Welcome everybody. It almost seems like yesterday that we had our last conference call. Still a few things worth reporting, but let me try to keep the formal part of the presentation short because it is a continuation of what you've heard only recently from us. In summary, the good news we can report is Frankfurt's most successful rental activity in the first quarter and the demand for timber office space. We are unfortunately not able to report white smoke, quote and unquote, regarding the handover of F.A.Z. and the zoning permit for the timber factory, Baubergerstraße. With 5 weeks left in Q2, it is getting very tight. Our prediction of a weak first half of the year becomes more and more of a reality, and I'm sorry for this. The situation on the transaction market remains unchanged. We still witness a complete standstill.
Our financials remain strong, even with the repayment of the hybrid bond at the step up date, sorry. As already mentioned, not too much to add regarding the outlook for the first half of what I named the year of the truth for the real estate market. Please turn to slide number four of the presentation, and let's look at more details. With the rental success of the Timber Pioneer, we can provide first proof of our strategy. It has been the single largest rental activity in the first quarter throughout Frankfurt. Last week, we have concluded an LOI, a letter of intent, for the remaining office space, which is encouraging. However, an LOI is not a contract, and we have to see what the result of the contract negotiations is going to be.
There's also interest by more potential tenants, so I'm not worried to live up to my promise that we conclude rental contract before the summer break. We have an extremely paradox situation on the office market at the moment. Vacancies are rising, and Frankfurt sees more than 1 million sq m of empty offices, with the trend even going up. At the same time, we witness a rising demand for new work office space. It seems as if employers in a war for talent are prepared to do almost everything to lure their employees into returning back to the office. In other words, a number of companies, particularly larger ones, anticipate further reductions of their office footprints to trim unoccupied office space.
At the same time, more than half of the companies, according to a CBRE survey, plan to relocate to higher quality office space, such as timber construction offices. The rent level, particularly for this office space, is rising with inflation or even beyond. The buzzword here is shortage of a high quality supply. There's not only a significant difference between different industries, but also between continental Europe and the U.S. Interestingly enough, in the U.S., sentiment grows towards either mostly in office or mostly remote works. In Europe, we see mostly hybrid, which might be a function of shorter commutes and less mobility during the pandemic. A lot of office workers in Manhattan or expensive other areas in the U.S. have moved away to areas like Montana or other places in the countryside. They will not return.
This has not been the case with the vast majority of office employees in Europe. Bottom line, only the best offices will be successful, but they will be successful big times. Please follow me to slide number five. The most amazing metamorphosis in our industry can be seen from the composition of our pipeline. While we had a geographic focus on Germany and Austria for a longer time, we now have a very strong focus on conventionally built resi, as it can be financed more easily during difficult times with banks getting more conservative regarding pre-realization and equity ratios. What is even more amazing, more than 2/3 of our pipeline is now made up by timber constructions, where we have a different situation, as I've explained. This is the future from an investor's and a tenant's point of view.
Within the timber construction part, we have an almost equal weighting, between offices and resi. Let me hand over to Patric now to present you with the latest financial before getting carried away too much with the longer-term future perspective.
Thank you, Thomas. Welcome also from my side. Please turn to slide number six and have a look on the left-hand chart. What we have witnessed in the first quarter was that the situation on the transaction market remains unchanged, a complete standstill. This is reflected in our net profit, which is lower than in previous years, but still acceptable considering the market environment and the business model of a project developer who lives from selling projects. By the end of the first quarter, equity amounted to EUR 445.9 million. The reduction in equity compared with December 31st comes from the fact that we repaid the 2018 hybrid bond prematurely in March. Since the hybrid bond is accounted for equity under IFRS, the equity ratio also decreased as a result.
With an equity ratio of 31.6%, we are still within our target range of 30%-35%. Our net debt increased to EUR 581.8 million. As a result, also the LTV. In summary, our balance sheet still proves relative strength and provides UBM with enough headroom and reserves for the uncertain times we are currently in. Let's now turn to our cash position and repayment profile on slide number seven. Crucial for our solid cash position in 2022 were the two successful ESG linked capital market transactions in 2021. By doing that, we not only successfully managed to steer our repayment profile towards green financing. On top of that, it gives us a digestible repayment profile for the next 1.5 years to come.
We are prepared to tap the bond market with the green bond whenever a window of opportunity occurs. In order to be best prepared, we published our Green Finance Framework in the first quarter of this year. However, our cash position has decreased to EUR 250 million. Major driver for this was the already mentioned repayment of the hybrid loan in the first quarter. As you can see from the chart on the right-hand side, we have also illustrated our project financing for the full year 2023. EUR 15 million of the EUR 195 million project financing have already been cleared. Typical for a developer, our project financing is structured in two phases. The financing of the acquisition of the plot, and after having received the necessary permits, the financing of the development phase itself.
