Bettina Schragl

IMMOFINANZ - Live blog from the 2014/15 Annual General Meeting

It's shortly after 10:00, the 22nd annual general meeting at the Austria Center Vienna has begun. The Supervisory Board Chairman, Michael Knap, opens the annual general meeting and welcomes all shareholders. He also addresses the publication of the invitation and its compliance with legal requirements and the articles of association, along with other formalities. He announces in advance that a hot buffet will be provided from 11:30 onwards.IMMOFINANZ currently has 1,073,193,688 shares in issue, reports Knap. Of these, 97,238,488 shares are held by subsidiary companies as of today. The voting rights relating to these shares cannot be exercised. The number of shares in the company with voting entitlement therefore amounts to 975,955,200 shares.

With that we come to the 1st 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 2014/2015.

Mr Knap hands over to CEO Oliver Schumy.

He greets all shareholders and participants in today's meeting, including his predecessor Eduard Zehetner, on behalf of the entire Executive Board.

"The past financial year was distinguished by many highlights in the operating business, but was also marked by the strained political and economic situation in Russia", says the CEO.

"What have we accomplished? Following the successful spin-off of BUWOG, our company has further enhanced its profile as a pure commercial real estate corporation in the past financial year. The necessary related streamlining of the portfolio continued, through targeted property sales. Parallel to this, we completed a number of development projects and thereby sustainably strengthened our standing investment portfolio with the creation of over 140,000 sqm of lettable office and retail space." These achievements are reflected in significantly higher earnings contributions from property development and property sales and consequently in an overall increase in the operating result.

"What must we however be aware of? The strained political and economic situation in Russia, which we can comfortably deal with in the daily business, has had an impact in terms of lower rental income and on valuation results, reflecting the high degree of uncertainty characteristic of this type of economic phase in more volatile markets such as Russia", says the CEO.

There is therefore ultimately no capacity for a dividend payment based on the annual financial statements of IMMOFINANZ AG. Consequently, no cash dividend can be paid for the last financial year. However, in the last two share buyback programmes, IMMOFINANZ acquired around EUR 100 million in own shares.

Schumy furthermore addresses the capital adjustments to be voted on today: "It is of course unsatisfactory when extraordinary political and economic circumstances determine the potential scope with respect to dividend policy. For this reason, we will also consider the necessary capital adjustments to serve as a basis for a sustainable dividend policy in today's annual general meeting."

Additionally, the difficult and protracted issue of the investor litigation was recently addressed and an out-of-court solution was arrived at. "With this, we obtain legal clarity and have put the uncertainty over the duration of the ongoing court proceedings and the associated costs behind us", says the CEO, referring to the most recently-reported settlement with Advofin and three shareholder legal representatives.

Mr Schumy now discusses the highlights in detail:

Value creation from the spin-off of BUWOG: The majority spin-off of BUWOG, which took place at the end of April 2014, resulted in a significantly higher valuation of the Austrian and German residential property than was previously the case under the umbrella of IMMOFINANZ. Since the initial listing, the total return (including two BUWOG dividend payments, each of EUR 0.69 per share) has been just under 60%.

Portfolio optimisation: IMMOFINANZ now focuses purely on the commercial real estate sector and has further streamlined its activities. There was therefore a withdrawal from several markets which do not form part of our core region: Switzerland, the USA and the Netherlands. The percentage share of the two largest asset classes, retail and office, increased as a result.

Property sales in the past financial year contributed EUR 43.5 million to earnings, a substantial increase over the same period in the previous year.

Board member Dietmar Reindl now takes over and talks about property development and new project starts. Earnings from property development also posted a significant improvement last year, to EUR 11 million.

"How did we achieve that? With a number of projects completed in the retail and office sectors, such as STOP.SHOP. developments in Poland, Serbia and Hungary, a VIVO! shopping center and our Tarasy Zamkowe shopping center in Poland. Additionally, we have finished office buildings in Warsaw and Prague and committed them to tenants. As a result, we have completed approximately 142,000 sqm in total space for the standing portfolio. That is a considerable amount", states Reindl.

He subsequently goes into detail about the numerous project completions. The chain of STOP.SHOP. retail parks was expanded to include a further three locations - Ketrzyn with a lettable area of 5,300 sqm and Zary with 3,500 sqm in Poland, as well as Cacak with an area of 6,300 sqm in Serbia. It had been the desire of the tenants to expand together with the STOP.SHOP. concept in Serbia, he explains. Cacak, incidentally the eighth-largest city in Serbia with over 72,000 inhabitants, was the first step. The construction of the STOP.SHOP. in Nis, the third-largest city in the country, is currently underway. This retail park is somewhat larger in size and will feature many famous brands as well as a cinema, in an expanse of 13,000 sqm. It is scheduled to open in spring 2016. "In the coming three to four years, we plan to establish a further eight to ten STOP.SHOP. parks in Serbia."

