Bettina Schragl

IMMOFINANZ Annual General Meeting 2015/2016 review

It is shortly after 10:00, the 23rd annual general meeting at the MetaStadt in Vienna has begun. The Supervisory Board Chairman, Michael Knap, opens the annual general meeting and welcomes all shareholders. There are around 500 people attending. He also addresses the publication of the invitation and its compliance with legal requirements and the articles of association, along with other formalities. IMMOFINANZ currently has 975,955,651 shares in issue, reports Knap. Of these, 9,999,973 shares are held by IMMOFINANZ subsidiaries as of today. The voting rights relating to these shares cannot be exercised. The number of shares with voting rights is therefore 965,955,678.
We come to the first item on the agenda: Presentation of the approved annual financial statements including management report, the corporate governance report, the consolidated financial statements including Group management report and the Supervisory Board report, each for the financial year 2015/16.

Mr Knap hands over to CEO Oliver Schumy.

He greets all shareholders and participants in today's meeting on behalf of the entire Executive Board.
"In the past financial year, we have made a great deal of progress and have laid the foundations for the transformation of IMMOFINANZ into a leading European commercial real estate group with a focused portfolio. The emphasis on the office and retail areas forms the basis for setting the course for new growth, following the successful spin-off of BUWOG and the sale of our logistics portfolio", states Schumy. "We also drew a line under a difficult period from the past and brought the issue of shareholder litigation to a close."

Schumy then addresses the very strained situation in Russia, which has a material impact on the performance of the business.
The strategic focal points were adjusted in the past year, the CEO advises, and discusses the sale of the logistics portfolio and the associated focus on two asset classes. The proportion of office properties has thereby risen from approximately 40% to 49%. Retail properties now account for around 45% of our real estate portfolio. The freely-available shares in BUWOG were also fully monetarised, in line with the plans we announced at the time of the spin-off. IMMOFINANZ now holds just under 10% of the shares in BUWOG; these shares are however reserved to service the proportional obligations under our convertible bonds.

The liquidity released through the sales is invested in the expansion of the portfolio. Additionally, the basis for a sustainable dividend policy has been established.

Dietmar Reindl, COO, takes over and outlines the progress made in the office and retail areas. "Our focus in the office segment is currently on the German market, where we have very high pre-occupancy rates. In the past financial year, we have started the construction of the new head offices for trivago and for Uniper, the energy provider. Both of these long-term leases, of over 54,000 sqm in total, are among the largest individual office rentals in the history of our company. The German office portfolio will, in the future, consist of high-quality office properties in Düsseldorf, Cologne and Aachen. In Aachen, where IMMOFINANZ is developing a technology "cluster" for the local university, it is intended to focus on further cluster developments. "Our tenant in this case is the public sector, with very long lease agreements. That is a very attractive model."
The office portfolio in Germany is expected to grow to over 190,000 sqm of rentable space, with a carrying amount of approximately EUR 760 million, by the middle of 2018.

"While in the office sector we are focussing on the Central and Eastern European capital cities, and on the largest office locations in Germany, in the retail portfolio we are expanding primarily in the medium-sized and smaller cities", states Reindl. The STOP SHOP retail parks and VIVO! shopping centers are optimally suited to these due to their size and offering. The COO refers to the recent completion and opening of a VIVO! Center in Stalowa Wola in Poland, and of four STOP SHOPs in Serbia and Poland, which are fully let.

Additionally, in the past year the occupancy rate of the office portfolio has increased from 75% to around 82%.

The CFO, Stefan Schönauer, now takes over to address dividends and the results analysis: IMMOFINANZ shares are to again be positioned as a sustainable dividend stock, as communicated at the previous year's AGM. To facilitate this, independently of special situations such as Russia, the capital measures decided upon in the previous year have been implemented.

A dividend of 6 cents per share is proposed for the 2015/16 financial year. This equates to a dividend yield of just under 3% based on a share price of EUR 2.06, the closing share price at the reporting date.

The dividend is not subject to withholding tax for Austrian private investors.
The meeting continues with a detailed review of the business performance. Rental income fell by 18.4% to EUR 314.5 million, primarily due to Russia and the EUR 54 million reduction in rental income there, as well as to sales of properties.
Results from property sales amounted to EUR 0.8 million in the reporting period, compared to EUR 44.4 million in the same period of the prior year. Various residential properties and office buildings in Vienna, a number of smaller retail properties in the provinces, and the Dutch self-storage chain City Box with a total of 23 locations were sold. The gains on these sales were, however, offset by revaluation losses on properties held for sale. This primarily related to EMPARK, the large Polish office complex.

