Earnings Call: Q1 2022

May 25, 2022

Ladies and gentlemen, thank you for standing by. Welcome and thank you for joining Immofinanz conference call on the results of the first quarter 2022. Throughout today's recorded conference, 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 touchtone telephone. Please press the star key followed by zero for operator assistance. I would now like to turn the conference over to Immofinanz. Yes, hello. Good afternoon from Vienna. This is Bettina Schragl speaking. Thanks for your time and your interest in our Q1 results. I assume for many of you it's not the first call today, but probably even the third call that we managed, at least with our colleagues at other Austrian related companies, that our calls do not overlap. Our call today will be hosted by our new executive board member, Radka Doehring, and by our executive board member, Stefan Schönauer. They will guide you through a presentation and of course, followed by a Q&A session. With that, I pass on to Radka Doehring. Thank you, Bettina. Good afternoon. My name is Radka Doehring, and I have been a member of the executive board since 1st May of this year. My responsibility on the board are for the following departments: transactions, legal affairs, IT and procurement, audit, corporate legal affairs and compliance, risk and process management, as well as public and industry relations. Maybe a little bit on my professional background. I am a chartered certified public accountant in the U.S., but I have worked in the industry for now more than 25 years. My last position I held for over nine years in Slovakia as a director of finance, property management, and license fee department at RTVS, which is a Slovak public broadcasting company. I would like to now walk you through the highlights, which we have on page 3. Here we are particularly pleased to see that the like-for-like rental income rose by 4.3% to EUR 64 million. This increase was in both office business and also the retail business. In the office business, the increase was by 2.9%, and in the retail business it was even higher by 5.6%. This development we feel demonstrates our strength of our portfolio and brands itself. The occupancy rate remains high at 94.4%. Results of asset management are also very similar to the previous quarter in 2021 at EUR 53.9 million. The value of our portfolio rose to EUR 5.2 billion, mainly to our second acquisition this year which was in Italy. It was a STOP SHOP in Udine. The gross returns rose slightly over last year to 6.2%. That was on page 3. On the following page, we go to the highlights and our most important KPIs. For Immofinanz, FFO 1, which is very stable at EUR 34.4 million. The equity ratio has improved. Now it's 52.3%. Also we see an improvement in the LTV ratio to 32.7%. In the net profit, we see a difference compared to the prior quarter 2021. The difference is mainly due to the positive revaluation which we took in the year 2021 in our stake in S IMMO. The equity ratio we talked about, and now the EPRA NTA per share has also increased by 20 cents to EUR 29.4. This is the highlights, and I would like to hand over now to Stefan, who will give you more details on the numbers. Thank you very much, Radka. Ladies and gentlemen, welcome also from my side. Let me take you through our profit and loss statement on page six of our presentation. Our rental income at the first glance is a bit behind the previous year's first quarter with EUR 70.2 million. Why do I say at the first glance? Because the previous year's first quarter was affected by a non-recurring compensation payment that we received for a pandemic-related space reduction in the amount of EUR 6.7 million. Adjusting for this one-off effect in the previous year's first quarter, our rental income first quarter this year is 3.1% above the previous year and even 2.8% above the Q4 of 2021. Results of asset management, as we already heard from Radka, pretty much stable with EUR 53.9 million. The result of property sales increased slightly to EUR 0.6 million. Result of property development is -EUR 4.1 million. Where does this negative effect come from? Well, it's coming from the overall visible price increases that we see in the one or the other development project. Here we come to the result of operations that is EUR 38.1 million compared to EUR 46.4 million in the previous year's first quarter. Let me continue on page seven with our financial results. Financial result is EUR 47.7 million compared to EUR 79.7 million in the previous year. This splits up in the net financing costs that improved by around 60% and came in at -EUR 16.3 million compared to -EUR 19.4 million the previous year. The other financial result contributed strongly positive to the financial results. Herein are our interest rate swaps that gained in value due to the change in interest rate environment. Last but not least, the line at equity accounted investment. We account here for a positive contribution for income from our investment in S IMMO with EUR 17.3 million. The previous figure here was strongly positive with EUR 88 million revaluation in S IMMO. Here we come to earnings before taxes of EUR 85.1 million and a net profit of EUR 72.4 million. This equals in earnings per share of EUR 0.55. Let's have a look into the FFO calculation on page eight. Relatively unspectacular. I think it is a very good situation that our FFO is basically stable compared also to the previous year with EUR 34.4 million. On the per share calculation, the FFO declined by roughly 7% because of the higher number of shares. As always in our quarterly presentations, we prepare a liquidity profile, a maturity profile for you, and you can see on this slide this time also a pro forma chart. This pro forma chart I would like to explain a little bit. As you may all be aware of, we had quite a significant outflow of liquidity due to the change of control event when CPI Property Group was gaining control over Immofinanz. With this change of control event, we had to repurchase outstanding bonds in the amount of roughly EUR 569 million. This we already, let's say, took into account in this pro forma calculation. So we reduced the outstanding bond amount according to this early repayment. What you can also see is our convertible bond with maturity in 2024 is almost gone. All of this convertible bond was converted because of the change of control event with CPI Property Group. So what do we see here on this chart? Basically, we still have got close to EUR 500 million liquidity available. The bank financing matures in the year 2022. We are intensively working on and are also here in advanced stage of refinancing and prolonging this bank financing. We do not expect here any repayment needs. As you can see in the year 2023, the convertible bond due in January 2023 is already sharply reduced in size, and we will repay this corporate bond in 2023. The convertible is almost gone, and other than that, I think we have a quite manageable maturity profile of the remaining bank financing and one corporate bond left with maturity in the year 2027. Our net LTV is at the very conservative, very