Thank you, Francis, and good afternoon, everybody. Thank you for joining us after only a very short while since our full year call and the AGM. Let me start our update by presenting you the headlines on slide 3. One, in a nutshell, Q1 has been business as usual, with no extraordinary negative or positive effects. Two, more than ever, cash is king, and Patric is going to report on our continuous cash flow focus in more detail. Three, we are dealing with different degrees of uncertainty. The key to success this year will be to manage the uncertainties to the extent, of course, that they are in our hands. Four, part of the safe underlying profitability is contributed by our high quality pipeline and the percentage of completion method, particularly from booming residential revenues.
In case I gave you the impression that there are no highlights, let me set the record straight in this respect. We received a rating update by ISS and proudly present you with a B-minus rating, second to none in the industry. Six, regarding our outlook, we have to see how the year plays out. We shall strongly depend on the last quarter, and I shall be more specific in connection with topic number three. With this, I would now like to hand over to Patric Thate, shedding a bit more light on the P&L as well as the balance sheet. Patric Thate, please.
Good afternoon, ladies and gentlemen, and thank you, Thomas, for the brief introduction of the highlights. Let's have a quick look on slide number 4. The first quarter was relatively unspectacular compared to the last two first quarters. Why is this the case? We had special effects in Munich in the last two years. In 2020, it was our participation in Baubergerstraße, and last year, the sale of a project without developing it ourselves. This year's first quarter was business as usual, as Thomas already mentioned, with no extraordinary negative or positive effects. As you can see from the net income lines on the left, we also had a slow start in 2019 and then achieved our record year after all. Let me briefly outline the most important balance sheet figures.
Year on year, we were able to increase our equity by 12.8% to EUR 553.9 million. This results in 35.6%. Net debt was also reduced by around 10%. Alongside this, we continue to be conservatively positioned with our LTV. In times like this, I think this is no mistake. Our balance sheet is the first part of our competitive financial advantage, and liquidity is the other. Let's take a look at slide 5. Our cash position decreased slightly in the first quarter. The reason for this was the project acquisition in the Zollhafen Mainz, which Thomas will go into detail in a minute. We acquired the project without bank financing, and we are on our way to implement the project financing over the course of the second or third quarter of this year.
However, we have not only spent money, we have also raised some on the capital market. We succeeded in issuing a promissory note of EUR 40 million, which is already included in the EUR 378 million on the left. Talking about the capital market, last Monday, our proposal was approved at the annual general meeting that we repay our EUR 25 million hybrid bonds to par. Depending on the necessary registration in the company register, we expect this to happen in Q2 of this year. All in all, we continue to have a flat repayment profile. We talked about this only a month ago. This allows us to continue to look for opportunities and to act unbureaucratically when such opportunities occur on our plate. Thomas, your turn.
Well, thank you, Patric. I like the unbureaucratic thing. It is not unusual that a business has to deal with various levels of uncertainty. Of course, there are issues which impact the entire world and where our influence is limited. I'll come to them specifically in the outlook at the end of our presentation. On slide 6, we are showing the levels of uncertainty which we can influence, even if they are not always entirely in our hands. In the low-risk category, you find projects like the F.A.Z. Tower or the almost completed Siebenbrunnengasse in Vienna. We have forward sold these projects, and the progress in construction drives the P&L on the basis of percentage of completion. I would call these risks standard risks. Even in the current environment, supply chain issues are limited and do not deviate from what we have seen in previous years.
There are some upsides from final purchase price adjustments on the basis of special wish lists that always happen, and some downsides from the remaining bits and pieces where prices have not been fixed, like the interior build-out. A more challenging topic is dealing with public authorities and obtaining permits. Best examples are Baubergerstraße in Munich, which will be called, by the way, Timber Factory, or LeopoldQuartier in Vienna. Of course, civil servants have been affected by the pandemic just like everyone else. Back in office, they are overwhelmed with the backlog and the difficult choice how to best prioritize. Still, the objectives here are clear, providing the necessary paperwork on the one hand, and ultimately the zoning or construction permit on the other hand.
