Performance
Business developmentsProperty portfolio and assets
The ongoing positive market environment in Austria and Germany enabled conwert to achieve strong business growth in the residential property sector. The market environment for commercial property and in the CEE remained challenging, whereby conwert exploited the ongoing demand, particularly in Vienna and Austria, to sell off additional properties and apartments. Here, in 2013 commercial property with a total value of €103.4 mn was sold at a margin of 4.5% above the IFRS carrying amount. Sales activities, which benefited from the renewed strong demand in property investments in Austria and Germany by private and institutional investors, as well as the achievement of rental targets, are also reflected in the positive change in vacancy rates.
At 31 December 2013 the conwert property portfolio consisted of a total of 2,603,466 sqm space (31/12/2012: 1,924,433 sqm). The increase in total usable space is due to the comprehensive purchases completed in the year under review and the subsequent significant increase in the German portfolio, which compensated for the sales-related decline in Austria and other countries several times over. As a result, the number of rental units also rose sharply in 2013 to 32,120 (31/12/2012: 20,479). In total there were 27,861 units in the residential property sector (31/12/2012: 16,279) and 3,678 units in the commercial property sector (31/12/2012: 3,721). The number of parking spaces amounted to 14,187 (31/12/2012: 10,795) and the number of other units stood at 581 (31/12/2012: 479). The residential segment accounted for 70.1% of usable space as of the reporting date. At 31 December 2013 conwert’s property assets amounted to €2,868.1 mn (31/12/2012: €2,510.7 mn). This increase primarily resulted from the comprehensive acquisitions in Germany in the year under review, as is the case with most of the other property figures reported.
Total usable space by segment
(in 1,000 sqm) Austria Germany Other countries Total 2012 2013 658 578 1,178 1,941 88 84 1,924 2,603
Property assets by segment
(in 1,000 sqm) Austria Germany Other countries Total 2012 2013 1,095 1,288 968 1,795 127 105 2,511 2,868 Space by usage type
(in 1,000 sqm) Residential Commercial Total 2012 2013 1,125 799 1,826 1,924 778 2,603
Performance of rents and vacancy rates
conwert’s rental business recorded a stable performance in 2013. Average residential rents stood at €5.33/sqm/m at the end of 2013 (31/12/2012: €5.43/sqm/m) and average commercial rents excluding miscellaneous were at €8.12/sqm/m (31/12/2012: €8.41/sqm/m).
As of the reporting date, the overall vacancy rate was 10.1%, representing a renewed decrease on the previous year (31/12/2012: 10.7%). This is equivalent to a decline of 5.6%. There was a significant improvement in the strategic vacancy rate from 3.0% to 1.6% thanks to the conclusion of renovation work and development measures. The actual vacancy rate was up slightly on last year to 8.5% (31/12/2012: 7.7%) owing to properties placed on the market and in view of the consolidation of two portfolios with above-average vacancy rates in Germany. On a like-for-like basis, there was a 6.7% decline in vacancy rates.
Average rents (in €/sqm) 2013 2012 Change Residential 5.33 5.43 -1.8% Commercial 8.12 8.41 -3.4% Property services
Further structural optimisations were implemented in the service sector in 2013. In Germany alt+kelber Immobilienvertrieb GmbH and alt+kelber Immobilienmanagement GmbH were incorporated into conwert Deutschland GmbH, while the property management company alt+kelber Immobilienverwaltung GmbH remains in place as a subsidiary.
All conwert management services made an exceptional contribution once again in 2013, whereby 1,300 individual units and 76 properties with 1,711 units were sold and 5,283 units were rented out. Rental services for third parties accounted for 49.0% of the total volume and sales services for external clients on the market amounted to 40.7% of the total volume. The building management companies of conwert managed 3,092,992 sqm of space, of which 969,277 sqm or 31.3% was for third parties. The decrease in space managed for third parties
Space managed by segment
(in 1,000 sqm) 2012 2013 2011 1,262 1,083 3,407 3,300 4,669 4,383 415 2,678 3,093 Austria Germany Total
Internal/external space managed
(in 1,000 sqm) 2012 2013 2011 1,906 1,755 2,763 2,664 4,669 4,419 2,124 969 3,093 conwert Third parties Total Vacancy rates
Vacant space (in sqm)
2012 2013 119,087 Purchased (50,923) Sold (10,138) Organic +/- 1.6 10.1 3.0 205,109 263,135 10.7
Strategic vacancy rates (in %) Total vacancy rates (in %)
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Revenues
At the reporting date conwert revenues totalled €516.4 mn (2012: €625.1 mn). This decrease was due in particular to the reduction in sales volumes on the previous year, as well as lower revenue from third-party services. Sales revenue amounted to €273.9 mn, following on from €409.6 mn in 2012. Rental income rose by 20.8% in the same period from €188.1 mn to €227.3 mn.
