conwert Immobilien Invest SE: conwert achieves solid operating performance in third quarter and confirms guidance

Vienna (pta021/25.11.2014/22:18 UTC+1) -
+ Rental income rises by 8.2% to EUR181.4 mn
+ Personnel expenses and other operating expenses cut by a total of 7.7% against previous year to EUR20.4 mn and EUR28.8 mn respectively
+ Net finance costs continue to be hampered in third quarter by negative non-cash effects of EUR13.0 mn
+ FFO I at EUR10.2 mn for 3rd quarter; EUR25.6 mn after 1-9/2014
+ FFO I guidance confirmed for 2014 at over EUR30 mn and for 2015 at EUR40 mn

conwert Immobilien Invest SE, listed on the Austrian ATX, managed to achieve solid operating results in the first nine months 2014.

Rental revenue increased by 8.2% to EUR181.4 mn (1-9/2013: EUR167.6 mn). As in the first half 2014, a key factor in this rise was the consolidation of the residential portfolio acquired from GE Capital Real Estate Germany in the fourth quarter 2013. Net rental income (NRI) was up by 4.9% from EUR107.6 mn to EUR112.9 mn. On a like-for-like basis (N.B.: comparison of net rents invoiced, excluding properties acquired or sold in the interim period) net rental income also rose by 2.3%. However, the NRI margin underwent an overall decline to 62.2% as a result of higher property expenses (1-9/2013: 64.2%), although it bounced back in the third quarter 2014 to 64.0% following on from 61.4% in the first half of the year. The net initial yield was 6.3% at the reporting date after standing at 6.0% in the previous year's reporting period, marking a 5.0% improvement. At the reporting date the total vacancy rate was 10.4%, thereby falling 11.9% against the comparable reporting period (1-9/2013: 11.8%). While this actually represents a slight increase compared to year-end 2013 (year-end 2013 vacancy rate: 10.0%), management assumes that the vacancy rate will decline by year-end 2014 and may even fall below 10% across the group for the first time.

As in the first half 2014, sales revenues were characterised by the individual sale of residential and commercial units and amounted to EUR70.9 mn (1-9/2013: EUR167.2 mn). The consequent IFRS margin was 14.7% and the IFRS profit on properties sold amounted to EUR9.1 mn. conwert is thereby maintaining its guidance for sales revenues of EUR150-200 mn for 2014, as sales processes for the Czech portfolio and the majority of the Slovakian portfolio, as well as for several larger commercial properties, are expected to close in the current year. The value adjustment applied in light of the advanced sales negotiations for individual properties, especially those in the Czech Republic, Slovakia and the value adjustment of the conwert-owned office property in the Ukraine, resulted in negative fair value adjustments totalling EUR(6.0) mn, following on from EUR(7.1) mn in the first half 2014.

Personnel expenses and other operating expenses declined by a total of 7.7%, whereby personnel expenses decreased by 16.6% against the comparable period to EUR20.4 mn; other operating expenses were at a similar level to 2013, amounting to EUR28.8 mn (1-9/2013: EUR28.9 mn). However, management assumes a decrease against 2013 in other operating expenses for the full year 2014. Earnings before interest, tax, depreciation and amortisation (EBITDA) stood at EUR82.5 mn (1-9/2013: EUR92.8 mn), owing to the planned reduction of sales volumes and the concentration on selected service mandates.

As in the first half 2014, as a result of the historically low interest rates, net finance costs were hampered by negative non-cash effects of derivatives totalling EUR45.0 mn - of which EUR13.0 mn were posted in the third quarter. Net finance costs amounted to EUR(103.3) mn (after EUR(56.3) mn for 1-9/2013). There was a slightly positive effect from derivatives last year owing to the interest rate curve development. The increase in non-cash effects on net finance costs this year was mainly due to the decline in the interest rate curve in the course of 2014 and the consequent change in the market value of ineffective swaps which conwert originally concluded in the years 2007-2010 to hedge borrowed capital liabilities against interest rate fluctuations. This resulted in EBT of EUR(27.8) mn (1-9/2013: EUR36.0 mn), hampered by non-cash effects, and the loss for the period was EUR(19.9) mn, following on from EUR(23.1) mn in the first half 2014 and a profit of EUR24.7 mn in the previous year.

Loan to value (LTV), i.e. debt in relation to the property portfolio minus cash and cash equivalents, was 54.7% at the reporting date (31/12/2013: 55.9%) and therefore within the target range of 50 to 55% set for year-end 2014. The target LTV for year-end 2015 is below 50%.

