Tag Immobilien Ag U/Adr

Ladies and gentlemen, thank you for standing by. Welcome and thank you for joining the TAG Immobilien AG Interim Statement Q3 2022. Throughout today's recorded presentation, all participants will be in a listen only mode. The presentation will be followed by a question and answer session. If you would like to ask a question, you may press star followed by one on your telephone touch key. Please press the star key followed by zero for operator assistance. I would now like to turn the conference over to Martin Thiel, CFO. Please go ahead.

Yeah, many thanks and good morning, everybody. Welcome to our Q3 earnings call. I mean, today, clearly, the most important points to discuss are the new guidance for 2023 that we have published today and, of course, also our decision on the suspension of the dividend for financial year 2022. So we will have definitely time to discuss this in the Q&A afterwards, and I will, of course, also elaborate on our thoughts behind. But let me please start with the highlights for the operational business in the third quarter 2022, which you see for Germany on page number four and for Poland on page number five. Both of them, I think, show that the business itself is running very well. So for example, in Germany, we are in the meanwhile in a vacancy rate of our residential units at 4.8%, coming from 5.5% at the beginning of the year. That means already at the end of the third quarter, we have basically achieved our guidance, which stood at 4.8% as target vacancy rate. And there's still a good chance to overachieve this guidance. We can tell you that as of today, we're already slightly below 4.8%. The same is true for like-for-like rental growth year-on-year, including vacant reduction. This number came in at 2.5% at the end of the third quarter compared to a number of 1.3% for the financial year 2021. And also here, we are already above our guidance, which stood between 1.5% and 2.0%. As a result, FFO1, which is still purely coming from the German rental business, increased year-on-year by 7% and was at 49.1 million euros. If you do a simple calculation and put this number additionally on top of the first nine months, you will see that we clearly on a very good way to achieve and perhaps even to slightly overachieve our FFO1 guidance for the full year. Quick look at APRA NTA and LCV. Basically, the numbers at the end of the third quarter are very similar to what we have guided to with the half year as we also presented pro forma numbers after the rights issue. So now the APRA NTA stands at 22.21 euro, and the LCV came down from formerly 47% as a result of the rights issue now to below 45%. Talking about acquisitions and disposals in Germany, there was just one acquisition that you already know from the second quarter. This was more or less an exception for this year, so we can clearly tell you that there are no further acquisitions planned in Germany. And on the other side, we have achieved to sell in the first nine months of 2022 725 units for a total selling price of 37 million, which is a disposal that led to a book profit of 1.5 million. And speaking more generally about the disposal program in Germany, you know that together with the rights issue, we announced a disposal program for altogether 200, 800 units with a targeted net proceeds around 300 million euros. This disposal program will clearly continue. As we expect now, the closing of a first tranche of 300 units with net proceeds of roughly 40 million. Now we have adjusted this because of the closing to a remaining roughly 2,500 units and, with a rounded number, expected net proceeds of around 250 million. But what we clearly need to accept and was clearly a consequence of the moment very limited investment market is that we're not able to sell this apartment as quick as originally planned. So we have to postpone this into the next month and quarter. And also with today's decision of the dividend suspension, simply we want to have here more time to do the asset disposals in a way that simply makes sense. So we are optimistic that with our approach to sell such portfolios in smaller tranches over the next month and quarter, we will be successful. But as I said, it takes longer than expected. And this is a picture, I think, that you know not only from us, but also from other companies. Coming to page number five and looking at the highlights for Poland, revenues increased in the first nine months of 2022 strongly in comparison to the previous year, because we had now, in 2022, ROEBIC from the second quarter onwards in our P&L. Please be aware that the fourth quarter will be by far the strongest, as most handovers for the financial year 2022 are planned for the fourth quarter. So therefore, looking at the results from operation in Poland, which was around 11 million for the first nine months. It's just a smaller part of the total result that we expect for the full year So when you remember that the RFFO2 guidance stands around 250 million euros, so the total result of RACES Poland should be closer to 60 million in total for the full financial year 2022 as a result of expected strong handovers in the fourth quarter. And we can tell you that here everything is on plan. And talking about more general in Poland, it's not only the case that the construction sites are running as planned, We also see that on the construction price side, the inflation rates have clearly come down the next month and, as a very positive aspect, sales numbers are picking up now again. So what we saw in September and October as an average sales volume was between 200 and 220 apartments. That compares to numbers more around 150 apartments per month during summer. So therefore, the Difficult market condition in Poland with high interest rates, high inflation now clearly leads to a reduced sales number, but we see here an increasing trend. And it's not the case that sales numbers are coming down and down again. So the business has not only stabilized, it shows clearly a positive and increasing development. Coming to the next slide where we show you our refinancing measures that we have already taken. Starting with the first two points, that's something that you already know. We have completed the rights issue with total proceeds of €22 million. We have