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Ladies and gentlemen, thank you for standing by. I'm Marie, your Chorus Call operator. Welcome, and thank you for joining the IMMOFINANZ Conference Call on the Third Quarter Results 2018. [Operator Instructions] I would now like to turn the conference over to Oliver Schumy, CEO of IMMOFINANZ. Please go ahead.
Thank you very much. Dear ladies and gentlemen, welcome to our conference call on IMMOFINANZ results for the first 3 quarters of 2018.
All-in-all, we can now see the results of IMMOFINANZ repositioning as one of the leading commercial real estate companies in Central and Eastern Europe with a focus on the office and retail asset classes. The measures implemented to date are taking effect. And the expected improvement is now reflected in our key performance indicators for the 2018 financial year.
On Slide 2 is a summary of our highlights for the past 9 months. And we are quite satisfied with the improvements. Our properties had a solid occupancy rate of 94.5% at the end of September 2018, and rental income increased despite planned property sales to EUR 176 million. On a like-for-like basis, this means that adjusted for sales and acquisitions, we had an increase of 3%. The most important drivers for our operating earnings were major improvement in all areas.
In total, the result of operations more than doubled to EUR 150 million. The development of our sustainable funds from operations also underscores our stronger earning power, FFO 1 from standing investment portfolio saw an increase of 100%. With these results, we are on target to meet our goal and generate FFO 1 of more than EUR 100 million in 2019.
Our financial profile has been strengthened once again. Our cash and cash equivalents have increased to around EUR 685 million, and gearing based on the net loan to value ratio now stands at just below 36% as a result.
Our financing costs have also decreased again. I would now like to ask my colleague, Stefan Schonauer to present the results in detail to you.
Thank you very much. Ladies and gentlemen, welcome also from my side. Please follow me to Page 3 of the presentation. I will guide you through our P&L.
I will start with rental income that, as already mentioned, increased slightly due to planned property sales to EUR 175.7 million, similar to development we see with total revenues that come in with EUR 246.9 million, improved by a bit more than 2%.
Expenses from investment property declined by about 20% to minus EUR 47.9 million. This is due to reduced fit-out costs, lower vacancy costs, but still in line with the previous year's period maintenance. So results from asset management improved significantly by about 10% to EUR 134.5 million. As well, results of property sales with EUR 28.1 million improved compared to the previous year. And results from property development due to the good results from our German developments turned into positive territory to EUR 23.7 million.
Other operating expenses slightly increased compared to the previous year by about 3%. But taking here into account that -- therein a one-off effect like the one-off special bonus to the Executive Board of EUR 4 million and EUR 6.3 million other costs that are one-off costs and in connection with the simplification of corporate structure. This means on a like-for-like basis, operating expenses decreased.
So result of operations increased by far more than 100% to EUR 149.7 million. And we see similar figures with our EBIT that came in with EUR 150.1 million. I'm happy to report that net financing costs are reduced significantly due to the efforts taken in 2017 and 2018. And net financing costs came in with EUR 44.6 million. This means a reduction of EUR 26.4 million compared to the previous year.
Gains and losses from equity-accounted investments are EUR 72.6 million. And in this line, we report the gain on the sales transaction on CA Immo shares with EUR 66.2 million and the proportional share of earnings from CA Immo with EUR 24 million. On the other side, we had to account for an impairment loss on the acquisition of S IMMO shares in the amount of EUR 25.1 million.
Taxes came in with minus EUR 46.7 million and consist of about EUR 29 million deferred taxes and therein about EUR 10 million coming from the increase in property valuation. This brings us to a net result of the group for the period after taking into account discontinued operations of EUR 135 million. And compared to that, last year, driven by losses from Russia, we had minus EUR 60 million roughly.
Please follow me now to Page 4 of our presentation, where I will quickly elaborate on how the FFO performed. FFO 1, and this is excluding any contributions from CA Immo, and pretax came in the EUR 63 million. This is exactly a 100% increase compared to the previous year's figures. And I'm also happy to report that we stick to our guidance that FFO 1 will reach a figure above EUR 100 million in 2019, excluding taxes and excluding any contribution from CA Immo or S IMMO stakes.
