Tag Immobilien Ag U/Adr

Good day and welcome to the TAG Immobilium Interim Report Q2 2022 conference call. Today's conference is being recorded. At this time, I would like to turn the conference over to Martin Thiel. Please go ahead, sir.

Yeah, many thanks and good morning all. Many thanks for dialing in for our H1 2022 conference call. As always, I will try to give you a short overview of our presentation and afterwards we have plenty of time to answer your questions. So let's start with page four of the presentation. That's the highlight slide. Let's have a quick look at the operational development in Germany. Quite good development in the vacancy rate in our residential units. Vacancies stood at 5.2% at the end of the second quarter compared to 5.7% at the beginning or at the end of the first quarter. So 50 basis points reduction and perhaps read this already in the press release that even after the balance sheet date this good development continued, so we are today at around 5.0% vacancy already. In line with a good development of the vacancy rate, like-for-like rental growth, including vacancy reduction, increased to 2.0% after 1.5% in the previous quarter. FFO1 came up at 48.5 million euros, compared to 47.8 million euros in the previous quarter. And if you compare the first half of 2022 with the first half of 2021, that was a roughly 5% increase. And comparing that with our guidance, which still stands in the midpoint at around 190 million, you see that we are on a very good way to achieve the guidance. APRA NTA. before the rights issue, before the effects from the rights issue, we'll come back to that a little bit later, staying at 25.17 euros per share, and LCV also before effects from the rights issue was at 47.0% at the end of the second quarter. Looking at acquisitions and disposals in Germany, there was only one smaller acquisition in the first half of 2022. We acquired 360 units at a purchase price of 11 million euros. Looking at the acquisition multiple, that seems to be quite high with 21.4 times net current rent. But the vacancy rate of this portfolio, which is located in Halle an der Saale, which we know very well, was at 52%. So reducing that vacancy rate quickly brings then the acquisition multiple to a range that you are more used from us. So that's, in the light of this high vacancy rate, nothing unusual. 700 units disposed. and signed already in the first half of 2022, mainly non-core assets. And the good message around this is that we achieved a book profit of nearly 3 million. So we sold these assets in the first half of 2022 above book value. Looking at the results from the portfolio relation by CBRE, which was done on a semi-annual basis as always. And by the way, the full portfolio was valued. We achieved a 4% semi-annual valuation uplift without any capex. So including capex, this valuation uplift or total value uplift would be more around 5%. And the splits between yield compression and operational performance with 85% and 15% was very similar to the valuation results that we had in the previous years. New relation levels stand at 1,270 euros per square meter, or a 5.1% growth rate. Looking on the next slide at our development in Poland, first of all, important to realize when looking at these numbers that we had the first time consolidation of OBIC at the 31st of March 2022. So that means in the P&L for the second quarter 2022, HOBIC was included for the first time, while in all balance sheet items at the end of the first quarter HOBIC was already included. As a result, we had a quite strong increase in units sold and units handed over because HOBIC is now fully concentrated. So we sold in the second quarter 2022 527 units. A very similar number was handed over compared to the first quarter. increased now due to the first canon consolidation of OBIC. The result from operations in Poland increased to 6.4 million after some loss of 1.3 million in the first quarter. On page number six, we summarize some, from our point of view, very important highlights. First of all, some comments on the rights issue. I mean, once again, the data we issued nearly 20% of existing share capital in July 2022 and achieved gross proceeds of €202 million. Including this rights issue into the calculation for the LTV, the LTV was already reduced below our LTV target. So on a performer basis, after the rights issue, based on the numbers as of the first half 2022, the LTV already extended 44.5%. This rights issue was clearly not an easy decision for us. I mean, we know issuing shares at 60 and 90, that was a hard decision, that was dilutive. Clearly, we want to explicitly say thank you to our shareholders for participating in the rights issue, for their support. But looking back, we think it was still the right decision to do it. It was clearly a commitment to our investment grade rating. We achieved a strengthening of our equity base. And it was also an important step of the refinancing of the aerobic bridge facility, which is at least for part still outstanding. As a consequence of the rise issue, we had to adjust our guidance only on a per share basis. So the guidance in absolute