23.09.2014
IMMOFINANZ confirms results: First quarter 2014/15 with solid operational performance, but negatively affected by FX-related revaluations
KEY FIGURES (in MEUR) // 1 May 2014 - 31 July 2014 // Δ in % // 1 May 2013 - 31 July 2013
Rental income // 117.6 // -6.8% // 126.1
Results of asset management // 95.4 // -13.5% // 110.3
Results of property sales // 7.3 // n.a. // -0.9
Results of property development // -2.0 // n.a. // 3.3
Expenses not directly attributable // -13.2 // -30.9% // -19.0
Results of operations // 90.9 // -6.5% // 97.2
Operating profit (EBIT) // 11.9 // -92.3% // 155.3
Net profit // -14.0 // n.a. // 119.8
Cashflow from operating activities // 73.3 // 12.9% // 64.9
IMMOFINANZ Group generated solid results of operations amounting to EUR 90.9 million in the first quarter of the 2014/15 financial year. The year-on-year decline of 6.5% (Q1 2013/14: EUR 97.2 million) resulted, above all, from the planned sale of properties in the previous financial year. Rental income remained generally stable in like-for-like comparison during 2013/14 (-1.3%), but the first quarter of 2014/15 saw an increase of 1.4% (versus Q4 2013/14). These figures confirm the preliminary data for Q1 2014/15 that were announced by IMMOFINANZ on 19 September.
In spite of this solid operating performance, net profit for the first quarter of 2014/15 was negative at EUR -14.0 million (Q1 2013/14: EUR 119.8 million). This development resulted primarily from negative effects caused by the foreign exchange-based revaluation of investment properties, which reflected the increase in the value of the Ruble versus the Euro and US Dollar from the beginning of May to the end of July 2014. These foreign exchange-based revaluation results of EUR -75.9 million reduced net profit, but have no effect on cash. The foreign exchange-adjusted revaluation results did not have a significant effect on net profit and amounted to EUR -2.7 million for the first quarter.
The development of the Ruble since the beginning of August 2014 points to a reversal of this effect during the second quarter of 2014/15. In other words, positive foreign exchange-based results from the revaluation of the investment properties are to be expected from the current point of view.
“In 2013/14, which saw a substantial decline in the value of the Ruble versus the Euro and US Dollar, the foreign exchange-based revaluation of investment properties made a positive contribution of EUR 311.0 million to Group net profit. The fluctuations in the Ruble exchange rate cause high volatility in our income statement from time to time. However, it is important to note that these are non-cash positions”, explained Eduard Zehetner, CEO of IMMOFINANZ Group.
Excluding the negative non-cash effects from exchange rates and derivatives, Group net profit for the first quarter of 2014/15 equals EUR 47.6 million. This represents a 3.7% increase over the first quarter of 2013/14 (EUR 45.9 million).
Recurring free cash flow (FFO) amounted to EUR 47.7 million for the reporting period, which represents an annualised FFO yield after tax of 11.4%.*
An additional factor is that the proportional share of quarterly results for the BUWOG Group, in which IMMOFINANZ holds an investment of 49%, are not included in first quarter earnings because BUWOG announces its quarterly results after IMMOFINANZ Group. This timing difference in the preparation of financial statements will lead to a one quarter shift in the inclusion of BUWOG’s quarterly results in IMMOFINANZ Group’s earnings. Therefore, the initial inclusion will take place in the second quarter of 2014/15, when the proportional share of BUWOG results for the first quarter of 2014/15 is taken into account.
Rental income declined to EUR 117.6 million during the first quarter of 2014/15 (Q1 2013/14: EUR 126.1 million) following the sale of properties. The results of property sales improved from EUR -0.9 million in the previous year to EUR 7.3 million. The results of property development declined from EUR 3.3 million to EUR -2.0 million. Accordingly, the results of operations fell by 6.5% to EUR 90.9 million (Q1 2013/14: EUR 97.2 million).
Despite the negative results recorded for the first quarter, net asset value per share rose slightly to EUR 4.57 as of 31 July 2014 (30 April 2014: EUR 4.56). The book value per share equalled EUR 4.21 as of 31 July 2014 (30 April 2014: EUR 4.19).