taken this proceeds to repay part of the Robic Acquisition Bridge, which stands today at €310 million. We will use the disposal proceeds that are already mentioned to repay an additional part of the bridge. So the bridge should be at around €250 million by year-end. and we have also extended the bridge financing volume or the bridge maturity until January 2024. We've already indicated with the half-year report that we're working on additional early refinancing of German bank loans. This is now nearly completed in full, so some signs of contracts are already missing, but this is something that will happen basically in the next days. So the closing of this early refinancing of bank loans will take place in November and in December at the latest. All interest rates are already fixed and we expect an additional liquidity uplift of $161 million. So it's not only the case that we've extended all bank loans that originally matured In financial year 2023, the loan amount was 160 million. On top of this, we get additional liquidity of around 160 million euros because the LTV of these portfolios that we have now refinanced was quite low after 10 years of amortization of value growth. So therefore, this is definitely a good sign that we are able to create additional liquidity with a banking market that is still very much intact in Germany. At the next point, we have already adjusted our capex plans in Poland in the course of the year. So in summer, we decided to step all new residential for rent projects, and of course, to continue with the existing projects. But we said, for now, we concentrate on the residential for sale projects, which are not very capital intensive, if they are financed to the very last part by a customer prependence. And that leads to the fact that the net financing needs for Poland in financial year 2023 are only at around 50 million euros. And what we see in the sit for sale business is very visible in terms of cash flow. So 99% of all planned handovers for 2022 are clearly already sold. Into 2023, the pre-sale ratio today, or at the end of the third quarter today, it is even higher, was already more than 60%. So we have very good visibility on cash flow and results coming from Poland, not only for 2022, but also for 2023. I already mentioned the disposal program, which is now more extended into 2023 with an adjusted target size of around 250 million after now the closing of the first disposals will happen in the fourth quarter. And then some words about our decision to suspend the dividend for financial year 2022. We're talking here of an absolute amount of 143 million. That was the former dividend guidance. And we said, well, in the current market situation, we have to accept that A, we talked about this, investment markets are difficult. That B, financing markets, when we talk about capital market financing, unsecured financing, is extremely difficult. So therefore, we thought to be here clearly more on the conservative side. to have here every decision in our hands to tackle the upcoming refinancing in 2023. It's in this situation, also in the interest of our shareholders, the best situation to suspend the dividend for financial year 2022. You can assume that this decision wasn't easy for us. I mean, TAG has always paid an attractive and growing dividend over the last years. And we will also, of course, return to our dividend policy once this market situation is more on a positive way, once we have done all the refinancings, which is basically the bridge loan maturing at the beginning of 2024. But for now, we think it's clearly an appropriate decision to suspend the dividend. And if you turn to the next slide, you can also already see that with this decision and with the already completed bank refinancings, we have basically tackled all upcoming refinancing in financial year 2023. So if you look in the maturity profile, you can see this later in the presentation, there are still refinancing means until end of 2023 for 492 million euros, that is set The bank loans are, as far as they refer to German portfolio financings, already refinanced or extended. We have additional liquidity of 161 million euros from this refinancing. We are keeping the cash that we generate from the German business. We don't pay any dividend. We can use that to repay debt. And in the simplified chart on page number 7 in the end, We are only talking about roughly 17 million euros as remaining refinancing needs for the next more than 12 months. And of course, we have here further options. And we just give you two examples on the top right. Additional mortgage financing in Germany is something that works very well. So therefore, we have clearly, as an example here, additional financing sources that we can use. And of course, we will continue with our disposal program as said. So therefore, this decision, which is on the one side, hard for shareholders in the short term, mid to long term, this should be an appropriate way to maneuver in this market. Coming to page number eight and talking about our new FFO guidance for financial year 2023. We predict here a reduction in FFO1 by 9% from the current midpoint guidance of $190 million to now $172 million. What are the reasons for this reduction? One main reason are planned higher interest rates. And these high interest rates are coming, for example, from the fact that today's bank loan in the refinancing that I already discussed are at around 4%. We will use this to repay unsecured debt maturing in 2023, for example, from one promissory note, for example, from one corporate bond, with coupons on average below 1%. And on the other side, we have also penciled into the guidance in 2023, no disposals from this 2,500 units, but we have penciled in, of course, the interest rates from bridge financing from this 2,500 unit portfolio. So therefore, higher interest costs from the bridge higher interest costs because of already completed refinancing. If there are no really material refinancings ahead of us, it should give us a good picture, lead to a 10 million increase in interest rates. You see marked with this small number one, asset disposal of two million. These are already signed disposals. So just to make this clear again, we have not incorporated any disposals in this guidance. And if you