Tag Immobilien Ag U/Adr

Ladies and gentlemen, welcome and thank you for joining the TAG Immobilien AG publication of the Interim Report Q3 2023. Throughout today's presentation, all participants will be in listen-only mode. The presentation will be followed by a Q&A session. If you would like to ask a question, you may press star and 1 on your touch-tone telephone. Please press star key and 0 for operator assistance. I would now like to turn the conference over to Martin Thiel, CFO. Please go ahead.

Many thanks and good morning all. This is Martin from TRG. Many thanks for joining the call. As always, I try to make the presentation rather comprehensive so that we have afterwards enough time for Q&A. So let us start right away with the presentation on page four, where we show some highlights for the first nine months of 2023. Let us go through it point by point. Firstly, we want to point out quite successful further asset disposals that we have done in Germany. So in the third quarter of 2023, we sold further 262 units. That leads us to a total disposal volume of more than 1,300 units in the nine-month period ending 30 September 2023, and we achieved net cash proceeds of €181.5 million. We sold at an average gross yield of 4.3%, so below our portfolio valuation, and please be aware that after the balance sheet date, we received 91.2 million of cash, so this is not included in the cash at the end of the third quarter, but this transaction already closed at the end of October 2023. Secondly, we had material repayments of unsecured debt in the first nine months of 2023, If we look a little bit broader on it and start with the middle of last year, that leads us to a total repayment of unsecured debt, including the Robic Bridge financing of nearly 1 billion euros. And in this environment, this is for sure a good message because unsecured debt, that's at the moment, definitely the more difficult source of financing. So everything that we can repay in that direction is for us clearly a success. As mentioned, the aerobic bridge financing is now repaid in full. We did this in October 2023 ahead of maturity. Looking at financial metrics, the LTV is nearly unchanged compared to the year end 2022. So we had just 20 basis points increase. And the reason why we can keep the LTV stable despite devaluation losses on the German portfolio is that we've been successfully selling assets in Germany. And of course, also the dividend suspension for financial year 2022 helped us. So that's in this environment where we're still recording valuation losses from our point of view, a good development. And if you ask us for an outlook for year end 2023, also at year end, we expect, let's say, a stable or just slightly increasing LTV. Of course, this will depend on the valuation result at year-end. Let me come back to this in a minute. But we know already that we have the closing or had the closing of the transactions that are already mentioned in Germany. So this will lead to an LTV reducing impact. We know that the fourth quarter in Poland is always very strong. So even with expected further valuation losses at year-end, the LTV should stay on a level roughly where it is now. Then, let me please point out that our cash metrics are still strong. So the ICR and the net financial debt to EBITDA with values of six times and 10 times should be clearly above average if you compare this with other residential companies. The Polish business remains very strong. In the first nine months of 2023, we sold roughly 2,900 units compared to the previous year that increased by around 70%. So we sold on a comparable basis, including Robic for the full year 2022, 1,700 units last year. It is not only an increased number of units sold, we also observed strong price increases in the Polish market. But not only on the sales market, also on the rental market, the development is very positive. Like-for-like rental growth at the end of the third quarter came out with more than 12%. And the vacancy rate in the total portfolio is 3.7% at the end of September 2023. Today, we also published our new guidance for financial year 2024. We expect a stable development regarding FFO1, so FFO1 should be still in the range between 170 and 174 million euros, despite assets disposed in Germany, but what is happening here is an increasing EBITDR contribution in 2024 from the growing Polish rental business. Looking at FFO2, which includes sales results, and sales results in our company is mainly referring to Poland, we expect a temporary reduction of around 9% to 217 to 223 million due to reduced handovers in 2024. And this is something more technical. As you know that the gain or the profit in a P&L is realized at the very last day when we hand over the apartment. And as the construction time for a sales apartment is roughly 18 minutes, Basically, we see in 2024 the weaker sales result from 2022, which was a retail year because at that point in time, mortgage rates in Poland started to increase sharply. So 2002, lower sales numbers lead to a lower result 18 months later in 2024. And that means, on the other side, as we see in 2023, a strongly increasing number of sales. You should expect a strong increase in FFO2 from 2025 onwards. So this is just something temporary and mainly, let's say, accounting-driven. The cash inflow of the