Tag Immobilien Ag U/Adr

Hello, ladies and gentlemen. Welcome to the TRG Immobilien AG publication of Interim Report Q1 2023. At this time, all participants have been placed on a listen-only mode. The floor will be open for questions following the presentation. Let me now turn to the floor over to your host, Martin Thiel.

Yeah, many thanks and good morning, everyone. This is Martin from TRG. Many thanks for joining our call for the Q1 2023 results. Before we go with more details into the results that we've published this morning, please allow me to make some comments on the ad hoc announcement that we have released yesterday evening. I'm sure you've seen this. Within the ad hoc announcement, it was stated that Rolf Egitti will leave the supervisory board after our AGM on May the 16th, so effectively next Tuesday. This is, of course, something we regret very much, as I've been working with Wolf for a long time, and as Wolf did a really incredibly good job during his time as a CEO and later as a chairman of the supervisory board. But we also have to respect his decision to withdraw from the supervisory board, and please be sure this is purely for personal reasons, so this has nothing to do with us at THC. So that's for us sad news. The good news is that Olaf Borkas is planned to become successor, so to become the new chairman of the Supervisory Board. Of course, Olaf stands as a candidate in the next AGM, so that means he needs to be elected in a first step. But from our point of view, from the Management Board, this would be a very good candidate and a very good solution to replace Borkas. So the supervisory board will of course begin the search for a new supervisory board member because now someone is missing within our six supervisory board immediately and we will keep you of course updated in this regard. But then let's go into the Q1 results for 2023 and I will start with page number four which is the highlight slide. FFO1 in the first quarter 2023 came up At 42.6 million, that's a reduction in comparison to the previous quarter and also a reduction by 11% in comparison to the previous year, 2022. Main reason for that are higher financing costs. I will come back to this a little bit later. On the other side, FFO2 saw a strong increase compared year-on-year by 12%. It is a reduction in comparison to the fourth quarter, but please be aware that the fourth quarter is always a very strong one in terms of FFO2 growth, because within FFO2, we also have the sales results from our business in Poland, and typically the fourth quarter here is the quarter with the highest results. So therefore, not unusual that quarter and quarter, it is a quite strong reduction. More representative is the comparison year-on-year, where we had a 12% increase. Not really any major changes in APRA NTA and LTV, so more or less stable quarter-on-quarter. Good results in the operational performance in the German portfolio from our point of view, so the like-for-like rental growth without vacancy reduction effects was at 1.6%, including vacancy reduction 2.8%. Not unusual for the first quarter of the year, vacancy rates saw a slight uptick by 20 basis points. So it's now 4.7. We know from the past year that always in the first quarter, a lot of people are moving. So then replacing them with new tenants takes some time. So therefore, traditionally, the first quarter is always a little bit weaker, but we are very confident and we see this already after the balance sheet date that a further reduction in vacancy rates will be very safe for the remaining part of the year. Coming to disposals, I think this is an important part for today's announcement. We can report further progress on our disposal program in Germany. So we have disposed and signed in the first quarter of 2023 1,638 units at a total selling price of 163 million euros. There was a slight book loss of around 4 million euros for these disposals and be sold on average at a gross yield of 4.7%. From these sales, after repayment of related bank debt, we expect net cash proceeds of 129 million and we expect the closing of this transaction towards the end of the second quarter and in the course of the third quarter. Included in this sale is a sale of 1,350 apartments with net cash proceeds from 19 million, for which the buyer's financing has not yet been secured. That means the closing is outstanding. So as long as the financing is not secured, there's of course a certain risk that this sale will not happen. Part of this transaction is a purchase of 650 apartments from the same buyer, And of course, this purchase, so effectively a kind of asset swap that we're doing here with the buyer, will only take place if the sale of this 1,350 apartments is completed. So let's look at these transactions on a net basis. So total net cash proceeds. from the scientist proposals and from the acquisition on a net basis are around 84 million euros. And that leads to a net acquisition volume of around 1000 units. Also after the balance sheet state, we've been quite active. So we sold one commercial building and also 200 units. In this case, above book value regarding the commercial building because part of this commercial building was rented at cost. For the 200 residential units, the purchase price was around book value. And we expect here net cash proceeds, so additional net cash proceeds of around 46 million in the closing of these transactions in the third