moderate level of 32.7%. Our average financing costs are in the area of 1.95%. The remaining term of our financing is close to four years, and we have an unencumbered asset pool of including S IMMO shares more than EUR 2 billion. We have a confirmed investment-grade rating with triple B minus and stable outlook, and a hedging quota that secures, so to say, the low interest rate environment of close to 86%. Let us now jump to the next section, the outlook in our presentation, and let's recap a little bit on the change of control events that I mentioned already. In March, CPI Property Group gained control over Immofinanz. That means they have purchased more than 50% of shares, and this event triggered change of control clauses in bank financings and in bonds. So we saw an early repayment need in the bonds of EUR 569 million. This is all settled and done, and we repaid it from existing liquidity at hand. With this repayment need and this larger outflow of funds, the company also decided to set out the capital market guidance for the year 2022. Also, these repayment amounts may have an impact on the ability of the dividend payment amount for the year 2022 and the year 2021. So our AGM will be held on the 12th of July, and well in advance before this AGM, we will also announce the dividend payment for the year 2021. Bank financings, as I already mentioned, were also affected by the CoC banks, but we have not seen here any repayment needs, and we also do not expect that we have to repay bank financing, just the bonds to some extent, so to say, were due to early repayment. When I come to page 12 of the presentation, also a slide that hasn't changed since our annual figures presentation the last time. Where do we target the further growth in Immofinanz? Our goal is to grow further our multi-tenant, multi-office portfolios in capital cities of Immofinanz core countries with buildings that are institutional size, more than 10,000 sq m. We further want to grow our retail park portfolio in Central and Eastern Europe, where we have already a leading role in the region. Our target here is to reach 1 million sq m, around about 140 locations. We are working here on this growth pipeline. Last but not least, to mention our new brand, On Top Living. This is our, let's say, return also to residential, if you want to say so. We target to overbuild existing retail parks with sustainable and affordable housing, and see here in the near term a potential up to 600,000 sq m of affordable housing, or 12,000 smart and sustainable apartments. Ladies and gentlemen, I am there at the end with our quick presentation on our Q1 results. We are very pleased to take your questions now. Ladies and gentlemen, we will now begin our question and answer session. If you would like to ask a question, please press star followed by 1 on your telephone keypad. If you wish to remove yourself from the question queue, you may press star followed by 2. 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 1 at this time. One moment for the first question, please. The first question is on the line of Oliver Simkovic from RBI. Please go ahead. Hi. Thank you very much for taking my questions. I have 2. The first one, what are your plans regarding refinancing the paid-back bonds? Do you intend to place new bonds this year or touch on secured bank financing? Could you give us some input on this? Yes. Thank you very much for this question. Well, at the moment, we are working on bank financing. We currently do not intend to go for a new bond in the market because we think the market is also not really open at the moment at reasonable terms. The bank financing market still is quite little and working, and we have also headroom here to take up new bank financing. On the other side, we have to say, Immofinanz still equipped well with liquidity, and we have, as just presented on the slide, around about EUR 500 million of liquidity at hand. That is enough for the current situation and the growth effect is midterm new financings. We will either go for bank financing or release the market when the situation changes. I currently don't see the bond market very open and not at attractive terms. Mm-hmm. Thank you very much. The second question, could you give us some insight about your plans about potential portfolio sales this year? I know there was a couple of weeks ago, this media report that you're considering to sell your Düsseldorf office assets. Any timeline on this or anything else that you could comment on here? Well, as you know, also from last years, we always looking to potential portfolio rotation and also disposal of assets. We also state clearly that cycle-optimized sales can be a very interesting situation these days. Because we are in a changing interest rate environment, we have not any large plans for disposing assets communicated, and we also did comment on the, let's say, rumors on the market only with, yes, we always look into portfolio optimization, potential disposals at the peak of its life cycle. But we have no defined plans yet what portfolio sales will be necessary or what assets will be necessary and in what volume. I think this will all depend on how the market further develops and what opportunities are in front of us. Let's say the world changed in the last few months quite dramatically with these changes in interest rate and these further expected rate hikes. I think this will have also an impact on how we look into our portfolio and how we will continue to manage the portfolio. But that's not defined and not a strategy that we can communicate at the moment. Mm-hmm. Thank you. Then maybe one more. You mentioned that your like-for-like rental income increased by 4.3%. Are you able to quantify how much of this is due to the CPI indexation of contracts? What proportion is just new contracts that have been signed or other factors? Well, I think the indexation is maybe half of it. The rest is better performance of those assets, meaning also increasing the occupancy rate of those assets that are in the like-for-like comparison. I would say it's a 50/50 split. How this further develops, we will see. For the time being, we are able to really effectuate our indexation policy in the rent contracts. I think that's, first, a good thing. We hope that this stays also fine with the tenants. No complaints at the moment. Let's see how the situation also develops if we are staying in such a volatile environment with climbing costs and climbing inflation. Mm-hmm. All clear. That was it from my side. Thank you very much. Thank you very much. Do we have any further questions? Ladies and gentlemen, as a reminder, if you would like to ask a question, please press star followed by one on your telephone. There are no further questions at this time, and I hand back to Immofinanz for closing comments. Well, if there are no further questions, thank you very much, ladies and gentlemen, for participating in our Q1 earnings call, and I wish you a great day, and goodbye. Ladies and gentlemen, the conference is now concluded, and you may disconnect your telephone. Thank you for joining, and have a pleasant day. Goodbye.