sales is already earlier. So that's in line as construction progresses and not only at the last day. And as a second point, And that's, of course, also very important to discuss. We're proposing to the next AGM a second dividend suspension, so a dividend suspension also for financial year 2023. We wanted to be clear at this point already now, wanted to be clear to our shareholders and to the market, Looking at that more precisely, it's first of all a clear guidance. So what we want to propose to the AGM next year when we invite to the AGM in March 2024, and then of course the final decision will be taken at that point in time. And then it's of course subject to our shareholders to approve that within the AGM, but the management board as well as the supervisory board has of course discussed this already intensively now and we think In this environment, it simply makes sense to suspend the dividend also for financial year 2023. Looking at cash flows that we generate in Germany, from our point of view, it makes simply sense to keep the cash in the balance sheet and to repay debt, so to continue the successful, the leveraging process that we've done in the last quarters. And looking at the cash flow that we're producing in Poland, especially from the sales business, we think the better decision is to keep this cash in Poland and to start new residential grant projects and also to reinvest this cash surplus into new land bank acquisitions for the sales business. So as the Polish business is producing really attractive cash flows at the moment. We think reinvesting liquidity that is generated in Poland into this business is the right way to do. And again, in Germany, in this environment, we think the produced cash flow from our business here should be preserved in a balance sheet. This is clearly a more conservative approach, but we think in this environment, we're still very difficult transaction in capital markets. That's the right thing to do. Let's go to the next page, some more details on the financial performance and the operational performance of the German portfolio. FFR1 in the first nine months, 2023, is down roughly 9% compared to the previous year. The EBITDR from the rental business increased by a bit more than 2%, but on the other side, as in the quarters before, higher financing costs have led to this reduction. In contrast, FFO2 is up by 6%, so we have in 2023 a better result from the Polish sales business compared to the previous year. Therefore, we see here, contrary to the development, an FFO1 increase in the result. Not really major changes in the APRA NTA and the LTV, as we had no portfolio valuation at the end of the third quarter. So the usual development and improvement in NTA as well as an improvement in the LTV from the ongoing business. Looking at operational performance in Germany, like for like rental growth without vacancy reduction is better than in the previous quarter. So it increased to 1.8% from 1.6% and 1.5% in financial year 2022. And including vacancy reduction total like for like rental growth was at 2.2%. Vacancy in our residential units was down to 4.6%, and perhaps you've already seen this in the press release, that the vacancy rate in the German portfolio has fallen to 4.4% after the balance sheet date in October, so that should be in a good development for the remaining part of the year. Coming to the next slide, where we present some highlights from the Polish business, the adjusted net income from Save Poland was 28 million at the end of the first nine months, 2023, compared to a little bit more than 11 million in the previous year, so that explains why FFO2 is increasing year on year. We sold nearly 2,900 units, as already mentioned, so therefore that's a clear sign of a very strong sales business in Poland, and we will look at the development quarter on quarter a little bit later, but the Polish sales business, again, is running very strong. Page number eight shows some details on the P&L. The net actual rent increased quarter-on-quarter as a result of higher rents in Poland. We saw a slightly rent reduction in Germany despite the like-for-like rate of growth because we had some disposals that closed in the course of the year, so therefore that reduces rents. Expenses from property management were higher quarter-on-quarter as we already expected, higher maintenance costs in the third quarter, and we also had higher non-rechargeable costs, mainly coming from CO2 taxes in Germany in the third quarter. So therefore, also the net rental income was weaker compared to the previous year, but year-on-year we clearly see a positive development. Looking at the net income from sales that contains two parts, that contains the sales results from Germany plus the sales results in Poland, By the way, if you want a detailed analysis of the P&L between Germany and Poland, please take a look in the appendix where we give this split in the income segment. But let me explain how we record the net income from sales also from the German business. So we have realized basically a profit, so a positive net income from sales in Germany in the P&L. And this is coming from two effects. First effect is that we also sold our own headquarter in Hamburg. And as far as usage for our own purposes, this building has been accounted for at historical cost, so