Tag Immobilien Ag U/Adr

Yeah, many thanks and good morning all. This is Martin from TAG. Many thanks for dialing in into our 40 years 2023 conference call. As always, I will try to give you a short presentation, point out the main messages from our side, and then afterwards, of course, we have plenty of time to discuss the results. So let's start with page number four, which is a comprehensive summary from our point of view, main messages we want to give you today. Firstly, we have achieved our FFO1 guidance, so FFO1 came out basically exactly in the middle of the guidance range at around 172 million. This corresponds to a reduction of 9% year-on-year, but this reduction is purely due to higher financing costs. So analyzing this a little bit more in detail, the EBITDR, so the operation results, was even better than in the previous year. On the one side of Germany, a little bit lower EBITDR due to disposals that we had not only in 2023, but also in 2022. But the Polish EBITDR from the rental business kicked in now stronger. So therefore, operationally, in terms of EBITDR, we've been better than in the previous year. But also the German portfolio performed quite well. Just to give some highlights, the vacancy rate in the residential units was down to 4.0%, so down by 50 basis points in the course of the year, and we achieved a total like-for-like rental growth in Germany of 2.3%. Secondly, we have outbeat our FFO2 guidance due to a very strong sales result in Poland. So FFO2 came out at 255.6 million. This is even more than last year, so 3% increase year on year, and also quite significantly above the guidance that we've given, which was between 240 and 246 million. The EBITDA from our sales business in Poland reached more than 100 million. And the adjusted net income from this Polish sales business came out at 82.8 million compared to 59.3 million in the previous year. So a quite strong increase in our sales result in Poland and even a little bit better than we expected. So Poland in general performed very well. You see this in the third point of the slide. The rental portfolio in Poland comprises, in the meanwhile, at year-end 2023, 2,400 finished units or units under operation. Further, 1,400 units under construction, like for the grant rules, were still at 11%, which is from our point of view very strong. And the vacancy rate for the units which were in operation for more than one year was down to a very low 2.2%. That's even more impressive was the sales result from our point of view. We sold in Poland nearly 3,600 units last year. And looking at the total sales volume, that increased to nearly 480 million in 2023 compared to 265 million in the financial year 2022. So a very strong increase, not only in sales numbers, but also in sales prices. We'll come back to that a little bit later in more detail. Of course, very interesting in this result score is for sure the valuation result. So we recorded another valuation loss of 4.1% in the second half, but this valuation loss was already much lower than the loss that we have recorded in the first half, which was 7.4%. So we clearly see that valuation losses are slowing down, that we are reaching perhaps the bottom of the valuation levels in Germany. We have recorded in the last 18 months already 16% of devaluation in absolute amounts that's 1.1 billion euros. So therefore we've done already a lot and therefore we expect not really material relation losses in the course of 2024, but I will come back to this also a little bit later. Disposals in Germany were quite successful in 2023. so nearly 1,400 units sold. Total sales were more than $213 million. And net cash proceeds, so that means after repayment of respective bank loans, of nearly $190 million. The average gross yield of the units sold in Germany stood at 4.3%. And despite the quite significant relation losses we recorded in the course of 2023, and that's point number five, and I think this is also a very important point for today, the RTV was stable. So we started in the year with 46.7%. At year end, 2023, came out at 47.0%. And I think this is definitely a good message. So we were able to keep the leverage stable with the measures that we've taken. So on one side, the good operation business, clearly strong sales results in Poland, but also the successful disposals in Germany helped in this regard, and also the dividend suspension. in financial year 2023 was something that helped us in keeping the LCV at that level. Looking forward, I think we're not too far away from our LCV target. We will also discuss this on the following slide. Also important to mention net debt to EBITDA and the ICR stand at strong 9.3 times and 6.0 times, so also the cash numbers when we look at leverage metrics are in very good shape. Coming to the next slide, I mean, we have discussed already some of the main numbers. I won't go through it in detail, but just pointing at the FFO per share metrics, the FFO1 came out as guided at 98 