amounts is unchanged. So FFO1, FFO2, and the dividend in absolute amounts, there is no change. But as we have now a higher number of shares, you see this on page number six, we had to adjust the guidance on a per share basis. we used for FFO1 and FFO2 the weighted number of shares and for the dividend per share we used the current number of shares outstanding. Yeah, looking at refinancing activities. I already mentioned that the rights issue was an important step to repay the bridge loan for the WOPIC acquisition, so after the balance sheet date with the help of the proceeds from the rights issue with existing cash been able to already reduce the bridge loan from 650 million to 310 million euros we are still working on the disposals we announced that with the rights issue that we want to sell around 2800 units on top of the 700 units that i mentioned before which have already been sold in the second half of 2022 and we want to achieve net proceeds so that means after repayment of any bank loans and after payment of income taxes of around 300 million. There have been disposals already signed with net proceeds of around 40 million, and we expect that for the remaining disposals, we achieve the signing and also the closing in the course of the second half 2022. I mean, clearly the market, just as a general comment, is more difficult than some aspects. We see less buyers out there. but there's still demand for our properties. And we're doing this, as we have also explained during our discussions during the rights issue, we're doing this really on a very granular basis. So we're selling smaller portfolios in sizes of perhaps 200 to 300 units. And I think this is still a product which is very accepted in the market. and we're also very confident that we can reach our values for these properties, but it simply takes some time. So we have to be patient, but we're in a good way, we're optimistic, so that we definitely do sign this 2,800 units in the next month, and by using this net cash proceeds, the bridge loan will be repaid. Furthermore, we have issued a promissory note in June 2022 of around 65 million, average maturity of around five years, and for five years, the fixed interest rate, the coupon was of 3.9%. Additionally, we are very active regarding our mortgage-secured bank loans in Germany. Originally, nearly all of them are maturing in financial year 2023, so in fact, we are doing an early refinancing of these bank loans that's already underway. We are very close to signing term sheets and we expect from this refinancing additional cash inflow by a new higher loan amount of around 120 to 140 million. So that provides us with additional cash, for example, to repay our upcoming unsecured debt in 2023. The closing of these refinances regarding bank loans is expected to take place in the third or fourth quarter of this year. Some comments on investments in Germany and Poland. As of now, we are not planning any material acquisitions in Germany and Poland. I mean, we can rule out to do some small add-on acquisitions of some millions, but definitely there are no material acquisitions planned in Germany and Poland in the next quarters. The CAPEX program in Germany will continue, but the good thing is that, as you know, our capex amount in Germany is already very limited, already very targeted. We also have started ESG capex activities, but on a very targeted and moderate basis, so you should definitely not expect that in 2022, in 2023, you see a strong increase of capex in Germany. More important, is our decision in Poland that for now we are stopping all new residential for rent projects. The ongoing residential for rent projects which are under construction will of course be finished and we will also start new residential for sale projects in Poland once we have achieved a certain pre-sale ratio so that with the help of customer prepayments these residential for sale projects that start new are more or less self-funded and as a consequence We have materially reduced our funding needs in Poland. So if we look at the remaining part of 2022 and the full financial year 2023, the total net financing needs, that means what we as TEG need to grant for our business in Poland for operational purposes, is between 50 to 75 million euros. And that's before any additional sales activities, for example, regarding the land bank in Poland, which is still sizable. That means, as a consequence, looking at the funding needs for the next 18 months, that there are no material funding needs, as we are not planning to do large acquisitions in Germany and Poland, as we have reduced our capex in Poland, and I think this is an important message we want to send out today. Still, even with this decision, we will increase our rental portfolio in Poland. Currently, we have around 500 units on the market, At year-end 2022, we should expect that we have finished at around 2,000 units in total. And at year-end 2023, the number of rental units will be around 3,000 units. And as we achieve a per square meter rent of 12 euros or even more, we should expect that also in the next year or already in the next year and in 2024, we already