Total revenues
Rental income
In 2013 conwert’s rental income increased by 20.8% to €227.3 mn, particularly because of the integration of KWG Kommunale Wohnen AG (KWG), as well as the purchase of a portfolio from GE Capital Real Estate Deutschland (GE portfolio) and the significant subsequent increase in the share of the German property portfolio. NRI rose sharply from €110.5 mn to €141.4 mn; the NRI margin increased to 62.2% (2012: 58.7%). The net initial yield was 6.2% following on from 5.7% at the end of 2012.
Revenue
(in € mn)
Rental income Sales proceeds Service revenue Total 2012 188.1 409.6 27.3 625.1 2013 227.3 273.9 15.2 516.4 Revenue by segment (in € mn) 2013 2012 Austria Germany Other countries Group
eliminations Group Group Change
Rental income 65.9 155.7 8.4 (2.7) 227.3 188.1 20.8%
Sales revenue 148.7 118.8 6.4 0.0 273.9 409.7 -33.1%
Service revenue 22.7 36.9 1.2 (47.1) 15.2 27.3 -44.3%
Total revenue 237.3 311.4 16.0 (49.8) 516.4 625.1 -17.4%
Rental income by segment before eliminations
(in %) 2013 2012 Austria 65.9 76.2 Germany 155.7 105.6 Other countries 8.4 6.6 NRI by region (in € mn) 2013 2012 Austria 42.2 41.7 Germany 88.4 59.0 Other countries 6.1 3.9 Group eliminations 4.7 5.9 Group 141.4 110.5
Proceeds from sale of properties
Proceeds from the sale of properties fell by 33.1% to €273.9 mn (2012: €409.6 mn). The focus of sales activities was once again on Austria, despite the significant year-on-year decrease in proceeds from sale of properties; sales revenue here totalled €148.7 mn. Properties in Germany with a total value of €118.8 mn were sold, almost the same level as the previous year. Sales revenue of €6.4 mn in other countries marked a return to somewhat higher proceeds from sale, following on from the previous year when sales practically came to a standstill. The IFRS profit margin for all property assets sold came to 11.1% and the IFRS profit on all properties sold in 2013 amounted to €27.3 mn. In total 2,127 residential and commercial units and 630 parking spaces were sold.
Revenues from property services
Revenues from external property services generated by providing services to third parties amounted to €15.2 mn, representing a decrease of 44.3% on the same period in the previous year; this was caused by the concentration on selected service contracts such as the three DWS residential property funds. Internal revenues from property services generated €47.1 mn. The reduction in internal revenues reflects the streamlined corporate structure in Germany, whereby effects include the invoicing of lower internal commissions.
Sales revenue by segment
(in %)
2013 2012 Austria 54.3 70.3 Germany 43.4 29.3 Other countries 2.3 0.4
Sales revenue margins
(in %)
Investment property Properties held for sale IFRS margin 2011 2.4 19.8 8.7 2012 3.9 21.6 9.2 2013 4.3 18.5 11.1 Property services (in € mn) Third-party revenues Internal revenues Total service revenues before eliminations 2011 29.5 64.9 94.4 2012 27.3 60.6 87.9 2013 15.2 47.1 62.3
60 EBIT (in € mn) 2012 2013 EBT (in € mn) Financial performance
Rental income exceeded expectations – not least because of the significant increase in the property portfolio – and this, along with a reduction in vacancy rates and the positive development of the sales business, has led to a noticeable rise in the operating results. However, conwert’s overall results were also burdened by multiple one-off effects such as the cost of integrating KWG. Earnings before tax, depreciation and amortisation (EBITDA) amounted to €116.8 mn in 2013 (2012: €97.2 mn). Earnings before interest and tax (EBIT), which reflect the operating performance of the Group and were negative in the previous year, were clearly in the black even in light of the integration of KWG and amounted to €123.4 mn as of the reporting date. Earnings before tax (EBT), which had also been negative in the previous year, stood at €48.7 mn and at €54.5 mn after adjustments of one-off items.
