Immofinanz AG

VSE:IIA

Earnings Call Transcript 2021-Q1

[Operator]

Ladies and gentlemen, thank you for standing by. I'm Haley, your Chorus Call operator. Welcome, and thank you for joining the IMMOFINANZ conference call on the results on the first quarter 2021. [Operator Instructions] And I would now like to turn the conference over to IMMOFINANZ. Please go ahead.

[Stefan Schönauer Bakk, executive]

Ladies and gentlemen, welcome to our Q1 earnings call. My name is Stefan Schönauer. I'm the CFO of IMMOFINANZ Group, and I'm very pleased to guide you today through our presentation. I will start the presentation of Page 3 with the portfolio highlights. The occupancy rate of our portfolio is stable at a high level of 94.5% and our portfolio value increased to close to EUR 5.1 billion. Also, as the rental income rose slightly by 0.5%, it makes up EUR 74.8 million. This portfolio yields were attractive 6.1% and is, therewith, I think, also outstanding in the peer group. The results of asset management slightly declined by about 7.7%, and this is due to the fact that we had to account for write-offs of rent receivables to support our tenants in the pandemic.

When we look now on the next page, on Page 4 of the presentation, you can see that although the first 3 months of 2021 were fully affected by COVID-19, we were able to improve the operational results up to EUR 46.4 million. This reflects -- this means about 6.7%. Our FFO declined slightly. This is again because of the write-off of rents receivables that we have to account for to help our tenants in the pandemic, and the FFO 1 amounts to EUR 34.5 million. The net profit in contrast to that strongly improved in turn to strong positive territory with EUR 123.1 million. The LTV shows a moderate increase, and it is still a low level of indebtedness with 39.5%. And IMMOFINANZ still holds a very strong cash balance of EUR 900 million cash and cash equivalents plus an undrawn EUR 100 million revolving credit facility. So in total, about EUR 1 billion cash available.

Let us now take a look on Page 6 of the presentation. And let's look a little bit deeper into the FFO. As already mentioned, the FFO 1 before taxes amounted to EUR 34.5 million. This is a decline by close to 14%. This decline is, as already explained, fueled by the fact that we helped our tenants in the pandemic with write-off of rents receivables in the amount of close to EUR 6 million. Also, FFO 1 per share decreased by 30%, and that is because of the dilutive effect of the mandatory convertible bonds that we issued and this dilution is already fully reflected in the share price number that we took for this calculation. So the number of outstanding shares used for this calculation is EUR 123.3 million compared to the previous year's figure of 100.9 million.

Let us now have a closer look into the P&L and the results. Rental income increased by 0.5% and amounts to EUR 74.8 million, and result of asset management declined by roughly EUR 5 million. As said, this decline is our helping hand towards our tenants with write-off of rents receivables. The result of property sales improved compared to the previous year by about EUR 1.4 million, and also the development results improved compared to the previous year and turned into positive territory with EUR 1.1 million. Therewith, we were able to achieve, although there was a full effect of COVID-19 in the first quarter 2020 compared to the previous year's quarter, where COVID-19 was not really affecting our figures. Therefore, we were able to improve the results of operations by close to 7%, and results of operations amounts to EUR 46.4 million.

On Page 8, we would like to have a closer look into the revaluation results and financials, especially. So the revaluation results improved significantly compared to the previous year because we let now these negative effects from yield widening in our portfolio due to the COVID-19 crisis, in contrast to that, in some areas, yields even narrowed again. And we saw a slight increase in the portfolio valuation and this result was positive with EUR 1 million. The financial results were strongly positive. While the net financing costs were stable, the financial results turned into very positive territory because of the revaluation effects on S IMMO, we accounted here with gaining value of roughly EUR 85 million because of the improving share price of S IMMO. So we come to a net profit of EUR 123.1 million, and this means a very strong earnings per share of EUR 1 per share for the first quarter 2021.

On Page 9 of our presentation, I would like to draw your attention to our very robust liquidity profile and debt structure. IMMOFINANZ, as already mentioned, has about EUR 1 billion cash available, including EUR 100 million credit facility line and we have a very low level of refinancing needs in the next 2 years. In 2021, basically, there are no refinancing needs at all. And also for the year 2022, we have taken already a lot of successful measures to further refinance the portfolio aimed to prolong the maturity profile of the company. Our financing costs are at a very strong, good level below 2%, and our hedging quota is at a high level of 87.3%, securing the low interest rate environment for the future.

