"We're generally satisfied, even if, of course, it's not our desired result", IMMOFINANZ CEO Eduard Zehetner said Monday morning, summing up the 2013/14 financial year. Net profit was increased by about 63% to EUR 180.4 million. Adjusted for sales, acquisitions and completions, rental income (like-for-like) basically shows stable development as well.
A video clip of the press conference, which took place on 4 August, can be found here: http://presentations.immofinanz.com/en/ (video available only in German language)
In particular, the revaluation of properties adjusted for FX effects for Russia as well as results of property development were obstacles to the desired result.
The results of property development were negative for the year as a whole, which was attributed in particular to the delays in the completion of the Moscow shopping centre GOODZONE and higher construction costs associated with this. Meanwhile, however, the shopping centre has been completed and is in operation. Due to the low valuation of GOODZONE (calculated per square metre it is considerably below the valuation of our largest Moscow shopping centre Rostokino), Zehetner expects corresponding appreciations in value in subsequent years (which will no longer be visible in results of property development, but in the revaluation result of the standing portfolio instead).
Concerning the revaluation results (“other revaluation results”): this is comprised of several items. The currency-adjusted revaluation totals around EUR -178 million – to a large extent this is attributable to Russia. Here it is obvious that the external property assessors increased their discounting rates somewhat for Russia, thus providing a more cautious assessment of the market due to the political situation and potential sanctions. "The item is high, but in the end the decrease in value for Russian properties doesn't equal even 5% of the Russian portfolio", according to CFO Birgit Noggler.
The revaluation of properties resulting from FX effects has to be taken into account as well. This is caused exclusively by Russia because in other countries IMMOFINANZ has converted to the euro as a functional currency (in Russia this is not possible, as financing is handled in USD and rental income is largely coupled to the USD). At more than EUR 300 million, the currency-related property valuation is clearly positive. It involves purely non-cash effects, however.
How do these originate? As a rule, property appraisals are prepared on the basis of Euro values, but the local subsidiaries conduct their accounting in Roubles. On the balance sheet date the Russian assets are converted into Euro. A decline in foreign exchange rates versus the Euro (as it was the case with the Rouble) decreases the Euro fair value of investment properties in comparison with the fair value reported in the previous year’s appraisal. When the latest value is compared with the prior year equivalent, translation back into the local currency produces a higher value – because of the lower exchange rate – and therefore leads to a write-up.
This effect is partly offset again in the financial result, as the liabilities in Euro in the Russian subsidiaries increase when the Rouble is weaker – here at EUR -136 million the currency effects are negative.
In the revaluation results there is also a positive non-recurring effect of EUR 77.7 million arising from an adjustment in the purchase price for the shopping centre Rostokino in Moscow (following a negative non-recurring effect of EUR -106.4 million the year before). This is due exclusively to IMMOFINANZ's success in the negotiations for the purchase price of the remaining 50% of the shopping centre.
And now a brief look at the highlights of the past year (the slides can be found in the presentation under: http://www.immofinanz.com/en/press/press-releases/ID1172/immofinanz-group-records-increase-in-net-profit-for-2013-14-property-sales-top-eur-1-billion/
- The IMMOFINANZ share's Warsaw listing led to a substantial increase in Polish investors to more than 5%.
- The original plan to sell properties for EUR 2.5 billion within five years as more than fulfilled after four years. Thus in four years IMMOFINANZ already sold properties worth EUR 2.7 billion – and did so at an average two-digit margin above carrying amount.
- Through acquisitions BUWOG was positioned as a German-Austrian property company – an important criterion for the company becoming independent on the capital market. Looking at share price development, the spin-off temporarily resulted in a higher combined value of the two shares in June as well as July. At the time of its first listing on the stock exchange the BUWOG share had already substantially reduced its (previously implicit) share price discount to net asset value – from 38.7% to 14.7% (share price as of 30 July 2014). The IMMOFINANZ share came under pressure in the course of the Ukraine crisis, however.
- And the spin-off sharpened the profile of the portfolio as a property company focused solely on commercial real estate featuring the three asset classes retail, office and logistics. About 9% of the property portfolio is accounted for by the asset class "Others", which comprises, for instance, residential properties and hotels. Due to planned sales a further reduction will take place.