Receiving the zoning permit for Timber Factory, for example, will immediately automatically lead to a purchase price adjustment, a positive one of course, which in turn will contribute to our earnings. In this context, the question is not so much if, but when. The highest level of uncertainty is where finding a tenant and tenancy agreement decides the profit at which a project can be sold. Here we can distinguish between two different cases. The one is a project under construction, where the vast majority of the construction costs have been fixed, like the Timber Pioneer Frankfurt. We do not mind holding back with the sale, as it is a trophy asset for every ESG-oriented investor. At the same time, we are confronted and seeing a market in which tenants hold back their decision to rent until virtually the very last moment.
Some might call it a luxury problem, but it makes timing for booking profits extremely difficult to predict. The other case is a project where you are looking for potential tenants in order to decide if there is interest enough that justifies starting construction under the current circumstances. A good example for this is our nico office project in Frankfurt. In this case, a delay is translating automatically into the P&L by booking profits with the dealer. Finally, we continue to investigate trade sales, a category not even listed on this chart and under the current circumstances due to an almost complete lack of visibility at the moment.
I guess the bottom line of what I'm saying is, there are a number of projects which are less dependent on the future development of the world, but more in our hands and are more dependent on our operational excellence or public authorities doing their job. This is, by the way, also a good lead over to slide number seven. 57% of our EUR 2.2 billion pipeline is made up by residential. For the moment, and in the 1A locations in which we develop our 3,200 apartments, this asset class has proven to be almost crisis resistant. While we might see a shift back to individual sales as opposed to global sales, there is enough equity around that is looking for a safe haven. We have seen no change in demand at all so far.
This is also why we are confident that our latest Q1 acquisition was the right thing to do, actually a defensive move. We have acquired four plots in Zollhafen, Mainz, which is a well-known territory to us as we have been developing together with CA Immo a number of projects there already. 75% of the 42,000 square meters will be residential and one of the rare occasions to buy prime property located directly at the River Rhine or in the adjacent marina. With these buildings, we are following our green. smart. and more. strategy, and they will be executed in timber construction, making them a super sustainable and almost unique project when it comes to a clear environmental conscience. By the way, the same applies to a 60-meter-high office tower in Zollhafen, which will be the highest building in Mainz.
This might make it attractive for tenants or buyers who look for a lighthouse building in the best sense of the word. Talking about sustainability, please turn to slide 8. We made it pretty clear in the past that sustainability or ESG is in the focus of whatever we do. This is even more true under the changed and current circumstances. For us, ESG is not a trend, it is an attitude, and it becomes more and more of a USP. Today, we are proud to announce that we have expanded our industry-leading position by being the only company in our universe with a B-minus rating. This is one notch better than we have committed in our ESG-linked bonds, and it means, of course, that there will be no step-up payment for these bonds in 2022.
We expect, by the way, EcoVadis to update in Q3 and hope for being included in Austria's most reputable VÖNIX index this year. Our change in strategy in the year 2020 is gaining shape. This is not only true for the public, but and even more important, for our people. Purpose is the number one reason why to join or stay with the company. We are determined to become the number one timber construction developer in Europe, and by this, lead our industry in the reduction of CO2 in high-rise construction. This leads me already to the last slide of our formal presentation. Please turn to slide number 9. Nothing has changed, and probably will not for the next couple of months.
We have to live with a highly complex equation with a number of unknown factors. The war in Ukraine makes oil, gas, and even wheat prices unpredictable. We have seen millions of refugees from Ukraine, and we might see even more people from North Africa, who, if they are starving, will make it to Europe. The pandemic and particularly China's failed zero-COVID policy left the world with broken supply chains. This, together with the war, results in rising inflation and interest rates worldwide. We are also confronted with more and more members of the workforce who see no sense to work and quit. Global warming didn't disappear, and the economic consequences proved to be more expensive than anybody has anticipated. Some might have heard what Mr. Soros had to say yesterday on this topic.
On top of this, we need to take a few more real estate specific effects into account. After 12 years of boom and ever-increasing risk appetite by most competitors, market participants find it difficult to accept that free lunches are over. In other words, the banks are closed for them. The best proof are struggling listed competitors in Germany, and we expect more to follow in all of our markets. Finally, central banks were very slow in reacting to a potential bubble, but they have reacted now with additional equity requirements for lending against real estate. You might ask yourself, is it all doom and gloom? Not necessarily. Looking at the players in the value chain, sellers of property were the big winners in the past, with developers coming second.