OUTLOOK:
“Our plans for 2014/15 include the repayment of the financing with treasury shares (approx. EUR 150.0 million) as well as the so-called equity bridge (EUR 260.0 million), which represents the financing we concluded for the full subscription of the BUWOG convertible bond”, indicated Eduard Zehetner, CEO of IMMOFINANZ. “That will lead to a substantial reduction in financing costs. The repayment of the financing that involved the use of treasury shares as collateral will also allow for the cancellation of these shares.” With respect to the BUWOG convertible bond that was subscribed by IMMOFINANZ, BUWOG is entitled to call and repay the bond in full by the end of January 2015. BUWOG management has already announced that it will most probably exercise this option.
Furthermore, the Executive Board of IMMOFINANZ plans to resume dividend payments for the 2014/15 financial year. The dividend (including a possible share buyback) should range from EUR 0.15 to EUR 0.20 per share.
IMMOFINANZ Group expects an ongoing positive development in the region’s core markets, which should benefit from a gradual economic recovery. However, the geopolitical tensions in Ukraine and the threatening expansion of the sanctions against Russia represent uncertainty factors. The Organisation for Economic Cooperation and Development (OECD) reacted to this situation by issuing a downward revision to its economic forecasts in mid-September 2014. The exact effects of the Ukraine crisis on the commercial development of the IMMOFINANZ core markets, above all Russia, are impossible to estimate at the present time.
The rental income from the Russian portfolio is generally denominated in Euros or US Dollars, but an ongoing decline in the Ruble would have a negative effect on tenants’ cost structures. As indicated in the 2013/14 annual report, short-term arrangements were concluded with a number of tenants in the Moscow shopping centers to reduce the currency-related pressure on rental costs and thereby support their economic viability. This also proved to be a sustainable procedure during the 2008/09 financial crisis.
IMMOFINANZ Group expects an increase in the value of the company during the 2014/15 financial year based on the further optimisation of the portfolio, the planned increase in occupancy, cost reductions after the spin-off of the residential property subsidiary BUWOG and the steady pursuit of successful property sales as well as increased development activities with a focus on Germany, Poland, Russia and Romania.
* Recurring cash flow (excl. BUWOG): Gross cash flow (EUR 80.9 million) + interest received on financial investments (EUR 1.3 million) – interest paid (EUR 36.5 million) - cash outflows for derivative transactions (EUR 5.4 million) + results of property sales (EUR 7.3 million) based on market capitalisation as of 18 September 2014 (share price: EUR 2.37), excl. treasury shares and market capitalisation of the BUWOG shares held (EUR 731.7 million based on a share price of EUR 14.99 as of 18 September 2014).
Rental income // 117.6 // -6.8% // 126.1
Results of asset management // 95.4 // -13.5% // 110.3
Results of property sales // 7.3 // n.a. // -0.9
Results of property development // -2.0 // n.a. // 3.3
Expenses not directly attributable // -13.2 // -30.9% // -19.0
Results of operations // 90.9 // -6.5% // 97.2
Operating profit (EBIT) // 11.9 // -92.3% // 155.3
Net profit // -14.0 // n.a. // 119.8
Cashflow from operating activities // 73.3 // 12.9% // 64.9
IMMOFINANZ Group generated solid results of operations amounting to EUR 90.9 million in the first quarter of the 2014/15 financial year. The year-on-year decline of 6.5% (Q1 2013/14: EUR 97.2 million) resulted, above all, from the planned sale of properties in the previous financial year. Rental income remained generally stable in like-for-like comparison during 2013/14 (-1.3%), but the first quarter of 2014/15 saw an increase of 1.4% (versus Q4 2013/14). These figures confirm the preliminary data for Q1 2014/15 that were announced by IMMOFINANZ on 19 September.
In spite of this solid operating performance, net profit for the first quarter of 2014/15 was negative at EUR -14.0 million (Q1 2013/14: EUR 119.8 million). This development resulted primarily from negative effects caused by the foreign exchange-based revaluation of investment properties, which reflected the increase in the value of the Ruble versus the Euro and US Dollar from the beginning of May to the end of July 2014. These foreign exchange-based revaluation results of EUR -75.9 million reduced net profit, but have no effect on cash. The foreign exchange-adjusted revaluation results did not have a significant effect on net profit and amounted to EUR -2.7 million for the first quarter.
The development of the Ruble since the beginning of August 2014 points to a reversal of this effect during the second quarter of 2014/15. In other words, positive foreign exchange-based results from the revaluation of the investment properties are to be expected from the current point of view.
“In 2013/14, which saw a substantial decline in the value of the Ruble versus the Euro and US Dollar, the foreign exchange-based revaluation of investment properties made a positive contribution of EUR 311.0 million to Group net profit. The fluctuations in the Ruble exchange rate cause high volatility in our income statement from time to time. However, it is important to note that these are non-cash positions”, explained Eduard Zehetner, CEO of IMMOFINANZ Group.