2011
2012 2013 2011
2013 2012 Change
Rental income € mn 227.3 188.1 20.8%
Proceeds from sale of properties € mn 273.9 409.7 -33.1%
Revenues from property services € mn 15.2 27.3 -44.2%
Total revenues € mn 516.4 625.1 -17.4%
Property expenses € mn (85.9) (77.6) 10.7%
Expenses from the sale of properties € mn (246.6) (375.1) -34.3%
Other operating income € mn 10.2 6.1 67.5%
Personnel expenses € mn (32.3) (35.8) -9.9%
Other operating expenses € mn (45.0) (45.5) -1.0%
EBITDA € mn 116.8 97.2 20.2%
Net income from fair value adjustments € mn 9.1 (27.3) - Negative fair value adjustments for
properties held for sale
€ mn (2.6) (9.9) -73.9%
Depreciation, amortisation and impairment € mn (1.0) (118.5) -99.2%
EBIT € mn 123.4 (58.5) -
Net finance costs € mn (74.7) (96.1) -22.3%
EBT € mn 48.7 (154.6) -
Profit/loss € mn 13.3 (172.1) -
Profit after non-controlling interests € mn 7.5 (167.8) -
Funds from Operations before sales income and one-off items (FFO I) *)
€ mn 36.2 22.4 61.6%
Cash profit **) € mn 43.3 37.6 15.2%
Net Rental Income (NRI) € mn 141.4 110.5 28.0%
Earnings per share € mn 0.09 (2.06) - Diluted earnings per share € mn 0.18 (1.47) - FFO I/share € 0.44 0.27 63.0%
FFO II ***)/share € 0.63 0.52 21.2% Overview of selected financial performance indicators
*) FFO I: Earnings before tax (EBT) – difference between sales and carrying amount of sold properties + operating expenses of sales income -/+ revaluation gains/losses + depreciation and value adjustments + non-cash components of financial income and other non-cash costs not including non-controlling interests + restructuring costs/one-off costs **) Cash profit: FFO II – actual income taxes paid
***) FFO II: FFO I + difference between sales and carrying amount of sold properties – sales income expenses
119.8 123.4
(58.5)
23.6
48.7
(154.6)
Revaluation gains/losses
Net revaluation gains/losses for conwert resulted in net gains of €6.5 mn, despite the fact that this included significant negative fair value adjustments for ECO and CEE properties. The challenging backdrop on the commercial property markets and the CEE markets in particular led to negative fair value adjustments of €16.0 mn net for ECO properties and €11.1 mn for properties in other countries, of which €2.3 mn was for ECO properties. The goal of the conwert management remains the timely disposal of both portfolios (ECO and CEE), as conwert lacks the critical mass needed for profitable growth, particularly in CEE. The revaluation of the Austrian portfolio resulted in fair value adjustment gains of €1.9 mn net; if the fair value adjustment of the ECO portfolio in Austria had not been included at a rate of €(6.5) mn, net revaluation gains would have been significantly higher at €8.4 mn. Fair value adjustment of the German portfolio amounted to €18.4 mn net, even though the ECO portfolio in Germany also included negative fair value adjustments of €(7.1) mn net.
The fair value of investment property, determined by an independent expert, must always be taken into account in line with IAS 40. Revaluation gains and losses must be reported in the balance sheet and the income statement, and clearly visible in net gains/losses from fair value adjustments. The portfolio of “properties held for sale” always needs to take into account lower values than the acquisition cost or fair value. This means that revaluation gains above the acquisition cost are not possible, although revaluation losses are recognised in full in the balance sheet. Revaluation losses for the portfolio of “properties held for sale” amounted to €2.6 mn (2012: €9.9 mn).
Fair value adjustments 2013 by segment
Austria Germany Other countries Group*)
Net gain/loss from fair value adjustments € mn 1.9 18.4 (11.1) 9.1 Property assets from investment property € mn 799.3 1,719.2 98.1 2,616.6 Negative value adjustments for property
held for sale
€ mn (1.2) (0.1) (1.3) (2.6) Total value adjustments € mn 0.7 18.3 12.4 6.5 Property assets as at 31/12/2013 € mn 968.2 1,795.2 104.7 2,868.1 Property assets per sqm residential**) € 1,639 865 1,068 956
Property assets per sqm commercial**) € 1,696 1,290 1,378 1,511
*) following consolidation **) by predominant usage type
Depreciation, amortisation and impairment
Depreciation, amortisation and other impairment charges, which had amounted to €118.5 mn in 2012 – particularly because of depreciation on goodwill – stood at €1.0 mn in the 2013 business year.