The results from property development amounted to EUR -15.0 million, after EUR 11.4 million in the 2014/15 financial year. This was mainly due to construction cost overruns in the development of Gerling Quartier in Cologne.

Results of operations came in 59.1% below the level of the prior year. One of the reasons for this was the one-off effect of around EUR 29 million for the settlement of investor legal proceedings.
"This brings us to the revaluations, which reflect the uncertain external environment", says Schönauer. He also mentions that IMMOFINANZ changed the appraiser in the last financial year. Our portfolio in CEE and Russia is now valued by CBRE; BNP is responsible for the portfolio in Austria and Germany.

Adjusted for exchange rate movements, the devaluation of the Russian real estate amounted to EUR -470 million. This contrasted with positive effects in Austria and Hungary. The revaluation in Russia resulting from foreign exchange effects was on the other hand EUR 410 million, resulting from the valuation of Russian real estate in USD dollars and the translation of the Russian rouble property valuations in the financial statements of the local Russian companies.

Net profit for the period was minus EUR 390.4 million in total, compared to minus EUR 376.6 million.

Schönauer now moves on to the figures for the first quarter of the abbreviated financial year. The results from Asset Management were slightly higher than the prior year, at EUR 54.5 million. Results of operations were stable, at around EUR 45 million.

Revaluations amounted to minus EUR 8.6 million, following a positive result of over EUR 200 million in the comparable prior year period. This is primarily due to the revaluation result from foreign exchange effects, which was significantly lower than in the prior year period due to a more stable rouble.

Financial results improved to just under EUR 11 million, after a negative result of minus EUR 106.8 million in the first quarter of the prior year. Financing costs decreased, from approximately EUR -44 million to EUR -39.4 million. Income from equity-accounted investments was positively affected by the sale of the BUWOG shares. Net profit for the period therefore amounted to EUR 21.9 million, compared to EUR 115 million in the prior year quarter.

This brings us to the outlook, in which Mr Reindl refers to the planned growth of the retail brands and the new office brand, myhive. He explains that IMMOFINANZ is strongly focused on brands and is taking a leading role among real estate companies in this respect, as there is a clear competitive advantage associated with brand establishment. "Our brands have a high degree of standardisation, which enables us to expand rapidly.” This also brings cost savings in the course of further growth. "Instead of developing different approaches for modernisation of 30 office buildings and engaging architects, with myhive we have a concept that we can roll out on a standardised basis."

It is planned to increase the number of STOP SHOPS, from 58 in seven countries currently, to over 100 in the coming years. This will result from further developments on the part of the company - such as in Serbia and Poland - as well as acquisitions. Furthermore, acquisitions of smaller portfolios are also being negotiated. "Our retail parks are virtually fully let - the occupancy at the end of April was 96%. The rental yield of 8% is likewise very high."

The VIVO! shopping center brand is being rolled out across existing shopping centers, which will bring the total to ten locations in four countries: Poland, Romania, the Czech Republic and Slovakia. "We do of course have further growth plans for our shopping centers: The next in-company VIVO! development project is planned for Krosno, a city in southern Poland", says Reindl.

For all of the brands, the main focus is on tenants and their customers and employees feeling comfortable in our buildings. The goal for the new office brand, myhive, is to re-define the term "office". "Instead of being cold and impersonal, myhive has a friendly and vibrant atmosphere, as you can see from the picture here. myhive is a place where one enjoys spending time and working, and can interact. myhive will be rolled out across 20 locations in the next two years; in Vienna, the Twin Towers at Wienerberg are scheduled to be converted before the end of this year”.

Reindl provides an outlook for the occupancy rate for the rest of 2016: In the office area, this should reach 85%. In retail, an increase from the most recent level of 91.1% to around 93% is planned; excluding Russia this would be above 95%.

As far as further property sales are concerned, over the medium term real estate with a value of approximately EUR 1 billion is to be sold. These are predominantly properties which, due to their size, location, quality, or other features are not suitable for the core portfolio.

Mr Schumy takes over again and now addresses the planned combination of IMMOFINANZ and CA Immo, which will form a leading European real estate company with clear market leadership in Central and Eastern Europe. "In the coming months, we will work together with CA Immo on the details of the merger. This process has already begun and working groups have been set up. We aim to hold the shareholders' meeting which will decide on the merger in 2017", states Schumy. At the same time, IMMOFINANZ is currently working on the separation of its Russian portfolio.
Mr Knap thanks the Executive Board and advises that there will be a general debate on the agenda items 1 to 4.

