity on this. I mean, this is a political discussion in Poland, you know, that we have a new coalition there. It's not just one party. So there are more parties involved and one party currently is against it. But, yeah, I'm very optimistic that the coalition will find a solution and, again, If this really is not coming through, if you will have a situation without any subsidy program, that's also not necessarily totally bad news because then this uncertainty is out of the way and currently, for understandable reasons, some buyers don't want the mistake to buy today and then two months or three months later they would have been able to buy with a subsidized loan. So, therefore, we need some patience. But I'm optimistic that this situation is cleared quite quickly. The pipeline or the designation of land plots that we choose for the rental or for the sales business I think has not shifted that much. So the overall strategy is unchanged. We want to get to 10,000 rental units by year end 2028. We're very optimistic that we achieve it. What we do from time to time is that we, for example, look at a new land bank and say, okay, that could be something which is interesting for the rental business. On the other side, then change the purpose of a project that we already own, of a land bank that we already own, and say, okay, then let's give this into the sales department or into the sales business. So there's always a certain swing and this is not new. So this has been the case also in the last two to three years. But that's important to confirm that we're not planning to slow down the rental business. To the contrary, I think now we are really investing again. Basically, since the end of last year, we started new rental projects. So we will definitely have this unchanged goal of 10,000 residential rental units in Poland. by year end 2028. And the last number, the last question was referring our FFO2 guidance and clearly we expect more handovers in the second half of 2024. So therefore, you're right, the FFO2 guidance at first looked conservative. But, you know, with the handovers, it's always necessary, and this is something technically, that we really hand over the apartment on the 31st of December at the latest. A lot of apartments are finished in December. So it would be, of course, a pity if we are able to hand over the apartments only on the 1st of January and then the profit is in the next year, which is economically not really a difference or no difference. So therefore, we prefer to stick to the current guidance. Perhaps we are better than we were, of course, happy. But especially in this business, we have this very strict IFRS regulation when the profit is realized. That's good to have some freedom and not be under pressure if a handover of certain apartments is delayed by some days.

Okay, very clear. Thank you.

The next question comes from the line of John Fong, Financial Campaign. Please go ahead.

Hi, good morning, Martin. Thank you for taking my question. Just on overall capital allocation, as you're getting closer to your LTV target and you were saying that values are stabilizing and even troughing, how should we think about the use of proceeds on further disposals if any disposals will be made?

Yeah, good morning, John. I think our clear preferred capital allocation is clear. We are investing currently to the very largest part in our Polish rental portfolio. That doesn't mean that we don't believe in the German market, but the benchmark is simply 7% to 8% gross yield on newly constructed apartments in cities like Warsaw, Wroclaw, Gdansk. So this is definitely attractive, so therefore investments in the Polish rental portfolio are clearly the preferred capital allocation. If we were able to continue this provost in Germany, that would basically create even a little bit more equity. Therefore we could have the option to do even a little bit more in Poland. know that currently the equity part of a new investment is for the very largest part coming from the sales business in poland if we can add something from the from sales in germany on top that would be that would be of course good but it's not needed to get to the 10 000 rental units target that i just mentioned so perhaps the focus is shifting now more into investments again, or perhaps it is shifting more into investments and not so much to focus on deleveraging as we have already reached our LTV target. And perhaps a final comment on that, it's not necessary that we do massive disposals to reach the LTV target. So if you just follow the development of the last quarters, also very naturally, we delever within our balance sheet as we produce quite a strong cash not only from the German rental business, but also, for example, from the Polish sales business, which is then to a certain part reinvested. So therefore, we are on a very natural way to reach our GDP target, and therefore, disposals in Germany could also be used to fund further growth in Poland.

Okay, that's right there. And then just looking at Poland, LifeFlight is, of course, normalizing now that Vacancy reduction is much less of a contributor, given that the portfolio is much more up and running. But if I look at slide 32, if I look at the different cities, the market rental growth is low single digits, except for Poznan. Could you maybe talk about the overall supply added to the different markets and whether this market rental growth is just muted more in the short term? and how you would see this develop over say the medium term and the next 12 months maybe even.

Yeah, of course I can comment on this, but firstly just for as a clarification the 4.5% rental growth in Poland, that's a number without any new project that have been finished. So clearly if you put on top of This rental growth number, additional rent from apartments that have been finished over the last 12 months, the rental growth would be higher. So it's really a like-for-like comparison, right, for the last 12 years. Currently, we are a little bit better than the markets. And you're right, on page 32, we give an overview of the rent development in the different cities. We see here Poznan currently with the strongest development, but perhaps this is also an outcome of the development in the last two and a half years. So on the bottom of the page you see, for example, also that Warsaw has seen an extremely strong rental growth in the last three years. Currently in the last 12 months it was then only 1%. It's an overall trend that Polish rental market has seen an exceptional strong growth in the last two years. You know, a lot of people from the Ukraine came into the country. There's generally strong demand for housing, so therefore this is normalizing. But to give you an outlook for the next year, so 2025, 2026, we are very much convinced that rents will continue to grow. because also salaries in Poland are growing quite, quite nicely. So therefore, affordability ratios not really hit that much. The demand is there, and we're simply offering a very attractive product to our clients. So therefore, perhaps a year of normalization, and then retrogrowth should pick up from 25, 26 onwards.

Okay, that's good. Thank you.

As a reminder, for questions, please press star and 1. The next question comes from the line of Celine Suhun from Barclays. Please go ahead. Hi, Martin.

Just one question on your life-alike mental growth. It's running at 2.7% currently, including vacancy reduction, and that's the higher end of your guidance. Vacancy contributed by 60 bps over the period, so it's the higher end of your guidance of 20 to 40 bps vacancy reduction for the year. And you just said on the call that vacancy could end up below 4%, so further reduction. So do you think there is upside risk for your 2.2 to 2.7% like-for-like rental growth guidance for the year? Thank you.