Real estate investors made some money, but in many cases it depends on the time horizon you look at. Construction companies earned very thin margins and banks almost none. With the changed environment, we see banks making good money, construction companies demanding price sliding clauses, and investors expecting higher yields. The question now is, who bites the bullet? The seller of property or the developer? From my point of view, and not surprisingly, my answer is pretty clear. With property or project owners who have obtained high leverage and earn little or no return, it is likely that they become forced sellers. This might open an opportunity for developers with comfortable liquidity, access to capital markets, and sufficient equity. In other words, developers like UBM. We have to manage the various degrees of uncertainty and the affiliated risks.
It is highly unlikely, however, that the market is going to collapse, not in the light of heavy migration, changing office realities and climate friendly refurbishments, as well as repatriation of light industry or pharma. We stand by for these opportunities to open, and we are prepared. I'm curious to hear your views, and Patric and I look forward to answering your questions. May I now open the line for your questions? Thank you.
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 1 on their touchtone telephone. If you wish to remove yourself from the question queue, you may press star followed by 2. Anyone who has a question may press star followed by one at this time. One moment for the first question, please. We got the first question from Philipp Sennewald. Please go ahead, sir. Mr. Zipek is the one on the question. Maybe unmute your phone.
Hi. Simon Zipek speaking. Thank you very much for taking my question. The first question would be, I just wondered, I think I know there are special effects in the previous first quarters, Q1 2021 and Q1 2020. I just wonder, like, the level of this year, can we expect it to be on the same level going forward in regards to percentage of completion? And then, if not, what would make the difference then? Is it a, is it the further forward sale or, yeah, maybe the successful finding of a tenant? So on. And specifically maybe what project would make the difference? That would be my first question.
Okay, maybe I take the question on the POC going forward. Basically the POC is coming from two bigger sources. The one is the F.A.Z. Tower and the other one is the residential project, especially the one in Austria, the Siebenbrunnengasse, and also the ones in the Czech Republic. For the Siebenbrunnengasse, that will come to an end sooner or later over the year, but we will see some impact still in the second quarter, for example. For the F.A.Z., we are also heading till the end of the year, so we will have a continuous stream from this one. This is also true from the Czech Republic. We will have some, call it tailwind or balanced income from these items over the year and others might follow if we are successful in getting them to the market.
The second part of the question was more on the direction. I didn't catch this one, I have to admit, because the line was a little bit broken on my side.
Sorry.
Well, Patric, I think because you have been kind of disconnected for a second, the start of the question was, like, where can we make up for the trade sales that we've made last year? I directed Simon to slide number 6 and the point that I wanted to make on Baubergerstraße, our Timber Factory. For me, Simon, it's important and maybe Patric, if you allow, let me jump in here and restate my point. For me, Simon, it's important that you understand that should we get the zoning permit as we have applied in Baubergerstraße in Timber Factory, there will be an immediate purchase price adjustment because of the zoning.
That would translate automatically. I think I used this term even in the call, automatically in an additional profit as we have participated, our partner with 40% in this project, and he would have to pay up for the better zoning permit, if you want. The other one is the Timber Pioneer. The Timber Pioneer currently is in a percentage of completion method booked only according to the progress that we've made in construction. There is no profit whatsoever booked because we haven't forward sold it because we don't have a tenant. The moment we have a tenant, where we are in well progressed talks with several interested parties, we could start a process to forward sell Timber Pioneer.
I have said this in the past several times, I expect that we can auction Timber Pioneer because it is the ESG building in Frankfurt. It's the first timber construction office building in Frankfurt, and we expect a top price then. First step first. Then we don't or under these circumstances, we don't really depend on whatever the financing situation or something else is going to be. Did we answer now more questions than you have actually asked?
No, actually, that was perfect answer to both my questions. I would have one follow-up just to get a little bit of a market sense here. In regard to the Timber Pioneer, can you speak a little bit about the contracts or the leases you would sign with tenants? Is it a five-year lease then, or is it rather short term, three-year lease?
No.
Or what is-
Yeah.
And, and-
Yeah.
The second one. Can you also give a range of multiples, just roughly what you expect right now in the Frankfurt market?