Personnel expenses
In 2013 personnel expenses fell by 9.9% from €35.8 mn to €32.3 mn. One key reason for this was the completed integration of KWG and the synergy effects resulting from this. Personnel expenses were also affected by the one-off impact related to the restructuring in Germany, along with redundancy payments to various managers who left the company. Another factor which must be considered is that the comparative value from the previous year does not include personnel expenses from KWG; if these had been included, personnel expenses in the previous year would have amounted to around €38.8 mn.
Other operating expenses
In the 2013 business year other operating expenses amounted to €(45.0) mn (2012: €(45.5) mn). These include one-off impacts, which were also necessitated in the course of integrating KWG. If the relevant administrative expenses of KWG were included, other operating expenses for conwert in the 2012 business year would amount to €(49.0) mn on a pro forma basis; this factor would lead to a decrease of 8.2%.
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Net finance costs
Net finance costs improved as a result of rising financial income, which offset an increase in finance costs, from €(96.1) mn to €(74.7) mn. Restructuring the swaps and the slight increase in interest rates observed from the second quarter onwards had a particular impact here.
Income tax expense
Tax expenses stood at €(35.4) mn in the reporting period, following on from €(17.5) mn the year before; the increase was due to value adjustments for deferred tax assets.
Profit and earnings per share
At 31 December 2013 conwert achieved profits after income tax and non-controlling interest of €7.5 mn, following on from the loss of €167.8 mn in the previous year. Basic earnings per share after non-controlling interest stood at €0.09 in the reporting period (2012: €(2.06)).
Funds from Operations (FFO) and cash profit
The strong rental business in 2013 led to a 61.6% rise in Funds from Operations before sales income and one-off items (FFO I) to €36.2 mn (2012: €22.4 mn). FFO II (FFO I including sales income) amounted to €52.1 mn (2012: €42.5 mn) and was therefore up by 22.6% on the 2012 figures, despite a 33.1% reduction in sales revenue. The cash profit (FFO II less cash taxes) stood at a solid €43.3 mn, representing an increase of 15.2% (2012: €37.6 mn). FFO I per share rose sharply in the reporting period and was up 63.0% to €0.44 (2012: €0.27). Correspondingly, FFO II per share also increased to €0.63 (2012: €0.52).
The FFO II return in relation to the share price*) was at a high 6.7% on the effective date
30 December 2013 . The FFO I return was also pleasing at 4.7%.
FFO I (in € mn) 2012 2013 FFO II (in € mn) 2011 2012 2013 2011 19.0 36.2 22.4 46.9 52.1 42.5
*) The share price of conwert shares stood at €9.329 on 30 December 2013.
4.7%
FFO I RETURN
6.7%
FFO II RETURN
Balance sheet structure (in € mn) Equity & Liabilities Assets
Financial Position
and Assets
Analysis of financial position
As at 31 December 2013 conwert had total assets of €3,165.7 mn (31/12/2012: €2,870.1 mn). The 10.3% increase in total assets was primarily caused by the consolidation of KWG and the purchase of the GE portfolio, along with the loan funding taken on in relation to this transaction. As a consequence, there was also a significant increase in the item “investment property”, which amounted to €2,616.6 mn at the end of the year under review, following on from €2,207.4 mn in 2012. It therefore continues to be the largest item on conwert’s balance sheet by some margin, whereby its share of total assets increased sharply once again to 82.7% (31/12/2012: 76.9%). At the reporting date the item “properties held for sale” of €251.5 mn were recognised in the balance sheet. At 31 December 2013 current assets totalled €499.3 mn.
Overview of balance sheet
2013 2012 Change
Total non-current assets € mn 2,666.4 2,282.6 16.8%
Investment property € mn 2,616.6 2,207.4 18.5%
Investments in associates € mn 15.6 14.3 8.8%
Financial assets € mn 7.8 4.9 58.9%
Total current assets € mn 499.3 587.5 -15.0%
Properties held for sale € mn 251.5 303.3 -17.1%
Cash and cash equivalents € mn 128.6 137.2 -6.3%
Total assets € mn 3,165.7 2,870.1 10.3%
Total equity € mn 1,128.6 1,025.0 10.1%
Non-controlling interests € mn 61.9 6.6 >100%
Total non-current liabilities € mn 1,532.3 1,440.3 6.4%
Non-current interest bearing loans and borrowings
€ mn 1,081.6 921.1 17.4%
Bond liabilities € mn 64.7 64.6 0.1%
Convertible bonds € mn 205.2 223.1 -8.0%
Total current liabilities € mn 504.9 404.8 24.7%
Current interest bearing loans and borrowings
€ mn 378.0 308.0 22.7%
Total equity and liabilities € mn 3,165.7 2,870.1 10.3%
EPRA NAV (basic) per share € 15.40 15.79 -2.5%
Equity ratio *) % 35.7 35.7 -
Gearing **) % 154.2 146.9 5.0%
Net debt € mn 1,740.6 1,505.7 15.6%
*) equity including non-controlling interests **) total net debt/total equity
Equity
The Group’s equity increased by 10.1% on the previous year to €1,128.6 mn (31/12/2012: €1,025.0 mn). The equity ratio remained unchanged at 35.7% (31/12/2012: 35.7%). At the reporting date gearing stood at 154.2% (31/12/2012: 148.9%).