Details follow about the opening of VIVO! Pila and the shopping center Tarasy Zamkowe in Lublin, as well as the completion of the office buildings Nimbus in Warsaw and Jungmannova 15 in Prague. Jungmannova 15 was by the way the first building in the Czech Republic to receive a LEED Platinum certification, the highest level of the accredited LEED system for environmentally sustainable buildings.

It proceeds to newly-started development projects: Reindl refers here to the "production engineering cluster" project with Aachen University. "It is our goal to also work together with the university on further cluster projects. The public sector tenant is a highly interesting customer for us - such as in the City Tower in Vienna."

Details follow about Carlsquartier in Dusseldorf, the Metroffice project in Bucharest, the recently opened VIVO! shopping center in Stalowa Wola and further STOP.SHOP. retail parks: In Poland, STOP.SHOP. retail parks are currently being built in Swinoujscie (in North West Poland) and in Szczytno.
CFO Birgit Noggler starts with an analysis of the results for the financial year 2014/15 and the figures for the first quarter of 2015/16.

Results from operations rose EUR 46 million or 17% to EUR 316.5 million in the past financial year, despite the situation in Russia. Higher earnings contributions from property sales and property development substantially more than offset the reduction in the result from asset management, which was impacted by Russia.
This reduction was predominantly due to temporary rent reductions in Moscow and to planned property sales.

"To be more specific about Russia: We are granting temporary rent reductions to the tenants in our five shopping centers in Moscow. By this means, we are on the one hand supporting our retail partners in what is a difficult period for them and helping them to absorb the effects of the currency development, while on the other ensuring the highest possible occupancy rates in our shopping centers", says Noggler. The original lease agreements, which are dollar denominated, remain unchanged in terms of enforceability and for the most part run until 2019.

Noggler explains the increases in the results from property sales and from property development, and highlights an improvement in other operating income in the amount of EUR 23 million and in expenses in comparison to the previous year. The latter is due to lower legal and consulting fees in relation to transactions (BUWOG spin-off) and personnel expenses are also somewhat lower than in the comparable period of the previous year.

In total, results of operations improved by EUR 46 million to EUR 316.5 million year-on-year.

However, in the income statement items that come after the operating result, the less predictable external factors - such as Russia - have an impact. Consequently, despite the positive development in the operating business, Group net profit was significantly negative at EUR -361.4 million.

The CFO addresses the valuation effects in detail:
Results from the revaluation of properties, adjusted for foreign exchange effects, amounted to EUR -312.3 million, almost entirely due to the revaluation of the Russian portfolio, which declined by EUR 197 million in value. This was impacted by the external appraisers taking the short-term rental reductions into account and somewhat increasing their discount rate for Russia - so they view the market more cautiously.

The currency effect on property valuations is a further factor to consider. This also resulted almost exclusively from Russia, as the euro is used as the functional currency in all other core markets. These effects arise from the conversion of property values into roubles in the local Russian companies. The currency effect on property valuations is therefore significantly positive at around EUR 229 million.

This effect is partially reversed in the financial results, as the weaker rouble results in an increase in the foreign currency liabilities of the Russian subsidiary companies.

The other financial results were affected by a negative valuation effect of approximately EUR 49 million from the bond exchangeable for BUWOG shares and by valuation effects from derivatives.

The exchangeable bond was repaid in autumn of this year and consequently one will no longer see the associated valuation effects from the third quarter report onwards.

The share of profit from investments accounted for an equity basis declined by slightly over EUR 100 million. Among other factors, this was due to a negative earnings contribution from the investment in TriGranit, a consequence of the sale of the 25% stake.

We come to the numbers for the first quarter of 2015/16.
Ms Noggler explains that the higher Group net profit in this period was primarily due to positive effects from property valuations. "The results of operations were however negatively impacted by the lower rental income in Moscow. The full-year effect naturally comes into play here." Consequently, results of operations were EUR 37.3 million lower than in the comparable period of 2014/15, at EUR 53.6 million.

The revaluation result adjusted for foreign exchange effects (EUR 54.3 million versus EUR -2.7 million in the comparable period), was at EUR 55.0 million due to positive valuation effects relating to the GOODZONE shopping center, a result of the settlement initiated for the "City Share" (investment agreement) with the City of Moscow.

