Vonovia Se Unsp/Adr

Ladies and gentlemen, thank you for standing by. Welcome and thank you for joining Divonova SE Interim Result for the 9-month 2023 Analyst and Investor Call. Throughout today's recorded presentation, all participants will be in 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 1 on your touch-tone telephone. Please press the star key followed by 0 for operator assistance. I would now like to turn the conference over to René. Please go ahead.

Thank you, Sandra, and welcome, everybody, to our earnings call for the first nine months of 2023. Your hosts today are, once again, CEO Rolf Buch and CFO Philipp Grosse. I assume you have all had a chance to download today's presentation. In case you have not, you will find it, as always, on our website under Latest Publications. Rolf and Philipp will now present the results and also give you a general business update. And, of course, we're looking forward to your questions afterwards.

With that, let me hand you over to Rolf. Thank you, René, and welcome also from my side to our earnings call. I want to start with the highlights on page four. First, let's talk about disposals. Year-to-date, we have now sold a total of 3.7 billion euros, of which 1.7 billion were signed since we last reported in early August. About half of the total has already closed, this is a reminder expected at a later stage. We will have more detail on disposal progress on the next slides. Second highlight, financing, cash flow, and leverage. Since the beginning of the year, we have signed 2 billion of new bank loans and rolled over 0.8 billion of existing bank loans. We also have extended our RCF commercial paper recently by two more years and at unchanged terms. Our total performer cash position is 3.8 billion. All of our unsecured maturities are now covered until the end of Q125. Performer, our LTV is at 45%. Still too high for this interest environment, but clearly we have been able to manage against the headwind in this environment. And it is my understanding that Moody's acknowledged these efforts when they confirmed our rating last month. Make no mistake, our focus remains on the delivering through disposal. Third, our nine-month results. Rental operations are as strong as ever. Organic rent growth was 3.8%, vacancy was low at 2.1%, and rent collection was virtually in full with 99.9%. As Philip will show you a bit later on the other segments, are still more difficult, and that is why our positive rental performance was diluted by the other segments. All in, our total EBITDA was down close to 5%, and group FFO declined by a bit more than 8%. After portfolio valuations at the end of Q4 last year, as well as Q1 and Q2 this year, There was no triggering event for portfolio valuation as Q3, and as you can see in the transaction we did, they were all around fair value. And last, our guidance. For our final guidance for 23, we expect a 3.7 to 3.8 organic rent growth, the lower end of our EBITDA range, and the midpoint of our FFO range. For our initial guidance for 24, we expect rental revenue in line with the 23. Even so, there will be a negative volume impact from the massive asset disposals. Adjusted EBITDA total in line with 23 as well, and a moderate decline in group FFO, which is due to higher taxes from sales and full year effect from increased interest costs. We guide an additional assigning of above 3 billion cross proceeds from additional disposals. On page five, I would like to zoom on our disposal progress so far. Before I go through the update, however, let me take a step back and look at the bigger picture. When I joined the sector a little over 10 years ago, One of the fundamental things I learned in the beginning was that there are two ways to make money in real estate. One is through the net initial yield, and the other is through value growth of the assets. That is still how we look at the sector and how we make our portfolio management decisions. In the current environment, however, many players don't accept this fundamental concept. Most investors and potential buyers look at net initial yield only and ignore the growth element. Not because they are stupid, but often banks don't provide adequate finance for growth potential. That is why disposal, which are difficult per se these days, are currently very difficult for portfolios where this growth still needs to be realized. What works better is new constructions where the rent is already at market level or assets where the net initial yield is high because the assets are unlikely to see much more value growth. Coming back to our view of the world, we believe that the net initial yield should not be the sole criteria for making the sales decision. We must take the longer-term expectation for our asset into consideration. And we are not selling to deliver price discovery to the market to prove or disapprove certain price points. We are selling to manage our leverage. In this context, I think it is fair to say that as far as the sector goes, we have been comparatively successful so far. Year-to-date 23, we have now signed 3.7 billion of disposals. That's not bad compared to our initial disposal target of 2 billion and also compared to transaction market in general. However, it is also clear that we remain committed to pursue further disposals to repay upcoming bond maturities and to ensure that debt KPIs moves back into the respective target range. While we show you all the disposals on page five, I limit my remarks to the disposals we have agreed since we last reported in early August. Since then, we have signed another 1.7 billion. We sold 361 apartments in Dresden to a family office marginally above fair value. Second, you probably saw last week that we sold 1,200 apartments to the city of Dresden for 88 million and at fair value. The only reason you saw a press release from us for this transaction was that the Mayor and I did a press conference in Dresden because it was a big news for the Mayor. In spite of our press release, there seemed to be some confusion about this transaction. So let me give you the facts. Yes, the deal was smaller than the 3,000 or even 6,000 that has been reported in the press. But the Dresden Housing Company doubled its size with this deal, and this was probably enough for them. What is clear is that this transaction further strengthens the partnership between the city and Monogia. And this is important because Dresden is our second largest city behind Berlin. The 88 million purchase price reflects a fair value of both the asset and the land that was sold. And by the way, The land does not have building rights. Comparing it to the average in Dresden makes absolutely no sense because the portfolio we sold is of much lower quality with unrefurbished old East German Blattenbau in weak micro locations. Our average fair value in Dresden is 1,955 euros per square meter. The average square meter value for the assets we sold was 1,130 euros, so almost half of the average. At the press conference, the mayor announced that the city plans to invest 100 million into this portfolio, which is probably a good indicator to the current quality. More than 15 years ago, when the city sold its Wobar portfolio to Gakwa, These assets were actually earmarked for demolition. Third transaction, we sold another billion common equity to Apollo in our Northern portfolio last week, and I will show you the key terms on the next page. 209 million came from selling 958 apartments in individual transactions through our recurring sales channel. a total of 377 million proceeds in a series of smaller transactions in which we sold development-to-sell, low-yielding multifamily homes, and residential non-core all around fair value and commercial assets around 7% below fair value. We sold 1,200 new constructions to CBRE for 357 million and at around 4% discount to fair value and a gross yield of a little over 4%. These are new constructions located in Berlin with a square meter value in excess of 4,000 euros and rent at the high end of the market with limited growth potential going forward. Given the size of the transaction with Apollo, I want to touch on the main elements of this deal on page six. We assigned an agreement with Apollo who will invest $1 billion in exchange of 30% minority stake in the asset holding entity of our Northern portfolio. So $1 billion of additional equity for us at terms much more favorable than we observe in our share price. you will probably recognize the key terms of the transaction because they are so similar to the SUDEVO deal. We will continue to control, operate, and consolidate the portfolio, and Apollo will have limited minority investor protection rights. Apollo will receive a higher than their pro rata share of the dividend. Correspondingly, we keep a long-term call option that gives us the right to repurchase the participation at a pre-agreed IRR. The IRR range is purely related to the timing of the call option exercise at our discretion, starting at 6.95% and reaching a maximum of 8.3%. The IRR takes into account any dividend paid, so it reduced the call option price over time. we will amount for the value of this call option as our financial asset in our accounts. Because of the call option, our cost of capital is capped at the IRR range. We retain 100% of any additional upside or outperformance on the portfolio compared to the business plan. There is no obligation for us to exercise the call option. Maintenance and operating expenses are paid from the cash flow generated by the portfolio and hence shared between the parties. And this is over to Philipp.