I would now like to come to the next chapter of our presentation, give you a quick update on the status around COVID-19. And therefore, we, as in other presentations as well, prepared on this Page 11 some comparison and like-for-like analysis regarding the footfall and the performance of our retail format STOP SHOP and VIVO!. What we can see here on that page also on the chart and in the tables below is that we see a strong recovery after the openings, and we see also a strong recovery of our business in the retail segment.

When we look back into March 2021, the retail business was still closed due to the authorities with about 48% of total square meters. Nowadays, it is basically all reopened, and there is just 1% of our retail space closed. So also footfall and sales come back very strongly. As you can see on the tables below for STOP SHOP and VIVO!, and we see this positive trend also towards the future in the coming weeks and months. Because of the vaccination in Europe, we think that we have a strong second half year in front of us.

When we look on Page 12, we can here also summarize a little bit the cash collection rates. And I would say we are very, very pleased with these figures that we see for the first quarter so far. With the lockdowns, around year-end and the beginning of the first quarter, we had to restart negotiations with our retailers and we have now made agreements like in the first lockdown in 2020 with the retailers to help them on the one-hand side, but also to discuss and negotiate clear payment plans, and we have been very successful with that. So we see our cash collection for the first quarter of roughly 76% paid. We granted here rent reductions to the tenants in the amount of 11%. And for the time being, about 30% of rents are not yet paid and outstanding. But due to the fact that we have now concluded agreements with the retailers, we expect here a strong increase in the coming weeks and months towards cash collection.

Let me now finally come to the last chapter of this short presentation on the Q1 figures. Let's come to the outlook. IMMOFINANZ is very successful in growing out of this crisis, and we have prepared several transactions. We have several transactions under negotiation and at hand to grow with our myhive office product. One thing we already were able to publish was our acquisition of Bucharest Financial Plaza for about EUR 36 million in city center in the heart of Bucharest. Here, we will build a high-quality green myhive building with at least sustainability certification of gold.

Further, we want to grow, for sure, in our retail parks business in STOP SHOP, a very attractive format that also has proven now during the crisis its resilience against the crisis, and its very strong performance. And our target here in midterm is to grow to up to 1 million square meters all around 140 locations and the expansion plans here, a focus on the CEE region, the Adriatic region and also selectively to Western Europe.

As you all may be aware of, we have launched a public takeover offer on S IMMO, and I would like to highlight a few points on Slide 8 of the presentation towards this public takeover offer. It is a voluntary takeover offer. We offer here a price of EUR 22.25 dividend. This reflected premium of more than 40% the 6-month VWAP and is also a premium of about 23% in respect to the last closing price of the S IMMO stock before we have published the offer announcement. What is important to conclude this offer? Or what are the important [indiscernible] on the offer? It's a public takeover offer, the minimum acceptance threshold of 50% plus 1 share of the shares outstanding and a very important [indiscernible] is also the removal of the maximum voting right in the articles of association in S IMMO.

So we expect now in -- basically, this week, S IMMO to call for an extraordinary general meeting to bring this voting restriction rights on the agenda and make it possible for S IMMO shareholders to decide about this voting restriction rights. Therewith, it will pave the way that our offer becomes valid, and the S IMMO shareholders have then a period of time to accept our offer until the 16th of July. How we will finance this offer? This offer will be financed with cash available. I mentioned already that IMMOFINANZ has about EUR 1 billion of liquidity at hand, and we have further secured a EUR 500 million credit line to finance this transaction.

Let us finally have a look on the AGM and the dividend proposal. IMMOFINANZ already announced with the annual result 2020 that we plan to bring a -- we plan to bring a EUR 0.55 dividend on the agenda of the next AGM. The next AGM of IMMOFINANZ has been postponed because of the fact that this AGM shall take place after we have seen a decision from S IMMO shareholders if they want to accept the takeover offer or not. And so we expect that this AGM will take place in autumn this year.

Thank you very much, ladies and gentlemen. This was our quick overview about the Q1 results, and I'm happy now to take any of your questions.

[Operator]

[Operator Instructions] And the first question comes from the line of Jakub Caithaml of Wood & Company.

[Jakub Caithaml, analyst]

Thank you, Stefan for the presentation. Four questions from my side and one by one, if I may. You talked about the ways you intend to finance the prospective S IMMO acquisition. I was wondering if you could give us some idea about the levels of take up, which would allow IMMOFINANZ to finance it, as you discussed with the existing resources without raising new capital and at the same time, comply with the investment-grade rating. And also what kind of levels of take-up would mean that you would definitely need to raise new capital either directly or through some quasi equity instruments, please?