Revaluation results from foreign exchange effects are positive at EUR 187.4 million, entirely as a result of foreign currency effects on revaluations due to the strengthening of the euro against the rouble. The exchange rate changes in the financial results, which represent the offsetting items to the revaluation results arising from foreign exchange effects, amount to EUR -94.1 million. The bottom line is a Group net profit of EUR 126.2 million for the first quarter, following a loss of EUR -6 million in the comparable period of the prior year.

Mr Schumy takes over again, we come to the outlook.

He begins with the sale of the entire logistics portfolio. "Let me briefly run through the developments in the market for logistics properties, by way of explanation for our decision to sell: Looking at recent years, we see a clear trend towards size and specialisation. Several large competitors - such as the global providers Blackstone and Brookfield - are building their portfolios through successive acquisitions and are in the meantime - measured in terms of lettable area - over ten times our size. This has the consequence that we can no longer attain a leading position in the logistics segment in our core regions - even if we had invested a disproportionately high amount in the logistics sector in light of the coming years. And these investments would then not have been available for our core areas of office and retail."

The strongly increased interest of investors in logistics properties has additionally had a very positive impact on the prices paid in the market. "We are therefore convinced that we have used a very attractive window of opportunity for the sale of our logistics business."

As reported, the sales value of the logistics portfolio of more than EUR 500 million corresponds to the last stated book value, thereby confirming the intrinsic nature of earlier upwards revaluations.

"We expect the transaction to close in the first calendar quarter of 2016. We will invest the liquid funds that will be freed up by the sale specifically in the expansion of our portfolio in Germany." There, IMMOFINANZ has premium office properties under construction and in the pipeline in Dusseldorf, Cologne and Aachen, which will be completed by the middle of 2018. The German office properties will then generate rental income of up to around EUR 40 million a year.

A look at the portfolio structure post sale of the logistics business shows a clear composition going forward, particularly on a long-term comparative basis. The portfolio is divided more or less equally between the retail and office sectors. The "other" sector (approximately 7.5%) primarily contains apartments designated for sale. The percentage attributable to this will reduce further, and in the future is expected to fluctuate between around three and five per cent - depending on whether IMMOFINANZ constructs apartments within the scope of a larger development and then sells them.

IMMOFINANZ took a first successful step in mid-September and placed around 10.5 million BUWOG shares with investors. As a result, the free float of BUWOG increased to over 60%. The BUWOG shares have performed very well since then and have posted - including the EUR 0.69 per share dividend paid at the end of October - a total return of over 11%.

IMMOFINANZ now holds just under 39 million remaining BUWOG shares: Of these, slightly more than 30 million shares are "freely" available; the rest are reserved for the servicing of our convertible bond.

Board member Reindl takes over again and talks about the plans for the STOP.SHOP. and VIVO! brands in retail.

The STOP.SHOP. chain of retail parks is best suited to medium-sized and smaller cities in regions where income levels are low. "We already own 53 STOP.SHOP. parks in a total of seven countries, which have high occupancy rates of around 96% and a very attractive rental yield of approximately 8%. Taking further development projects into account and potentially an acquisition here or there, in around five years we should have a triple-digit number of STOP.SHOP. parks", says Reindl.

This would make IMMOFINANZ the leading retail park operator in Europe. The typical competitor in the individual countries is mostly a local developer with a handful of retail parks.

Now to VIVO!: IMMOFINANZ opened the first VIVO! shopping center in 2014 in Pila. Distinctive features are the focus on fashion and entertainment - "Easy Shopping" combined with all of the convenience of a shopping center. Reindl announces that the VIVO! brand is to be rolled out in the existing IMMOFINANZ shopping centers.

In conclusion, Executive Board member Reindl addresses the plans for Germany, including the latest project, the new corporate headquarters for trivago in the Dusseldorf Medienhafen. The building meets all of the requirements of a "new generation office" - ranging from numerous options for teamwork meetings, to social meeting points and many possibilities for sporting activities.
The office project FLOAT in Dusseldorf and the Gerling Quartier in Cologne are additional cornerstones of the German portfolio.

Mr Schumy takes over again and in conclusion addresses the sustainable dividend policy and the agenda item number 9. The Executive Board is proposing two measures here, by which means a large part of the appropriated reserves - specifically EUR 1.8 billion - can be converted into voluntary reserves. This would make sufficient reserves as basis for future dividend payments available.

"What is important for you, is that this capital adjustment results in no change in the equity for you or to any change in the number of shares", explains the CEO.

The Supervisory Board Chairman takes over again and informs the annual general meeting about the principles underlying the compensation system (details about this in the annual report). He also explains agenda items 2 and 3 (formal approval of the actions of the Executive Board and the Supervisory Board).

