Tag Immobilien Ag U/Adr

Ladies and gentlemen, thank you for standing by. Welcome and thank you for joining the TAG Immobilien AG publication of the Annual Report 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 touch-tone telephone. 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, sir.

Good morning and many thanks all for joining our conference call for the full year 2022 financial results. Let's start with the presentation which we have published on our website this morning and I would like to draw your attention firstly to page number four where we show some operational highlights. Firstly, in 2022, we have achieved our FFO1 and FFO2 guidance. FFO1 guidance purely refers at the moment to the German residential or rental business. Here we really achieved good results in our operational performance, like for like rental growth, including vacancy reduction to that 2.7%. Vacancy was reduced by 110 basis points to 4.4%. Both KPIs are above our targets, so we're very pleased how the operational business in our German portfolio ran. But not only Germany saw a good development, also Poland, we had really good success with our business there. So in 2022, the Polish business in total already contributed 59 million of profit to our results, and the 59 million of profit in Poland then directly flew into the FFO2, and that's to the overall FFO2 number that we have achieved in this year, which was in the range of our guidance and stood at 247.3 million euros. In the meanwhile, the Polish business is at a self-funding stage, which should be definitely good news. So that means we are really receiving constantly positive cash inflows from our disposal business. We will analyze this later in more detail. And on the other side, as you know, we have decided to stop new residential for rent projects for the time being. And we're just finishing the projects that are under construction. So that means the CAPEX needs in Poland are for 2023 and for 2024, when we finish the last projects, very limited. And that should be good news that we are really now in a stage where Poland is self-funding and quite soon also producing positive cash flows. Outlook stays unchanged, but this announcement, so FFO1 and FFO2 guidance are confirmed. You know that we have already proposed to suspend the dividend for financial year 2022, and that would normally be paid out in the second quarter of this year. Also, this stays unchanged. Let's look at the next slide. And 2022 was clearly a year where refinancing was on top of the agenda, especially after the acquisition of Orbic at the beginning of 2022. We've done a lot in 2022, and we know that some of the measures have been hard for our shareholders, but in the end, we think we've made the right decisions. So starting with the rights issue that we did in July 2022, where we raised 202 million euros. We proposed, as said, to suspend the dividend for financial year 2022 that saves us 143 million euros. We are making progress on our asset disposal program in Germany. So in the course of 2022, we have sold 1,600 units, out of which roughly 900 units in the fourth quarter alone And we achieved from this proposal net cash proceeds, so that means after repayment of bank loans of 86 million. And we can tell you that also after the balance sheet date, so that means in January and February, we made further progress, so we will publish the details of the Q1 results, but you should assume that at least the run rate from the fourth quarter also continues in the beginning of 2023. And how are we doing this? So what... what makes it possible that we're really selling assets in a size that are for us really already urban period. Yes, we're also giving slighter discounts to book value when we sell the assets. So we're not talking here about massive discounts, but if you compare that with the book value in the course of 2022, I think overall we sold around book value. If you look at the asset disposals, what we have signed in the first two weeks of 2023, we have given BEPS on average a discount of 5% to 10% to the last December book review. And we think this is something reasonable to do. So the disposal program, we come back to financing needs in some minutes, is very limited. So therefore, getting this done, giving a reasonable discount, and then stopping the disposal program, which is already limited from our point of view, simply makes sense. As I said, we've adjusted the CapEx program in Poland that already preserves a lot of cash. And also on the debt side, we've been quite active. Main financing source, perhaps for every German venture company, is mortgage-secured bank loans. That always was our largest source of financing. And with the refinancing steps we did in the course of 2022, we raised additional $209 billion of liquidity. In the unsecured market, we've been active in smaller sizes, some promissory notes in Germany, also the extension of corporate bonds in Poland that added up in total in smaller tranches to all in all 108 million. So in general, we have done a lot regarding refinancing, leading to the fact that basically all maturities in financial year 2022 are addressed. And when we talk about outstanding refinancing issues, We are basically only talking about the final repayment of the now reduced bridge loan from the Robic Acquisition that currently stands at $250 million, and that should be a good position in which we are in the meanwhile. Let's leave the highlight slide and go to page number nine. Just a few comments on the income statement that are important from our side. The net actual rents increased year-on-year by 6.8 million due to the good like-for-like development in Germany, and the Polish rental business made its first contributions, 2.7 million. This number will increase in the course of 2023, and we can tell you that from 2023 onwards, we will also report FFO1 in the sense that we divide here between the German and the Polish businesses. The sales result that is seen in P&L is coming mostly from our newly acquired subsidiary, Robic. Please be aware that if you look at the sales result, which is currently, which has been $35.4 million, is after impact of the purchase price allocation. So with the acquisition of Robic, we have done a step up in all the book values regarding also the for-sales project. That means on our level, Accounting-wise, profits are lower, but the cash inflow is higher. We come back to that in a second. On the common valuation results later, because this is a cause of great interest, just to give you the overall number already now, we recorded a slight valuation loss of 1.5% in