Out of the EUR 195 million, EUR 95 million are plot financing, with the development to be started in the next 6 to 9 months. These EUR 95 million will be transferred to a typical project financing, and the rest, EUR 85 million, are plot or standing financing, which will be prolonged during the year. May I now hand back to Thomas for the outlook?
Yes. Thank you, Patric. Back to the future are some observations regarding the second half of this year. We have talked about a potential catalyst in the full year call. Let me underpin the scenario with a few facts. Regarding the market in general, there can be no doubts that we see a healthy demand for our products. After all, we do not produce injectors for diesel engines. What I mean is we produce something that the society really needs. It is demand and supply which ultimately decides the price of a product. Germany alone is short of more than 700,000 apartments already today. This number is growing. With rising pay negotiated by strong trade unions in Europe, the percentage of disposable household income remains fairly stable around 20% over the last 10 years.
We see construction costs falling in building construction for the first time in a very long period of time. With the cancellation of more and more projects, this should not come as a surprise. Besides, I'm getting not tired of reiterating that standardization and modularization have been bringing down costs in so many other industries. Why should this not be the case in real estate? If cars were still produced as in the early days of the automotive industry, a Volkswagen Golf would cost several hundred thousand euros. Our total commitment to timber construction is driven by exactly this idea. We have to move a significant part of the construction process away from the site to the factory. More specifically, regarding UBM, if not timber construction projects can be sold profitably to investors, what projects can be sold profitably at all?
This, combined with money following European taxonomy and the sustainability guidelines, gives us a competitive advantage. This competitive advantage is further fostered by our relative financial strength compared to most of our peers. We are currently going through tough times, no doubt. Nothing to smile away. The stock market has a reputation to look through today and anticipate the future in 9 to 18 months. I have no doubts that the development industry, or rather those who are left, will strongly benefit from today's crisis within the next 1 to 1.5 years. Thank you for listening. May I now open the lines for 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 followed by one on their touch tone telephone. If you wish to remove yourself from the question queue, you may press star followed by two. If you're using speaker equipment today, please lift the handset before making your selections. Anyone who has a question may press star and one at this time. Our first question is from the line of Stefan Scharff from SRC Research. Please go ahead.
Yeah. Good morning, gentlemen. Stefan here from Frankfurt. I have three questions. The first question is, Thomas, you mentioned that just 5 weeks left in the first half of the year, and what do you think about the closing F.A.Z. Tower and the permit for Bauberger? Is it fair to say perhaps one will make it and the other one will come in the second half of the year, it's 50/50 or something? You think even this might be too optimistic? The second question is about the additional tenant for the Timber Pioneer. I think it's about two floors, and what do you expect for square meter prices? I guess perhaps EUR 26-30 or something, or what is your expectation here? My last question is for Patric.
It's a P&L question. Other operating revenues were up from EUR 1.3 million to EUR 4.5 million. I think there is a reduction of provision in sight, about EUR 1 million or EUR 1.4 million. Perhaps you can say a bit more here.
Okay, Stefan. First of all, thank you for joining us this early in the morning.
Yeah.
I know that you're not an early bird, and you would much rather have a conference call at 10:00 in the evening. We are having good reasons for this. You've asked me if there's a 50/50 chance. Well, if you do likelihoods, you might pretty much end up there. I am a bit disappointed about the slow progress that we are making, and we are preparing for none of the two events materializing in the second quarter, so that we have rather a potential upside than a potential downside that we have to talk you through. We're making, as I said, slow progress, but a good progress in both respects. The reasons that I'm presented with are understandable for me.
You have noticed in other areas that there is a general slowdown in processes throughout Germany. We are not alone, but that's, you know, no help for you. When it comes to the 4,500 sq m, basically, it's not floors. It's more that a wing is open. You know that Universal has occupied the first floor, and the interested party that we are having now, very concrete negotiations, would take the entire 4,500 sq m, and they like them exactly as they are, and that would make it much easier than renting it out to several tenants. I think we really offer a unique proposal.
For anybody who has sustainability in their strategy, there is no way circumventing our office. As I said, it's not the only party, but it's the one that we've signed an LOI with. If this materializes, then the positive news flow is going to be reported also ahead of the summer break. We have, if you assume, we continue as we've developed in the past, three potential good news to be reported before the summer break, and that's quite something. Did this answer your question or?
Yes, it's okay. The square meter price could be similar like universal price.