I'm more hesitant on the second part of your question, but the first one is an easy one. What we try to do is maybe you would call it overdoing it, finding the right tenants for this type of building. We have a bio supermarket, as we are calling it in Germany, for the ground floor, okay, that we have already signed up. We also like to find one or more, probably it's more tenants that also go for this timber construction aspect of it. In general, we see that tenants are not as interested as investors, that it's a sustainable.
I mean, they take it as a fringe benefit and say, "Thank you very much," but they really very strongly look at what's the square meter cost. I guess that was the second part of your question. I ask for your understanding as we have it currently out in the Frankfurt market, that I do not want to kind of, you know, interfere or preempt the negotiations that we have with potential tenants. But it is in a very competitive range. Finally, your question was on the length of the tenancy agreements. Of course, we expect or in an ideal world, we would like to see 15 years like we have with Frankfurter Allgemeine Zeitung. But that might be, you know, a bit of a dream.
Still, the time horizons people look at, particularly if they decide for a specific project and building like the Timber Pioneer is well above the 5- or 6-year time horizon that you've mentioned. We are pretty confident that the WALT, the so-called WALT, is going to be quite interesting for potential real estate investors.
Okay, great. Thank you very much. My next question or my two next questions would be more finance related, numbers related, probably something for you, Patric Thate. So first one would be in regard to your fair value in the income statement of like EUR 6.7 million. You had a fair value adjustment to the investment properties. Could you just explain from what project or from what projects it is coming from?
Of course, that is an easy one. That is coming from the office part of Siebenbrunnengasse. There is an easy part. I talked on this one on a question obviously you have not even asked. Now we are at the office part, Siebenbrunnengasse, that is up for sale. We received offers, so we got, and the offers are more than one. We got a new indication on the market price. While we are in the negotiations, we nevertheless had to increase the value of this one due to the new market price.
Okay, great. Can you speak about years in that regard also or multiples and what you
Same story, unfortunately, with,
Okay.
With what Thomas said. It's a current negotiation, so that would preempt something we don't want to.
Okay. Last one in regards to the cash flow statement. You had this acquisition during Q1.
Mm-hmm.
I just wonder how you put that together in your cash flow statement, where I can actually read that out.
Yeah. Okay. That is to be found in two positions, basically. The one position is the increase in stock, because a good part of what we acquired is leased. That is from an IFRS perspective, stock. The second part of the investment is in the investment in property, plant, and equipment. That is more a number of EUR 10-ish million. Out of this number, you find the EUR 13.8 million, and the increase in stock is predominantly Mainz. These two together give you the total we have paid for Mainz.
Okay, great. Thank you very much.
The next question comes from Philipp Sennewald from Hauck Aufhäuser Lampe Privatbank. Please go ahead, sir.
Thank you very much. Yeah, it's a difficult name. Yeah, guys, thank you for the nice presentation and also for giving me the opportunity to ask my question. I would have first two questions, but more general. First one regarding cost security. I mean, it's pretty nice that you were able to secure costs on projects which are up and running at the moment. My question would be. How do you expect that to go going forward regarding upcoming projects? Will you be able to fix costs? What do you expect regarding developer margin? I mean, we were always talking about, like, 15%-20% in recent years. You see that declining. What is your take on this?
Second question regarding refinancing, especially talking about the bond expiring this year, the 3.25% bond. How confident are you that it won't get much more expensive than this? Last question would be on the pipeline. I know you have still a very comfortable cash position. Will you or are you planning to expand this pipeline this year even more?
Yeah, very good questions. Because Patric and I are sitting in different locations, I suggest I take the first and the third question, and Patric takes the second. Let me start with the first one, which is on predictability of construction costs. Well, I made it pretty clear that, unfortunately, we are sitting in the same boat as everybody. The magic word at the moment is price sliding clauses. We have EUR 50 million that we almost have to fix this year. Beyond this, okay, we are free to push out into the future whatever we plan to get started. The best and most prominent example is the nico office building in Frankfurt.
To give a little bit more of flavor, we are currently attempting to get two general contractor offers for Thulestraße in Berlin and for this nico project. We obtained some general contractor proposals before the war started in the Ukraine. Therefore, it will be very interesting. Do we get any at all? We can't tell you as yet. If we get any, how much above the previous level are they going to be? There can be no doubt that they are above the previous level. For us, the question is more, do we push back on some of the construction starts or do we let ourselves into this?
