TAG Immobilien AG meets FFO I and FFO II forecasts in 2022; operations in Poland deliver strong earnings contribution

PRESS RELEASE

TAG Immobilien AG meets FFO I and FFO II forecasts in 2022; operations in Poland deliver strong earnings contribution

• FFO I of EUR 189.4m (+4% vs. 2021) and FFO II of EUR 247.3m (+31% vs. 2021); targets for growth in rents and vacancy reduction in German portfolio exceeded in 2022
• Strong increase in result from operations in Poland to EUR 59.3m after EUR 6.7m in 2021 due to first-time consolidation of ROBYG S.A. in 2022; Polish business will achieve cash flow neutrality in 2023
• Property sales in Germany of approx. 1,600 residential units realised near-book value with net cash proceeds of EUR 86m
• Market-related valuation loss of 5.5% on the German real estate portfolio in the second half of 2022, or 1.5% for the full year
• Extensive early refinancing measures in 2022 lead to significantly reduced maturity profile in 2023 and 2024

Hamburg, 16 March 2023

All operational forecasts for FY 2022 met, several exceeded

From an operations perspective, 2022 was a very successful year for TAG Immobilien AG (TAG). At EUR 189.4m, FFO I, which in 2022 still only included the German rental business, was within the forecast range of EUR 188-192m. A strong reduction in vacancies and the increased rental growth compared to the previous year made a particular contribution to this result.

Vacancy in the Group’s residential units in Germany decreased from 5.5% at the beginning of the year to 4.4% at the end of December. Based on a comparable portfolio (like-for-like), annual growth in rents, including the effects of vacancy reduction, of 2.7% was achieved (FY 2021: 1.3%). This means that the forecast values were exceeded for both key figures.

The business in Poland also saw an extremely positive development. The result from operations in Poland, which is a key component of FFO II, was EUR 59.3m in 2022 after EUR 6.7m in the previous year. This development was largely driven by a strong final quarter, in which numerous apartments were handed over to their buyers, especially at the level of the subsidiary ROBYG S.A. (ROBYG), which was acquired on 31 March 2022. In total, FFO II, including a slight book loss of EUR 1.4m from the sale of German properties, amounted to EUR 247.3m and was therefore also within the forecast range. Compared to 2021, this represents an increase of more than 31%.

The consolidated net profit declined to EUR 117.3m in the reporting year, after EUR 585.6m in 2021. While the operating business in Germany and Poland developed very well, the result of the property valuation in 2022 was negative due to market developments. After a valuation gain of EUR 540.1m in the previous year, 2022 brought a valuation loss of EUR 64.2m, mainly due to a 5.5% devaluation of the German portfolio in Q4 2022. Seen over the year as a whole, the value of the German real estate portfolio fell by c. 1.5%. In Poland, a valuation gain of EUR 33.1m was realised for 2022.

Further progress was made with property sales in Germany towards the end of the financial year. In the full year, c. 1,600 apartments were sold, 900 of them in Q4 2022 alone. Overall, the sales were made at book value, and at the end of the year deliberately with moderate price concessions, i.e. slightly below the current book values, in order to generate demand in a currently difficult transaction market. After the reporting date, sales in the order of magnitude of the last few months of the year have also been realised or are imminent. As soon as the last refinancing measures are complete, sales in Germany will only be continued on an opportunistic basis, so the future required sales volume is limited.

Commenting on the results of the 2022 financial year, TAG COO Claudia Hoyer said: “We have every reason to be happy with our operating results in 2022, both in Germany and Poland. In both markets, we are benefiting from an unchanged strong demand for residential space. However, 2022 was also the year in which the economic environment and the capital market situation changed drastically. As a result, for the first time in many years we recorded valuation losses in our German real estate portfolio. However, we still see TAG’s strategy of generating strong cash flows from a high-yield portfolio as the right way forward, especially in this challenging environment of sharply increased interest rates, and we will continue to pursue it systematically.”

All forecasts for the 2023 financial year, as published in November 2022, remain unchanged.

Positive business performance in Poland despite difficult market environment

Despite high inflation, increased interest rates, and the resulting more difficult debt financing conditions for buyers of apartments, c. 1,750 apartments were sold and around 3,500 apartments were handed over in Poland in FY 2022. Including ROBYG for the first quarter of 2022, in which it was not yet consolidated, sales amounted to c. 2,400 apartments and hand overs to c. 3,800 apartments. Sales prices and margins were kept at a constantly high level during the financial year, and the number of monthly apartment sales showed a noticeable upswing at the end of the year.