Funds from operations before sales income and one-off costs (FFO I), a key performance indicator for conwert, rose sharply in the third quarter 2014 by EUR10.2 mn to EUR25.6 mn (EUR9.8 mn in the third quarter 2014 and EUR27.7 mn for 1-9/2013). At the end of the first half 2014 FFO I was at EUR15.4 mn. FFO II (FFO I plus sales income) amounted to EUR30.1 mn (1-9/2013: EUR40.0 mn) and was therefore just 24.8% below the figure for the comparable period in the previous year despite a 57.6% reduction in sales revenues. When cash taxes are deducted (Cash Profit), FFO II amounted to EUR27.9 mn, around 10.3% below the previous year's level (1-9/2013: EUR31.1 mn). Given the results of the third quarter 2014, management confirms the FFO I forecast of over EUR30 mn for 2014 and EUR40 mn for 2015.

Clemens Schneider, conwert CEO, on the results: "In the third quarter 2014 conwert has succeeded in gathering additional operating momentum and has achieved strong operating income before sales and revaluation, as well as FFO I of EUR10.2 mn. We still have a lot of work ahead before the end of the year to expedite our portfolio streamlining. I am, however, optimistic that we will manage to take a major step forward in optimising our portfolio in the current year 2014. Furthermore, we have implemented measures to significantly reduce our financial cash and non-cash costs; this should have an impact on reducing net finance costs in the coming quarters significantly".

The focus of conwert's business activities in 2014 is on integrating the portfolios acquired in 2013 (KWG and GE). The focus on the six core markets (Vienna, Berlin, Potsdam, Dresden, Leipzig, North Rhine-Westphalia) should facilitate further improvements to the operating profitability of the portfolio. Last but not least, there is a focus on continuing sales activities for the ECO, commercial and CEE portfolios. conwert continues to forecast sales revenues of EUR150-200 mn for the full year 2014.

The interim report 1-9/2014 of conwert Immobilien Invest SE is available at http://www.conwert.com.

Key performance indicators		1-9/2014	1-9/2013 adjusted*)	Change	2013
Rental income	EUR mn	181.4	167.6	8.2%	227.3
Proceeds from sale of properties	EUR mn	70.9	167.3	-57.6%	273.9
Revenues from property services	EUR mn	6.8	12.6	-45.9%	15.2
Total revenues	EUR mn	259.1	347.5	-25.5%	516.4
EBITDA	EUR mn	82.5	92.8	-11.2%	116.8
EBIT	EUR mn	75.5	92.3	-18.2%	123.4
EBT	EUR mn	(27.8)	36.0	-	48.7
Funds from operations before sales income and one-off items (FFO I) **)	EUR mn	25.6	27.7	-7.4%	36.2
Funds from operations after net finance income/costs (FFO II) ***)	EUR mn	30.1	40.0	-24.8%	52.1
Net rental income (NRI)	EUR mn	112.9	107.6	4.9%	141.4
NRI margin	%	62.2	64.2	-3.1%	62.2
Basic earnings/share	EUR	(0.28)	0.27	-	0.09
Diluted earnings/share	EUR	(0.14)	0.29	-	0.18
FFO I **) / share	EUR	0.31	0.33	-7.3%	0.44

*) The interim financial statements as at 30 September 2013 recognised a gain on bargain purchase of EUR7.5 mn, which was amended to EUR1.0 mn in the fourth quarter 2013. For interim reporting purposes, recognition of this merger has been adjusted retrospectively.
**) 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
***) FFO II: FFO I + difference between sales and carrying amount of properties sold - operating expenses of sales income

Balance sheet indicators		30/09/2014	31/12/2013	Change
Total assets	EUR mn	3,038.3	3,165.7	-4.0%
Non-current loans and borrowings	EUR mn	1,129.1	1,081.6	4.4%
Current loans and borrowings	EUR mn	234.9	378.0	-37.8%
Equity	EUR mn	1,098.0	1,128.6	-2.7%
Equity ratio	%	36.1	35.7	1.1%
LTV	%	54.7	55.9	-2.2%
Basic EPRA NAV/share	EUR	15.34	15.40	-0.4%

Property portfolio		30/09/2014	30/09/2013	Change	31/12/2013
Rental units	No.	31,042	28,961	7.2%	32,120
Parking spaces	No.	13,890	13,139	5.7%	14,187
Total usable space	1,000 sqm	2,528.3	2,425.1	4.3%	2,603.5
Property assets	EUR mn	2,827.7	2,798.9	1.0%	2,868.1

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This report contains forward-looking estimates and statements that were made on the basis of the information available at this time. Forward-looking statements reflect the point of view at the time they are made. conwert would like to point out that the actual circumstances and, consequently, the actual results realised at a later date may differ from the forecasts presented in this report for a variety of reasons.

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