INVESTING THE RIGHT WAY. THE MOST NORMAL THING WITH BUWOG.

Transcription

1 INVESTING THE RIGHT WAY. THE MOST NORMAL THING WITH BUWOG. Annual Financial Report 2013/14

2 BUWOG Group BUWOG Group is the leading full service provider in the German-Austrian residential property sector and can look back on wide ranging experience that covers nearly 60 years. Its high-quality portfolio consists of around 53,000 units of which half is located in Austria and half in Germany. 1) The business areas of Property Sales and Property Management complement that of Asset Management to cover the entire value chain in the residential sector. BUWOG AG shares have been listed on the stock exchanges in Frankfurt, Vienna and Warsaw since the end of April THE 3 PILLARS OF THE BUWOG GROUP BUSINESS MODEL Asset Management - Generation of rental income from investment portfolio with around 53,000 units 1) - Optimisation through active management - Further selective growth in Germany planed Share of net operating income 2) 66% Property Sales - Realisation of attractive margins from Unit Sales in Austria Share of net operating income 2) 30% Property Development - Development of units in Vienna for the investment portfolio - Development pipeline in Vienna and Berlin of about EUR 1.5 billion - Balanced project pipeline in various stages of development Share of net operating income 2) 4% Sale properties and portfolios for ongoing optimisation in Austria (not registered in Recurring FFO) Recurring FFO - Recurring FFO EUR 69.2 million 3) in financial year 2013/14 - Medium-term objective to distribute 60% to 65% as dividends 1) Based on portfolio data as of 30 April 2014, including DGAG portfolio and Apollo portfolio whose acquisition was closed after this date 2) Net operating income before expenses that are not directly attributable to the business areas (EUR 21.7 million) and excluding other operating income of EUR 4.1 million (based on the pro forma income statement) 3) Based on the pro forma income statement, see Management Report, page 136

3 NORMAL LIFESTYLES. EXCEPTIONALLY DESIGNED. Humboldtpalais, Hegelplatz 2 / Berlin

4 BUWOG Group Key Figures 2013/14 Earnings Data 1) pro forma Rental revenues in EUR million Results of Asset Management in EUR million 75.9 Results of Property Sales in EUR million 34.0 Results of Property Development in EUR million 4.9 Adjusted EBITDA 2) in EUR million Revaluation result from Asset Management in EUR million 42.7 EBT in EUR million Net profit in EUR million FFO in EUR million 40.7 Recurring FFO in EUR million 69.2 Total FFO in EUR million 81.8 AFFO in EUR million 75.5 Net Asset and Financial Data 30 April April 2013 pro forma 3) Change Balance sheet total in EUR million 3, , % Equity ratio % 46.3% 47.9% 1.6 pp Net financial liabilities in EUR million 1, , % Loan-to-value (LTV) % 35.9% 38.1% -2.2 pp EPRA Net Asset Value (NAV) in EUR million 1, , % Ø Interest rate on financial liabilities 4) % 2.45% 2.14% 0.31 pp Ø Term of financial liabilities 4) Years Share Data 30 April 2014 Share price in EUR Shares outstanding Number of shares 99,613,479 Market capitalisation in EUR million 1,314.9 Free float % 51% Earnings per share 1) 5) in EUR 1.12 Recurring FFO per share 1) 5) in EUR 0.69 EPRA Net Asset Value per share 3) 5) in EUR Enterprise value/adjusted EBITDA 1) x ) The earnings data are presented on a pro forma basis. They show the BUWOG GmbH business, and thus reflect BUWOG Group, as had existed for the entire accounting period from 1 May 2013 to 30 April ) Adjusted for valuation effects and shifts between periods (IFRS 5) in the Property Sales (EUR 7.1 million) and Property Development (EUR 0.6 million) business areas. 3) The presentation of the key data on the asset and financial position as of 30 April 2014 is based on audited figures; the data relating to 30 April 2013 is based on unaudited, pro forma figures. 4) Based on outstanding financial liabilities 5) Based on 99,613,479 shares Definitions for all key figures shown can be found in the section Asset, Liability and Financial Position, page 136 and in the glossary starting on page 306. The use of automated calculation systems may give rise to rounding differences. NOTE BUWOG Group has existed in its current structure since 26 April It was restructured in connection with its spin-off from IMMOFINANZ Group with BUWOG AG functioning as the parent company of BUWOG Group. All subsidiaries of BUWOG AG were first included in the consolidated financial statements once the spin-off became effective. While the current consolidated income statement and consolidated cash flow statement represent only the income and expenses or cash flows of BUWOG AG, the earnings data shown here reflect the BUWOG GmbH Business and therefore the BUWOG Group as if it had existed for the full reporting year from 1 May 2013 to 30 April 2014 (pro forma; for additional information, see also page 24).

