Stefan Schönauer

IMMOFINANZ – The main topics of our Warsaw roadshow

Last week investor conferences were on the agenda in Warsaw. In the scope of the ING Real Estate Transportation & Chemicals Conference and the "Austrian Day in Warsaw" event organised by RCB and the Vienna Stock Exchange, we conducted individual talks on IMMOFINANZ and the current environment with 13 investors. Overall, the level of interest was very good.

What were the most important issues from the perspective of the investors?1. Further development of the conflict in Ukraine and the potential effects on our shopping centres in Moscow as well as the considerable correction in share price as a result of this crisis.

The crisis in Ukraine is definitely a factor of uncertainty. As far as the political decisions and effects on the markets are concerned, from the company's perspective they, of course, cannot be influenced. In general, the sanctions do not affect IMMOFINANZ directly. We are, however, indirectly involved as the operator of major shopping centers in Moscow, as consumer spending is not positively influenced by latent fears of war or economic sanctions. We are therefore hoping for an early end to the crisis and a victory for common sense.

With a view to the operational business, the weakness or strength of the rouble plays a role. As already announced in the past, the rental income from our Russian portfolio is generally denominated in Euros or US Dollars, but an ongoing decline in the Ruble has a negative effect on our tenants’ cost structures. Consequently – as announced - we have concluded short-term arrangements with a number of tenants in our Moscow shopping centers to reduce the currency-related pressure on rental costs and thereby support their economic viability. For our colleagues in asset management the additional work is not to be underestimated; it is nonetheless a part of day-to-day business, however. All in all, we expect increasing rental income from Russia, as our most recent shopping centre GOODZONE is steadily picking up and generating revenues from rent.

2. An update concerning the situation on the office market in Warsaw.
Currently, we are not investing in new development projects on the Warsaw office market. We are concentrating on optimising the rental situation in our office portfolio.

At the moment Warsaw is experiencing a market cycle which we have already seen in other cities in the past – Bucharest and Vienna, for instance. Construction activity remains high at present, thus the vacancy rate on the market is expected to continue rising. We expect to succeed at keeping the prices stable – as in the past.

In a further market phase there could then be a delay in projects and a process of consolidation could begin. Experience shows that in this phase favourable opportunities for acquisitions can arise.

The positive economic development in Poland with considerably higher growth rates than in Western Europe should certainly support the re-rental process.

A brief comment on the development of the occupancy rate in Poland in the last financial year of 2013/14: The occupancy rate in Poland equaled 88.6% as of 30 April 2013, but dropped to 77.8% as of 30 April 2014. The decline in occupancy reflected the sale of the fully rented Silesia City Center in Katowice as well as higher vacancies in a number of office buildings and a logistics property. In these cases, several leases expired at the same time and not all contracts were extended. IMMOFINANZ used the vacancy and blockage of the access road during underground railway construction to completely renovate the technical equipment in one building. The occupancy rate in these three properties has already risen to nearly 70%.

3. The successful placement of bonds with a volume of EUR 375 million exchangeable into BUWOG shares and the related long-term decline of financing costs in the group.

Plans call for the 9.00% of treasury shares (around EUR 150 million) which are currently used for financing to be withdrawn after the financing is repaid or restructured.

Plans call for the repayment of the financing scheme with our own shares (around EUR 150 million) as well as the equity bridge (EUR 260 million) – this is the financing we raised to subscribe the BUWOG convertible bond – in the ongoing 2014/15 financial year. These repayments will be financed from the exchangeable bonds with its highly favourable interest rate (EUR 375 million, 1.5% coupon p.a.) and the anticipated call of the BUWOG convertible bonds (EUR 260 million plus EUR 3 million – redemption at 101% of principal amount) as well as the dividend payments from the BUWOG shares held by IMMOFINANZ.

Regarding the BUWOG EUR 260 million convertible bonds, which has been subscribed entirely by IMMOFINANZ, during the period through the end of January 2015 BUWOG is entitled to redeem the bond at any time in whole. BUWOG management has already announced that it is very likely that they will do so.