quarter of 2023. Coming to the next slide, We touched a little bit the highlights for the first quarter from our business in Poland. We're disclosing with this financial results for the first time also in FFO1 for the Polish business. FFO1 came out slightly negative at €300,000 as a loss. But please be aware, and we'll come back to this a little bit later, that a lot of the apartments that we brought to the markets in Poland were rented out within the first quarter. So we expect for the full year, as planned, an FFO1 from Poland from 4 million. And as of today, so meaning in the first quarter, rental income was still very low as we're still renting out this apartment. And on the other side, we clearly have already financing costs on this portfolio, but nothing unusual. So that's a development that we already expected. The net income from sales in Poland was already quite strong, 8.8 million euros, and especially positive was the number of sold units. So we achieved nearly 1,000 units sold in the first quarter. We'll come back to this a little bit later, which was a very strong result compared to previous quarters. Coming to page number seven, where we show the details regarding EBITDA, FFO, and AFFO. As said, here you already find a split between the FFO1 coming from Germany and the FFO1 coming from Polish business. We see also the breakdown for the adjusted net income from sales in Poland, so how we get to this figure. And just as a comment, in the appendix you also find further details from the income statement, not only a split between Germany and Poland, but also a split within the Polish business. when it comes to sales and when it comes to rental business. So therefore, now beginning from 2023, as indicated, we're giving also more details on our Polish business when it comes to the split with rental business and sales business. Just commenting on the EBITDR for the rental business, The EBITDR improved quarter on quarter. So we had 59 million as an EBITDR from the rental business in the first quarter compared to 55.7 million in the fourth quarter. If we compare that with the first quarter of 2022, that was an almost stable EBITDR. So that means when it comes to the FFO1 reduction, that's really more or less purely an impact from higher financing costs. So quarter on quarter, the financing costs increased by roughly 3 million euros. This is nothing unusual. Remember our guidance where we already indicated a stronger increase in financing costs for roughly 10 million for the full year. Clearly, what is bringing on the financing costs is also the interest rate for the bridge loan, which is on a floating rate basis. And as the euro ball has increased quite significantly in the last month, Therefore, we are also paying higher interest costs than that. So therefore, it's also an economic target for us to repay the bridge loan as soon as possible. Page number eight shows the APRA MTA calculation as set, basically unchanged, so a light increase in APRA MTA due to our ongoing results. And we did no portfolio valuation, as always, at the end of the first quarter. So the next full valuation will be carried out at the end of June 2023, again, as in the past years by CBRE. It's really difficult to give a guidance what we expect for this valuation. I can give you perhaps a rather broad range. So a valuation loss between 5% and 10% is something that we would expect. If you take the middle of this range or something between 7% and 8%, this is really already reliable official guidance. No, this is not the case. But as we see in the market, as we sell apartments currently with a certain discount between 5% to 10% and generate some liquidity on this level, we assume that also the valuation will follow such discounts in the course of the year. Is there already a possibility to give an outlook for the second half? That's perhaps even more difficult. What is quite sure is that in the second half, the increasing rents for us and also other market participants will clearly support variations. So therefore, we are quite confident that perhaps this valuation decline is something that perhaps is softening already in the second half of 2023. But again, let's wait for the final valuations, and we will, of course, update you with our half-year numbers. Page number nine shows the financing structure. Let me comment, first of all, on the maturities in financial year 2023. So we see 243 million in total, but effectively, we're talking here, when we look at upcoming maturities, about the 125 million corporate bond that is maturing in the middle of June. We will repay this corporate bond from existing cash, so there's no other additional refinancing needed. Other maturities are rather small, like the 25 million commercial paper that we extend on an ongoing basis. small promissory notes of 15 million in Germany, a small corporate bond in Poland of 13 million. So that will be repaid simply from existing cash and credit lines. And the 65 million, that's the dark blue color that you see, these are RCFs, so revolving credit facilities, we're using in Poland to finance the ongoing construction business. So effectively, this is nothing that will be repaid. So we're always using that if we need to finance construction a little bit more. And then after that, in the course of the process, we receive customer prepayments. So this is for us economically, you know, not really a maturity. So in essence, 2023, all