With this we come to the second agenda item, the dividend distribution of 6 cents per share. It is a capital repayment in terms of taxation treatment, with the advantage that there is no 27.5% withholding tax deduction.
Agenda items 3 and 4 relate to the granting of discharge to members of the Executive Board and the Supervisory Board.

And with that, we come to the first set of questions.

Mr Rasinger, president of the Austrian Shareholder Association, steps onto the podium. As a shareholders’ representative, he represents around 120 shareholders. He notes that the annual report is detailed and informative. In his remarks about the financial year, he addresses issues including the negative Russia valuation, the purchase of the stake in CA Immo, the cost overrun at Gerling Quartier in the last financial year, and the settlement with investors and associated legal and advisory expenses. The last point is quantified as an amount of around EUR 1.5 million per year by the Executive Board, which will be saved in the future. He would also like to see a higher degree of share ownership on the part of the Supervisory Board.

Mr Reindl answers the question on the costs of the myhive rollout - around EUR 9 million for the refurbishments, primarily relating to the common areas. It is planned to complete the modification of 18 myhive buildings by the end of 2017.

The dividends are not a criterion for the performance-related remuneration of the Executive Board, Mr Knap explains. These criteria include vacancy reduction, reduction of complexity in the company, etc.

Several investors request to speak, and point out that they would prefer a spin-off of the Russian portfolio, and ask what institutional investors think about this. CEO Schumy refers to many detailed discussions with institutional investors in this respect - there are arguments for a sale as well as for a spin-off.

At the request of a shareholder, the lawyer Rudolf Fries, who with his group of companies holds around 7% in IMMOFINANZ, also comments on the topic. He has a very pragmatic view of the Russia issue, he says. If the price is right, it should be sold - and if it isn't, the alternative solution of a spin-off should be adopted. The best alternative for IMMOFINANZ and its shareholders should be selected.

CEO Schumy additionally points out with respect to Russia that politics have a considerable influence on the economic situation in the country. "It's different to here. This aspect must also be considered."

Several investors ask why Semper Constantia custody clients did not receive a written invitation to the annual general meeting this year. The Executive Board advises that Semper Constantia told us last year to no longer offer this service. In total, we did however send out more than 21,000 invitations this year.

One shareholder asks why the IMMOFINANZ logo was removed from properties in Vienna. Concerning this matter, Executive Board member Reindl points out that, on the one hand, several properties have been sold. The maintenance costs were also relatively high - weighing up the costs and benefits, we decided to remove them. "We are focusing on the presence of our myhive, STOP SHOP and VIVO! brands", he explains. myhive is currently being advertised on the Airport Tower in Vienna. It is also advertised in large scale on our Twin Towers at Wienerberg (Tip: it's best viewed in the evening).

One investor asks whether, if there is a merger of IMMOFINANZ and CA Immo, the combined company will be given a new name. According to CEO Schumy, this has not yet been considered in detail. And he elaborates: "In the view of the capital market, who takes over whom and whose name remains is not important. The more important issue for the market is the formation of a real estate company of a relevant size in a European context, which is directly driven by investors independent of the ATX. The result is what counts, and whether entry into this group of ten to twelve of the largest real estate companies in Europe can be successfully achieved."

CFO Schönauer speaks about the BUWOG share price performance and explains that, with the sale of the remaining 18.5 million freely available BUWOG shares, the stock overhang with respect to BUWOG has been eliminated. This has been very positively received by the capital market.

In response to the question of why we did not carry out a capital increase for the acquisition of the CA Immo stake, Schönauer points out that this would not be in the interest of shareholders due to the high share price discount to NAV.

One shareholder asks how many road shows were attended and in how many the Executive Board participated. CFO Schönauer replies that ten road shows took place in 2015/16, at which investors in 12 cities were met. Seven of the ten roadshows were undertaken by the Executive Board. The roadshow locations included Zurich, Geneva, Paris, New York, Boston, London, Amsterdam and Copenhagen.

With respect to the office market in Vienna, COO Reindl talks about the ongoing improvements to the quality of the office properties. In the Business Park Vienna, Building A was refurbished after the tenant, ÖBB, moved out. The building is already let again, to Vaillant and another international tenant.
IMMOFINANZ is at present also working on the conversion of three office buildings into residential buildings in Vienna. These properties are currently in the approval phase - it involves around 40,000 sqm in total.