I have one anecdotal evidence that maybe things are calming down a little bit, which is from Poland. In Poland, we do this resi development, and we had a minor part of the construction that we had to tender. We got originally an offer we wouldn't accept. It seems that a lot of the high rise construction activity, or let me put it this way, of the development activity, has died down in Poland. Now, Poland is in a special situation. Looking at this evidence, of course, the subcontractors are getting nervous because they don't have contracts for the next 15 months or so.
They look at a contract timeline of two to three months, and they seem to get a bit more comfortable on taking the risk. However, I said this pretty clearly in the presentation. I expect that the construction companies are not taking this risk. If nobody else is taking the risk, it just means that projects are shifted out. Patric, maybe you go. Is this answer your question, Philipp? Sorry.
Yeah. Perfectly fine. You were very clear on that. Thanks for the insights.
Good. Patric, do you wanna talk about the interest-
Refinancing? Yes, of course. Philipp, to this one, you pointed it correctly out. There is EUR 81 million to be refinanced maybe this year with the 3 and one quarter interest rate. What we see currently in our interest rates are two things, because it is composed out of two things, the interest rate, basically. Our individual risk premium, I don't think that this has caught up. On the other hand, it is always composed with a five-year swap rate, and the swap rate has increased over time. It's currently at a positive rate of roughly 130 basis points. Normally, or when we issued the last bond, it was even negative with minus 30, roughly.
We need to expect that if swap rates keep where they are, that this will have an impact on any bond price we are issuing. The good news is we are relaxed on this one and so far that timing, we are not under pressure to do so. If we would do it currently, it would have an impact for sure coming from the swap rate and not from the individual risk premium. Question answered, Philip?
Yeah, sure. Thank you very much. That's pretty clear.
Okay. Philipp, let me go to the third one. Did I interrupt you?
Me no
Okay. Let me go to the third question, which was like, on the opportunity hunting side. Of course, okay, as we are not a bank, we are not accumulating cash for the fun of it. We expect, indeed, three types of project, three categories of projects that might come our way without, you know, any guarantee for it. The one is projects which seek higher equity ratios in order to extend or obtain financing. Here we are pretty well-positioned because we do have this cash, which would count as equity in these projects and are not short of it. After 12 years of boom, some people got used to being able to finance 80, in some cases even 90%.
We always said that that's going to come to an end. Number two is refurbishment. Of course, more and more portfolio companies find out that their empty office space is not going to be relet no matter how much of a discount they are prepared to give. We see vacancy rates in all of our markets rising, I believe because of this. I say I believe, and I can't prove it as yet because it's a phenomenon of the first quarter of this year. These portfolio companies do not have the expertise or capacity to refurbish, redevelop such office space and might want to join forces with us, and we have a very good track record as a reliable joint venture partner in this respect.
Finally, of course, it might not come as a surprise to you, we are looking at distressed projects from the troubled competitors that we have all in mind. While we don't compromise on location and we only go for the seven A cities in Germany, there are projects in these seven A cities that we would like to take a closer look at and where we might see either out of these situations or out of situations which are less prominent on the radar screen that we could buy them at a reasonable price in a redefined price level environment.
Thank you. Thank you very much. That's very helpful. I also have some projects in mind there, which could be available soon, but yeah, we'll see going forward. Thank you very much.
Yes. Pleasure.
The next question comes from Stefan Scharff on SRC Research. Please go ahead, sir.
Good afternoon, gentlemen. I have a couple of questions. The first would be the ESG rating was improved to a B-minus level. What is your expectation here? What is possible, let's say, for the next one or two years? The second question is more general. We have market development in the face of a possible recession. A completely new interest rate environment can enter Europe soon, as ECB said to make some measures in September and some very strongly rising material prices. What's your overall outlook for your industry in the next two or three years?
Yeah. Stefan, as always, challenging questions. The number one question is like, you know, you've broken the world record. When do you think you can improve this? We are very delighted that we were able to improve what already has been an industry-leading rating with the prime status that we have achieved with ISS. I think we get rewarded that we mean it, you know?
Mm-hmm.