We begin with the discussion about the first three agenda items.

Mr Rasinger from the Austrian Shareholder Association (IVA) comes to the podium, this year the IVA is again acting as a shareholders’ representative.

He emphasises: "What is of fundamental importance to me is the comprehensive end to the legal disputes." It is crucial to stop dealing with the past and instead to find sensible solutions. Painful settlements are better than legal proceedings won in the course of five or six years, says the investors' representative.

Mr Rasinger asks several questions about the STOP.SHOP. portfolio and VIVO! and the planned rebranding in the retail business, and about the Wienerberg location. Furthermore, also about the past offer from CA Immo/O1.

Overall, the company has come a very long way in the past months, according to Rasinger. He has one final comment for the Board: He would like the minimum dividend level to be 0.1 euro per share.

CEO Schumy answers the question about the past partial offer from CA Immo/O1: As stated in the spring, the offer did not take the interests of all IMMOFINANZ shareholders into account, the offer price was inappropriate. In addition the danger existed of a de facto gaining of control, with no obligation for the bidders to make a mandatory takeover offer to all investors.

Mr Reindl elaborates on the occupancy rate of the larger shopping centers - including Russia it is slightly under 90%; excluding Russia around 95%. The occupancy rate at the STOP.SHOP. parks is just under 96% and is therefore by all means highly satisfactory.

The location at Wienerberg - the Business Park Vienna with the Twin Towers - will not be sold, says Executive Board member Reindl.

Other shareholders address the share price discount to NAV, as well as share buybacks.

Mr Reindl responds to a question about occupancy rates. This is an important topic, but one must differentiate. In the retail sector, IMMOFINANZ occupancy rates are at or above market levels. In the office sector, IMMOFINANZ is working towards an improvement in occupancy rates, on the one hand through modernisation of office buildings in Eastern Europe and on the other through a stronger sales orientation. "We are confident that this will enable us to drive rentals in the office sector forwards. We are very clearly focused on this."

Another shareholder expresses regret that no dividend is to be paid for the past financial year. He would also like to know how the proportion of Austrian retail shareholders has developed. Other questions: What was the average price for the last share buyback? And how is IMMOFINANZ reacting to the growth in e-commerce? Will the Russia proportion not increase with the sale of the logistics business?

With respect to the dividend, the CEO refers to the pending resolutions for today regarding the capital adjustment – these are to ensure sustainable dividend payment capacity.

Russia proportion: The Russia proportion increases slightly and on a short-term basis as a result of the sale of the logistics business - however, the funds from the sale will be invested in the expansion of the German portfolio.

E-commerce: Precisely in the field of the STOP.SHOP. retail parks, there are virtually no overlaps with online business. We are however watching the developments and adjust our portfolio accordingly.

Austrian retail investors: These hold around 33.5% of the company.

Share buyback: The average price for the last share buyback in 2015 amounted to EUR 2.63.

What is the status of the proceedings against Mr Petrikovics?
Answer: Our position with respect to the misconduct of Mr Petrikovics remains unchanged. In March 2011, IMMOFINANZ filed a complaint against three former management and supervisory board members of the former Constantia Privatbank AG, due to options transactions to the disadvantage of the former IMMOEAST. The process was discontinued after the first negotiations in September 2011 up until the legally-binding decision in criminal proceedings against these management and supervisory board members. In these criminal proceedings, there was a ruling that has in the meantime become legally binding and around EUR 11 million was awarded to two companies in the IMMOFINANZ Group.

What is the status of the review of the IMMOFINANZ/IMMOEAST exchange ratio?
Answer: An expert opinion was recently issued and has gone to the committee appointed by the commercial court. We view it as a categorical confirmation of our position and hope for a swift end to the legal proceedings.

A shareholder asks about the placement of BUWOG shares in September. The Board states that this placement was executed without any discount to the closing share price, IMMOFINANZ thereby realised EUR 150 million.

Mr Knap addresses a question about the bonus for the previous CEO, Eduard Zehetner: The original agreement provided for the variable bonus component to be assessed on the basis of 0.5% of the amount of the dividend distributed. For the successful spin-off of BUWOG, which effectively amounts to a dividend in kind, the Supervisory Board resolved to make an amendment and has awarded a bonus of EUR 1.2 million for the financial year 2013/14 and a bonus of EUR 1 million for the financial year 2014/15.

Currently there are no further questions. We come then to the first votes.

Mr Knap, with respect to turnout: 619 shareholders and representatives are in attendance, representing around 355 million shares. Today's annual general meeting is therefore quorate.