the maturities are already covered. There's no refinancing needed for that. Looking into 2024, clear, the main maturity is the bridge loan, which is due at the latest in January 2024. As indicated in the press release, it is our target to repay the bridge loan in the course of the third quarter. How is this or will this be done? We discussed the net cash proceeds that we will achieve from disposals. So if you add this up, What we have sold in the first quarter, what we have sold after the balance sheet date, you're already at around roughly 130 million euros. We can also tell you that as a second component to repay the bridge loan, we're already working and quite intensively working on further mortgage-accused bank loans in Germany. So we have signed already term sheets that would enable us to repay this, if you want, so second half of the bridge loan. So term sheets in the amount of around $130 million, $140 million are already signed. So taking cash from the disposals, taking then this new cash from mortgage secret bank loans would enable us to repay the bridge loan in the third quarter, and that's something that we expect. Does this then mean that we stop our disposal program after that immediately? No, this is not the case. But of course, then we've got a lot more freedom to look at the market to be more opportunistic. to continue perhaps in smaller sizes, but it's definitely then a good achievement once we have repaid the bridge loan. There's no pressure on us to do larger disposals, so then that is more pure something to really look mid-term about the leveraging and also to perhaps continue to increase the liquidity position. Commenting shortly on Slide number 11, that's the slide that shows like-for-like rental growth and the investments. Again, a good development regarding total like-for-like rental growth with 2.8%, commenting the total investments that you see on the top right of this page that stand at 23.4 euros per square meter on an analyzed basis. And this is, as in the prior years, really everything, so that's maintenance and capex. This is basically on the same basis like in the previous year, The increase in comparison to the years before is due to more modernization capex for energetic modernizations, so we are clearly already on the way to decarbonize our portfolio, and we will continue to do so also in the next quarters and years. Page number 12 shows the vacancy reduction in the German portfolio. Again, nothing unusual that we see a slight increase in the first quarter, so this 20 basis point increase is very much comparable to the increase that you've seen in the years before, and we will clearly be able to reduce vacancy in the coming months. Coming to Poland, and I'm now on page number 15, which is a slide that we're presenting here again. We have already discussed this outlook during our capital markets day in Warsaw. What we wanted to do here on this slide is to give you an idea how the Polish personal portfolio can develop in the next years. So where are we now? We have completed, as of today, 2,100 units. Further, 1,236 units are under construction. So that means once the constructions are finished, we will have roughly 3,350 units on the market in the course of 2024. It is very clear for us we will only start new construction activities for build-to-hold portfolios or build-to-hold units in Poland once, first of all, the refinancing on TEG level is done. As discussed, this is now very close to happen. And, of course, only if the financing for such further build-to-hold portfolios is secured. But let us give you two scenarios how we can do this and what is possible. The first scenario is a scenario where we simply only take the cash that we produce from our build-to-sell business, which we expect is between 50 and 60 million surplus annually. So from the results from selling apartments, Also taking into account that at some point in time, we additionally need to buy further land banks to keep the build-to-sell operation going. So if we take this 50 to 60 million euros for annual surplus and take this cash to reinvest this into new builds, the whole project, we would increase the portfolio in the next five years by roughly 3,250 units. That means we would end up with a portfolio in five years of 6,600 units. So that's the first scenario. The second scenario, which is our clear target, is that we have additional growth by an external financing, whether this is coming locally in Poland, whether this is coming from THC side, of roughly 100 million euros per annum. So from our point of view, really a realistic amount over the next five years. So 100 million euros debt financing on top of the surplus from the disposals between 50 and 60 million. And that would bring us within the next five years to a portfolio with a size of more than 10,000 units. And just to compare that with the German business, as you know, the per square meter rent in Poland is more than double the rent in Germany. So 10,000 units in Poland are the rental cash flow equivalent of more than 20,000 apartments in Germany. So that means that would already bring us to a really meaningful portfolio. We've given you also indications how net actual rent would look like in this case. So in both scenarios, The second scenario that I mentioned, we expect net actual rent in 2029 of around 85 million euros. That's basically a rent that is based on today's rent levels in the different