In the rental segment, around 1,150 apartments were completed as of the reporting date, and a further c. 1,150 will be brought to market in the first half of 2023. Together with the c. 1,050 residential units that will be available for rent in the 2024 financial year, TAG will thus have around 3,350 rental apartments in Poland in the near future. The renting business successes achieved so far significantly exceed the original expectations. Against the backdrop of strong demand for new apartments in the major cities in Poland, the total like-for-like growth in rents for the apartments that have already been completed for more than a year was 22% p.a. For apartments that only started to be let at the end of 2022, the rent achieved is around 30% higher compared to the rent planned about a year ago.

In the case of nearly 700 apartments that were originally intended to be let, it was decided to transfer them to sales. This measure and the already strong sales business, which led to an adjusted EBITDA of EUR 81m in 2022, made it possible to bring business activities in Poland, in sum, to cash flow neutrality in FY 2023 already. From FY 2024 onwards, liquidity surpluses are expected, which can then also be used again for the construction of new rental apartments.

From an organisational perspective, the two subsidiaries Vantage Development S.A. (Vantage) and ROBYG were merged into a single organisation in 2022. The two companies will remain legally separate entities so as to position Vantage as a platform for the rental business and ROBYG as a unit for sales and construction activities. However, both companies are under the same management and do business as a unified organisation to ensure the resulting synergies. It is particularly gratifying that the members of the management have worked for Vantage and ROBYG for many years, thus ensuring continuity and securing extensive market expertise.

Extensive refinancing measures implemented in 2022

As at 31 March 2022, TAG had acquired all shares in ROBYG, using a bridge facility to realise the purchase. As of the reporting date, the utilised residual amount of the bridge facility, whose term ends in January 2024, amounts to EUR 250m, after the interim loan value of EUR 650m was reduced by EUR 400m through repayments during H2 2022. In this connection, TAG took far-reaching and extensive refinancing measures, including

• the rights issue carried out in July 2022 with gross proceeds of EUR 202m,
• the dividend suspension for the 2022 financial year proposed by the Management Board and the Supervisory Board, which entails a liquidity saving of EUR 143m compared to the original planning,
• sales of around 1,600 apartments in Germany, which led to net cash proceeds of EUR 86m,
• the adjustment of investments in Poland for new rental projects to the effect that initially only the projects currently under construction will be completed and new projects will be deferred,
• refinancing and new bank loans for the German portfolio, which led to liquidity inflow of EUR 209m, and
• the issuance of promissory note loans in Germany and the refinancing of corporate bonds in Poland in a total amount of EUR 108m.

These measures not only significantly reduced the bridge facility, but also fully refinanced all financial liabilities that are due for repayment in 2023. After paying off the remaining amount of the bridge facility, which will be achieved from further property sales and additional bank loans in Germany, there will no longer be any significant capital market debt in the next three years.

Martin Thiel, CFO of TAG, said: “We are aware that we asked a lot of our shareholders in 2022. The changes in the economic environment and sharply increased interest rates hit us in 2022 at a moment when extensive financing measures were necessary for TAG due to the acquisition of ROBYG. But we reacted and have strengthened our equity with the rights issue and the proposed dividend suspension to such an extent that no further capital measures are necessary. As announced, we will not decide on the proposal to pay a dividend for the 2023 financial year until the end of this year. By then, we will have positioned TAG to be financially independent of capital market financing; this goal is now very close. The strong cash flow of our business compared to the sector, and a limited programme of necessary disposals in Germany, will help us to achieve this.”

In the year under review, TAG also successfully continued with the implementation of the ESG goals it had set itself in accordance with the communicated budgets. Detailed information can be found in the Sustainability Report 2022, which will be published on 20 April 2023.

Further details on the 2022 financial year can be found in the annual report published today and in a related presentation at https://www.tag-ag.com/en/investor-relations/financial-statements/annual-reports.

Overview of key financials

Contact

TAG Immobilien AG

Dominique Mann

Head of Investor & Public Relations

Phone +49 (0) 40 380 32 305

Fax +49 (0) 40 380 32 390

ir@tag-ag.com