[Stefan Schönauer Bakk, executive]

Yes, thank you very much, Jakub, for these questions. So basically, IMMOFINANZ will have a lot of options to finance its takeover offer, and the offer itself is fully financed, for sure. Otherwise, we would have not been able to publish it. That's why we have a EUR 500 million rich facility and EUR 1 billion of cash in place.

Coming to your question, as I understood it, how will we delever the company, a combined consolidated company. Well, I think also here, there are a lot of options. These options may go into the direction that we sell shares of CA IMMO. There may be also transactions possible to sell part of the portfolio of S IMMO, and finally, it depends a lot on the takeup of the offer which measures are necessary needed. And for sure, we have for various scenarios plans. It is, however, not the point in time where we will here, let's say, discuss these plans.

We just want to, first of all, see if this offer is successful. If it is successful, we will know the take-up level. And based on the take-up level, we will take the necessary measures, for sure, to keep the investment-grade rating. But we will also be very careful in making dilutive steps towards our shareholders. And I think one very important topic here is also to mention with this offer, in case it is successful, we will buy back about 13.5% of our own stock. So the measure itself, the takeover offer itself is not dilutive, it's accretive because we buy back these CA IMMO shares -- sorry, IMMOFINANZ shares that are within S IMMO.

[Jakub Caithaml, analyst]

Right. Right. Understood. So maybe if I can -- one follow-up on this. Would you happen to know off the top of your head, what the minimum take up that would kind of make the offer actually active, the 50% plus 1 share? Can you indicate what kind of LTV implications this would have for IMMOFINANZ or rather to, say, the combined entity on the consolidated level?

[Stefan Schönauer Bakk, executive]

I don't have these figures with me by heart, but the minimum take-up is something like we need to be successful with 24 million shares -- 24 million to 25 million shares. And if it is just across a certain rate, then the LTV of IMMOFINANZ will increase just moderate, also taking -- and I think that's really manageable. Where we will have multitude to recapitalize the company and to delever the combined entities in a case where we get almost all shares. Yes. But I have not prepared these figures for you. Happy to take this up also bilateral.

And for sure we have our internal models where we could look this up. But on the basis of just 25 million shares that are necessary for the 50 plus 1 share that we have to acquire for making the offer successful. I don't see any stress scenario at all. If we have a full take-up, what is very unlikely, then we will have to sell something. And I think [indiscernible] S IMMO just mentioning the CA IMMO shares in part of the portfolio.

[Jakub Caithaml, analyst]

Yes. That's clear. I was wondering if you could also talk on the occupancy side of things in the office portfolio, which seems to be reflecting the competitive environment. New space continues to be added onto the markets where you operate. Would you expect that we should see further increases in vacancy in the coming quarters, the way things stand now?

[Stefan Schönauer Bakk, executive]

Well, in general, speaking and not just reflecting out, but in general speaking, I think, we all know that office is a trailing indicator. Office is very strongly following the development of GDP growth in the macroeconomic environment. So I think it is not a surprise that office occupancy rates might also change a bit. I think what we saw now in our office portfolio, in our like-for-like figures, is a decline that is not too much reflected on the COVID situation or on long-term changes in trend.

It is a situation where, as of 31st of December 2020, rent contracts expired. We have found already to a great extent new tenants, but the new tenants will go into the premise between 3 to 6 months because they have to, first of all, fit-out the premise, and we will see here an increase in the occupancy level when it has happened. So we have quite good, let's say, figures on that already. And our focus also says that the occupancy in the office segment is going to improve during the course of 2021. I wouldn't here already say this is some result of the COVID-19 situation. To be honest, in general, in the office segment, the longer-term effects of COVID-19, we will see in 24 to 36 months earlier setting.

[Jakub Caithaml, analyst]

Sure. Then I was wondering if there is any visibility or any color that you may know you could share on the ownership situation? Do you understand whether Aggregate is a shareholder of IMMOFINANZ? Or is it Ronny Pecik still?

[Stefan Schönauer Bakk, executive]

Not Aggregate is definitely known shareholders of IMMOFINANZ, and it is still Aggregate SA. Aggregate SA is owned by Ronny Pecik and Peter Korbacka. And the deal with Aggregate, to our knowledge, has not closed. And there is no further news flow on this deal that I could share with you. If there is something then we immediately would push the button and announce it to the market, for sure.