incorporate that, so if you ask us what is the effect if you sell these 2,500 units on FFO1 after all interest costs, after taxes, this is 6 billion euro roughly for the full year. So in a simple example, if we would sell these 2,500 units in the middle of the year, we would have a 3 million euro reduction. We, of course, see increased prices for maintenance. We see higher heating costs for our tenants. Therefore, we have taken into account an increased number of around 8 million euros for this. Roughly 50% of that 4 million is for higher prices for maintenance work as a result of the current cost inflation, and roughly 50%, so another 4 million, is something where we take into account, first of all, the new CO2 tax. That's an amount of around 1.7 billion euros. And then the remaining part, it's close to 2.5 million, is something where we say, well, we need to plan at least higher impairments on receivables from our tenants because they will face increasing or strongly increasing heating costs. As of now, this is not really an issue, but We know that in 2023, we will have the service charge bills for 2022 and increased prepayments. So simply to be in a safe side, we've taken care of that. So there is a one-time drop by 9% in the FFO1, but looking into 2024 and 2025, and we think it's also worth to mention and important, we expect on this basis a stable FFO1 level. And included in this guidance for the financial year 2024 and 2025 is the assumption that the 2,500 units are disposed. So that's already a number after the disposals. And what's the reason why we can keep the FFO1 stable on the one side? Yeah, clearly we still expect higher financing costs in our group. mainly coming from unsecured debt that is maturing, or even from bank loans where we now have high interest rates. But we see a growing FFO for our business in Poland. So at the beginning of 2023, we will have already 2,000 residential units for rent on the market in Poland. In the middle of 2024, this will be around 4,000 units, and having in mind that the average per square meter rent in Poland is roughly double the number in Germany. This means that it is an equivalent of roughly 8,000 German assets that come now into our group and come now also into the FFO1. So therefore, 9% reduction in FFO1 mainly coming from increased financing costs and increased prices for maintenance and heating costs. So that's the effect in 2023, but after that, a stable outlook for FFO1, leaving out any further acquisitions. Yeah, let's go perhaps a little bit quicker through the remaining financial slides on page number 10. I think the P&L development in the third quarter of 2022 has not really any very material developments to comment, and general numbers look, as I said, very positive. Perhaps one comment on the variation results. what the expected value issues are for the full year. As always, we're giving not here official guidance and we have so far not any numbers from our value of our debt. But what we could expect or what do we expect for the full year? That's of course difficult to predict as we see ourselves that the investment market is very limited in size, that we don't see really a lot of transactions. By the way, we don't see any distressed sellers. But that's a reasonable assumption, and maybe that's in line with what you hear from other companies, that the value uplift that we had in the first half turns now into a value reduction in the same size in the second half. So in the first half of 2022, we had a 4% increase. So what we expect is a kind of base case, and please just take this as a rough guidance, could be that this reverts in the second half. That means for the full year 2022, perhaps a flat valuation result is a good estimate as of today. Page number 11 shows you more details on the EBITDR, where we saw an improved margin in the course of the year. shows also the FFO1 for the full nine months 2022 in comparison to the previous year, which is another increase of 6%. On page number 12, a quick look at the APRA NTA calculation. The main result for the reduction by 13% is a capital increase, which was, as we issued shares, at 6,090, then deductive in terms of the APRA NTA, Just to make clear, this was already the case from the very beginning. The Robic goodwill is already excluded from this APRA NTA calculation from the very beginning, as this is a consequence of the APRA NTA definition given by APRA. Page number 13 shows the finance structure, and here you see, and that's important to point out again, the maturity profile as it is on the 13th of December. before the extension of the bank loans and before the additional liquidity from the bank loans and also before our decision to suspend the dividend. So the more or less former maturity profile and the kind of performer maturity profile we just discussed. And looking into the next three years. We think it's fair to say there's one material refinancing to come. That's the 310 million bridge loan, which will be reduced at around 250 million by year-end. And beside that, in 2023, where nearly everything is already done, and in 2024 and 2025, there are not any major refinancing needs outside of mortgage-secured general bank loans, which you see in the dark blue color. And as we have just shown and discussed, this market is still open. So therefore, once the bridge financing is completed, and we will be clearly able to refinance this in the next month, for 2023, 2024, 2025, there should not be anything in the maturity profile that leads to a big concern. Let me comment additionally on rating decisions. You have seen the smoothies. that Moody's in October 2022 has downgraded us to non-investment rate to be a one with a stable outlook, and that Standard & Poor's confirmed our investment rate rating at BBB- and put the outlook from formally stable down to negative. Clearly for us, the decision of Moody's was disappointing. We thought, and I think we could clearly also show the rating agency that we've done a lot. So we have done rights issue, we have extended the bridge loan, Rating agencies were also very well about directions about upcoming refinancings with our bank loans. But still, for example, Moody's decided on the back of expected negative market developments in Germany to downgrade us. Clearly, this is, let me