cents per share, and FFO2, and this is something I want to highlight, came out at €1.46. So if you compare this €1.46 with yesterday's closing price for the shares, which were around €12.30, it's a 12% FFO2 yield. And this is something we want to point out again. So please also look at FFO2 when analyzing our results, because FFO2 also includes a recurring business, recurring earnings, which is coming from our sales business in Poland. So this is, in the meanwhile, and has also been in last year, an important part of our sales results and our overall results. Coming to slide number six. I just want to show you, if you look at the column with the fourth quarter results, that as expected, this was very strong in Poland. You know that this has a seasonality to sales business, so we are recognizing the profit in the P&L on the very last day, meaning when we hand over the apartments to our customers, and this is to the very largest part, always in the fourth quarter of the year. So in the fourth quarter of 2023, we had revenues from sale of properties in Poland of $296 million. and the adjusted net income from Poland was 54.8 million, so 82.8 million a full year, and out of that material, 54.8 million alone in the fourth quarter. We have handed over 2,300 units in Poland, so as expected, this quarter was very strong for the sales result. Going a little bit more into the details, I want to continue on page number 9. It shows the EBITDR, FFO and AFFO calculation. I already mentioned that the EBITDR increased year-on-year by nearly 3 million euros, so the decline in FFO1 of 9% was completely due to higher financing costs. Perhaps you've already seen our guidance for the next year. We expect a stable FFO1 in 2024. And why is that? This negative impact from higher interest costs that we had in 2023 will not be that strong in the course of 2024 because we have repaid a lot of debt and we've especially repaid the bridge loan from the Robic acquisition in the course of financial year 2023. So this was, of course, for us, a quite strong relief for our earnings and our financing costs, and therefore FFO1 in 2024, which I think in this environment is already a success, will be stable. The AFFO was reduced by $17 million. This is absolutely nine with the FFO1 reduction. So that means the total capex that we spent in financial year 2023 was nearly unchanged compared to the previous year. Page number 10 shows the APRA NTA calculation. We saw a reduction of the APRA NTA by 12%, but this was purely the result of the portfolio devaluation. You see this here in the chart or on the slide on the right side, that a little bit more than 4 euro per share was the impact from the portfolio valuation. The business itself, so the net profit that we achieved, contributed to 1.7 euros per share to the NTA. Page number 11 shows the financing structure, and I want to mention two things. First of all, when we look at financings that are maturing in the course of 2024, 2025, and you see this on the slide, the average interest cost of these maturing financing are still at around 3% in 2024, 2.8% in 2025. So that means if you're going for refinancing today and without banks, we are perhaps at around 4% or even lower in these days for a new bank loan. Yes, we will have higher interest costs afterwards, but the step up that we see is not that material. So we can digest refinancing in these days in a world with high interest rates because the loans that we are currently refinancing already have a coupon which is in a range where the difference to the new coupon is not that used. So therefore, we expect, as already said, for 2024 and also, as a small outlook, for 2025, not too much pressure coming from the interested side on our results. And one word on our LTV target. As I said, we're quite proud that we managed to keep the LTV stable at 47%, which would be already good results. The ITV target stands at 45%, and we're not too far away. And what do I mean by saying this? We know that from our ongoing business, so from the cash that we generate from the German business as well as from the Polish business, especially from the Polish sales business, we've got a natural deleveraging. If we keep it in the balance sheet, and that's what we propose again to our shareholder, not to pay a dividend, but to keep the cash in the balance sheet, then we are, as a result, or as an impact from this operational result, already at our LCP target, or perhaps even slightly lower. And then, of course, it depends on the valuation result in 2024, if we see then an adverse impact. But on the other side, we will also continue to sell assets in Germany. It's clear that the official program has ended, so that we have completed the 250 million sales program in the course of 2023. And the purpose of this program was to repay the whole big bridge financing. So this is done. But that does not mean that we stop selling assets in Germany. So we can be sure that we're also active on this