Excluding the negative non-cash effects from exchange rates and derivatives, Group net profit for the first quarter of 2014/15 equals EUR 47.6 million. This represents a 3.7% increase over the first quarter of 2013/14 (EUR 45.9 million).
Recurring free cash flow (FFO) amounted to EUR 47.7 million for the reporting period, which represents an annualised FFO yield after tax of 11.4%.*
An additional factor is that the proportional share of quarterly results for the BUWOG Group, in which IMMOFINANZ holds an investment of 49%, are not included in first quarter earnings because BUWOG announces its quarterly results after IMMOFINANZ Group. This timing difference in the preparation of financial statements will lead to a one quarter shift in the inclusion of BUWOG’s quarterly results in IMMOFINANZ Group’s earnings. Therefore, the initial inclusion will take place in the second quarter of 2014/15, when the proportional share of BUWOG results for the first quarter of 2014/15 is taken into account.
Rental income declined to EUR 117.6 million during the first quarter of 2014/15 (Q1 2013/14: EUR 126.1 million) following the sale of properties. The results of property sales improved from EUR -0.9 million in the previous year to EUR 7.3 million. The results of property development declined from EUR 3.3 million to EUR -2.0 million. Accordingly, the results of operations fell by 6.5% to EUR 90.9 million (Q1 2013/14: EUR 97.2 million).
Despite the negative results recorded for the first quarter, net asset value per share rose slightly to EUR 4.57 as of 31 July 2014 (30 April 2014: EUR 4.56). The book value per share equalled EUR 4.21 as of 31 July 2014 (30 April 2014: EUR 4.19).
OUTLOOK:
“Our plans for 2014/15 include the repayment of the financing with treasury shares (approx. EUR 150.0 million) as well as the so-called equity bridge (EUR 260.0 million), which represents the financing we concluded for the full subscription of the BUWOG convertible bond”, indicated Eduard Zehetner, CEO of IMMOFINANZ. “That will lead to a substantial reduction in financing costs. The repayment of the financing that involved the use of treasury shares as collateral will also allow for the cancellation of these shares.” With respect to the BUWOG convertible bond that was subscribed by IMMOFINANZ, BUWOG is entitled to call and repay the bond in full by the end of January 2015. BUWOG management has already announced that it will most probably exercise this option.
Furthermore, the Executive Board of IMMOFINANZ plans to resume dividend payments for the 2014/15 financial year. The dividend (including a possible share buyback) should range from EUR 0.15 to EUR 0.20 per share.
IMMOFINANZ Group expects an ongoing positive development in the region’s core markets, which should benefit from a gradual economic recovery. However, the geopolitical tensions in Ukraine and the threatening expansion of the sanctions against Russia represent uncertainty factors. The Organisation for Economic Cooperation and Development (OECD) reacted to this situation by issuing a downward revision to its economic forecasts in mid-September 2014. The exact effects of the Ukraine crisis on the commercial development of the IMMOFINANZ core markets, above all Russia, are impossible to estimate at the present time.
The rental income from the Russian portfolio is generally denominated in Euros or US Dollars, but an ongoing decline in the Ruble would have a negative effect on tenants’ cost structures. As indicated in the 2013/14 annual report, short-term arrangements were concluded with a number of tenants in the Moscow shopping centers to reduce the currency-related pressure on rental costs and thereby support their economic viability. This also proved to be a sustainable procedure during the 2008/09 financial crisis.
IMMOFINANZ Group expects an increase in the value of the company during the 2014/15 financial year based on the further optimisation of the portfolio, the planned increase in occupancy, cost reductions after the spin-off of the residential property subsidiary BUWOG and the steady pursuit of successful property sales as well as increased development activities with a focus on Germany, Poland, Russia and Romania.
* Recurring cash flow (excl. BUWOG): Gross cash flow (EUR 80.9 million) + interest received on financial investments (EUR 1.3 million) – interest paid (EUR 36.5 million) - cash outflows for derivative transactions (EUR 5.4 million) + results of property sales (EUR 7.3 million) based on market capitalisation as of 18 September 2014 (share price: EUR 2.37), excl. treasury shares and market capitalisation of the BUWOG shares held (EUR 731.7 million based on a share price of EUR 14.99 as of 18 September 2014).
IMMOFINANZ – a publicly listed European commercial real estate group with focus on two asset classes: Office and retail in eight core markets.