If we take into account the dividends received from CA Immo, FFO 1 before taxes and after taking into account this dividend forms to be EUR 84 million roughly.
When we have a look on our maturity profile on Page 5, I think there are some quite significant moves visible that happened in the third quarter. On the one hand side, we are very cash rich at the moment due to the disposal of CA Immo shares. And we accounted for EUR 685.4 million cash at the end of September. With this effect, also loan to value and after repayment of the margin loan on CA Immo shares went down significantly to 35.9%.
Our average cost of financing are, excluding derivatives at 1.80% compared to 1.97% in the previous year and in -- taking into account the cost for derivatives, financing costs are at 2.17%.
We also increased our hedging quota, as you can see on the bottom on the left-hand side of this presentation, from 63.5% to 74.5%.
Now looking into the chart, you can see that in the years to come, in 2019, 2020 and '21, there is not a lot of refinancing needs in front of us, that light blue color bank refinancings are in, let's say, moderate territory. And new on this slide is a margin loan in the year 2020. This is the financing we took with the acquisition of S Immo shares at favorable costs. In the column on -- in year 2022, you can also see a green-shaded bar of roughly EUR 300 million. This is our convertible bond. The convertible bond 2024 that was first time in the money end of September. And therefore, we also had to account for that fact and saw some dilution in our earnings per share figures.
Let me now hand over to our colleague, Dietmar Reindl, who will further report on portfolio performance.
Thank you, Stefan, and welcome to the audience online. Let's please look now on Slide #6, which shows the clear improvement in the performance of our properties. Our occupancy rate rose once again standing at 94.5% at the end of September. As you can see on the right-hand side of the slide, we've achieved good increases in both the office and the retail sectors. And approximately 98% of our retail properties are fully let.
The gross return on our standing investment portfolio calculated as the rental income reported in the income statement in relation to the carrying amount of the properties is around 6.2%. To facilitate comparability with our peer group, we also show the return on the basis of invoiced rent. With this, we come up to 6.5%.
I'm pleased to also highlight that our like-for-like rental income has once again increased by 3%.
Let's now look on Slide #7. The increase in the like-for-like rental income is broken down in more detail on the next slide. Here you can see that we have a higher like-for-like rental income in almost all the countries. When this is divided into office and retail, we see a rise of approximately 2% in the office sector and even 4% in retail. In general, this is the result of the increase in occupancy rates in the individual countries as well as higher rental income, especially in retail, where we benefit from the turnover rent increases in our retail formats.
This brings us to our development projects on Slide #8. The trivago Campus, which is the lower building and is shown on the left side, there are more than 1,200 employees of the hotel, such company moved in already in June. The second construction phase is already underway. The tower block with a GLA of 22,000 square meter, which we can see on the right side as a visual, will be the first myhive property in Germany. It will be named myhive Medienhafen and will be completed in 2020.
Our second major project in Dusseldorf, the FLOAT office building, is located just a few meters away. This is actually being handed over to the tenant, Uniper.
In total, our active development project has a carrying amount on completion of more than EUR 390 million. I'll now hand back to Oliver Schumy for the outlook.
Thank you, Dietmar. Ladies and gentlemen, as you can see, IMMOFINANZ is a very solid base is for further growth, and we are also growing through acquisitions.
Around 2 weeks ago, we announced the purchase of total of 8 retail parks in Slovenia, Serbia and Croatia with a very attractive return of 8%. This strengthens our position as a leading retail park operator in Europe. As a result, our STOP SHOP portfolio grows to 80 locations in 9 countries with a carrying amount of approximately EUR 800 million.
We will expand further with this rent. We are now also rolling out our myhive office brand to additional locations in Vienna, Bratislava and Bucharest.
In the area of financing, we have, as mentioned earlier, already achieved a great deal. Further measures for optimization of the financial structure include the intentions to issue bonds. This will enable us to lock in long-term financing costs and also further improve the current structure.
With respect to our holding in S Immo, the closing took place shortly before the end of the third quarter. The cross shareholding provides us -- reported a very good basis for a potential combination of the 2 companies.