have a good and strong rental cash flow from Poland should compensate by the way also the cash flow from rent that we lose via disposals in germany let's go to page number eight quick look on the income statement i mean you see in the income statement is a main change quote-unquote evaluation result of 274 million which is the full portfolio valuation Out of this relation result, roughly 17 million euros are coming from Poland as this portfolio is still much smaller than the German portfolio. Therefore, clearly also the relation result or the share relation result is smaller. Look at the increase in personal expenses as well as some other effect in the P&L. I mean, this increase is due to the first-time consolidation of OBIC. As I said, now in the second quarter of 2022, for the first time, OBIC was fully consolidated. Turn to page number nine, which shows the development in EBITDR, FFO, and AFFO. What are the main developments here? EBITDR adjusted from German business basically remains stable, so the EBITDR adjusted margin is still at around 17%, which is, from our perspective, very good. We achieved an increase quarter on quarter in FFO1, mainly due to roughly 1 million lower cash taxes. The FFO contribution from Poland, which is the result of the operations in Poland, which is today nearly completely a sales result, increased, if we compare the first half of 2022 with the first half of 2021, from 4.5 million last year to 5.1 million. And we will have a significant increase in this result in the third and fourth quarter. As I said, this result is mainly coming from disposals in 2022, and the largest number of apartments will be handed over, and the revenue will be recognized in the third and fourth quarter of 2022. Nearly all of the apartments that are planned to be handed over in 2022 are already sold. Page 10 shows the development in the APRA NTA. We had some material effects. First of all, reducing effects, very clear, from the dividend payment in the second quarter, which was 93 cents per share, with a positive impact from the portfolio relation of 1.86 euro per share. And we had a reducing effect already, this was shown in the first quarter, from the first-time consolidation of OBIC, The aerobic goodwill, by definition, is excluded from the APRA NTA. So we have not done a write-down in the balance sheet, but by definition, this goodwill is excluded from the APRA NTA calculation. So therefore, this effect from €1.67 is there as it already was in the first quarter. So we arrive at an APRA NTA of €25.70 at the end of June. Taking into account the rights issue, where we issued shares at 6,090, this has clearly a dilutive effect. We end up on a performer basis at 22 euros and 11 cents per share. Page number 11 shows the financing structure. These are already set, and it's also stated on the right side of the slide. After the capital increase on a performer basis, the LTV is already below our LTV target and sits at 44.5%, and you should expect further reductions in the LCV by the disposal of nearly 3,000 residential assets in Germany, which would bring the LCV again on a performance basis more towards 42%. Looking into the maturity profile, you still see, as of the balance sheet date, the 30th of June 2022, 340 million of maturity from the bridge loan. And you see this star at the maturity profile and the comment that's already repaid as of now. So this 340 million is already done. Looking into 2023, the dark blue color are the mortgage secured bank loans to the very largest part in Germany. As I said here, we are regarding the refinancing in a very good way, in a very advanced stage. So this should be done hopefully in the next weeks. So therefore, looking into maturities of 2023, if I try to break it down to the most important numbers, we're talking about the above three numbers, which is 77 million of bonds issued by Robic, which is 116 million of promissory notes at TAG level, and 125 million of corporate bonds issued by TAG. that we expect additional cash inflows from this bank refinancing of, as I said, at least 120 million. Basically, on a net basis, we are left with upcoming refinancing needs regarding unsecured debt of around 200 million in 2023, and that should be doable. So again, looking at investments that we need to do in Poland that have been materially reduced looking at upcoming maturities after the refinancing of the bank loans, that's also not that material. So therefore, for 2022 and 2023, the whole capital needs are, as of today, absolutely manageable. Yeah, page number 13 shows the portfolio at a glance. Just one comment on the GV of which stands at as of today at nearly 8 billion euros, 6.7 billion euros refers to the German portfolio and 1.1 million euros to the Polish portfolio. Page 14 shows the development of rental growth and capex in the German portfolio. As already said, quite good development in the like-for-like rental growth. The total like-for-like rental growth what was at 1.3% in financial year 2021, now that increased to 2.0%. That clearly shows that the operation of business in Germany is in a very good way. So the guidance for the full year 2022 for