Bettina Schragl

Afterthoughts on the IMMOFINANZ annual general meeting for the abbreviated 2016 financial year

It is shortly after 10 am, and the 24th annual general meeting in the Austria Center Vienna has just started. Supervisory Board chairman Michael Knap opens the annual general meeting and welcomes the shareholders.Knap reports that the company had 1,022,540,069 voting shares (excluding treasury shares) as of the record date for the annual general meeting (22 May 2017). In contrast, there are now 1,052,525,375 shares. The increase is explained by the distribution of shares for the settlement concluded to terminate the court proceedings over the review of the exchange ratio applied to the merger of IMMOFINANZ and IMMOEAST.

One change since last year: This time all points of the agenda will be dealt with in the form of a general debate.
And now we come to the first point on the agenda: the presentation of the annual financial statements and recommendation for the distribution of profit plus a presentation by the Executive Board.

Mr. Knap turns the floor over to CEO Oliver Schumy.

He welcomes the shareholders and guests at today’s annual meeting on behalf of the entire Executive Board.
“We worked hard in recent months to resolve the remaining problems from the past, to again raise the occupancy rate in our properties to substantially more than 90% and to further reduce our costs – whereby there is still room for improvement here. With these steps, we have significantly strengthened the IMMOFINNAZ Group“, adds Schumy. That will also be reflected in a sustainable improvement in our earnings over the next 24 months.

Schumy goes on to discuss the milestones of the past two financial years: They range, for example, from the optimisation of the portfolio structure through the sale of selfstorage and the logistics business to the reduction of the BUWOG investment and the largest single rentals in the company’s history for more than 54,000 sqm in total (with trivago and Uniper) and also include the establishment of a sustainable dividend policy and the acquisition of a 26% interest in CA Immo. “This investment gives both companies a future perspective that goes far beyond the next two years.“ In addition to the settlement of the lawsuits filed by investors, a settlement was also reached to end the court review of the exchange ratio applied to the merger of IMMOEAST and IMMOFINANZ - roughly seven years after the start of these proceedings. “That represents the last historical legal dispute at the shareholder level – and we are very proud to have reached this point“, added Schumy.

Executive Board member Dietmar Reindl now provides details on the portfolio optimisation:
A comparison of the last two years shows that the portfolio profile is now much clearer and simpler: The office share of our portfolio increased from nearly 40% to over 60%, and retail properties are now responsible for roughly 32%.
The overall occupancy rate of the portfolio rose to 89.6% at the end of December. “And based on results for the first quarter of 2017, we have now reached almost 92%.“
In the office sector, the occupancy rate increased from 75% to 87.3% per at the end of December. The retail properties, excluding Russia, had an occupancy rate of 93% – and an even higher 96% at the end of March.

An important step for raising the occupancy rate, above all in the office sector, was the introduction of myhive, our international office brand concept. “The feedback from our tenants has been extremely positive. The myhive locations – 20 in the first phase – have an occupancy rate of almost 91%“, indicated Reindl.

He then discusses the planned growth with our STOP SHOP retail parks and the roll-out of our VIVO! shopping center brand. “As you can see from the indicators, our retail parks are essentially fully rented. These properties have an occupancy rate of roughly 97% and, at 7.4%, the return is very high.“ In addition, the indicators for VIVO! are also very good in branch comparison.

Substantial progress was also made in Moscow, signalled Reindl. “We used the past quarters to adapt our five shopping centers to the changed market environment. This included the integration of new retail concepts, for example like fresh food markets, to create a solid positioning for these shopping centers over the long-term."

All these measures have had a positive effect and represent an important condition for the planned separation of the Russian portfolio. “That is reflected, above all, in the impressive development of the occupancy rate. The rentals in these properties have again reached 90%, including signed leases, compared with 81% in mid-2016. This gives us a good position in the current market environment.“

CEO Schumy again takes the floor and continues with an overview of our active development projects. The focus here is on the realisation of our large projects in Germany, which are more or less fully rented. “These projects are on track: The trivago campus and FLOAT, the corporate headquarters for the German utility company Uniper, will be completed during the coming year. And at the Cluster Produktionstechnik, I attended the official opening exactly two weeks ago today: Most of the rental space has already been transferred, and the remaining tenants will be moving in during the summer.“

The active development projects had a carrying amount of approx. EUR 380 million at the end of December. The outstanding construction costs total roughly EUR 240 million, and the expected fair value on completion is approx. EUR 670 million. “All in all, very attractive projects which were financed with the proceeds from the sale of our non-core properties“.