5 Key Property Portfolio DATA Asset Management (standing investments) 30 April April 2013 Change Consideration incl. DGAG and Apollo on data basis of 30 April ) Number of units Quantity 33,475 32, % 52,718 Austria Quantity 26,250 28, % 26,250 Germany Quantity 7,225 4, % 26,468 Total floor area in sqm 2,491,290 2,452, % 3,660,034 Austria in sqm 2,012,137 2,171, % 2,012,137 Germany in sqm 479, , % 1,647,897 Portion of residential floor area % 97.1% 97.1% 96.8% Total in-place rent 2) in EUR million % 195 Austria in EUR million % 93 Germany in EUR million % 102 Monthly in-place rent 2) in EUR per sqm % 4.63 Austria in EUR per sqm % 4.06 Germany in EUR per sqm % 5.31 Development of monthly in-place rent like-for-like % 1.8% 4.8% -3.0 pp Development in Austria like-for-like % 1.9% 4.9% -3.0 pp Development in Germany like-for-like % 1.6% 3.4% -1.8 pp CAGR development in-place rent like-for-like 3) % 3.4% Vacancy rate 4) % 4.8% 4.6% 0.2 pp 4.1% Austria % 5.0% 4.8% 0.2 pp 5.0% Germany % 3.6% 2.4% 1.2 pp 2.9% Fair value 5) in EUR million 2,526 2, % 3,468 Austria in EUR million 2,127 2, % 2,127 Germany in EUR million % 1,341 Fair value 5) in EUR per sqm 1,014 1, % 947 Austria in EUR per sqm 1,057 1, % 1,057 Germany in EUR per sqm % 814 Net Rental Yield 6) % 4.9% 4.7% 0.2 pp 5.6% Austria % 4.4% 4.3% 0.1 pp 4.4% Germany % 7.4% 7.6% -0.2 pp 7.6% 2013/ /13 Change Maintenance costs in EUR per sqm % Capex in EUR per sqm % Property Sales 2013/ /13 Change Units sold Units 2,292 1, % thereof Unit Sales Units % thereof Block Sales Units 1,739 1, % Margin on fair value Unit Sales % 54% 55% -1.0 pp Margin on fair value Block Sales % 11% 15% -4.0 pp Property Development 2013/ /13 Change Completed total floor area in sqm 30,663 67, % thereof sold to third parties in sqm 30,663 36, % thereof transferred to investment portfolio in sqm - 30, % Investments in property under construction in EUR million % 1) A detailed explanation of this indicator can be found starting on page 50 of this report. 2) Based on monthly in-place rent (excluding utilities) as of the balance sheet date 3) Compound annual growth rate 4) Based on sqm 5) Based on fair value of standing investments according to CBRE valuation reports as of 30 April 2014 and on the purchase price for the DGAG and Apollo portfolio acquisitions; DGAG incl. undeveloped land EUR 0.7 million, excl. pipeline projects 6) Annualised total in-place rent (based on monthly in-place rent excluding utilities as of the balance sheet date) in relation to fair value The use of automated calculation systems may give rise to rounding differences.

6 WHEN INVESTING IN PROPERTY SHARES TODAY: NORMAL IS THE NEW SEXY.

7

8 Unlike most of our competitors, BUWOG Group covers the entire value chain in the residential sector ranging from the Asset Management of our investment portfolio and the development of our own or third party residential property (Property Development) to the sale of apartments through Unit Sales or Block Sales (Property Sales). Together these three complementary pillars generate a high level of Recurring FFO and give BUWOG Group its strength, which is underlined by 2013/14 results. Recurring FFO of EUR 69.2 million, net profit of EUR million and an EPRA Net Asset Value of EUR 1,714.3 million. That s not only progress, but a solid foundation for the future as well. WITH US, NORMAL IS THREE TIMES BETTER.

9 Fleschgasse 15 / Vienna

10 NORMAL RESIDENTIAL PROPERTY. WITH A REMARKABLY PROFITABLE STRATEGY. The BUWOG Group portfolio consists of exactly 52,718 units. Of those, around 18,000 units were added through the successful acquisition of the DGAG portfolio and approx. 1,200 units with the Apollo portfolio since the end of the reporting year on 30 April A high-quality team ensures the property portfolio is managed professionally. Due to the team s commitment and the expansion in Germany, Net Rental Yield (incl. DGAG and Apollo) increased from 4.7% to 5.6%. 10 BUWOG Annual Financial Report 2013/14

11 BUWOG Annual Financial Report 2013/14 11

12 A NORMAL MIX. WITH A PERFECT MATCH. It is the mix in the portfolio that makes BUWOG Group unique. Measured by total floor area, 45.0% of the investment portfolio (incl. DGAG and Apollo portfolios) is located in Germany with a focus on Berlin and the North-West and 55.0% is located in Austria, with a focus on Vienna as well as state capitals and major cities. 22.7% of the apartments are in the rural areas of Austria and Germany. This mix and the expansion of BUWOG Group have paid off, as is demonstrated by the 12.4% increase in total in-place rent per sqm to EUR 4.63.

13 Fleschgasse 15 / Vienna

14 NORMAL ENVIRONMENTS. WITH JUST THE RIGHT DECISIONS. It is not only the portfolio of BUWOG Group that has grown substantially. Its team has expanded as well. In parallel with the acquisition of the DGAG portfolio, the company acquired DGAG s residential management platform with around 300 employees that manage this portfolio and who will also manage BUWOG s other units in Germany going forward. This transaction ensures a smooth transition of the DGAG portfolio to BUWOG while strengthening the company s capabilities and resources in Germany. And that s just the right decision because, in the end, it is the commitment of its approx. 640 employees that makes BUWOG Group so special.

15

16 NORMAL COMPANY STRUCTURES. WITH GENUINE TRANSPARENCY FROM TOP TO BOTTOM. As part of the public listing of BUWOG AG at the end of April 2014, great importance was placed on establishing independent structures and resources in the interest of transparent corporate governance. The de-domination agreement concluded with IMMOFINANZ AG also ensures this independence. That enables BUWOG Group to focus on what s relevant its ongoing success.