Yeah. absolutely. The square meter price is closer to EUR 30 than it is to EUR 25, I can't go any further, I guess so.
All right. I see.
Okay, Stefan, to your question on the other operating income and the provision we released, that has to do with the LeopoldQuartier, and circuits back to the time when we bought the LeopoldQuartier and there was an open legal dispute. We changed, or we are quite sure now that the legal dispute will come into our direction, and therefore, we were able to release a provision.
I see. Good. Good. Patric, from my side, not to forget about, happy birthday. You have today your big 50. From my side and from the SRC Research team, all the best for the next 50 years, a healthy and happy and successful life. I hope today you not only speak with investors or with analysts, but also have one or two beers or even champagne with friends and family.
Thanks a lot for that. I mean, I don't have any friends, so I'm-
It's good to have the call, so.
He doesn't drink, so he always wants to call on his birthday so that somebody talks to him.
Yeah, exactly.
Thanks a lot, Stefan.
Bye.
The next question is from the line of Christoph Schultes from Erste Group. Please go ahead.
Yeah. Hello from my side. Also, happy birthday from my side. Also a birthday question to Patric. It's maybe if you can go back to slide seven and you talked about the maturity profile of the project financing. Can you maybe repeat what you mentioned, what is already paid to 2023 this year and the split up of what you mentioned, what is with regards to plots and other financing? That would be very helpful. Thanks.
Yes, of course I will do so. I mean, on the bond side, the EUR 120 million, they are due in November, so they are not repaid yet, obviously. We are watching the market and look at the market quite carefully if there is a window of opportunity to have an exchange, how we did that in the past. You know the market probably better than myself. The volatility is still there on the bond market, and we have to see how we move forward on this one. The more interesting one, and that is why we have put that now on the chart, is the EUR 195 million of the project financing. Of this EUR 195 million, EUR 15 million are already ticked off, which is a small number compared to the EUR 195 million.
The predominant part to come. Out of this rest, which is EUR 180 million, EUR 95 million is a typical thing which is happening when a project is coming from its plot financing into a development financing. We are quite confident that for some of these projects we will see a situation where we get the permits we need because that is a precondition to go to the bank and then put it over from the ordinary plot financing in the development financing. Currently, the situation in the market is that if it is a ready project that is quite fast to tick off because you can refinance them or you can finance them in the development phase quite easy still.
If it is an office, it is more of a discussion, but I would say, it is too early to say a tendency there, how the financing look like. What we see already is that the ATVs go up on these projects, when you do an office. For the rest, which I have not said yet, is EUR 85 million. That are plot financings which run out and need to be prolonged. A thing we are doing quite regularly, but in this time it's probably worthwhile mentioning them. There you have a bank where it's already financed, and most of them have been prolonged in the past quite often. We are quite positive on prolonging them also into the future and rolling them out. Did that answer your question?
Yes. That's great. This is exactly what I needed. You are confident that, so you have EUR 250 million cash, assuming that there will be also a positive cash flow this year. You're positive that, let's say that the next 2 years, what you have, are more or less financed without, even without tapping the market. Is this what I can assume?
Yeah. What you can assume, I mean, our way of looking at it is more 12- 18 months, to be quite honest, because that is what we can oversee. We are planning internally for sure, for a situation where we can't tap the market. Yeah. We have to look at the EUR 120, that we repay them out of our current cash flow or out of our financial results on the cash side, and we cater for that.
Yeah. Okay, thanks. Thanks. Thank you very much. Thanks.
Welcome.
The next question is from the line of Simon Stippig from Warburg Research. Please go ahead.
Good morning, team. Also, happy birthday from my side.
Thank you.
I would ask the questions one by one. Lots of questions already asked. Maybe one follow-up question in regard to the Timber Pioneer. Is there already a timeline for potential sale? I mean, you said, okay, there are the three events. One of the three positive events before the summer break. One would be the Timber Pioneer, or the full leasing of the Timber Pioneer. Most likely, I assume you would go and market it. Do you see, maybe a potential sale in H2 of 2023? Could you give a little bit additional insight into the transaction, into the project?
Yeah. Very good question, Simon. Look, as long as the market, you know, is in a mood as it is right now, I'm not sure if I would really go to the market particularly. I want to remind you of this. We are handing over the building only in April of next year. Basically we have enough time to market and sell it so that we don't have to rush it because the money will only flow other than a down payment at handover. If you'd ask me, the hypothetical question, you're fully leased out. Are you going to market it now? I would say no.
As we've also made clear to you 4 weeks ago, we believe that there are potential catalysts for the second half that would open the transaction market again. I know that the sentiment at the moment is 50/50, according to Union Investment survey of, I think, 150 investors and market participants. Okay. 50% believe there will be a catalyst event in the second half. 50% believe there is none.