market. So therefore, I think it's reasonable that we will also have some disposals in Germany in the course of 2024. And this helps us then to keep the LCV or to move the LCV forward. perhaps quite soon towards the LTV target. This is perhaps also something that you should take away for today. Coming to page number 13, I already mentioned that we saw an increase in the like-for-like rental growth when it comes to the what we call basis like-for-like rental growth. So that means the rent increases from existing tenants and from tenant turnover and from the monetization surcharge. So it was 1.8% compared to 1.5%, including the impact from vacancy reduction. We were at 2.3%. That's a little bit lower than the previous year, where the impact from vacancy reduction, because of higher vacancy rates at that time that we could reduce, was a little bit higher. Top right of slide number 13 shows your total investment, so that's maintenance and capex together. So we have not reduced our investments in the last two years. So we are at around 25 euros per square meter, which we are spending currently, which breaks down into roughly 7 euros per square meter maintenance and 17 euros per square meter capex. So that means we continue to invest in our portfolio. We are especially continuing to invest in modernization projects for more energy efficiency. So this is clear something that we have on the agenda, and we will continue to do this. Page number 14 shows the vacancy rate development. As already expected from our side, we saw a very strong fourth quarter. So there's a reduction of 60 basis points from September to 4.0%. So overall, that's a 50 basis points reduction year on year, even a little bit better than expected. And that shows us that also in our secondary locations, the demand for affordable housing in Germany continues to be very strong. Page number 15 shows the portfolio relation, and this is, of course, an important slide. First of all, I already said we have developed the portfolio in the last 18 months by around 16%. I think that should be quite in line with the relations that other peers have already done. If you look at the relation metrics, we are now at a gross yield of 6.3% and a price per square meter at €1,000. and 1,060 euros. The 6.3% gross yield, that's a gross yield if we look at the chart that we already had some years back. So we are, relation-wise, looking at the gross yield now back at the levels of 2018. And that gives us really comfort. So 6.3% gross yield in this interest environment where a potential investor is financing an acquisition with a bank loan at 4% or even lower. That clearly creates a positive cash flow. And therefore, we are very optimistic that we are reaching a kind of bottom regarding valuations. Yes, it's true, we expect some further valuation declines in the course of 2024. I mean, the honestly a little bit rounded number of 20% total valuation decline from peak to draft is, from our point of view, still valid. So, overall, in the course of 2024, we will see, from our expectations of today, quite strongly reduced radiation results in the sense of lower radiation losses in 2024. And that's good news because that helps us, of course, to work on our leverage. I already mentioned some ideas, some potential developments on our LCV. So we are clearly now more on the way that leverage is coming down as we see valuation declines bottoming out. Let's look a bit more into Poland. On page number 17, you see the portfolio data for our rental portfolio. As I said, the rental growth was quite strong, so year-on-year 11%. Like-for-like rental growth and the vacancy rate was down at 2.2%. Looking at the in-place years or the valuation growth here, it stands at 5.9%. We are convinced that we will see also further improvements in the coming years. So therefore, the investment idea of our rental business in Poland is still valid. We're building such portfolios at a 7% to 8% gross yield. We achieve a good like-for-like, strong like-for-like rental growth. And we also see relation improvements. Now we are already below 6%. We are quite optimistic that this number will go down so that we will see further valuation improvements in Poland in the following years. Page number 18 shows the development of the Polish rental business in terms of number of units. And important is to say that we started new investments. So we are growing here again in Poland. You know, for quite a time we stopped new rental projects as, first of all, refinancing was more important. But now, as we have a lot of liquidity in the balance sheet, especially in Poland, we are growing again. So the first projects have already started in the fourth quarter of 2023, 430 units. These are two projects, one in Gdansk and one in Wroclaw. Further, potentially 1,000 units or more to be constructed will start in the course of 2024. So we are growing again in Poland. We have the possibility to invest On one side, from the cash flow, from the cash