[Jakub Caithaml, analyst]

Understood. And then finally, you showed encouraging performance trade -- trends of retail portfolio in April on the sales and footfall fronts. And I was wondering if you might know how would it compare the April and maybe some May figures on sales and footfall relative to the 2019 levels in the respective period?

[Stefan Schönauer Bakk, executive]

Obviously, we have not done this compared to 2019. We might be able to look this up in our internal report. Bettina is already working on that. But just from what we saw so far in -- of the first reopenings, after the first lock down these figures were all very promising. The figures of the first month where reopening was really completed were even better than the 2019 figures, and the ticket sizes were higher. This might also be, for sure, a short-term effect where people, as they can go shopping again, spend more money. And yes -- but in general, I would say, we expect here to be very quickly back on the 2019 levels. As the shops are open now, broadly, again, we have just 1% closed. And this is more related to cinemas and food courts, and the rest is open. And, yes, we expect here to be back at 2019 figures very quickly. We see here no longer-term issues in the retail business that might have an effect on office, but definitely not in our retail business.

[Bettina Schragl, executive]

Jakub. Just to give you a good glance, if we talk about figures for the STOP SHOP segment or visitors for the STOP SHOP segment. So for example, in the year 2019, we had January, February, slightly above 10 million visitors per month, growing up to 13 million visitors with per month. And now currently with our April figures, we are around 9 million. Again, so meaning we are really with our April figures in the region of January, February 2019.

[Operator]

The next question is from the line of Pavel Ryska of J&T Banka.

[Pavel Ryska, analyst]

Actually, one of them was already answered that was on the occupancy thing. I have one more, which is more methodological. So now you are according to the guidelines from EPRA, you are presenting the NTA. I would just like to ask like for historical comparison, do you consider the NTA to be the closest to the NAV that you reported before? And -- or if not, is there any like a historical -- are there any historical computations what the NTA would have been for the past year so that one can compare and see the evolution in time?

[Stefan Schönauer Bakk, executive]

Yes. Pavel, thank you very much for that. Well, to be fully transparent on these figures, we have published all of them. So we also published EPRA NAV in former periods, calculated the EPRA NAV. We show the EPRA restatement value of the net tangible assets and the net disposal value. So all EPRA figures, you can find in our report. It's on Page 8 in our report. It was just for a reason of staying efficient in the presentation that we here used the EPRA net tangible assets because we think this is the best proxy to the EPRA NAV that we reported former. And just to give you an idea also in terms of figures, the EPRA NAV for first quarter is EUR 28.81 and the EPRA net tangible asset is EUR 28.86. So there is just EUR 0.05 cents difference per share with these 2 figures.

[Operator]

[Operator Instructions] And the next question comes from the line of Christoph Schultes of Erste.

[Christoph Schultes, analyst]

Congratulations for the strong Q1 results. I have actually 2 or 3 questions. Maybe I'll start with the first one. I looked at the deferred taxes of S IMMO of more than EUR 200 million. And if I take also the positive revaluations into account that the company announced already for the second quarter, I would come up at around EUR 3 per share deferred taxes. I assume, as you mentioned, that you are probably going to sell a part of the S IMMO portfolio, and I think it would definitely make sense to sell this residential part of the portfolio. In that case, you have to pay these taxes, right? And would it now be fair to say that an offer price of more than this EUR 22.25 per share would probably not make too much sense for you, considering this tax -- these deferred taxes?

[Stefan Schönauer Bakk, executive]

Well, thank you for this question, I think this is a very complex one that should not miss up a couple of things. Deferred taxes reported in the S IMMO balance sheet, they are because of the revaluation of their real estate properties, right? In real practice -- and that's why also in EPRA NAV calculation, you adjust for these deferred taxes. In real practice, in practice of transactions, you sell the real estate assets in shares to a great extent, and you can therewith avoid these deferred taxes and don't pay these taxes. That's one thing, I think, that it makes your calculation simply not correct.

The second argument, in case we will have to pay taxes because of a very successful transaction, we would also have made a huge profit. So known items paying taxes because it means you make profit. And the third argument is IMMOFINANZ has more than EUR 1 billion of tax losses carryforward that S IMMO, for sure, has not. But these could be used to also, in case we make profit on selling parts of our assets in the past with a gain where we have to pay taxes that we can use these tax losses -- carryforward and they will reduce the amount of taxes significantly to. For example, in Austrian exclude an effective -- to a tax rate of just 6.5% roughly. I think, it's a very complex question that cannot be addressed where I take the deferred taxes of S IMMO business to be paid by IMMOFINANZ. That's simply not realistic.