The reason why we are contrary to our nature, somewhat optimistic, is because the speed in which the market has been deteriorating over the last couple of weeks, and you all read newspapers, you all read the stories of listed and not listed peers, makes us somewhat confident that what goes down quickly comes back quickly. That is what we are counting on. If this is the case, we are definitely first in the line to market the Timber Pioneer, and we are definitely going to make all preparatory work to go to the market quickly, because as I said, if this product cannot be sold, we have to acknowledge that there is no market for transactions whatsoever, at least, not at other prices than distressed prices. Let me be quite clear.
We see maybe not distressed prices, but stressed prices all over. We get a number of projects almost every day that we would be able to buy on the cheap side from a perspective from the past. Bottom line, yes, we are preparing and marketing the Timber Pioneer, but we don't try to go through the wall with it if there is a hard stop situation as it is right now. We still have an assumed... I shouldn't make up numbers, but a kind of, you know, belly feeling number of 20% price differential still between buyers and sellers, with the sellers going already pretty far away to the buyer side.
Okay, great. That's understood. Maybe a follow-up to this. Thank you, first of all, of course, for the very, informative answer. For UBM, could the Timber Pioneer also be a catalyst and, once there's a successful sale that you would start new projects? You mentioned before you have a couple of plots still in development financing of plot financing actually, and where you said, okay, that's tied into permits, but also then, I assume once you get the permits, you probably not start immediately developing into the current market. Could that also be a little bit of a catalyst where you see, okay, a new equilibrium of prices and then of transaction prices, and then you would start-
Yeah.
You would start, or do you start nevertheless if you get the permit?
No, no. We assess the situation almost on a week-by-week basis. The answer again is a bit a lengthy one. I apologize for it. I would like to be as differentiated as possible because I want to give you the impression that we are realistic. We are not depressed, but we are also not optimistic, like some say there is no crisis. What crisis? I mean, that's a joke. We'll start projects like the Leopold Quartier, okay? In the Leopold Quartier, we are doing apartments. They are the best apartments that are going to be developed in the foreseeable future. It's close to the first district. It is between the Augarten Park and the city center of Vienna. You can basically do everything by foot.
I tell you, if, if we don't dare to start this one, okay, we have to question if we are after almost producing diesel injectors. I don't believe in it. We have projects which strongly depend on the financing, okay? This financing strongly depends on the pre-realization chance. Let me give you an example, and it's a hypothetical one, because as I said, situation is assessed on a weekly basis. The Timber Peak in the Mainz Zollhafen, okay, it's 10,000 sq m roughly. It is a beacon for Mainz.
We have made very good experiences with putting office space into a resi area because then people like to buy or rent apartments and walk to work. Here, a more speculative start of construction would make sense. Now third issue is, which is unusual for entrepreneurs and enterprises. At the moment, we win by waiting because the prices for the construction is coming down, you know, and we have first evidence for this, and this is exactly what we are feeling because so many projects have been canceled or at least put on hold that makes particularly subcontractors very nervous.
It means, you know, there is no good reason to rush into a start of construction, unless we have an obligation to start construction, which might be the case here or there as well.
We will continue our work. Maybe a bit behind your question is also once there is a catalyst transaction, I'm not saying it's the Timber Pioneer, it could be any other transaction. I think the market will strongly rush into the other direction. I mean, we both, we are all knowing that we have another 25 basis point steps ahead of us with European Central Bank. That needs to be anticipated, and that should be priced already.
The only reason is where, when do we hit the sweet spot where a buyer says, "If I wait further, I can't buy it." If you're sitting in Germany, you might not be aware about transactions on the Austrian market, but Signa has sold a very iconic property in Kärntner Straße, which is, I mean, a super prime area for EUR 32,000. Is this guy who's bought it, who's an industrialist, who is very clever and sold his business for a fortune, stupid to buy it now? No. He buys it now because this is the only time he gets his arm around something like this.
If we claim to produce iconic buildings, this is maybe the opportunity for everybody to jump on this train. There are not so many EU taxonomy conform projects on the market that are available. As I said, sorry for the lengthy answer. I promise to be shorter, unless you feel that that casts a good light also on the market.
No, thank you. I really appreciate the answer. Very informative. Actually, if I may, I would have two more. One, and this is probably for the jubilarian, is in regard to the cash flow statement. If I look into receivables, then receivables increased by around EUR 40 million, and there are also a couple of other movements in regards to investments in PPE and project financing. Also, I think you received dividends from an equity of EUR 5 million. Could you explain these movements a little bit more in depth? That would be great, especially receivables movement.
