TAG Immobilien AG reports good operating rental results and increased sales results in H1 2023; extensive repayments made on financial liabilities

PRESS RELEASE

TAG Immobilien AG reports good operating rental results and increased sales results in H1 2023; extensive repayments made on financial liabilities

• FFO I of EUR 89.1m in H1 2023; down 7% year-on-year due to higher costs of financing
• Operating rental result improved by EUR 4.2m to EUR 121.8m
• FFO II up 11% year-on-year to EUR 111.6m due to strong sales results in Poland
• German real estate portfolio devalued by 7.4% as at 30 June 2023; despite this, LTV at 47.5% hardly changed since the beginning of the year
• Sale of approx. 1,050 residential units in Germany in H1 2023 leads to liquidity inflow of EUR 143m; in the last 12 months, almost 2,000 flats were sold and liquidity of EUR 207m was generated from sales
• In Poland, around 2,300 rental residential units have now been completed, with another c. 1,050 rental residential units under construction; unchanged high demand leads to high rental growth and low vacancy rates
• Since 1 July 2022, EUR 890m in repayments of unsecured financial liabilities; bridge financing from ROBYG acquisition paid down to EUR 75m in August 2023

Hamburg, 14 August 2023

Good operational performance seen in Q1 2023 continues at half-year mark

In the first half of 2023, FFO I, which includes the Group’s entire rental business in Germany and Poland, amounted to EUR 89.1m. Compared to the same period of the previous year, this corresponds to a decline of EUR 7.1m or 7%. Higher financing costs of EUR 9.6m from newly signed or renewed financial liabilities led to this development despite a EUR 4.2m increase in the operating result (adjusted rental EBITDA).

The like-for-like growth in rents in the German portfolio amounted to 2.1% and 1.6% p.a., respectively, excluding effects from vacancy reduction (30 June 2022: 2.0% and 1.5% p.a., respectively). Vacancy in the Group’s residential units in Germany has remained unchanged at 4.7% in recent months, after 4.5% at the beginning of the year and 5.2% in June 2022. However, a further reduction in vacancy is expected for the remaining months of the year due to the continued strong demand for affordable housing.

FFO II, which includes the sales business in addition to FFO I, saw a year-on-year increase of EUR 11.0m or 11%, to EUR 111.6m. This is due to TAG’s increased sales result in Poland.

Despite higher operating results in rentals and sales, group consolidated net profit for H1 2023 was negative at EUR -304.7m (after a net profit of EUR 301.8m in H1 2022). This was due to the losses from property valuation of EUR 455.5m recognised in the first half of the year. By contrast, the property valuation in the same period of the previous year had resulted in a gain of EUR 273.3m.

All forecasts for the full year 2023, including the FFO I and FFO II forecasts, remain unchanged.

Negative market value adjustments of the real estate portfolio in Germany, but leverage ratio remains relatively unchanged

As in previous years, the half-yearly valuation of the entire real estate portfolio was carried out on 30 June 2023. In the German portfolio, significantly increased capitalisation interest rates led to the valuation losses. They translate to a devaluation of the German real estate portfolio by 7.4%, following an already effected devaluation of 5.5% in the second half of 2022, and compared to a valuation gain of 4.0% in H1 2022. As a result, TAG’s portfolio in Germany is now valued at approximately EUR 1,100 per sqm and a gross initial yield of 5.9%.

The valuation of the rental portfolio in Poland resulted in a gain of EUR 15.6m after EUR 16.7m in the same period of the previous year. The gross yield of the approximately 2,300 Polish rental residential units already completed as of 30 June 2023 is 5.2% (based on fair value IFRS), which corresponds to a value of around EUR 2,550 per sqm.

Despite the valuation losses in Germany, the loan-to-value (LTV) ratio of 47.5% as at 30 June 2023 was marginally changed compared to 31 December 2022 (46.7%). Besides the good operating results and the suspension of the dividend payment for the 2022 financial year, this was due in particular to the sales of residential units realised in Germany. Other financing indicators such as the interest coverage ratio (ICR) and the net financial debt/EBITDA adjusted ratio remain at an unchanged strong 6.4x and 10.1x (5.0x and 13.2x excluding the Polish sales business).

Sales of more than 1,000 residential units in Germany

From January to June 2023, sales contracts were signed for a total of 1,051 units, including a larger commercial property. Their cumulative sales price amounts to EUR 161.8m, which corresponds to 22.9 times the annual net actual rent. Book losses of EUR 3.9m will be realised from the sales. The expected inflow of liquidity, after repayment of bank liabilities, amounts to EUR 143.1m. Some of these sales already closed in the first half of 2023, with the rest, involving a remaining net cash proceeds of approximately EUR 60m, scheduled to be completed by the end of Q3 2023.