In response to the question on the status of the assessment of the exchange ratio from the IMMOFINANZ and IMMOEAST merger, CEO Schumy replies that the court-appointed expert completed his assessment in the last financial year. The assessment essentially confirmed the appropriateness of the valuation method used to calculate the exchange ratio.
The committee has set a date for further negotiations in October 2016. We hope that the process will be swiftly brought to a close.

In response to another question, CFO Schönauer speaks about the cumulative amounts distributed by IMMOFINANZ in the last years. Between 2010 and 2016, IMMOFINANZ paid out a total of EUR 0.46 per share in dividends - this equates to a total amount of approximately EUR 470 million. Around EUR 0.34 per share was paid out for share buybacks, which indirectly benefit shareholders, amounting to EUR 328 million in total. When dividends paid by BUWOG are also factored in (including the one to be resolved upon by the upcoming AGM), this increases the amount by more than EUR 200 million. In total, therefore, around EUR 1 billion.

Which criteria determine whether a dividend is classified as a capital repayment? CFO Schönauer explains that this depends on the internal funding of the company that distributes the dividend. If this is negative, as was the case for IMMOFINANZ in the last year, the distribution must be treated as a capital repayment and is consequently exempt from withholding tax for Austrian private investors.

One shareholder has put forward questions to the Supervisory Board candidates and the Executive Board as part of a research project. An excerpt:

Question: The core value of a real estate company lies in the fair values of the properties owned by the company. In your opinion (either subjective or objective), has the quality of fair value appraisals improved in recent years?
Answer: We work exclusively with large, international appraisers for property valuations - currently CBRE for our total Eastern European portfolio and BNP Paribas for our properties in Austria and Germany. In this respect, the quality of the fair value appraisals is unchanged and remains very high.

Question: In the annual report, there are a variety of key figures relating to real estate, earnings, assets, finance and shares. On which key figure or figures will you place most emphasis in terms of management of the company going forward?

Answer: Investors are interested in potential for value and rental income growth, and the earnings generation of the properties. The most important key figures we focus on consequently include: Net Asset Value (NAV), Funds from Operations (FFO), occupancy rate, rental income and rental yield.

Question: Have you in the past conducted a protection requirement analysis for cybercrime prevention, or do you plan to conduct this type of analysis?

Answer: IMMOFINANZ implements cybercrime prevention measures on a regular basis. These range from training and awareness-raising measures to working with leading experts, in order to identify potential weak points at an early stage and take preventative measures.

This brings us to the voting on agenda items 2 to 4, all of which are passed with a majority. Likewise agenda items 5 and 6, whereby the remuneration of the Supervisory Board is set at around EUR 261,000 and Deloitte is appointed as auditor for the abbreviated 2016 financial year.

Agenda item 7 relates to the elections to the Supervisory Board, after the terms of office for Michael Knap, Rudolf Fries, Christian Böhm and Nick J.M. van Ommen end with effect from the end of today's AGM. It is proposed to re-elect the four gentlemen to the Supervisory Board - for the term until the AGM which will resolve on the granting of discharge for the 2020 financial year. There are no questions about this agenda item and we immediately start with the voting. All four candidates are re-elected.

Agenda item 8 relates to the authorisation of the Executive Board in connection with the acquisition and disposal of treasury shares. In detail, the authorisations are as follows: For the acquisition of own shares of up to 10% of the share capital, for the sale or utilisation of own shares (also with exclusion of subscription rights) and for the retirement of treasury shares. This agenda item is also approved.

The final item on the agenda relates to the out-of-court settlement with Norbert Gertner, a former member of the Executive Board. As a result of the settlement, IMMOFINANZ and Aviso Zeta receive a total of approximately EUR 7.9 million. "I should say at the outset that the agreement proposed for approval, in view of the assessment of the risks associated with the litigation and the possibilities for recovery, is favourable for IMMOFINANZ and its affiliates. It is uncertain as to whether a better overall outcome for IMMOFINANZ and its affiliates could be obtained through legal proceedings", explains Chairman of the Supervisory Board Knap.

Mr Rasinger from the Austrian Shareholder Association is in favour of the settlement and asks about the related legal costs. Mr Schumy answers the latter point - around EUR 100,000. Other litigation against former management bodies primarily relates to Mr Petrikovics. CEO Schumy provides an overview of the current status. In the criminal proceedings, IMMOFINANZ was awarded a total of approximately EUR 11 million, of which over EUR 2 million has already been received.

The annual general meeting also approves this agenda item.
This brings the annual general meeting to a close, after more than five hours.

Thank you for reading!