Yes, of course. Just to have a view on what is the nature of a project which runs into this receivable position. It's a project which we have forward sold or partly forward sold and which is under construction. For most of the projects, this is true when it is resi, and therefore you find the resi projects predominantly in this one, as we are not selling currently forward any offices. The last one was the F.A.Z., and there is no construction going on currently. That is the reason why this is our resi project. If we look into it, that is predominantly Arcus City, where we are in the erection phase, in the phase of building it for Arcus I and also for Arcus II. That is a EUR 9 million number.
We started another resi project in the Czech Republic, where we already sold parts of the apartments. That is the Astrid resi, and this one is a EUR 2 million number. Most of the number you are seeing there is coming from this one, and a small amount is coming, or the same amount like Astrid, like EUR 2 million is coming from Smoleńsk. That is also a resi project in Poland, where we have sold some of the apartments. The precondition that it runs into receivables is forward sold and under construction.
When we looked at the investments in the, in the, finanzmobilien, we look predominantly at the LeopoldQuartier, where we activated costs because we are close to the phase where we want to run into the erection and building the whole plot, and therefore most of them is activated into this one. Project financing was another question you have asked. There it is that in our project, in another project in Prague, which is Rezidence Na Plzeňce it's called, a difficult one also, a resi project. We are currently in the phase where we have not refinanced that yet. So it's purely equity. Out of the number, EUR 3 million are coming to bring that into a stage where we get all the permissions and all this kind of stuff.
That is a financing for that one. Another one we have put into the project financing was for the hotel business as we were this year in the phase where we paid some of the rents which were not being paid under Corona, and they were piled up, and therefore another EUR 3 million were necessary in this one. From for the income side, you have mentioned dividends from at equities. That is coming from Munich, Anders Wohnen, where we have sold a good part of or nearly all of the project in the phase A. The other one is the Gmundner Straße. Two of them are bringing this dividends to the table.
Great. That's very clear. Then if I may, the last one. I just saw that your financing cost increased to four around above, slightly above 400 basis points. Again, I think that's driven by project financing, variable project financing. In that regard, can you maybe give some indication of where you would see a steady state or normalization of the financing costs? If I would assume that, yeah, it's 400 basis points and increases a little bit. Are we rather, let's say 18 months from now it's 500 basis points? Nevertheless to see any interest movements, but can you just, yeah, give a little bit of more insight into where you would see a normalized financing cost for UBM?
Sure. Also maybe an answer which is not too short. In terms of financing, we are a company which came into the interest increase with a picture where we had roughly half of the financing fixed, and the other half variable. The variable financing as you were pointing out already in your questions, is the project financing and the fixed financing is coming more from the bonds. The project financing is predominantly relying on the 3 months Euribor. If you're looking at the Euribor , one thing is I don't think that everything which the central bank has done has ripped into the Euribor has not happened yet. We will see a little bit of increase there coming just from a follow-up effect, if you want.
Everybody in the market is assuming that there are at least two more steps to come, both, one quarter. We see an increase there. If I do the math, I would say another 0.4%-0.5% on the average rate are still coming from the project financing itself. The more difficult one is the question, if we repay a bond, which is a fixed one, for example, the one at the end of the year, and we would be able to refinancing it, where would be a fair market level? Currently, I would say that it's something between 6% and 7% instead of the 3%-3.5% we were used to. There is coming also a little bit.
If you ask me for a steady state, let's say 18 months or 2 years in the future, because it will take quite a while until you see that in the average number, we are talking about 1.5%-2%. We are more in the range of 4%, 5.5%-6% on average. That is the number which will come midterm if the numbers stick where they are.
Okay, great. Also very clear. Yeah, thank you and appreciate... Apologies for the long questions.
So far, there are no further questions. I hand back to Thomas Winkler for closing comments.
Yeah. Thank you for getting up this early and listening, and also the very educated questions. Yeah, I appreciate it. I know that we are going through rough times and there is nothing to camouflage it. As I pointed out, at the end, those who make it will benefit from it. It's always the same story. It's not only Patric who's turned 50, it is also us who have turned 150. We've survived or battled through a couple of more crises, and therefore, I'm pretty confident that in hindsight, this is just one of these corrections that one has to expect of a pretty long upwards trend. With this, as I said, thank you for your questions.
For any further questions, please turn to Chris Rainer or Ines Pfeil, when it comes to ESG. We are always there for you. Much rather ask than just act and ask later. Happy birthday also from my side.
Thank you.
All the best for you guys, for the day and, the next couple of, weeks. Bye-bye.
Bye.