not at a fair value. Therefore, clearly we achieved a book profit when we sold this building. And secondly, if we sell apartments, and between the signing and the closing there's a balance sheet date, at the balance sheet date, we need to do a devaluation or, in prior years, a valuation uplift to the purchase price. So, for example, in the third quarter of 2023, when I look in the P&L, we see a valuation loss of 6.2 million euros. This is simply the impact of selling apartments in Germany below book value and, as there is between the signing and the closing of the balance sheet date, we need to record this valuation loss. So to give it a picture, we can confirm what we have told in the past. We are currently selling apartments in Germany below book value. It's not a material discount, so compared to the beginning of the year, so to the December book value, the discount is, as already communicated before, around 10%. Compared to the half-year book value, this discount is clearly getting smaller. Beside this, there has been no weather portfolio valuation in the third quarter, and the next valuation will take place at year end. Let me give you not a specific guidance, but perhaps a trend for year end. So we have no results from the portfolio valuation yet. What we expect is a further valuation loss, but clearly lower than what we have seen in the first half. So in the first half of 2023, we recorded a loss of 7.4%. too early to give you an exact range in percentage points, but the loss in the second half should be smaller than in the first half. And if you ask us, well, is this then the end of the development or do we expect further valuation losses in 2024? We think that we have now perhaps reached that kind of bottom when it comes to portfolio valuation losses. So we would be not surprised if you see a further, perhaps smaller, valuation loss in the course of the first half of 2024. And to look at that at a broader picture, so at the end, or the middle of 2022, we had the all-time high regarding our valuations, and we recorded 5.5% loss in the second half of 2022, 7.4% in the first half of 2023, so in total already 13%. So if in total, until the middle of next year, we get a relation loss, we record a relation loss of around 20%, that would be, as of today, an expectation or a development that would not surprise us. So again, we can't give you any specific numbers for year-end, but there should be a kind of range where we expect relation results to come in. I think we can skip the next slide, number nine, because it shows you all the details of the EBITDR FFO development we've already discussed. On page nine, sorry, on page 10, you see the overview of the APRA NTA development. The APRA NTA is down 8% in the first nine months due to the violation loss we recorded in the first half of 2023. Page 11 shows the financing structure. LTV, as already mentioned, stands at 46.9%, so above our LTV target of 45%. But as we already said, well, we expect that this LTV ratio should remain roughly on the same level, but it's just slightly increased at year-end. And if we continue disposals in Germany, that's even in a smaller size than in 2023, also in 2024, And if the AGM follows our proposal to suspend the dividend and we can keep the cash, the RTV target of 45% should be not too far away. So perhaps already in the course of 2024, with the help of further dividend suspension, perhaps with some additional disposals in Germany and knowing or with the help of a good operational development in Germany and especially in Poland, the LTV target should be not too far away and perhaps reached next year. Looking at the maturity profile, you still see in 2023 the bridge loan from the Wobbic acquisition of 75 million, but as said, this is already repaid in full after the balance sheet date. And looking into the maturities 2024 and 2025, I think it's important to point out that we just have smaller amounts of unsecured debt that are becoming due. So precisely, this is in 2024, roughly 80 million in Germany and in Poland, and in 2025, roughly 210 million. And this is, of course, something which is an advantage in this environment where the secured financing is still broadly available and unsecured financing is the rather difficult and especially expensive debt. Page number 13 shows the development in like-for-like rental growth in Germany. So 2.2% was the total like-for-like rental growth. The guidance for this is still unchanged between 2.0 and 2.5, so we are on the good way to achieve this guidance. And investments, meaning maintenance and capex together, you see this on the top right of the slide. were virtually unchanged compared to the previous year at around 24 euros per square meter. Page 14 shows the vacancy rate development in the German portfolio in the residential units. I already mentioned that we're down in October to 4.4%, and the guidance for the full year stands in the midpoint at 4.2%, so we are very optimistic that also in this regard we are on a good way to achieve our guidance. Let's talk a little bit about Poland again. Page 16 shows you details in the rental portfolio in Poland. As I already said, a very good development regarding the vacancy rate. So we started in the total portfolio with a vacancy rate of more than 35% as a lot of apartments have been finished towards