Finally, our distribution policy remains unchanged. Our second share buyback program this year is on the way. In total, we currently hold around 4.2 million treasury shares. And the plan to increase the dividend to EUR 0.80 per share for 2018 remains unchanged. Thank you for the attention, and we would now be happy to take your questions.
[Operator Instructions] And the first question is from the line of Jakub Caithaml with Wood & Company.
I would like to ask 3 questions. First on Gerling Quartier, could you update us on how much more CapEx do you need to invest in Gerling? What is the status of the project? And also perhaps, how likely would you say that it is -- and that we would see further write-downs of inventories related to this project also in 2019? And then the second question, if I would ask them all at once, regarding the merger talks, where do we stand currently? And whether there is any progress to report over the past 2 months since you closed the deal and acquired the shares of S IMMO? And the final and third question relates to the past conference call. I think Thomas Neuhold was asking regarding the property expenses and the level kind of a recurring current rate. And you discussed a 7% of rental income. And I just wanted to make sure I understood this correctly. Would you be referring to 7% of rental income the way you report now? And I mean, what would this mean in absolute number? I mean, speculating that the rental income could be around EUR 260 million, perhaps slightly higher. Does this mean that, in absolute number, we would be talking about, say, something below EUR 20 million annually in terms of property expenses?
Jakub, this is Stefan. Let me probably start with the third question, property expenses. What we said is 7% on rental income regarding maintenance. This is a figure that we still consider in the long run, the right one to measure IMMOFINANZ. And this is also something that we have in our target. Regarding the second question, talks about -- our talks with S IMMO about the merger, yes, we have started these talks and we will update the market when we have here more to say and more to share. It's too early to do this now, and please understand that this will be done in a release to the market together. And I would like to hand over to my colleague, Dietmar, for the first question regarding CapEx in Gerling Quartier and any potential future write-offs on inventories there.
Thank you, Stefan. Let me update you on the situation in Gerling. Gerling Quartier, we closed already 2/3 of the transaction. We reported earlier the last 1/3 is on the way. And we have finished the hotel construction building, it's 25hours Hotel, hand over procedure is just going on. And we expect the final handover to the purchase of this project during the next weeks. This means that CapEx in this project is -- will not be seen among the parts we sold. We have to finish some apartments, which are -- well, almost 2 apartments will be only handed over next year in January. And then we have some minor works to be completed. But that's more repairs and finishing works.
[Operator Instructions] Our next question is from the line of Max Gerber with Baader Bank.
I try it again with another question on S IMMO. First of all, the standard question, can you shed some more light on what kind of synergies you expect? And then the second question, is there -- can you give any indication, how you will come together in terms of valuation and your discrepancy and NAV discounts? That will be it for me.
Thanks for this question. Also to that, we are not now giving any information on S IMMO. The only thing that, we said it already, we have started talks. And we will educate the market about the ideas that we have together when we are there. So no details on the transaction at the moment. Sorry for this.
Okay. Understandable. But allow me a second question. After your share buyback that is currently running, can you say something about the outstanding firepower that you have and maybe also something about the acquisition of disposal volumes for next year?
So what you mean with firepower, I think you mean cash on hand. You can see now in our report that we have roughly EUR 650 million cash. We think that the remaining share buyback program will cause anticipation for strong development of share price something between EUR 140 million and EUR 160 million. That's just a rough figure. And for the rest, we plan to invest in properties to acquire, properties like we just did with a good portfolio of STOP SHOPs. Here we bought for 8% yield. This brings about EUR 7.2 million rental income per year. So we plan to invest the money in the growth of the company.
And the next question is from the line of James Crombie with Petrus Advisers.
Couple of questions for me. I'll go one at a time so we don't sort of get lost. The first one was just about the EUR 6.3 million of exceptional items to reduce complexity. Just wondering what exactly you're spending that on?
Could you repeat, just -- did not understand it, EUR 6.3 million?
Sure. So the -- there was an exceptional cost item
of EUR 6.3 million to reduce complexity of the corporate structure? I was just wondering what exactly you're spending that on? And is it cash? Or is it amortization or accounting basically?