We are making good progress with this sales programme: ”During the past eight-month financial year we sold properties with a value of roughly EUR 277 million. Other properties totalling approx. EUR 420 million are also designated for sale. They include, for example, the Empark office complex in Warsaw and the Friesen- and Gerling Quartier in Cologne.“ Most of the sales currently in the pipeline should completed by the end of 2018.

A few words on the dividend: As announced, the annual general meeting will be asked to approve a dividend of six Euro cents per share for the eight-month abbreviated financial year. That represents a dividend return of 4.9% for a 12-month period based on the share price at the end of December. This distribution is classified as a repayment of capital and is therefore not subject to withholding tax for natural persons who are resident in Austria. “We also want to pay a dividend for the 2017 financial year. In addition, our distribution policy includes share buybacks. Here we started a new programme in March of this year which will cover up to 20 million shares“, explained Schumy.

He then gives the floor to CFO Stefan Schönauer, who discusses results for the 2016 financial year. Schönauer precedes his remarks by noting that the Russian shopping centers are presented as a “discontinued operation“ because of the decision concerning their sale or spin-off. “The results from Russia are therefore summarised on a single line on the income statement but, naturally, the management report and the notes still include details on the development of business in Russia“.

Rental income in the abbreviated financial year – excluding Russia – totalled EUR 156.7 million. That represents an increase of EUR 1 million or 0.7%. The decline in rental income resulting from the sale of properties was offset by completions and new rentals. The results of asset management amounted to EUR 91.0 million and were 9.2% lower than the comparable prior year value. This decline resulted from higher expenses for investment properties due to modernisation projects and the roll-out of our myhive office brand.

Net profit from continuing operations – meaning, without Russia – therefore totalled EUR 26.9 million, compared with approx. EUR 61 million in the previous year. The results of discontinued operations – meaning Russia – equalled EUR -208.8 million and roughly reflected the previous year. The rental income from Russia declined from EUR 56.9 million to EUR 50.1 million.

Schönauer now turns to results for the first quarter, which were announced at the beginning of this week.

Rental income equalled EUR 57.1 million in the first quarter, compared with EUR 58.2 million in the comparable prior year period. This slight decline resulted, above all, from strategic adjustments to the retail portfolio in Austria. The results of asset management amounted to EUR 39.5 million and were 3.6% lower than the previous year. Property expenses rose slightly to EUR -20.4 million. The results of property sales equalled EUR -6.0 million and reflected the optimisation of the portfolio. The results of property development equalled EUR -5.8 million and were again attributable, above all, to additional costs for real estate inventories in the Gerling Quartier. “As previously mentioned, we are working to close this chapter once and for all“, indicated Schönauer. Positive valuation effects were recorded on the development projects in Germany.

The results of operations equalled EUR 17.8 million and were 68.9% lower than the first quarter of 2016. In contrast, financial results were substantially positive at EUR 93.0 million. Financing costs fell by 7.7% due to the incentivised conversion of the convertible bond 2018. Financial results also include the results from investments accounted for at equity, which were substantially higher than the previous year at EUR 134.1 million. In the first quarter of 2017, a valuation gain of roughly EUR 84 million was recognised to the investment in CA Immo.

In Moscow, rental income amounted to EUR 22.2 million, compared with EUR 19.0 million in the first quarter of 2016. That brings us to net profit, which totalled EUR 80.7 million – compared with a loss of more than EUR 240.0 million in Q1 2016. The EPRA NAV per share improved from EUR 3.12 to EUR 3.14.

Schönauer now discusses the outlook and explains the multi-stage refinancing transaction in January, which will reduced the volume as well as the historically high interest rates on our bonds over the medium-term. “The annual interest payments on bonds will drop substantially from the original level of EUR 27.1 million to EUR 5.9 million“, added Schönauer.

The CFO also briefly mentions the good development of the share price since the beginning of this year: the price of the IMMOFINANZ share has risen by roughly 10% since the start of 2017 and by roughly 20% following the annual low at the end of January.

With regard to the medium-term development of FFO – meaning the company’s sustainable operating earning power: the previously implemented measures will be sustainably reflected in this indicator over the coming years. The key factors: the active development projects will generate approx. EUR 37.0 million of additional rental income after completion and at full occupancy. The normalisation of the temporary increase in property expenses and other operating expenses should have a positive effect of approx. EUR 25.0 million over the medium-term. And financing costs are expected to drop by roughly EUR 30.0 million over the coming years. “We have successfully created a large number of positive factors for our future growth“, commented Schönauer.