For another sale of approx. 1,350 residential units notarised at the beginning of the financial year as well as a related purchase of around 650 residential units, TAG exercised a right of rescission in July 2023 as the other contracting party failed to submit the financing in due time. TAG is entitled to a contractual penalty as compensation. Some of these residential units continue to be held for sale, but there are no longer any plans to purchase the 650 residential units.

Since 1 July 2022, 1,937 residential units have thus been sold in Germany. Their cumulative sales prices amount to EUR 234.2m; liquidity inflow from the sales totals EUR 206.9m.

Rising sales figures and further expansion of the rental business in Poland

In the first six months of 2023 sales of 1,817 (previous year: 595) residential units were signed in Poland and 863 (previous year: 599) residential units were handed over to their buyers. The Polish sales market thus continues to develop very positively. Demand for housing is being driven by improved financing conditions for buyers and the still-strong influx of people from Ukraine.

The joint venture signed with a Centerbridge Partners, L.P. fund company in April 2023 closed as scheduled at the end of Q2 2023. The joint venture plans to invest in land acquisitions, including from external third parties, totalling USD 100m. The land contributed by TAG has a capacity of more than 100,000 sqm for residential projects intended for sale. TAG and the joint venture partner each hold a 50% stake. TAG shall receive separate fees for handling the construction activities, the sale of the residential units and other services within the joint venture.

In the rental sector, about 2,300 residential units have now been completed in Poland, and another 1,050 rental residential units are under construction. By 2024, the total number of completed rental residential units will thus be around 3,350, with a medium-term target of having more than 10,000 rental residential units within the next five years.

Although most of the 2,300 rental residential units were only completed in the last few months, occupancy rate in the overall portfolio already amounts to just 89.3% as of the reporting date due to the strong demand for residential units. A further increase is expected to be as the letting period progresses. The like-for-like growth in rents for the residential units that have been on the market for over a year was 14.4% p.a. as at 30 June 2023.

Commenting on the results for the first half of 2023, Claudia Hoyer, COO of TAG, said: “We are pleased that our good operating rental and sales results largely offset the sharp rise in financing costs over the past few quarters. Our growing sales figures in Poland ensure liquidity surpluses, which we can reinvest in the construction of new rental residential units. In this way, we are able to achieve further value-creating growth even in the currently difficult financing environment. In Germany, we have sold nearly 2,000 residential units in the last twelve months, generating liquidity of over EUR 200m. Ultimately, the valuation loss recorded as of 30 June 2023, which was to be expected in view of the general market development, has confirmed our strategy of selling portfolios selectively at moderate discounts to the market values determined in the past.”

Extensive repayment of unsecured financial liabilities; bridge financing from the ROBYG acquisition paid down to EUR 75m

Since the beginning of the financial year until the interim report published today, significant repayments of unsecured financial liabilities have been made. In Germany, corporate bonds of EUR 125m and promissory note loans of EUR 115m were repaid as scheduled. In Poland, EUR 64m in corporate bonds were repaid. The bridge financing taken out to finance the acquisition of the Polish company ROBYG S.A. in March 2022, which was utilised in the amount of EUR 650.0m at its peak, amounts to EUR 175.0m as of the reporting date. After 30 June 2023, further repayments totalling EUR 100.0m have been made, which leads to an outstanding amount as of today of only EUR 75.0m. Full repayment is planned by the end of the year.

Since 1 July 2022, unsecured financial liabilities (i.e. corporate bonds, promissory note loans and bridge financing) totalling EUR 890m have been repaid. In the same period, bank loans with a total volume of EUR 490m were newly taken out or refinanced in Germany. This generated new liquidity of EUR 378m.

Martin Thiel, CFO of TAG: “With last year’s refinancing of the bridge financing for the ROBYG acquisition, we entered a challenging environment of sharply rising interest rates and extremely difficult capital markets. Some of the measures we have initiated since last summer were painful, but have now brought us very close to our goal. The rights issue of EUR 202m carried out in July 2022, the suspension of the originally planned dividend payment of EUR 143m, and liquidity generated in Germany of EUR 207m from property sales and of EUR 378m in bank loans have helped us to pay down our unsecured financial liabilities by nearly EUR 900m. Knowing that our German and Polish property portfolios continuously generate substantial liquidity surpluses, we are well positioned financially and not dependent on refinancing from the capital market.”

For more details on the second quarter of 2023, please see the interim report published today and a presentation at https://www.tag-ag.com/en/investor-relations.

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