Bettina Schragl

IMMOFINANZ – Review of BUWOG's general meeting

BUWOG held its extraordinary general meeting on 15 May 2014. The following is a summary of the presentation and numerous questions and answers.

To begin with: all points on the agenda – elections to the supervisory board and authorisation for the share buyback – were accepted.BUWOG Supervisory Board Chairman Vitus Eckert begins the EGM at 11.15. At present BUWOG has issued 99,613,479 shares. After reading the formalities, Eckert hands the stage over to BUWOG CEO Daniel Riedl and CFO Roland Roos, who briefly introduce themselves and start with the company presentation.

Looking back at the listing of BUWOG’s share on the stock exchange, which "was successfully received by the market”. The initial price in Frankfurt on 28 April 2014 was at EUR 13 (in Vienna: EUR 13.2); the closing share price on 14 May was EUR 13.31, which is equivalent to a market capitalisation of about EUR 1.33 billion. The discount to EPRA NAV is thus approx. 20.3%.

"We've encountered a very favourable response on the capital market and in the media", said Riedl. He also quotes initial reactions from analysts: "BUWOG is the only major listed residential real estate company in Germany to cover the full value chain (development, asset management and sales). Its balance sheet is strong, creating strategic leeway for FFO-enhancing acquisitions”, Kepler’s Thomas Neuwirth wrote in his initial coverage (buy recommendation with a target price of EUR 16.5). "The market favours BUWOG's clear strategy, pure-play approach and temporary certainty of dividend policy”, Reuters wrote, quoting RCB analyst Mario Gallop at the end of April. Admission to the EPRA index family took place on 7 May.

Next, Riedl describes the recent road show: in addition to Vienna and London, investors were visited in New York, Boston, Amsterdam, Frankfurt, Warsaw and Prague, among other cities.

A brief interim summary of the BUWOG share's trading activity to date: in Frankfurt the highest closing price so far is EUR 13.79. In terms of volume Vienna is in the lead: at the peak in the initial days of trading (numerous transfers) about two million shares per day were reached, most recently about 200,000 to 300,000 shares. "This is also probably linked closely to BUWOG's shareholder structure", Riedl says.

A summarisation of the BUWOG business model with the three revenue pillars - asset management, property development and property trade - follows. "This is not merely a buy and hold strategy – which means to buy assets and manage them. This is what sets us off from the competition", according to the CEO. "Our headquarters are in Vienna – and this is also going to stay that way".

A couple of figures concerning the portfolio: number of units: 53,073 (26,602 of them in Austria and 26,471 in Germany); rental income p.a.: EUR 194.6 million; fair value: EUR 3,475 million; LTV (target range): 50%-55%; EPRA NAV (combined): EUR 1,664 million; vacancy rate: 4.3%; occupancy rate: 95.7%. "We're a rental company with an accompanying development and trade business. Not the other way around", says Riedl, addressing the rest of the expansion strategy, which envisions further acquisitions in Germany.

With respect to the dividend policy Riedl explains that in the medium term a distribution range of between 60% and 65% of the recurring FFO is targeted. For the current 2013/14 financial year a dividend of about 4% of EPRA NAV is to be paid, which should be equivalent to about 60 cents per share.

The most important figures on financing and capital structure – "The conservative structure is to be maintained": target LTV range: 50%-55% (IFRS); average time to maturity: ~17 years; average interest rate: ~2.6%; 90% of the debt has a fixed interest rate or is hedged against the interest-rate risk; diversified credit relationships with more than 50 banks.

On the future relationship to IMMOFINANZ Group, which now holds a 49% stake in BUWOG (medium term) since the spin-off, Riedl explains that BUWOG was always organised as an independent company in legal and operational terms. The de-domination agreement concluded with IMMOFINANZ ensures BUWOG's corporate and strategic independence.

With the election of the supervisory board IMMOFINANZ's voting right with respect to the supervisory board members is limited as well. Concerning the 49% stake in BUWOG held by IMMOFINANZ, the lock-up period is 90 days. IMMOFINANZ has already announced its intention to hold on to the shares in the medium term.

The EUR 260 million convertible bond issued by BUWOG recently to finance the acquisition of DGAG (about 18,000 flats in Germany) was subscribed entirely by IMMOFINANZ. The convertible has market-consistent conditions: 3.50% coupon, 40% conversion premium (strike price: EUR 18.93).