year end 2022 and also in the first month of 2023. As of now, the vacancy rate in the total portfolio is 3.7% only. And looking at residential units, it's even smaller. It's just 1.5%, which is, for us, a big success. And the speed in which we rented out the apartments was much faster than expected. Like-for-like rental growth still stands at 12.4%. We know that we had last year an even higher like-for-like rental growth by more than 20%. So this is a little bit normalizing, but definitely not unexpected. And compared to inflation rates in Poland, which are already down to around 8%, it's still a like-for-like rental growth that is even outpacing inflation that shows us how strong the demand for our rental projects in Poland is. Page number 17. It shows the development in sales numbers in Poland, and it's already discussed 2023 so far is a very successful year. So you see on this slide the development, and I already mentioned that in the financial year 2022 we had weaker sales results, clearly in a time where mortgage rates in Poland were increasing sharply. So therefore it's good to see that sales volumes are up. And it's not only the number of units that is increasing, it's also the sales prices that are increasing throughout the market. So sales prices year on year at the end of the third quarter, according to our sales and also according to what we see in research, is roughly a 15, so 1.5% increase year on year. Page number 19 shows the FFO guidance for financial year 2023. The FFO1 and FFO2 guidance is fully confirmed today and is unchanged. And what is new, but we've already discussed this, is that we propose to suspend the dividend to the next AGM. Coming to page number 20, let me explain some additional comments on the guidance for 2024. First of all, for the first time, we're giving also WDR guidances because we think that could be helpful for modeling purposes and also to make clear what operational results we are achieving in each part of the business, so in the rental business in Germany, the rental business in Poland, and also wanted to point out the really strong results that, in general, our Polish sales business is producing. So, therefore, a more detailed guidance for financial year 2024 with additional figures or comparable figures for financial year 2023. So, we expect in the rental business a stable EBITDA, slight reduction in Germany, mainly because of disposals, and an increase in Poland that is then compensating this reduction. The sales business in Poland in 2024 will lead to a lower EBITDR compared to the previous year. That's, as I've already explained, more something technical. So accounting-wise, the number of handovers is smaller in 2024. So therefore, we are realizing less profit in 2024. But again, from 2024 onwards, based on the stronger sales numbers as of today, you should expect increasing results again, and that also translates this development into a somewhat lower adjusted net income from sales in Poland. So the FFO1 guidance for 2024 is exactly the same like 2023, so in the range between 170 and 174 million euros, and also on a per share basis, this is unchanged, 98 cents per share. FFO2 guidance, as already explained, 9% down for financial year 2024 to 217 to 223 million euros. And regarding your dividend for financial year 2024, we're giving no guidance today, but clearly we will come back to this not in the next month. So you should expect no decisions on that before the third quarter next year, year end 2024. So let's see how market conditions develop until we make a decision on the dividend for the financial year 2024. In the final slide, page 21, gives you more details regarding the FFO bridge between 2023 and 2024. As I said, we expect an unchanged FFO 1 compared in 2024 to 2023. Good rental growth in Germany. We expect a like-for-like rental growth between 2.2% and 2.7% and a further vacancy reduction of around 30 basis points. Also good rent development in Poland, so additional 7 million rent increase from Poland. By the way, if you put this together into one number for like-for-like rental growth, so the additional rent in Poland plus the rental growth in Germany, you're in a like-for-like rental growth of close to 4.5%. Clearly, also the losing rents from disposals in Germany, it's roughly 6 million, other positions, are not so much changed. Let me point out that we expect a positive impact in the financial result as we have repaid the bridge loan now. So the bridge loan in 2023, until we repaid it, had interest costs of around 8 million euros. So therefore, this is clearly a relief And you know that we repaid that from disposals in Germany mainly and from the dividend suspension, so therefore we expect a little bit better financing costs in 2024 compared to 2023. That's it from my side. It's an overview of our QC results and the new guidance for the financial year 2024. Thank you so far, but of course I'm now 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 and 1 on their touchstone telephone. If you wish to remove yourself from the question queue, you may press star and 2. If you are using speaker equipment today, please take the handset before making your selections. Anyone who has a question may press star followed by 1 at this time. Our first question comes from Andres Tum from Green Street. Please go ahead.