Well, this is a larger amount of measures that we took. Let me just recap here a couple of things. For example, we started to significantly reduce the number of SPVs in our group. I think more than 2 years ago, we had more than 600, almost 680 SPVs. And we are -- as you can see in our reports now, we are down to a low 300 figure. That means we have got rid of hundreds of SPVs. This is accompanied by legal cost -- by lawyers cost of leaning up the structure of the company. This is one part of spending here. Further, we had in there some one-off costs that are related to projects. And these are costs that we took out of this calculation.
Okay. Okay. So that's mostly legal fees and...
It's related to cleaning up the historic structure, yes.
Okay. And it is cash? It's not just an accounting?
No, no, this is cash.
This is cash. Good. So another one, and I know I ask this a lot. The effective tax rate going forward, just wondering if you could provide some guidance around that.
Yes, I think the question we get almost in every earnings call. The effective tax rate that I always suggest to take in any model on IMMOFINANZ, and this is just, let's say, the learning from the history is something like 15%. 15%, because we have a quite complex tax structure. There is an Austrian tax group that is making use heavily of tax losses carried forward, where we have a very low effective tax rate of 6.25%. But the properties in the countries that do not have tax losses carried forward have to pay local taxes. And the blended rate here is roughly 15%.
Okay. Excellent. On the FFO 1, I know you've confirmed guidance 2019, do you have anything to comment on 2018?
No, I think in 2018, we are pretty in line with our expectations. And we are working towards improving the overall figures. And I think we are good on track. As I just mentioned, we just bought the portfolio of STOP SHOPs. That will contribute positively. While we -- on the other side, as I said, and I think we are on a good way of increasing here the FFO.
Okay. Excellent. Excellent. And the -- just a technical one here. The difference between IFRS rent yield and the peer comparable number, just what's going on there?
This difference is quite simple in our calculation. We always use the IFRS rental income. And when you take the peer group calculation, it simply takes the contract rent that is sort of the invoice with tenant. The difference is IFRS, how to say, steps like rent discounts and tenant fit-out that is included in the other calculation.
It's basically -- it's a measure of accruals or deferring incentives on rent contracts that in IFRS was spent over the term of the lease while the cash accounted range, it appears use is higher, because usually you spend the money at the beginning and then [indiscernible]. And just to be comparable also with others, we show here 2 ways.
Okay. Excellent. Excellent. Another one on the S IMMO acquisition. Can you give us a time line roughly of when we can expect this joint communication?
Once again, no. I think it's still too early. We'll work on this and we will come back when we are there.
Okay. Fair enough. And have you sort of -- have you started due diligence? Is there any sort of budget you've set aside for that?
I can repeat this a couple of times. Same answer.
I see. I see. I understand you've got Wienerberg moving out of one of your properties, is that correct?
Yes, it is correct. They are now for a very long time in this -- in our tower here in Vienna. They took decision to move their headquarters to a building which is built from bricks outside. And as we have -- our twin towers are 140 meters high, and it's quite difficult to adapt the building by applying bricks of age. So and they want to show what's the core business. That's why we had to let them go there. And -- but this will happen in, I expect, 2020.
Okay. And that's -- is it...
We are on the way -- and we are on the way as we, how to say, quite successful with myhive concept that we are re-leasing the space. It's very nice. [indiscernible], yes, this should be okay.
Okay. And is there someone who's moving back in there? Or is that too far in the future?
No, we're on our way to discuss this with different interested parties. But it still is like 2 years to go. So it's too early to say anything now.
Okay. Understand. Understand. And last one for me, just on the development activity. What sort of yield assumptions are you using to get to the market value estimates there?
In our development -- well, I think we don't take here any yield assumptions. These are all externally valued projects. So even in the project development, they are valued by either BNP Paribas or CB Richard Ellis. And what we present in our tables is simply the value of the project derived from these external valuations and the rental income that is expected. And we can, therefore, calculate the yield and cost and that's what we show in our tables about development. So this is predictive technique. There are no assumptions from our side.
[Operator Instructions]
And the good discussion we had, we appreciate that. Thank you for the call, and we hope to see and hear you in 2019. And we wish you all a Merry Christmas and happy new year.
Ladies and gentlemen, the conference has now concluded, and you may disconnect your telephone. Thank you for joining, and have a pleasant day. Goodbye.