this total rental growth stands at 1.5% to 2%. We are already at the upper end of the guidance. And still, this rental growth is achieved with moderate investments. That's shown on page number 14 on the top right. If we put really everything together, maintenance and capex, and show this on an annualized basis, we are right around 21 euros per square meter, and this is an unchanged number in comparison to the previous years, which is, from our point of view, a good result, especially having in mind that, of course, we are today facing higher costs for maintenance and capex than in the previous years. H15 shows the vacancy development in the German portfolio, 5.2%. the end of June and already down to 5.0% in August. So, we have basically today already achieved the vacancy reduction guidance for 2022. We communicated that we want to get to a vacancy rate between 4.8% and 5.0%. So, in August, we are already there, but we think this positive trend will continue in the next month as the underlying business issue is strong. So, therefore, again, we are here on a really good way. On page 17, you see summarized the portfolio relation results. I already mentioned the main results. Simply repeating once again, 5.1% growth yield and 1,270 euros per square meter were the final numbers. I mean, looking into the second half of 2022, it's clearly much more difficult than in previous years to predict the development of relations. Perhaps we need to be aware that the time where we and everyone else in the peer group reported very strong valuation gains is to a certain extent over now. But if you ask us, well, what is the realistic estimate for 2022? Is it a stable valuation? Yes, that's perhaps a realistic outcome that we would expect. So a valuation result, which is perhaps a slight increase or a stable valuation from our perspective, should be estimated for the second half of But to make this clear, we have not yet any indications from our valuer. That simply is something that we observe currently from the market. As I said, I mean, with our disposals, that's not a good way, but it takes longer time. So therefore, this kind of validation guidance is about something realistic. Coming to page number 19, you see the main data for our portfolio in Poland. slightly adjusted some numbers, so total investment costs per square meter, I think for both components, for the build-to-hold and the build-to-sell, have been adjusted to current price levels, but, and that's important to mention, the yields and margins that we achieve and expect in Poland are unchanged. So even although construction costs have clearly increased, we have also increased sales prices, we have also increased rents, So we are still, for example, talking about an average cross-ventile yield of around 7%. And one comment on the development of construction costs. We have seen in Poland in the last two years, or basically since we are in Poland, a quite strong construction cost inflation that seems to have reached now really a kind of plateau. So we see already for some material, that's the main reason where the construction price inflation was coming from. a slight reduction, so therefore they're confident that perhaps this strong trend of construction price in Poland is coming to a kind of end. Page 20 shows you the rental units which we have on offer, which is unchanged to the previous quarter, but just once again to point out the very strong demand that we see for these units. So the vacancy rate in this, a little bit more than 500 units, is 0.6%. We've given you also numbers with the actual rent per square meter that we achieved compared with the planned rent per square meter when we started the renting process. So it's more than 10% above the expected level. So therefore, for the rental project, the demand in Poland is still extremely strong. And finally, on page 22, some comments on the FFO and dividend guidance. In absolute amounts, everything is unchanged. So FFO1 still stands in the midpoint at around 190 million. FFO2 still at 250 million. So that means we expect roughly 60 million results from our operations in Poland in 2022. And if you look at the numbers, for example, the run rate for FFO1 for the first half, you'll see that we're here on a good way. As said, we adjusted the per share guidance for the new number of shares. that leads then to the fact that the FFO1 guidance per share is now reduced to €1.20, that as we have a pay ratio of 75% based on the absolute amounts and use the outstanding number of shares that we currently have, the dividend per share is reduced to 81 cents, and FFO2 per share now stands at €1.58. Looking at the FFO2 per share, Even with the new numbers, that's still a 22% increase in comparison to the previous year. Looking at FFO1 per share numbers compared to the previous year, that's a 3% reduction. And the weighted dividend, that's a 13% reduction in comparison to the previous year. Now taking into account, as I said, the new higher number of shares. Yeah, that's it from my side. an overview for the first half of 2022.

Thank you so far for listening, but of course now I'm very happy to take your questions.