In conclusion, CEO Schumy comments on Russia and the planned merger of IMMOFINANZ and CA Immo. “The separation of our Russian portfolio will be completed during the current financial year. And, as you can see based on the development of our occupancy rate in Moscow and the Ruble, we were right last December when we decided to take somewhat longer than originally planned for the separation“. Everything is proceeding as planned to allow the annual general meetings that will vote on the merger to take place during the coming year.
The joint preparations with CA Immo for the merger will be resumed after the summer.

Supervisory Board President Knap begins with the other points of the agenda, which brings us to the general debate.

Mr. Rasinger from IVA is the first speaker at the podium: The abbreviated financial year was a year of transition in which a great deal was dealt with; he acknowledges the work that has been completed. One particularly positive point is the dividend of 6 cents. He emphasises the importance of looking forward. The investor representative highlights the settlements with investors, the settlement to terminate the court review of the exchange ratio applied to the IMMOEAST/IMMOFINANZ merger and the settlement with Mr. Petrikovics. “It is important that you can now look positively into the future“. An ideal “window of opportunity“ opened for these settlements, indicated Rasinger. He also noted that the merger negotiations between IMMOFINANZ and CA Immo should take place as negotiations between equals.

One shareholder recommends stronger share buybacks: “I would be pleased to see an increase in treasury shares.“
COO Reindl answers a question on the changed market environment in Russia. The space in shopping centers increased substantially between 2012 and today– in fact by more than 40% during the crisis. This problem was aggravated by a significant decline in the purchasing power in Dollars.

A shareholder speaks in favour of the spin-off of the Russian properties. “We are not excluding this option, but are currently looking towards a sale“, explained Reindl.

CEO Schumy answers a question on the termination of the court review of the IMMOFINANZ/IMMOEAST merger: “The original exchange ratio was 1 to 1.5. The settlement represented a moderate adjustment and did not significantly change the total volume.“

The Executive Board will not comment on possible price expectations for the Russian properties at the present time, explains the CEO. That would not be helpful for the ongoing separation process.

A shareholder, who has held IMMOFINANZ shares for 24 years, refers to the political and economic environment and finds the timing right to leave the Russian market. “Finalising the sale this year is important“, he says. In total, he praises the Executive Board. Nonetheless, the discount to the NAV is still very high. “The concentration process in recent years has made IMMOFINANZ smaller, and now is the time to resume a growth course“, he believes.

Another long-standing shareholder wants to know the interest rate to be paid by Mr. Petrikovics for the outstanding balance from the settlement. Answer: 1.75% per year.

What speaks against completing the merger now and then selling the Russian portfolio, asks one shareholder. “The Russian portfolio would represent an added risk for CA Immo shareholders because their company is not invested in Russia“, explains CFO Schönauer.

What is the further procedure for the Gerling Quartier? COO Dietmar Reindl answers: “One part, the second construction section has already been sold. The next step involves the sale of the first construction section, which will close the chapter on this project. “It is a mixed-use quarter with a high share of luxury apartments.

Another shareholder refers to the relocation of a well-known pharmaceutical company to the myhive Twin Towers in Vienna – into the offices originally occupied by IMMOFINANZ: “It is commendable that IMMOFINANZ is moving its offices to lower floors to accommodate the new tenant“, he says.

In Germany IMMOFINANZ is now concentrating on highly efficient and “straightforward“ development projects like the corporate headquarters for trivago and Uniper, explains CEO Schumy in response to a question. The Gerling Quartier is a historical legacy, and the sale will now permit a systematic exit.

The settlement with Mr. Petrikovics included a disclosure of assets as well as a betterment clause.

A number of questions from shareholders are now read. One shareholder wants to know why IMMOFINANZ is not turning more strongly towards Western and Northern Europa. CEO Schumy refers to the German market, which definitely represents a focal point for IMMOFINANZ’s future growth. Northern Europe offers advantages through stability and high purchasing power. Over the long-term – meaning seven to ten years – growth in new countries can, generally speaking, not be excluded.
All questions and comments have now been dealt with.

Mr. Knap on the attendance at the annual general meeting: 569 shareholders or shareholder representatives, representing 336.8 million shares, are present.

These comments were followed by voting on the individual points of the agenda – all points were approved.

That marks the end of our 24th annual general meeting after three hours and 55 minutes.

Thanks for your time!