[Christoph Schultes, analyst]

Okay. But that means also that you might have also reserves to say okay for us -- it could be also a good deal to pay even a little bit more than this 20 -- EUR 22.25 per share.

[Stefan Schönauer Bakk, executive]

Sorry, once again, I did not understand the question, please repeat?

[Christoph Schultes, analyst]

That means also that, I mean, I also calculated this or played around with this deferred taxes because I assumed that there could be something that could limit your offer to S IMMO shareholders. But you quite well explained that you probably will not have to pay these taxes. So would this leave some room also for you to increase the offer in case you have the feeling that it is not running that well?

[Stefan Schönauer Bakk, executive]

Well, let me answer this question. I now understand where you're coming from. Let me answer this question a little bit different. First of all, we have increased the price in -- from the announcement to now already substantially from EUR 18.04 to EUR 22.25. We have also, therewith, I think, very attractive offer on the table for S IMMO shareholders. It's a 40% premium to the 6-month VWAP. It is a 23% premium to the last closing price before the offer announcement. This premium of 23% to the closing price is -- was the highest premium ever paid in the DACH region for a takeover offer.

If you look into former transactions like Vonovia on BUWOG, Vonovia on Conwert or if you look at what happened with the offer from the Starwood on CA IMMO and there are a lot of other examples in our presentation. There is also no single report from an analyst out there before we have announced this offer, that was indicating a higher price of the S IMMO stock within the near future.

The discounts to NAV that our offer price represents of 8.5% is still a discount to the NAV, that's correct. But if you look into the broader market, there is no real estate company or there's no average of comparable peers that is trading at enough or even above.

And I think there is an extremely good offer already on the table. And last but not least, when you look into the share price performance of S IMMO since we have announced our offer, there is a constant difference between stock price in the market and our offer of EUR 22.25. And it's a strong indication that this offer is being a good offer and a fair offer in the market. And I think that's the argument or that's the answer to your question. If we see a limitation in our offer price, we think we have here already a very good offer price for S IMMO shareholders out there.

[Christoph Schultes, analyst]

Okay. Great. Great. Then another question, if I may. So you mentioned already that if the offer is successful, you will also be buying back own shares. This is something what I maybe want to touch again. Let's assume that you might not be successful. Then I think the logic would say that you will look for some other assets, some other investment properties. So yielding assets and on the other side, buying back own shares could also be an idea, especially when we think that the offer of -- for S IMMO, you would be ready to pay already above book value and your share is still traded significantly below book value. So would that be probably also an idea or not?

[Stefan Schönauer Bakk, executive]

It should cross the bridge when we come to it. Yes, we are of the opinion that we have a very good offer for S IMMO shareholders out there. And on that basis or, let's say, we will discuss these ideas if the offer period expires and we should not be successful with the offer. They're happy to discuss the ideas. For the time being, I think, let's assume we will be successful with this good price out there.

[Christoph Schultes, analyst]

Okay. Good. Last question would be, I mean, I think you probably would not be able to give me an answer on that, but it would be interesting for me in the case if you have any indications what the other 2 big shareholders, Aggregate and Peter Korbacka, if they would accept your offer or not? Are you in contact with them on this issue or not?

[Stefan Schönauer Bakk, executive]

For sure, we will be in contact with all shareholders, and we try to keep a very close dialogue with all shareholders, but it's up to those shareholders to inform the market if they want to do so, how they will decide about the offer, and it's not something that IMMOFINANZ can announce. It's something those shareholders have to do. And for sure, we try to be in touch with them, we want to discuss with them the offer. And I think this will be very good and open dialogue. There is still a lot of time until then. We expect now S IMMO to call for the AGM. I think we have a clear time table until then or a time line on the table to discuss the next steps. But yes, as said, these shareholders, they will themselves decide if they want to inform the market how they will treat this offer.

[Operator]

And there are no more questions at this time. I would like to hand back to IMMOFINANZ for closing comments.

[Stefan Schönauer Bakk, executive]

Well, ladies and gentlemen, thank you very much for attending our Q1 earnings call. Thank you for the interest and the questions, and we are looking forward to speaking to you with the half year results. Thank you very much. Bye-bye.

[Operator]

Ladies and gentlemen, the conference has now concluded, and you may disconnect your telephone. Thank you for joining, and have a pleasant day. Goodbye.