I mean, for us, ESG is not something that runs at the side. For us, it's at the very core of our strategy. It's an integral part of our strategy. We are more concerned that whatever step we take, we are able to keep it because the requirements are getting tougher and tougher. The rating agencies are not kind of freezing their requirements. On the contrary, they're pushing hard, and we seem to keep pretty good pace. For the moment, we try to preserve the B-minus rating, which
Mm-hmm
Nobody else in the construction and real estate industry has kept. Number 2, you've talked about the recession. That's a very ugly word. We've used the word stagflation.
Mm-hmm
which is at the moment a more popular word, but we all don't know what the future will bring. There's one thing for sure, and I have put it maybe a bit too much tongue in cheek. I said there are no more free lunches. I mean, in the past, you could buy something too expensively and find out that you can sell it even more expensively. You know what I'm talking about. We've met all these market participants at the MIPIM, usually in bars rather than at the fair.
Mm-hmm.
That has clearly changed. I would even dare to say the market has changed from a seller's market to a buyer's market, okay? Which is very bad if you're a forced seller. For us, we wear two hats, if I may say so. We are not only a seller, which is making life a bit more difficult for us, what we're seeing right now. We are also a buyer. Here we see opportunities coming up. There is good news and bad news. The most difficult for us is the predictability, you know, and the planning horizon. Because we understand and we are committed to meet the capital markets expectation and requirements.
We look at our results on a quarterly basis, rather than, you know, does it really make a difference if it's October 2022 or February 2023. That makes it a real challenge for us at the moment. That makes us pretty cautious in both giving you a guidance.
Mm-hmm
telling you when exactly you can expect the next positive effect that translates into the P&L.
Another question is the Hafeninsel V and also the Siebenbrunnengasse. You will complete it soon in the second or in the third quarter. Perhaps you can say a little bit more here about the selling status for the moment.
Yeah. Well, The One project is in a very, very advanced stage. We are in exclusivity with a buyer who we are confident because he's a long-term investor. I don't think he's looking necessarily into a time horizon like five or 10 years. He might want to keep it all together. I don't know if you've ever visited the site. I've been there when I visited the Oberbürgermeister of Mainz. I was super delighted to see the quality which we have provided there.
I'm pretty confident that The One is going to be sold in a global sale, okay, to this investor with whom we've had negotiations for a while, which should come to an end rather sooner than later.
Okay.
The other one, we do on a single sale basis, okay? The Hafeninsel V, we do on a single sale basis. We are now, I think, either ground floor or first floor. The progress is not half as far as with the other project. We have sold 45%. We are currently selling at the best price we have been selling these apartments ever in Zollhafen Mainz. This contributed to me mentioning that we don't see any change in demand on the side of private resi investors. It seems to us that the demand is completely unabated.
Okay. Perhaps a little update on the hotel market as perhaps there are more business travelers on the way after most of the COVID seems to be over now.
Yeah. Look, we see encouraging signs, and if we hadn't seen the same last year at this time of the year, I would be pretty confident that the worst is over. I can't say this for sure because we have seen exactly the same last year. The moment COVID goes into the background and people are able to travel again, and this is true for both business and leisure, we see an extremely good pickup in our hotel occupancy rates, and we are currently standing on an average at 60%, which is, you know, encouraging. The best news for me is that we seem to manage, okay, to increase the average price per available room, you know, the room rate.
Unfortunately, we have no alternative to it because the costs have increased quite significantly. If we reach pre-COVID levels, it's not good enough. The most challenging part in the hotel business at the moment is finding the people. Martina today is in The Hague because we see a very good pickup in voco. The most difficult thing that we have is to find people to service the guests there to the standards that they may expect. Encouraging signs, but it all depends on what's COVID doing, and I said this at the equation with a lot of unknown factors. We all don't know what's going to happen in autumn.
Okay. Okay. Thank you very much.
Sure.
There are no further questions at this time. I hand back to Thomas Winkler.
Thank you, Francis. Thank you for again bearing with us, and all the interesting questions. I hope you've also found the update, and it's not been more than an update, interesting. We keep you posted through our news flow. Please follow us also on LinkedIn. This seems to be the most kind of, you know, popular source at the moment. We expect a few more interesting things to happen, and stay confident in, as I said, a very complex situation. With this, I thank you for your attention and your time and your patience.
In the name of Patric and all the team that is sitting around with us here on the table, helping us out on questions, I want to say goodbye to you.