3,165.7 3,165.7 499.3 2,666.4 504.9 1,128.6 1,532.3 Current assets Non-current assets Current liabilities Non-current liabilities Equity
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Authorised and contingent capital
As per the applicable statutes, the Administrative Board is authorised as of 4 July 2013 to carry out a capital increase of up to an additional €213,398,180 by issuing up to 42,679,636 new no-par value bearer shares. In cases where the share capital is increased against contribution in kind, the Administrative Board is authorised to exclude shareholders’ pre- emptive rights up to a nominal amount of €85,359,273 (20%). However, the Administrative Board did not exercise this right in the year under review.
In addition, the Group has access to contingent capital amounting to €384,116.700 (45%), which can be used to service convertible bonds. No rights of exchange or subscription were exercised by the holders of convertible bonds in 2013.
In order to provide the greatest transparency and basis for comparison with market participants, conwert reported both diluted and basic EPRA NAV (Net Asset Value of the European Public Real Estate Association) at the end of 2013. EPRA NAV is primarily used as an indicator of the long-term fair value of equity. It is calculated on the basis of equity (before non-controlling interests), adjusted for the impact of exercising options, convertible bonds and other equity instruments, as well as adjustment of the market value of derivative financial instruments and deferred taxes, i.e. adjusting items which have no impact on the company’s long-term performance.
Basic EPRA NAV per share declined from €15.79/share by 2.5% to €15.40/share, mainly as a result of lower negative market values of interest-rate hedges, as well as an adjustment in the sell portfolio and its valuation. At the end of the 2013 business year, diluted EPRA NAV stood at €14.98/share (31/12/2012: €15.44/share).
Non-current and current liabilities
At 31 December 2013 conwert’s financing volumes totalled €1,751.7 mn, whereby the takeover of KWG and the acquisition of the GE portfolio led to a 15.1% increase. Non-current loans and borrowings amounted to €1,081.6 mn (31/12/2012: €921.1 mn), while current loans and borrowings accounted for €378.0 mn (31/12/2012: €308.0 mn). Interest-bearing loans and borrowings of €41.0 mn were recognised in current liabilities as of 31 December 2013, owing to the contractual agreement for either party to be able to cancel them at any time. However, the loan agreements and the banks’ internal credit approval of these loan liabilities have a long-term profile running until between 2021 and 2033. In practice and in view of the parties’ intentions and the respective economic status of the financing, the company assumes a probable term of just €2.9 mn within one year, €10.9 mn in one to five years and €27.2 mn with a term of over 5 years. The three existing convertible bonds are shown with their maturity date, regardless of any possible rights of cancellation.
NAV breakdown*)
(in € mn unless otherwise indicated)
31/12/2013 31/12/2012 Change
Equity 1,128.6 1,025.0 10.1%
No. of shares as of reporting date less treasury shares 82,782,809 81,495,309 1.6%
Equity attributable to conwert shareholders 1,066.6 1,018.4 4.7%
Revaluation of sell portfolio 26.3 53.5 -50.8%
Fair value financial instruments 112.3 175.3 -35.9%
Long-term financing from tenants 11.4 13.2 -13.6%
Deferred taxes 86.5 70.1 23.4%
Basic EPRA NAV/share (in €) 15.40 15.79 -2.5%
*) determined on the basis of EPRA criteria
EPRA NAV/share
(in €)
31/12/2011 18.35 17.03
15.79 15.44 15.40 14.98
Basic EPRA NAV Diluted EPRA NAV
31/12/2012 31/12/2013
Nominal interest rate (in %) Effective interest, weighted (in %) Average term, weighted (in years) Carrying amount (in € mn) Convertible bonds Maturity 2014 1.5% 3.2% 0.9 22.2 Maturity 2016 5.3% 5.4% 2.1 130.4 Maturity 2018 4.5% 4.7% 4.7 74.8 Bond liabilities Maturity 2017 5.8% 5.9% 3.5 64.7
Loans and borrowings at variable interest rates