17 Humboldtpalais, Hegelplatz 2 / Berlin

18 NORMAL LOCATIONS IN STRONG REGIONS. WITH PROMISING PROSPECTS. Including the most recent portfolio acquisitions, the fair value of the BUWOG portfolio, as determined by independent appraisers and based on the purchase price for the DGAG and Apollo portfolios, is around EUR 3.5 billion. But there are still further heights to be scaled, as is evidenced by a well stocked pipeline encompassing 47 projects with an investment volume of around EUR 1.5 billion. Added to that, with the ongoing improvement of the property portfolio and highmargin Unit Sales or Block Sales, BUWOG Group is fully leveraging its existing potential to increase value. The focus on further expansion in the defined core regions of Germany also aims to increase total long-term return.

19 Enenkelstraße 3 / Vienna

20 Scharnhorststraße 26 / Berlin

21 NORMAL EXPECTATIONS FOR THE FUTURE. WITH INCREASING SIGNIFIcANCE. BUWOG shares have performed well since their initial listing at the end of April 2014, recording an increase of 10.4% to EUR as of 31 July With this positive start, it is important to continue the value-oriented business strategy and transparent communication so that BUWOG shares accurately reflect the value of the company. In addition, over the long term, the Executive Board of BUWOG AG plans to propose to the Annual General Meeting a dividend payment of around 60% 65% of Recurring FFO. The proposal for the 2013/14 financial year allows for a dividend of 4% of the EPRA Net Asset Value, which is equivalent to EUR 0.69 per share. The leadership team and employees of BUWOG Group will continue to work hard on implementing the company s ambitious strategy so that an attractive dividend policy of this kind will also be normal in the future.

22 Table of Contents Foreword of The Management Board 24 Investment Story and Highlights 26 Interview with the Executive Board of BUWOG AG 30 Overview of BUWOG Group 38 Profitable value chain 40 Responsible corporate governance 41 Corporate strategy 42 Founding of BUWOG AG and public listing 44 Fully integrated business model 45 Corporate structure 46 History of the company 48 Transformation of BUWOG Group since the balance sheet date 50 Asset Management 54 Structure of the standing investment portfolio 56 Structure of the portfolio by geographic cluster, incl. DGAG and Apollo 63 Influencing and success factors 65 BUWOG rental models 67 Strategy and outlook 69 Property Sales 70 Strategic positioning 72 High margin business model 72 Influencing and success factors 74 Unit Sales 2013/14 75 Block Sales 2013/14 76 Strategy and outlook 77 Property Development 78 Strategic positioning 80 Various market-oriented development models 80 Influencing and success factors 81 Reference projects in Vienna 83 Reference projects in Berlin 85 Strategy and outlook 87 Investor Relations 90 Spin-off and public listing 92 Extraordinary General Meeting on 15 May Capital market environment 93 BUWOG AG share performance 94 Dividend policy 94 Convertible bond 95 Shareholder structure 96 Investor relations activities BUWOG Annual Financial Report 2013/14

23 Inhalt Corporate Governance Report 98 Commitment to the Austrian Code of Corporate Governance 100 Company established by spin-off 100 Deviations from the ÖCGK s C rules 101 Executive Board 102 Supervisory Board 103 Supervisory Board committees 105 Independence of the Supervisory Board 106 De-domination agreement 107 Cooperation between the Executive Board and the Supervisory Board 107 Remuneration report 108 Compliance 108 Measures to promote women 109 Directors dealings 109 Internal audit and risk management 109 External evaluation 109 Letter of the Chairman of the Supervisory Board 110 Management Report 112 Overall economic environment 114 Development of the property markets 116 Developments on the financial markets 122 Portfolio report 125 Property valuation 131 Financing 132 Information on the asset, liability and financial position 136 Sustainable management 143 Risk report 150 Internal control system 153 Information on capital 155 Outlook 159 Subsequent events 160 consolidated financial statements 161 Statement by the Executive Board 231 Individual Financial Statements 2013/14 BUWOG AG 235 Glossary 306 BUWOG Annual Financial Report 2013/14 23

24 Dear Ladies and Gentlemen, Dear Shareholders of BUWOG AG, we ve done it after performing all the preliminaries, we successfully took BUWOG AG public at the end of April A step that meant independence for the former subsidiary of IMMOFINANZ AG. It is now up to us and the entire team that is BUWOG Group to make the most of the opportunities on offer to further enhance the value of the company. Even under the umbrella of IMMOFINANZ Group, BUWOG operated as an independent corporate unit. Over the past months, we have built up our own resources to handle those central tasks that used to be the responsibility of colleagues at IMMOFINANZ Group. This holds particularly true for the investor relations and communication functions. We have made it one of our key priorities to satisfy the capital market s thirst for information with a communication policy that is as informative and timely as possible. Taking a company public is quite rightly seen as a demonstration of shareholders trust in the company itself, but also principally in its management. We want to prove ourselves worthy of this trust by continuing the successful development of BUWOG Group. We are, however, aware that trust requires openness, clarity and a constructive exchange. This first annual report for the 2013/14 financial year from 1 May 2013 to 30 April 2014 underlines our intention to further intensify the regular exchange with our shareholders and other interested parties that we began when the company went public. At this point we would like to explain a special feature of this first Annual Report of BUWOG Group: BUWOG Group has only existed in its current structure since 26 April In conjunction with the spin-off from IMMOFINANZ Group, BUWOG Group was reconstituted with BUWOG AG as the holding company of BUWOG Group but still under the umbrella of IMMOFINANZ Group. The International Financial Reporting Standards (IFRS) currently in effect have no provisions for the reporting of common control transactions. The management of BUWOG Group made the discretionary decision to establish its date of inclusion as the effective date of the spin-off at the end of April Therefore the present consolidated income statement and consolidated cash flow statement, and the data of comparable periods, only show the income and expenses or cash flows of BUWOG AG. To ensure that the clear need for meaningful earnings and financial data is fully addressed, please refer to the additional information in section 8 of the notes and to the net assets, financial position and results discussed in the management report. What are the benefits of diversifying the operations of BUWOG along the entire value chain in the residential sector? This is the overarching question that we want to answer right at the start of this report by outlining the rationale behind our investment story. We also want to give detailed answers in the form of an interview. Understandably explaining the business model of BUWOG Group and providing as much specific detail as possible on our strategic plans are further key areas we want to address. The second section therefore spotlights the three pillars that make up the BUWOG business model Asset Management, Property Sales and Property Development together with how they function and which strategic projects they are working on. 24 BUWOG Annual Financial Report 2013/14