Yeah, good morning, Sabine. If you want to, there is upside risk. But if you look at a like-for-like figure, clearly then you look at the last 12 months or the last four quarters, and in terms of vacancy reduction, the fourth quarter, 2023, was also quite a strong one. So therefore, if you look at the total like-for-like range growth for 2024, this strong quarter would not be included. But again, we expect a good development, strong development in vacancy reduction in the second half of the year. Let's put it this way. We are on the good way. And the guidance that we gave for total like-for-like range growth should be fully achievable. And indeed, perhaps we are at the year end, still at the upper end of the guidance.

Thank you. The next question comes from the line of Simon Stippig, Warburg Research. Please go ahead.

Hi, good morning. Thank you very much for the opportunity to ask questions. First one would be on page 17, you say it's volume in Poland, and you commented on that as well, but I just wanted to have some clarification. If I compare the two half-year figures, then actually 24 is trading the previous period, Is there any particular reason and what would be your expectation for H224? And then maybe I continue asking the other question. The second would be your status in regard to financing of your Polish rental portfolio. And then on your group, is there any thoughts about the convertible bond due in 2026? And then last one, quite interesting, and thank you for the detailed figure of the 15 to 20% of buyers of the last year that were supported by the subsidy program. And here I was wondering if you could also give some further detail on your buyers from abroad, especially your share of Ukrainians buying your homes. And is there any perceivable variation over the periods, if you compare, for example, H1 share of buyers to the last year period? Thank you very much.

Good morning, Simon, and perhaps I'll start with the last question. Yes, also Ukrainians are buying apartments in Poland, not only from us, also from others. Also people, for example, Belarus have been on the market now active in the last two years. It's not a large share of our buyers. So I can't give you an exact estimate, but I would say this is below 10% of our buyers, definitely. People from Ukraine, for example, can also get a mortgage in Poland. They're using that. And that means people from Ukraine are really settling down in Poland, which should be good news for the country. Peps, with the answers in Poland, you asked for the financing of our Polish portfolio, and I can also perhaps comment on this more generally. For us, in the last two or three years, clearly, mortgage-secured bank loan financing was the primary financing source, and we used that as in the past in Germany quite intensively. We also started with that in Poland. Peps, you remember that we announced already with the full year figures for 2023 that we have signed a first material bank loan in Poland, 90 million euros in the first quarter of 2024. We have additional discussions with banks about also other markets you could bank loan, so that works very well. But now we clearly have an additional financing tool and three theory, we had it also before, namely the unsecured financing market. But now we have two investment grade ratings back again, two stable investment grade ratings. So that could be also an option for us to finance, especially the further growth in the Polish portfolio. So good to have this option. Looking at the convertible bond, that's clearly perhaps the last material refinancing that I have ahead of us, but it's exactly now still two years to go. So the maturity of the convertible bond is in August 2026. So therefore, perhaps nothing for the very short term, but I mean, clearly we have that in mind. And now, as I said, we have more tools in the box when we look at refinancing of this convertible bond. But as I said, still some time to go. And I'm not sure whether I've answered all questions, but you can repeat if I've forgotten one.

No, that was actually, thank you very much, very informative. The one thing is, and I think you answered it, is the perceivable variation over periods in your buyer share. But as you said, it's very low, below 10%. I think it's non-material. And maybe just, if I may, one follow-up or one addition is, Maybe it also ties into the capital allocation question from my colleague before. Could you comment on your thinking or has your thinking around dividend payouts improved over the last quarter?

Let me add one comment to the sales number, the sales volume. If you have a volatility in sales units or also volume, that's not unusual. For example, if we open a new stage of a project, then in the first weeks, the demand is very strong. We sell more, then it's normalizing. So that depends a little bit on projects that we're introducing to sales or the sales volume could also be higher if we sell a project, which is a bit more high-priced or more in Warsaw compared to a project the lower price in portland so it's better to look at a yearly average and not so much at the differences between every quarter so just to give you a background and regarding the dividend again we will come back to this latest with the new guidance for 2025 that we published in november so please understand that i cannot make any explicit comment but in general the market environment in the German residential market is clearly improving. We see relations now hopefully have reached the bottom and we see on the transaction market that there is more liquidity and that should really be supportive for the business in general.

Okay, great. Thank you very much.

The next question comes from the line of Manuel Martin from Oddo. Please go ahead.

Hello, thank you. Hello, Martin. Just one question left from my side. It has a bit to do with the like-for-like rental growth. Maybe you can describe us a bit your impression on the recent and upcoming rental tables in your regions to have an impression there. Because, for example, market work and Intel might be a topic or maybe there are other topics to

Good morning, Manuel. We are not so much dependent on certain niche figures. The portfolio has a quite diversified structure. So, for example, if in a certain city a niche figure is coming or is compiled for the first time, like in Salzgitter this will be the case, that's not a main driver of the rents. That means on the other side we can benefit from a quite stable development throughout the year. And if you look at the increase in rental growth, and if you analyze this in a little bit more detail compared to the previous quarter, you see that the like-for-like rental growth from rents for existing tenants has increased, as well as the like-for-like rental growth from relating processes have increased. So I would describe it more as a stronger demand, more potential to increase rents throughout the market, and not so much attributable to certain impacts of certain regions where we, for example, saw a new rent table coming out.

OK. Thank you.

Once again, to ask a question, please press star and 1. There are no more questions at this time.

Good, then many thanks all for listening to the call and for asking the questions. As always, if there's anything left, please feel free to contact our art department or me directly. We're very happy to continue the discussions with you. Thanks for listening again. Have a good day and talk soon. Bye-bye.

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