financial year 2022. Coming from the German portfolio, the Polish portfolio shows a slight valuation gain of $33 million. Other things like personal expenses, like the net financial result in cash, or like the cash taxes as far as the FFO one relevant, stayed quite on the level of 2021 in the course of 2022. Coming to page number 10, you see details regarding the EBITDA, FFO, and ASFO calculation. Just to mention that the EBITDA margin for the German business has increased from 68% in 2021 to 69.2%. in financial year 2022. That means basically we've achieved high rental growth with the same cost base, which should be the good news. Looking at the AFFO, I mean, the number is still not bad from my point of view. 102.8 million is the total AFFO that the German business achieved before any refinancing of the CapEx. It is 10 million roughly lower than in the previous year. Why is that? The difference is basically the modernization capex, where we spent $18 million more in 2022 compared to 2021. And the reason for that is that we basically started now to do more regarding ESG capex. That means more modernization to bring our portfolio to climate neutrality. On the right side of page number 10, you see some details on the results in Poland. We want to draw your attention, especially to the EBITDA adjusted that we achieved in Poland, 80.8 million, which is really a cash number. So this 80.8 million is the EBITDA in Poland, leaving out any effects from purchase price allocation, leaving out valuation results. So really cash that we generate in 2022, mainly from the sales business, And if we deduct cash taxes, minorities, and interest costs, we arrive at the 59 million that we already mentioned. So that shows that Poland in 2022, in really not the most easy market environment, already delivered a quite strong cash contribution to our result. Page 11 shows the APRA NTA developments. We are now at 20.74 euros per share. Main impact on the NTA reduction was the Robic Goodwill that we had to exclude per definition from the APRA NTA, the capital increase that we've done in summer, which was below the NTA, clearly, and the portfolio relation in 2022 for the first time since many years delivered a slight reduction to the APRA NTA, whereas in prior years, we always had here clearly a positive impact. Page number 12 shows the refinancing, and again, from our point of view, when we talk about refinancing issues to be tackled in the future, we mainly talk about the $250 million bridge loan from the Robic acquisition. And knowing that we've been active in the acquisition program, that we have also signed disposals after the balance sheet, that we are in parallel working on further bank loans in Germany, also on our income assets. We think it's very visible that we repay this bridge loan, hopefully quite soon. And then looking at the maturity profile, 2024, 2025, what is coming up is then again market-secured bank loans in Germany to the largest part. We have clearly seen over the last months and quarters and basically over the last years that this is a very stable financing source. So that means the first material capital market debt slash unsecured debt is coming in summer 2026 when the 417 million convertible bond is due. And that means we're really close to a situation where we're independent of capital market debt financing, and that should be a very good position for us. TLCV at year-end 2022 stands at 46.7%, so slightly above our OTB target, mainly because of valuation losses we had to record in the fourth quarter of 2022. All the financial debt, just to add this, that is due in 2023, will be, at least for the largest part, repaid now in March. So the 115 million promissory notes, the Polish bonds, also the bank loans that you see here, have already been repaid or are now repaid. 125 million corporate bonds is due in June this year. So this financial debt of in total 409 million that you see in the maturity profile is repaid now quite quickly or has been repaid already. Page 14 shows the development of like-for-like rental growth. As I said, good results here in 2022 with a total like-for-like rental growth of 2.7% compared to 1.3%. Looking at the total investments per square meter, you see this on the top right of the slide, we increased our spending to 24.6 euros. If you include everything, some maintenance and capex from 20.9 euros. And the difference, as you can see here on this chart, is that the capex increase, and as said here, the increase is capex for more energetic modernization. But still, the absolute level that we spend on the per square meter level that we spend is around close to 25 euros, should be still a very manageable and a very targeted approach. Pitch 15 shows the vacancy reduction in 2022 down by 110 basis points over the year. So we saw extremely healthy Latin results, and we expect also in 2023 that this trend will continue, perhaps another 110 basis points. It's too much to expect, but we see simply strong demand for our properties in Germany at the moment, and that should be Good news that the operational business in Germany is on a very good way. Coming to slide number 16, let's discuss the portfolio ratio results. In the second half of 2022, we recorded a valuation loss on the German portfolio of 5.5% after a valuation gain of 4% in the first half, so that brings us for the full year to a slight valuation loss of 1.5% compared to 2.9%. As I said, the Polish portfolio saw valuation gains of 33 million. So the reason for the overall valuation loss was due to the German portfolio. And within the German portfolio, due to the expansion that we saw basically across all our regions, so there was not any region very much outstanding, it's still moderate. And we also expect that to be moderate. So the portfolio stands now at a gross yield of 5.4% or at a per square meter value of 1,200 units. And if you ask us, well, what's our outlook for 2023? That's first of all, we're not giving you an official guidance, but for example, as we see when we currently sell in the market at a 5 or 10% discount or book value that we can generate liquidity For us, and I think discussions with other experts bring us also in a similar range, perhaps this could be a valuation trend for the financial year 2023 as well. So 5% to 10% value reduction in the course of 2023. From our point of view, that could be a reasonable outlook, but that's what the actual results really deliver. And what does this mean? So, for example, where does our LTV stand if we, for example, have a 10% valuation decline in the course of financial year 2023? Well, if we exclude in a