25 Foreword Ronald Roos, CFO, Daniel Riedl, CEO The section on investor relations includes detailed insight into the information policy of BUWOG Group and explains the planned dividend distribution policy. The issues of transparency and sustainability are again addressed in the corporate governance report starting on page 98. All financial information is explained in detail in the group management report and the notes to the consolidated financial statements. We hope this report will help you to better understand BUWOG Group and the diversity of our business operations. At the same time, we invite your feedback as we strive to continuously improve our provision of information. Please let us know if you are missing any information from this annual report, or feel questions have been left unanswered. Feel free to make use of the contact options listed below to send us your criticisms, questions and suggestions. In addition to inviting you to start communicating with us and BUWOG Group, we also want to take this opportunity to thank everyone who supported us while preparing the flotation and kept everyday business running during this intense period. This was a phase that allowed the entire team at BUWOG Group to demonstrate once more its professionalism and drive. Not to mention all other partners who were involved and who showed how strong and reliable our network is. We hope you find this report both interesting and informative and look forward to your continued support as we build on the success of BUWOG Group. Yours, Daniel Riedl CEO Ronald Roos CFO Contact BUWOG AG Hietzinger Kai 131, 1130 Vienna, Austria Tel: +43 (0)1/ office@buwog.com BUWOG Annual Financial Report 2013/14 25

26 INVESTMENT STORY OF BUWOG GROUP The shares in BUWOG AG have been listed on the stock exchanges of Frankfurt, Vienna and Warsaw since the end of April and have performed positively since then, posting a share price increase of 10.4% by 31 July Below, you can find key features of the BUWOG business model that ensure a sustainable, value-driven performance of the BUWOG Group. HIGH-QUALITY PORTFOLIO OF APARTMENTS IN AUSTRIA AND GERMANY - Through the acquisitions of the DGAG and Apollo portfolios with more than 19,000 units after the balance sheet date, BUWOG Group advances to become the leading full-services provider in the residential property business in Germany and Austria. - Portfolio of approx. 53,000 units with a fair value of approx. EUR 3.5 billion. - Geographically balanced with a nearly equal weighting of Austria and Germany (by number of units), two of the most stable in residential property markets in Europe - More than 80% of the portfolio (by fair value) is concentrated in urban areas of the federal capitals of Vienna and Berlin as well as other state capitals and major cities in Austria and North-Western Germany, including their immediate catchment areas. UNIQUE BUSINESS MODEL WITHIN PEER GROUP - Integrated business model along the residential business value-added chain with the three business areas of Asset Management, Property Sales and Property Development - Strong generation of Recurring FFO combination of sustainably projectable, recurring operating cash flows above and beyond merely managing the investment portfolio, i.e. including taking into account the sale of individual units in the business areas of Property Sales and Property Development. standing investment portfolio by location categories SHAREHOLDER STRUCTURE OF BUWOG AG as of 30 April % 38% 30% 22% IMMOFINANZ Group 49% Free float 51% 13% 15% 17% 15% Federal capitals (Vienna, Berlin) State capitals & metropolises Regions close to the city n 30 April 2014 n as of 30 April 2014 incl. DGAG AND APOLLO Rural regions CONSERVATIVE DEBT FINANCING PROFILE (DETAILS INCL. DGAG AND APOLLO) - Conservative, above-average long-term debt financing profile with average remaining term of 17 years - Average interest rate at 2.6% lower than the peer group - Significant diversification of financing instruments and financing partners - 90% of financial liabilities are hedged with fixed interest rates or swaps - Loan-to-value in the defined corridor from 50% to 55% 26 BUWOG Annual Financial Report 2013/14