locations, plus a very moderate rent increase between 1% and 4% per annum. So we can also pencil in more rental growth. As you see, today's strong rental growth in Poland, but to be more on the conservative side, we decided to go for this lower growth rate. So 85 million net actual rent, and we expect in this case that the EBITDA margin is around 80%. In case of the scenario one, the smaller portfolio, that it would be as already indicated in the past at around 75%. Effectively, we are able to grow the rental portfolio step-by-step once financing is secured, with a large part supported from the ongoing cash flow from the bills to sell a portfolio, and also important to point out, without any external equity. And that's our clear target. Once the refinancing is on TG level are complete, and again, we are very close to that, we now to continue starting investments in Poland, but it's up to us when we do the next residential rent project, but it's now very visible that this is not far away. Page 16 shows you even more details on the rental portfolio. So we have now, I said, 2,100 apartments in the market. We divide this here in two sections. One section is the rental units that we have in operations for more than one year. Here, the like-for-like rental growth was at 16% for the last 12 months. And the rental units in operation for less than one year amount to 1,500 units. Please don't be afraid of a still high vacancy rate of around 42% because most of these apartments have really been finished at the end of the last year or within the first weeks of 2023. So you will clearly see strongly dropping vacancy rates from our visiting processes in the next month. And some of you have been attending our Capital Markets Day, also in Wadsworth, have seen the projects. We are really, really convinced that we are offering here a very, very strong product to the market. If you want further information, you will find also a lot of material, videos, some more data in our Capital Markets Day section in the AR section on our homepage. Page 17, I'll make it short, shows you that in general in Poland, rents are growing quite strongly, so we see here really good developments in the locations that we are investing in currently. Page 18 shows the development of sales numbers in 2022, in the first quarter of 2023. We're very happy that the first quarter of 2023 was now the strongest quarter since basically five quarters. So we sold nearly 1,000 units in the first quarter. And let me also say that this is Before, the new program for subsidized loans for first-time buyers of apartments is starting in July 2023. Clearly, already the announcement of this program, which is now in place, already led to higher sales numbers. As a lot of people are expecting increasing sales prices in Poland, so people that, for example, already had their financing in place or buy with equity, they've decided to buy it right now before prices increase. But clearly, this is a program that will be very supportive for the whole market and also for us. So 1,000 units in 2023, a very good result. And so the worst times are clearly behind us. You see the reduced numbers in 2022. As of now, the business develops really strong. On page number 19, we give some details on a new joint venture that we have signed with an international institutional investor. Signing of the joint venture contract was right after our capital market stay on the 28th of April. The joint venture targets investments for land acquisitions of US$100. We have initial contribution of projects from our side in Warsaw and in the Tri-City. The co-investor, the joint venture partner, will contribute cash in the joint venture and that means that we also have the possibility to acquire further land banks from third parties for the joint venture. And this will, of course, accelerate our pace of the growth of our business in Poland in the first step in the build-to-sell business. And as we generate cash from the build-to-sell business, this is, again, cash that we, for example, can use not only for further land bank acquisitions for the build-to-sell business, but also for the build-to-hold business as described. The stake of TG and of the international investor is 50% each. So it's a very simple, real joint venture. So there's no structured financing or whatever behind it. It's really a 50-50 joint venture. And the rationale for us is that this joint venture, as we transfer a land bank, into the joint venture and get the cash releases equity for us. And we get additional fees for services that we do for the joint venture, like the construction business and the sales activities that we do for the joint venture. So that's definitely a good step for us to grow the business in importance. And the final comment, page 21, shows the FFO1 and FFO2 guidance for financial year 2023. This is unchanged in comparison to what we have published last time. So therefore, I think it's necessary to comment on that in more detail. That's it from my side. Already many thanks for listening, but I'm, of course, now very happy to take your questions.

Hello. Ladies and gentlemen, if you would like to ask a question, please press 9 followed by the star key on your telephone keypad. If you wish to cancel your question, please press 9 followed by the star key again. Okay, we have one question. The first question is from Société Générale Marius Pastou. Mr. Pastou, please ask your question.