surplus that we achieve as a sales business, which is between 50 and 60 million per year. And secondly, and that's also a message we want to highlight today, from refinancing the existing rental portfolio. So we have just signed the first mortgage-secured larger refinancing of our rental portfolio in Poland. with a loan of 90 million euros. And this is something that, of course, then gives us additional liquidity to build new rental projects. And for the refinancings for the rental portfolio we follow, we have financed this rental portfolio in the first step with TIG shareholder loans. Now we're doing step-by-step refinancing, releasing cash that we can use for further investments. So therefore, the important news is we are growing the rental portfolio in Poland again. Page number 19 gives you more insight into the sales result. As I already mentioned, we have strongly increased the number of units sold in Poland, 3,600 units in 2023 compared to 2,400 in the previous year. But also important to say it was not only increase in number of units, also sales prices in Poland increased quite significantly. So we saw sales prices increases in the market in our portfolio between 15 and 20%. And if you look at the slide and compare the fourth quarter of 2023 with the fourth quarter of 2022, you will realize in both quarters we've sold roughly the same number of units. So 715 at the end of 2022, 709 at the end of 2023. And if you look at the sales volume, that was 110 million in the fourth quarter of 2023 compared to 76 million one year ago. So that shows that based on the roughly same number of unions, as sales prices have increased quite strongly, the sales volume is increasing really maturely. Page 20 shows you the revenue recognition. As I already said at the beginning, not unusual, always the fourth quarter in our business in Poland is the strongest quarter. It's here the apartments are handed over. But again, please have in mind, this is something which is purely a P&L impact. The cash flow already starts earlier because when we sell an apartment, then from that point in time, the customer pays the purchase price by installments. And a final comment on page number 22, which shows the guidance for financial year 2024. We leave all the guidances unchanged. So we are guiding for a stable FFO1 in 2024 in a range of $172 to $174 million. regarding for roughly 9% reduction FFO2, which is coming from an expected lower Polish sales result. But please have in mind, this is an outcome or reflection as already described in the last earnings call from lower sales numbers in Poland in 2022, which will lead to lower handovers in 2024. So that means the strong sales numbers from 2023 will then contribute to the results two years later when the constructions are finished in 2025. So therefore, it's a one-time reduction in our sales results. Stronger results will follow from 2025 onwards. And one final comment on the dividend. Here, the proposal to the AGM will be unchanged as already communicated with the Q3 results last year. We are proposing to our shareholders to suspend the dividend once again, and on a potential dividend for the financial year 2024, we will decide or make a proposal or give guidance more towards the end of the year. And this is depending on market conditions. And, I mean, clearly we see that now value or the devaluations are bothering. I think there should also be some signs on the horizon that the transaction markets could be better in the course of the year. So these are all good signs, but let's wait for that in a first step and then decide on a dividend more towards the end of the year. For now, we feel comfortable that we keep the cash in the balance sheet. It's on the one side for leveraging and on the second side, and this is again important, we use this cash to grow the portfolio in Poland, which from our side gives our shareholders an attractive opportunity to grow in a fast-growing market. That's it from my side with the highlights for the full year 2023. Thank you so far for your listening. And of course, now I'm happy to take your questions.

Ladies and gentlemen, we will now begin the question and answer session. Anyone who wishes to ask a question may press star followed by one on their touch-tone telephone. You will hear a tone to confirm that you have entered the queue. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use only handsets while asking a question. Anyone who has a question may press star followed by one at this time. One moment for the first question, please. And the first question comes from John Wong from Kempen. Please go ahead.

Hi, good morning. Thank you for taking my questions. You mentioned that you expect that you get to a target at 45% LTV through retained earnings. Additionally, you also are looking at disposals in Germany, I suppose, at a bit more of an opportunistic pace. Taking this all together, what would you say that is a reasonable LTV tool? to target by year end.