27 Investment story LIQUID SHARE WITH ATTRACTIVE DIVIDEND YIELD - Market capitalisation of approx. EUR 1.3 billion as of 30 April 2014 with stock listings in Frankfurt, Vienna and Warsaw - 51% of shares in free float - Dividend yield of approx. 4% on the EPRA Net Asset Value planned for the 2013/14 business year - Medium-term distribution rate of about 60% to 65% of the Recurring FFO planned to deliver a reliable and stable dividend policy - Member of FTSE EPRA/NAREIT Developed Europe index and of Austrian sustainability index VÖNIX successful business development 2013/14 1) - Increase of annualised in-place rent by 6.1% to approx. EUR 123 million (or by 68.2% to EUR 195 million incl. DGAG and Apollo) - Increase of monthly in-place rent by 4.6% to about EUR 4.31 per sqm (or by 12.4% to EUR 4.63 per sqm, incl. DGAG and Apollo) - Adjusted EBITDA of EUR million - Net profit of EUR million - Recurring FFO of EUR 69.2 million - Increase in fair value by 3.7% to approx. EUR 2.5 billion (or by about 42% to approx. EUR 3.5 billion, incl. DGAG and Apollo) 1) Earnings data is shown on pro-forma-basis. It reflects BUWOG GmbH Business and therefore BUWOG Group as if it had existed for the full reporting year from 1 May 2013 to 30 April Fair Value 1) Standing Investment Portfolio in EUR million 3,468 OPERATING RESULT 1) BY BUSINESS AREAS Property Development 4% 2,485 2, Property Sales 30% 2,236 2,127 2, April April 2014 Consideration incl. DGAG and Apollo on data basis of 30 April 2014 n Austria n GERMANY 1) Fair value basis in accordance with CBRE appraisal report of 30 April 2014 or 30 April 2013 as well as in accordance with the purchase price for DGAG and Apollo and incl. DGAG and Apollo as of 30 April 2014; DGAG incl. undeveloped land of EUR 0.7 million. HIGHLIGHTS BUWOG GROUP Asset Management 66% 1) Operating result before the subtraction of costs not directly attributable to the business areas (EUR 21.7 million) and not including other operating income is EUR 4.1 million (based on 2013/14 pro forma income statement). Esmarchstrasse, Kiel - Acquisitions of DGAG portfolio with approx. 18,000 units and the Apollo portfolio with approx. 1,200 units strengthens the presence in the core region of Berlin and North-Western Germany (closing of both transactions by reporting period) - Start of the integration of all units in Germany on a joint platform after purchase of the residential management platform of Prelios with approx. 300 employees thereby increase in workforce to approx. 640 employees (full time equivalents) - Establishment of own resources and structures to ensure an independent management after the spin-off of IMMOFINANZ AG Bad Segeberg, Winklersgang Lübeck, Fischergrube BUWOG Annual Financial Report 2013/14 27

28 Highlights Asset Management - Expansion of the standing investment portfolio incl. DGAG and Apollo by about 19,000 to approx. 53,000 units or approx. 3.7 million sqm - Active management of the standing investment portfolio enables a further increase of in-place rent on a like-for-like basis by 1.8%; increase in annualised in-place rent by 6.1% to approx. EUR 123 million - Improvement of the Net Rental Yield (incl. DGAG and Apollo) from 4.7% to 5.6% TOTAL Floor AREA in 1,000 sqm 2,430 2,453 2, ,660 1,648 2,279 2,171 2,012 2,012 Further details on the Asset Management business area can be found from page April April April 2014 Consideration incl. DGAG and Apollo on data basis of 30 April 2014 n Austria n GERMANY Net Rental Yield 7.9% 7.6% 7.4% 7.6% 5.6% Flintbek, Hasselbusch Eckernförde, Jungfernstieg 4.4% 4.6% 4.3% 4.7% 4.4% 4.9% 4.4% Kiel-Mettenhof, Vaasastrasse- Skandinaviendamm 2011/ / /14 Consideration incl. DGAG and Apollo on data basis of 30 April 2014 n Austria n GERMANY n total Highlights Property Sales - Successful continuation of Unit Sales with approx. 550 units at an average margin on fair value of 54% and portfolio optimisation with Block Sales of approx. 1,700 units at an average margin of 11% - Units with a fair value of approx. EUR 1.6 billion were assigned to the Unit Sales or Block Sales clusters earmarked for a continuous sales programme PERFORMANCE OF UNITS SOLD 1, ,199 2,292 1,739 Further details on the Property Sales business area can be found from page / / /14 n Unit Sales n BLOCK SALES 28 BUWOG Annual Financial Report 2013/14

29 Highlights AVERAGE PRICES REALISED in EUR per sqm STATUS OF THE DEFINED SALES CLUSTERS as of 30 April 2014 in units, incl. DGAG and Apollo portfolios 1,958 2,015 1,960 Unit Sales Block Sales Total Vienna 5, ,177 Carinthia 2,952 1,667 4,619 1, , Rest of Austria 4,956 1,740 6,696 Germany Total 13,609 4,066 17,675 Apartment sale in Vienna, Hertha-Firnberg-Strasse / / /14 n TOTAL n Unit SALES n BLOCK SALES Highlights Property Development - Completion of 374 units in the 2013/14 financial year, further 655 units currently under construction - Further expansion of the presence in Berlin, currently 770 units under construction or construction planned to start in 2014/15 - Current BUWOG GROUP pipeline with a total investment volume of approx. EUR 1.5 billion in various development stages, approx. 5,100 units under construction or planning as well as land reserves for a further 700 units Further details on the Property Development business area can be found from page 76. Apartment sale in Upper Austria, Gattern Uferkrone, Berlin Nordbahnhof, Vienna Danubio, Vienna INVESTMENT VOLUME OF THE DEVELOPMENT PROJECTS by implementation stages Gervin und Wilmers, Berlin Land reserves EUR 165 million Property Development 819 In planning (construction start from 2015/16) EUR 594 million TOTAL VOLUME: EUR 1,520 MILLION Currently under construction or construction start planned in 2014/15 EUR 761 million 1) ) Thereof EUR million under construction 2011/ / /14 n UNITS COMPLETED n UNITS UNDER CONSTRUCTION n UNITS SOLD BUWOG Annual Financial Report 2013/14 29