say it like this, frustrating as a company. If you do a lot, if you really fight for your investment grade rating, on the other side, the market goes into a direction where the rating agency finally decides to downgrade you. So we have to accept this. What's the consequence for this? If you look again into the maturity profile and all the discussions that we already had, main refinancing source currently is definitely not unsecured debt. So therefore, for a short term, this is not really, how should I say it, a big issue for us that we received the Moody's down rate. We still have an investment rate rate at standard and post. And the outlook also turned to negative, also on back of the market conditions. But here, of course, we are much more optimistic to keep this investment rate rating. But investment rate ratings are for us more something for the mid to long term. Clearly, once we restart projects in Poland and Brazil, the foreign sector, unsecured financing is for us more on the table, and therefore, clearly, an investment-grade rating is very helpful. But this is realistically seen nothing for 2023, and perhaps also in 2024. This is something that perhaps slowly starts again, but we simply need to postpone any decisions on further investments here. Moving on to page number 16, quick look on like-for-like rental growth. As I said, we are already above our guidance with 2.5% in the total like-for-like rental growth. You see also the composition of the rental growth on this slide that's without any effect from the monetization surcharge. So it's really purely underlying rental growth coming from HBV increases, coming from tenant turnover, and coming from vacancy reduction. And the vacancy development is once again shown on page number 17. As I said, a very good development after a slight increase in the first quarter. We are now down by 90 basis points within six months, and that should be definitely something positive. Some words about Poland. On page number 19 is an overview of the portfolio. Just to reconfirm this again, we have a sizeable land bank in Poland. for the build-to-hold model, so for the rental apartment, as well as for the build-to-sell apartment. But it's up to us to decide when we start the project. So the potential is there, but it's not an obligation. And we will, of course, carefully manage our topics. And you've already seen this with our decision to postpone any new residential for rent projects. The residential for rent portfolio That is around 540 units, but as I already mentioned, this will now grow in the next quarters as more and more projects are completed. You see that we have 3,500 units under construction, so that's the roughly 4,000 units in the rental portfolio that we will have finished by the middle of 2024, so in roughly one and a half years, that's very visible. Page 20 shows you, again, an overview about our rental projects in Poland. The demand for this project is extremely strong. So the vacancy rate is basically down to a kind of minimum vacancy rate after the balance sheet date in October and November. We had an additional project that was finished from roughly 200 units. Here also the leasing success is extremely strong. rents that we see are in double-digit percentages above planned rents, and rent increases that we have now after the first year with existing tenants are also 10% to 15% above the previous rent. So, therefore, the demand for our product for the rental units we offer in Poland is still extremely strong. Yeah, page 22 shows the FFO2 guidance for 2017. Once again, we confirm the guidance for FFO1 as well as for FFO2. That should be both in a very good way. We already have discussed our thoughts behind the dividend suspension. In our next slide, you'll see the guidance for 2023 that I've already elaborated on as far as the FFO1 is concerned. Important to mention that we also, of course, published an FFO2 guidance, and that here the reduction compared to the FFO1 is lower. It's just 3% in absolute amounts, and that means we expect for the next year, for 2023, an increased result from our operations in Poland, coming mainly from sales or from the sales business, as we will have more handovers in 2023 compared to 2022. Not only because OBIC is now fully consolidated for the full year compared to just nine months in 2022, also we have here projects with higher sales prices, a good margin that will lead to an increased revenue and to an increased sales result. So therefore, FFO2 is broadly stable, and in this market environment, we think this is definitely good news. A final comment on the dividend for financial year 2023. Today, or yesterday evening, we announced that we will take a decision on the dividend for the financial year 2023, perhaps at year end 2023 at the earliest. This will be dependent on market conditions and on the completions of our refinancings, which is basically the bridge loan that we have already discussed. but they clearly return to our FF01, sorry, to our dividend policy of 75% of FF01 once market conditions are better, once we have completed the refinancings. But in the current market environment, and please understand this, it's extremely difficult to predict when does this change. That's really not in our hands in full, so therefore, We will come back with the dividend guidance on the financial year 2023 in some quarters. Clear, once again, the FFO1 will be the basis for dividend distribution also in the future. And once the market conditions are better, we will also return to the former dividend policies. That's it from my side as an overview about the Q3 numbers and our decisions that we have taken regarding refinancing and dividend policy. But now I'm of course very happy to take your questions.

Ladies and gentlemen, at this time we will begin the question and answer session. Anyone who wishes to ask a question may press star followed by one on their touch-tone telephone. If you wish to remove yourself from the question queue, you may press star followed by two. If you are using speaker equipment today, please lift the handset before making your selections. Anyone who has a question may press star followed by one at this time. One moment for the first question, please. Our first question is from Andres Tuma of Green Street. Please go ahead.