A brief outlook on conclusion of the presentation: the three pillars of the business model will remain with the following contributions to the operational result sought in the medium term: 70% is to come from asset management and about 15% from each of the other segments.

We now come to the shareholder comments:
Rupert-Heinrich Staller is the first to step up to the podium and, first, congratulates all of the shareholders on the fact that the spin-off worked. However, he also expresses criticism – and directs it toward IMMOFINANZ CEO Zehetner – that "only" the second listing of BUWOG occurred in Vienna. Furthermore, Staller directs numerous questions to the management board of BUWOG regarding operational figures and addresses the composition of the supervisory board up for election as well as its independence (from IMMOFINANZ and majority IMMOFINANZ shareholder Fries).

The CEO of BUWOG begins to respond and addresses the reasons for listing BUWOG on three stock exchanges: "Due to the almost exclusive listing of the peer group in Frankfurt, we opted for an initial listing on this stock market. If international investors look for German residential, they do so in Frankfurt. Moreover, it was always out of the question that a listing would also take place in Vienna".

On the Warsaw listing Riedl says: "IMMOFINANZ has nearly 6% Polish shareholders who received BUWOG shares. If BUWOG had no listing in Warsaw, these shares would certainly have come back on the market (note: because the Polish funds most probably would have had to sell)". Riedl also says he is quite thrilled about the investor talks in Warsaw – he encountered highly interested institutional investors.

Riedl on the definition of BUWOG's FFO (funds from operations): "We are proceeding as transparently as possible with this. Everyone who wants to calculate an alternative FFO can do so". In its recurring FFO BUWOG includes the margins from the individual sale of flats. In contrast, the key figure does not account for block sales of apartments , which are more volatile.

With acquisitions the aim is to increase the FFO. The plan is to purchase between 2000 and 4000 residential units in Germany per year – these could be financed from the cash flow.

Concerning the vacancy rate, Riedl refers to BUWOG's business model. "For the sale of individual flats we need vacant flats". In Vienna, for instance, the vacancy rate is 4.5% – about half of these flats are up for sale. Addendum: "But of course in other provinces there are also regions that are more challenging".
In response to an inquiry about the name "BUWOG", Riedl says: "I'm quite comfortable with the name BUWOG. And concerning the past, BUWOG has given name to some “scandal”, but as a company it didn't play a role".

Shareholder question about the financial year: "Will the split financial year remain intact for BUWOG? Riedl: "In the medium term a change toward the calendar year is the aim. At the moment it's not under consideration, however".

Question: Couldn't BUWOG and IMMOFINANZ combine their annual general meetings in the future? Answer: It's not possible to do it in one day because no one knows how long an individual general meeting will take. Riedl: "We'll try to generate synergies, for instance holding the two AGMs on two consecutive days, but for the coming ordinary general meetings in fall the scheduling wasn't feasible".

Question about the number of employees and its development: currently BUWOG has about 500 employees; with the sale of BUWOG FM (facility management) the number will be reduced to 400. About 300 employees will be added through the platform purchase in Germany (DGAG platform deal).

Next comes the agenda point dealing with elections to the supervisory board.

Eckert: "The supervisory board proposes, first, to increase the number of members to be elected by the general meeting from presently four to five supervisory board members".

The supervisory board proposes the election of Dr. Eduard Zehetner, Dr. Volker Riebel and Klaus Hübner as well as myself, Vitus Eckert, as members of the supervisory board. Shareholders proposed the election of Dr. Jutta A. Dönges as supervisory board member. The nomination was made by Witiko Invest GmbH as shareholder of BUWOG AG in accordance with Section 110 Subsection 1of the Austrian Stock Corporation Act (AktG) and published on the BUWOG AG website on 8 May 2014".

Furthermore, Mr. Eckert explains that IMMOFINANZ has announced its intention to exercise its voting rights in the election of himself and Mr. Zehetner. Thus for the election of Mr. Riebel, Mr. Hübner and Ms. Dönges IMMOFINANZ will not participate in the vote (background: in accordance with the de-domination agreement IMMOFINANZ may only exercise voting rights based on BUWOG shares held by IMMOFINANZ AG and associated companies for the election of at most two members of the BUWOG supervisory board).

The candidates now introduce themselves briefly – the CVs can be found on BUWOG's website ( – Investor Relations).