30 We want to convince the capital markets that the BUWOG business model is attractive. BUWOG AG Executive Board members Daniel Riedl and Ronald Roos talking about the successful flotation and the underlying aims, corporate strategy, and how the company is positioning itself with its business model and setting itself apart from its competitors. BUWOG AG has been listed on the stock exchanges in Frankfurt, Vienna and Warsaw since the end of April As the Executive Board, what was your experience with the public listing and the preliminary work leading up to it? Riedl: It was a step that we prepared down to the very last detail over a period of several months. It was a very intense and exciting time in every respect. Even before the public listing, we were striving to grow BUWOG Group and expand our involvement in Germany, where we managed to successfully conclude several transactions, not least the acquisition of the DGAG portfolio with its approx. 18,000 units. At the same time, the spin-off of BUWOG AG from IMMOFINANZ AG was prepared a proposal that was approved by an overwhelming majority of over 99% at an Extraordinary General Meeting in March This resolution ultimately paved the way for us to take the company public. Roos: In the run-up to the public listing, we were very keen to give the capital markets, i.e. investors and analysts, detailed information about BUWOG Group and its strategy. We organised an extended roadshow with in-depth meetings which aroused a lot of interest and very positive feedback, neither of which should be taken for granted in a capital market environment that is still dominated by uncertainty. What was the rationale behind the spin-off from IMMOFINANZ AG and gaining a separate listing? Riedl: Until the beginning of 2014, I had spent several years on the Executive Board of IMMOFINANZ AG. In recent years, we had increasingly tried to focus our business activities more sharply on selected real estate markets. After consciously divesting several assets, our business model ultimately comprised commercial real estate focusing on Eastern Europe, on the one hand, and residential real estate in Austria and Germany, on the other. However, the laws governing these two areas are completely different not only in terms of risk and business model, but also with regard to development possibilities. By separating these two areas, we have responded to investor requirements for product purity. Investors can now decide for themselves which areas they specifically want to invest in. Roos: Equally important was the fact that IMMOFINANZ shares were trading at a discount to 30 BUWOG Annual Financial Report 2013/14

31 Interview with the Executive Board Ronald Roos, CFO, Daniel Riedl, CEO net asset value of about 40% presumably because mixing different asset classes seemed less attractive to the capital markets than had been the case some years previously. Over the past months, this discount on BUWOG shares has already decreased considerably. Throughout the preparatory phase, we were also helped by the fact that BUWOG already had independent corporate structures in many respects. We quickly started building up our own resources for those administrative areas such as IT or accounting that were previously covered by IMMOFINANZ. In this respect, we have already made very good progress and will be able to cover all areas ourselves by the end of the financial year 2014/15 at the latest. But isn t IMMOFINANZ AG still the controlling shareholder of BUWOG AG? Riedl: No, you can t really say that. Although IMMOFINANZ still owns a 49% stake in BUWOG AG, it has stated that it plans to reduce this interest over the medium term. Added to which, a de-domination agreement between the two companies ensures that the other shareholders are not disadvantaged in the decision-making process. We felt it was important to find transparent, fair and understandable answers to these questions which I believe we have managed to do. Roos: The whole idea, after all, was to strictly separate the two companies to enable better use to be made of their respective advantages and market positions. Above all, though, BUWOG has also gained its own access to the capital markets as a result, which can only benefit a growth-oriented company such as BUWOG. Are you satisfied with the share price performance of BUWOG so far? Roos: The shares first price in Frankfurt was EUR By 31 July 2014, the price had risen to EUR 14.35, equivalent to an increase of 10.4% in just three months. The discount to EPRA NAV has already decreased to 16.6%. For us, this impressive performance is confirmation that the market has understood and accepted BUWOG s strategy and business model. The next step is to reduce the discount to our EPRA Net Asset Value with positive performance and transparent communication. BUWOG Annual Financial Report 2013/14 31

32 What distinguishes BUWOG s strategy and business model from those of other property companies? Riedl: BUWOG s foremost and most valuable USP lies in its broad value chain focusing on the residential sector in Germany and Austria. Our business is not restricted to buying and selling, or just letting. Compared with our peer group, our business model extends much further. In addition to conventionally letting existing apartments, our strategy in Austria is to sell between 450 and 500 individual apartments each year. These sales generally earn us a margin of around 50% on the stated fair value which incidentally proves how very conservatively we approach the measurement of our assets on the balance sheet. We then invest the proceeds in project development, which constitutes the third pillar of our business model. About 80% of all newly built apartments are sold to private and institutional investors, with the remainder being added to BUWOG s standing investment portfolio. And here we come full circle after letting the apartments for several years, they are then also put up for sale. This cycle sets us clearly apart from our competitors. How does the sale of the subsidiary BUWOG Facility Management fit into a strategy of having as deep a value chain as possible? Riedl: In order to interpret this sale correctly, it is important to note that BUWOG FM primarily BUWOG s foremost and most valuable USP lies in its broad value chain focusing on the residential sector in Germany and Austria. Daniel Riedl, CEO manages commercial property belonging to IMMOFINANZ. And this sector is not part of our core business. We continue to manage our portfolio with our own staff and to manage residential property for third parties. Which conditions govern the sale of apartments? Roos: We have defined precise procedures for taking these decisions. We sell if the achievable sales price earns a higher yield than letting, and the property or apartment offers no further potential for value appreciation. Such decisions are, of course, preceded by thorough analysis. Are there options to raise the rent level, build loft extensions or make better use of other areas? But since around 39% of the annualised in-place rent of our current portfolio is accounted for by subsidised housing in Austria with statutory rent restrictions, the scope for raising rental income here is limited. Consequently, we have prepared, or are in the processing of preparing to sell 32 BUWOG Annual Financial Report 2013/14