first step all the sales results or planned sales, the SEV would go up roughly by 200 basis points. But with the saves that we have already signed and that we are hopefully going to sign, there should not really be a big impact on the LCV. This scenario leaves out any dividend payment. It is clear, as we propose, the suspension of the dividend. So you see, even such a value reduction would not really materially hurt our LCV. It is the risk high that there is more valuation decline. I mean, clearly, we have a lot of uncertainty, but we simply see that there's extremely strong demand also for our product. And looking at the current growth rate of 5.4% in a world with high interest rates, our portfolio still delivers a reasonable cash flow yield to a potential acquirer. So therefore, we feel very comfortable positioned with a high yielding portfolio in a high interest rate world. And that gives us a lot of confidence that we are very much protected against any stronger valuation losses, which we are not expecting. Coming to Poland, and I would like to continue on page number 19, which is sales business. which saw from our point of view an extremely positive development. So as you can see in the chart, in the first quarter of 2022 in Poland we sold 706 units, We saw a strong reduction in the course of the second and third quarter, but currently sales numbers are simply picking up. So the fourth quarter was already the strongest quarter in the full year, and we can tell you that also in January and February, sales numbers have been increasing. So this trend in Poland of reduced sales has clearly reverted. Sales numbers are not unstable. They are increasing, and It shows us how much demand in this market is, and the outlook for 2023 should be quite positive when it comes to sales numbers. Also knowing that the Polish government is about to set up a program for first-time homebuyers that should be implemented from July onwards. That brings them basically the possibility for quite strongly subsidized loans where they can take on a mortgage of around 2%. The market mortgage rate currently stands around perhaps 10%. So it's really an attractive program for first-time buyers of apartments that refers to people under the age of 45 years. So from this program, to what extent ever, we clearly expect an additional demand for our sales projects in Poland, which are besides that already in a good way and you see that we had an extremely strong fourth quarter where we handed over more than 2,500 apartments and recognized strong sales revenues. So also this was a very good result from our team in Poland. Page 20 shows you for the first time quite detailed table on our rental portfolio in Poland. We have now 1,153 units in operation in Poland, or to be more specific, that was the number at year-end 2022. The actual number is around 2,200 units, so we have completed also other projects in January, February, and March. Out of this 1,100 at the end of financial year 2022, 360 have been in the market for more than one year, Looking at the like-for-like rental growth that these units achieved, we're here north of 20%. So at the moment, Polish rental apartments see simply very strong demand. Vacancy rate is at a quite low level of 3.8%, which is then basically due to increased turnover that we have very naturally in an unregulated market. And looking at the 773 residential units that are in operations for less than one year, and to be more specific, most of these units are in operations since the end of the first quarter. This is also the reason why we still have a vacancy of 50% because we just basically started the lepping processes. If you look at rents that we achieve here, and you see the numbers, these are roughly 30% higher than planned about one year ago. So, I mean, we're not pointing now for a sustainable, like-for-like rental growth of more than 20% in Poland. So this number, mid to long term, will clearly, yeah, normalize, or however I should name that. But it gives an impression how this product is searched for in the market. This institutional rental business in Poland, we're very much convinced, will have great success in the future. Page 21 shows the development of the rental portfolio in Poland that we expect. As said, we have already completed another roughly 1,100 units in the first week of 2023, so we have currently roughly 2,300 apartments on the market. We will finish other projects in the course of financial year 2024, so that with the current pipeline, we end at 3,350 units. That's roughly 700 units less than what we communicated in the last conference calls. The difference of the 700 units simply lies in the fact that we decided to sell part of the units that were originally dedicated for the regime for rent. So 700 units are now in the process of being sold, and this is also part of the reason why we simply increased our cash surplus in Poland, which was clearly our primary target. So as I said, we have currently stopped new projects, but once we really are in a situation where not only the Polish business will get cash surpluses from the safe business, but where we are in a position to get simply also better access to financing, then we will restart the rental portfolio, or the build-up of the rental portfolio, but we will really do this step-by-step and very carefully, and it's really up to us when we do it so we're not here under pressure time-wise. Twenty-two. This page shows you some statistics about the Polish residential rental market. You see the strong rental growth at all the locations where we are active. On top of that was Warsaw with an increase in rents of around 34% on the right and Łódź with 23%. So quite impressive numbers that we currently see in the Polish market, and we hope that we can give you more insights and an interesting tour on our Capital Markets Day that we're hosting in Warsaw in the end of April. Perhaps you've seen the final invitation that we've sent out yesterday evening, so it would be great if we can see many of you in Warsaw to discuss more interesting developments on Polish residential markets. And finally, guidance, I can make it short, that's shown on page 24, because we leave everything unchanged compared to the numbers that we had published in November last year. That's it from my side. Thank you so far for listening to the presentation, but of course, I'm now very happy to answer your questions.

Thank you, sir. 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 touchstone 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. Our first question is from John Wong of Kempin. Please go ahead.