Voting on the 2nd item on the agenda regarding formal approval of the actions of the members of the Executive Board for the 2014/2015 financial year:
The resolution was passed.

Voting on the 3rd item on the agenda regarding formal approval of the actions of the members of the Supervisory Board for the 2014/2015 financial year:
The resolution was passed.

With this we come to the 4th item on the agenda: Resolution on the determination of remuneration for members of the Supervisory Board for the 2014/2015 financial year. The remuneration is to be set at EUR 200,116.30 in total.
The resolution was passed.

5th item on the agenda: Appointment of Deloitte as auditor of the company annual financial statements and Group consolidated annual financial statements for the 2015/2016 financial year.
No requests to speak, therefore straight to the voting: The resolution was passed.

6th item on the agenda: Resolution on authorisation to issue convertible bonds and conditional capital.

CFO Birgit Noggler explains the resolutions in detail:
a) cancellation of existing conditional capital to the extent not already utilized;
b) new issuance authorisation for convertible bonds along with conditional capital; and
c) broadening of the applications for existing conditional capital for the new issuance authorisation.

We come to the requests to speak. One investor asks why those shareholders who have Semper Constantia as custodian were not notified by letter about the invitation to the AGM this year.
This question doesn't correspond to the agenda item, but is nevertheless answered: Semper Constantia has notified us in this respect that we should no longer offer this service. We placed announcements in the media in order to nevertheless inform as many people as possible.

A shareholder asks why subscription rights can be excluded with respect to future convertible bond issuance. The Board emphasises that this is just an authorisation. A decision in this regard would be taken in the event of the respective refinancing.

We come to the voting on agenda item 6: The resolution was passed.

The Executive Board was thereby authorised to issue, with the approval of the Supervisory Board, convertible bonds with associated conversion or subscription rights in relation to up to 210,000,000 shares, with or without exclusion of subscription rights, up to a total nominal value of EUR 900,000,000, and to determine all of the other terms and conditions of the bonds.

It was furthermore resolved that the share capital of the company would be conditionally increased to issue up to 30 million shares for the servicing of exchangeable and/or the subscription rights of holders of convertible bonds.

With this we come to the 7th item on the agenda: Authorisation of the Executive Board in connection with the acquisition and disposal of treasury shares.
CFO Noggler advises that, as of today, subsidiary companies of IMMOFINANZ hold 97,238,488 IMMOFINANZ shares. This amounts to approximately 9.06% of share capital.

We come to the voting: The resolution was passed.

Mr Knap states that the Executive Board was authorised for a period of 30 months, with the consent of the Supervisory Board, to acquire own shares in the company in an amount equal to up to 10 % of the share capital, also to the exclusion of shareholders' proportional right to tender.

Furthermore, the Executive Board was authorised for a period of five years, with the consent of the Supervisory Board, to dispose of or use treasury shares in a manner other than on the stock exchange or through a public offering and to thereby also exclude the proportional purchase rights of shareholders.

Finally, the Executive Board was authorised, with the consent of the Supervisory Board, to withdraw treasury shares.

The eighth and therefore last but one agenda item follows: The change in the articles of association to change the financial year and align it with the calendar year.

The IMMOFINANZ financial year currently runs from 1 May to 30 April of the following year and, as we know, deviates from the calendar year. The financial year is to be aligned with the calendar year, in particular to improve comparability with the company's peer group.

A short financial year is to be formed for the period 1 May 2016 to 31 December 2016. Thereafter, the financial year will correspond to the calendar year.

There are one, two requests to speak. According to Supervisory Board President Knap, the annual general meeting for the short financial year (May to December 2016) is expected to take place at the start of June 2017.

It is voted on: The resolution was passed.

We therefore come to the 9th and final item on the agenda: Resolution on the increase in the share capital of the company from company funds and resolution on the ordinary reduction of the share capital of the company.

One shareholder would like to know whether there will be effects on the taxation of future dividend payments.

There are no taxation consequences arising from the capital increase/capital reduction, the Board replies. Whether changes may arise as a result of the tax reform cannot yet be assessed, as the question as to whether future dividends are to qualify as profit distributions or as capital repayments will substantially depend on the internal financing status and on the future taxable profits of IMMOFINANZ.

No further questions: We come to the voting, in two parts. Both resolutions were passed by the shareholders.
Supervisory Board President Knap: "This concludes the agenda of our annual general meeting. I thank you for your attendance and participation and close today's 22nd annual general meeting."

It's shortly after 14:30. Thanks for reading and apologies for the odd typo here and there.