33 Interview with the Executive Board around half of our standing investment portfolio in Austria in the course of natural tenant fluctuation. We sold approx. 550 residential units in Austria through unit sale transactions in the 2013/14 financial year which generated extremely good returns, as already mentioned. Approx. 1,700 units were sold through property or portfolio transactions. Riedl: We successfully sold some larger portfolios comprising a total of around 1,135 units in Upper Austria and Salzburg and 55 units in Carinthia during the reporting year. Measures such as these to streamline the portfolio constitute a key element in our strategy. We want to focus the BUWOG portfolio more strongly on the two capitals Berlin and Vienna as well as on selected state capitals and economically strong metropolitan areas. We want to focus the BUWOG portfolio more strongly on the two capitals Berlin and Vienna as well as on selected state capitals and economically strong metropolitan areas. Ronald Roos, CFO Was that also why you acquired the DGAG portfolio? Riedl: As already mentioned at the beginning, this acquisition marked a key milestone towards making BUWOG Group more attractive in the run-up to the flotation. By acquiring this portfolio of around 18,000 units, we have expanded our footprint in Germany to include economically strong regions in the North- West of the country. At the same time, we also took over the residential administration structures and resources from Prelios Deutschland. When this transaction is concluded at the beginning of July 2014, the BUWOG team will have grown by around 300 members of staff. Roos: We did not acquire a completely independent company from Prelios; we only took over the business units from their residential operation such as administration, asset management and facility management. There is therefore no need to eliminate any duplications with already existing BUWOG units in Germany. From an operations point of view, however, a joint platform will emerge that will bring together all units including those from earlier acquisitions. We should be there around the end of 2014, beginning of BUWOG Annual Financial Report 2013/14 33

34 How did you pay for the DGAG portfolio? Roos: The purchase price of EUR 892 million was funded from three different sources: by taking out a mortgage with Berlin Hyp AG, issuing a EUR 260 million convertible bond, and taking over existing subsidised loans. This combination enabled us to keep the loan-to-value within our defined target corridor of 50% 55%. What is your specific strategy in the Property Development division? Riedl: Very ambitious and strictly aligned to the current situation in the respective markets. Securing land reserves in good time and especially the right reserves is crucial for successful project development. In recent years, we have been able to prepare a pipeline with a total volume of about 5,800 residential units, of which around 4,200 are in Vienna and 1,600 in Berlin. Nevertheless, we naturally keep on evaluating other options, interesting properties, properties earmarked for demolition or even office complexes that we can convert into housing. Working constructively with the relevant authorities is enormously important, especially in new urban development areas such as Aspern, the urban lakeside project, or the new main railway station in Vienna. In addition to in-depth expertise and understanding of the market, however, the size of a company is also crucial Vienna is home to only a few project developers capable of tackling major projects. BUWOG Group is definitely the market leader in this field. And what about Berlin? Riedl: With the acquisition of the business operations and individual projects of what is now our subsidiary BUWOG-Meermann back in 2012, BUWOG Group was quickly able to position itself well in the Berlin market for residential project development. We acquired several projects in the course of construction, together with large reserves of space that currently measure around 80,000 sqm floor area in total. We have acquired other plots of land in Berlin where we are building exciting projects such as a property with 80 units in Gervinusstrasse in Charlottenburg, not far from the Kurfürstendamm. Generally speaking, Berlin offers more options for building new developments in central areas, compared to Vienna. And we are taking very active advantage of these options. How many apartments are completed each year? Roos: On a long-term we aim to complete around 500 apartments each year in Vienna and Berlin and put them up for sale. We also want to build around 100 to 200 apartments for our standing investment portfolio each year as well. Isn t the project development business exposed to higher risk? Riedl: Yes, it is. Generally, it takes higher performance, a willingness to accept more risk and superior dedication to add value of the kind we undisputedly create from development projects, with returns of around 20%. Dealing professionally with these risks is part of our everyday business. We know where the stumbling blocks lie, but also where there is potential to increase value. BUWOG Group has an excellent team in both Vienna and Berlin that is responsible for the entire project development process, right through to marketing the projects. Our experts understand the market, maintain close ties to the authorities and our development partners, and demonstrate outstanding motivation and knowledge. And, last but not least, BUWOG has now gathered more than 60 years of experience in project development. BUWOG has now gathered more than 60 years of experience in project development. Daniel Riedl, CEO 34 BUWOG Annual Financial Report 2013/14

35 Interview with the Executive Board Do you see a bubble forming in the Viennese housing market? Riedl: I don t buy into this market assessment, which has repeatedly been voiced in recent times. It is a fact that a great deal of equity has been invested in recent years. I can therefore detect neither a taxinduced price drive, as witnessed in Holland, nor speculation-induced demand, as we have witnessed in Eastern Europe before the crisis, or in Spain. The price increases in Vienna are being driven by the fact that demand outstrips supply. I do, however, assume that prices for owner-occupied housing in Vienna will not increase at the same rate as they have been doing in recent years. Our calculations reflect this assessment very conservatively and cautiously. What specific goals is BUWOG pursuing in its Asset Management business area? Roos: In terms of absolute contributions to profits, Asset Management remains the most important pillar in the BUWOG Group business model. As of our reporting date of 30 April 2014, the standing investment portfolio comprised some 33,500 units, with Austria accounting for around 80% and Germany around 20%. Following completion of the acquisition of the DGAG portfolio at the end of June 2014, we achieved our balanced target ratio of 50% Austria to 50% Germany. From a strategic perspective, we must now further optimise the rental income from the existing portfolio while continuing to streamline the portfolio, as explained above. As things stand at present, the weighting of the German portfolio will increase over the medium term. We aim to purchase between 2,000 and 4,000 additional rental apartments in Germany over the coming We are taking advantage of the current market environment in Austria and then invest some of the proceeds in expanding our portfolio in Germany in order to raise the overall Net Rental Yield. Ronald Roos, CFO years. In doing so, we will increase the bottom line return of BUWOG Group since we earn much higher Net Rental Yields in Germany than in Austria. Riedl: This is absolutely key to our strategy. We are taking advantage of the current market environment in Austria to sell apartments at very attractive yields and then invest some of the proceeds in expanding our portfolio in Germany in order to raise the overall Net Rental Yield. BUWOG Annual Financial Report 2013/14 35