Mr. Eckert explains that he works together with Mr. Fries in a law firm. "So I'm not going to dispute that I work very well together with Mr. Fries. However, I see my responsibility on the supervisory board of BUWOG in the representation of the company's interests".

IMMOFINANZ CEO Zehetner: "I am very pleased about this GM because it is the result of extensive planning and intensive work on the part of all those involved. I am pleased we have reached this goal". Regarding shareholder Mr. Staller, who previously doubted Zehetner's loyalty to the Vienna Stock Exchange, he says: "I've never said a bad thing about the Vienna Stock Exchange. Quite the contrary: I am one of the founding members and very active in 21st Austria – this is a group of listed and non-listed Austrian companies which have made it their aim to explain and promote the Vienna Stock Exchange and CEE economic region among opinion-makers in London and overseas. The decision to list BUWOG in Frankfurt is due to the environment: BUWOG has positioned itself as a German-Austrian residential real estate company".
His position as a supervisory board member of BUWOG is to represent IMMOFINANZ as biggest shareholder. "Of course I will relinquish this position on the supervisory board on my departure from IMMOFINANZ because my successor has to take up this role", Zehetner says.

Further introductions of the supervisory board members up for election follow.

Then the round of questions begins, in which Mr. Zehetner addresses the question of whether there isn’t a "cooling off" period for his supervisory board activity, among other things: "No. BUWOG is one of our big investments, and I fulfil the supervisory board function in the scope of my activity on the executive board of IMMOFINANZ. Of course I receive no fee for this".

Concerning questions and remarks on his executive board salary, Zehetner says: "In 2012/13 my gross salary was EUR 3.1 million – Ms. Fekter (note: Austrian finance minister at that time) got half of it then. It also included EUR 1 million in a one-off turnaround bonus for more than four years. Furthermore, I have a contractual component that is probably quite difficult to find in other Austrian management contracts: if the company generates a loss, I forgo half my basic salary. "And: since you brought up Mr. Petrikovics, in relation to my 2012/2013 salary, he earned three to four times that amount – and I hope you also asked him these questions in the relevant general meeting".

Mr. Eckert on the remuneration of supervisory board members in general: "This is an issue for the ordinary GM. We haven't given this any thought yet, but will probably orient ourselves on the IMMOFINANZ model or practice in Germany".

Zehetner on Staller's questions as to when IMMOFINANZ will sell its BUWOG shares: "The current plan is for IMMOFINANZ to sell its BUWOG shares in the medium term because we are a commercial real estate and not a residential real estate company". The price at which IMMOFINANZ will sell its BUWOG shares remains to be seen.

Prior to the vote there is a preliminary count of shareholder presence: 967 shareholders and representatives who represent 57,567 million shares. Thus the GM has the required quorum.

An increase to five members was accepted with a clear majority.

The election of the supervisory board members, all of whom are elected by the GM, follows. The supervisory board of BUWOG will therefore have five members.

Mr. Eckert explains a circumstance to be noted in the election of Ms. Dönges: she had a comparatively higher number of opposing votes than her colleagues. However, these are based almost exclusively on an opposing voting recommendation from a proxy advisor, which is someone who makes recommendations for institutional investors. However, this voting recommendation was made for purely formal reasons, as the proxy advisor's report with the recommendations based on the information available to the company at that point was made prior to announcement of the shareholder nomination for the supervisory board (Ms. Dönges was recommended later). Though in the specific case the later nomination was announced explicitly by company shareholders, a negative recommendation was automatically submitted without any consideration of it. The voting recommendation was not modified subsequently either.

Eckert: "It's important for us that you be aware of this circumstance and I'm delighted that here in this room Ms Dönges has received just as much approval as the rest of the supervisory board members".

We arrive at the third item on the agenda, the authorisation of the share buyback. The details: authorisation for the implementation of the share buyback programme for up to 10% of the outstanding shares.
What this aims to achieve: a possibility for additional value creation for shareholders depending on the state of the capital market; the potential creation of additional trading liquidity; the instrument creates flexibility for financial optimisation. The authorisation is valid for a period of 30 months beginning with the resolution. Mr. Riedl points out that this is merely a contingent resolution. There are no current plans to exercise it.

There are hardly any comments.

Shareholder Staller emphasises that the quality of the responses to the questions at the general meeting was quite considerable: "And I don't say that very often".

Resolution for the authorisation of the share buyback: votes in favour 99.66%.

BUWOG's EGM ended at 14.30.

The presentation of the GM can be found here.