36 Having said that, Austria will continue to constitute a key market and, as mentioned before, that applies equally for projects to construct new housing, regardless of whether privately financed or subsidised. The advantage of subsidised housing is that it ties up less equity, and we can start putting the apartments up for sale once they have been let for ten years. Now that you have explained the strategy and business model of BUWOG Group, can you discuss business performance in the 2013/14 financial year? Roos: The result of our operations was positive in every respect in 2013/14. Despite the stated portfolio sales in Austria, we managed to increase total annualised in-place rent by 6.1% year on year to around EUR 123 million due to acquisitions in Germany. And that is even without the DGAG portfolio, which will not be consolidated until 30 June 2014 in the 2014/15 financial year. Earnings from the Asset Management business area were EUR 75.9 million. Property Sales recorded earnings of EUR 34.0 million and Property Development 4.9 million. Adjusted EBITDA was also extremely satisfactory at EUR million. we managed to increase total annualised in-place rent to around EUR 7 million. Ronald Roos, CFO Riedl: In addition to these key figures from the income statement, we also use Recurring FFO, as already mentioned, as a benchmark for assessing our operations that provides better insight into the company s profitability. For 2013/14, this key figure is EUR 69.2 million. To evaluate the performance of rental income, we look at in-place rent. Year on year, we managed to improve this key figure by 1.8% on a like-for-like basis, i.e. adjusted for changes in the portfolio. 36 BUWOG Annual Financial Report 2013/14

37 Interview with the Executive Board How do BUWOG AG shareholders participate in this success? Roos: On the one hand, they benefit from the resulting increase in company value in terms of net asset value per share. On the other, of course, through dividend payments. At the Annual General Meeting in October 2014, we are going to propose a dividend of EUR 0.69 per share, which is more or less equivalent to 4% of the net asset value or to a dividend yield of 5.2% on EUR 13.20, which was the closing price of BUWOG shares on 30 April Are you going to adhere to this dividend policy in the coming years? Riedl: Ultimately, that is for BUWOG shareholders to decide at the Annual General Meeting. As far as I am concerned, it makes sense over the medium term to pay out around 60% 65% of the Recurring FFO As far as I am concerned, it makes sense over the medium term to pay out around 60% 65% of the Recurring FFO as dividends. Daniel Riedl, CEO as dividends and invest the remainder in growth. Overall, BUWOG shares should offer both attractive dividends and value appreciation. That is our goal. Can you name specific goals for the 2014/15 financial year? Riedl: I m really not a fan of grand announcements and much prefer to put specific plans into practice but yes, we have set ourselves a number of goals for 2014/15 and beyond. We will push ahead with selling apartments in Austria, with the aim of selling around 500 units. In addition, we want to manage our assets actively and intelligently raise rents further. In our Property Development business area, we are going to adhere to our dual strategy in Austria of developing both privately financed projects that can be executed rapidly and sold as owner-occupied housing, and subsidised rental apartments that lessen the burden on equity and can be sold at a later date. In Germany, of course, we are also working hard to move our ongoing development projects forward and to secure new projects. Roos: Key areas of focus in Germany in 2014/15 will be the further integration of the DGAG portfolio and the establishment of the platform mentioned above. At the same time, we will be evaluating further possible acquisitions. Thanks to our very profitable business with existing housing in Austria, BUWOG Group has the capacity to finance these growth projects. One final question: where and how do you see BUWOG Group in five years time? Roos: As a solid company with strong earnings that is continuing to grow in the interests of its shareholders, and capable of meeting its strategic goals. I play team sports, and therefore particularly want to further develop a constructive team spirit, with shared goals and a clear understanding of the needs of all BUWOG stakeholders. We are heading into an exciting future, and I am really looking forward to it. Riedl: I see BUWOG Group as a strong representative of its peer group that has succeeded in establishing itself as an independent company in every respect. The far-reaching value chain of our business model will also be reflected in our future earnings power, and will enable us to implement an attractive dividend policy. This is our key commitment to our shareholders who have entrusted us with their capital. We must and want to earn this trust by demonstrating sustainable success. Last but not least, I would like to stress that we will make every effort to point BUWOG share prices in the only right direction there is, which is above the net asset value. On that note, I would really like to put the spotlight on our magnificent team and express my thanks to them. They never waiver, even when faced with great challenges and we saw some of those in 2013/14. These aspects are also part of what makes BUWOG Group such a special company. Notes on further information Information about the areas of responsibility and past careers of the Executive Board members can be found in the corporate governance report starting on page 98, and about the company s strategy on page 42, while detailed explanations of the three business areas can be found starting on page 54. BUWOG Annual Financial Report 2013/14 37