Interim Report 1-9/2014
Usable space by usage type *) as of Performance at a glance 73.3% Residential 26.7% Commercial *) Fair value allocation as commercial or residential is based on the majority use of the building as commercial or residential space. FFO I (before sales income) 13.4 1-9/2012 *) adjusted 27.7 25.6 1-9/2013 *) 1-9/2014 Cash profit (FFO II (incl. sales income) incl. cash taxes) 24.0 31.1 27.9 Key performance indicators 1-9/2014 1-9/2013 adjusted Change 2013 Rental income mn 181.4 167.6 8.2 % 227.3 Proceeds from sale of mn 70.9 167.2-57.6 % 273.9 properties Revenues from property mn 6.8 12.6-45.9 % 15.2 services Total revenues mn 259.1 347.5-25.5 % 516.4 EBITDA mn 82.5 92.8-11.2 % 116.8 EBIT mn 75.5 92.3-18.2 % 123.4 EBT mn (27.8) 36.0-48.7 Funds from operations before mn 25.6 27.7-7.6% 36.2 sales income and one-off items (FFO I) *) Funds from operations after mn 30.1 40.0-24.8% 52.1 net finance income/costs (FFO II) **) Cash profit ***) mn 27.9 31.1-10.3% 43.3 Net rental income (NRI) mn 112.9 107.6 4.9% 141.4 Equity mn 1,098.0 1,130.9-2.9% 1,128.6 Equity ratio % 36.1 37.2-2.7% 35.7 LTV % 54.7 54.3 0.6% 55.9 *) 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 ***) Cash profit: FFO II actual income tax Stock exchange indicators 1-9/2014 1-9/2013 adjusted Change 2013 Basic earnings/share (0.28) 0.27-0.09 Diluted earnings/share (0.14) 0.29-0.18 Basic EPRA NAV/share 15.34 15.71-2.4% 15.40 FFO I/share 0.31 0.33-7.3% 0.44 1-9/2012 *) adjusted EBITDA 1-9/2012 1-9/2013 *) 1-9/2014 92.8 80.8 82.5 1-9/2013 1-9/2014 Property indicators 1-9/2014 1-9/2013 Change 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 mn 2,827.7 2,798.9 5.9 % 2,868.1 Key performance indicators by segment as of Austria Germany Other countries Group Property assets mn 952.1 1,781.8 93.8 2,827.7 Property assets residential *) /sqm 1,656.44 875.10 803.32 961.24 Property assets commercial *) /sqm 1,715.71 1,364.70 1,365.79 1,548.86 Contractual rent residential /sqm/m 5.84 5.50 5.94 5.54 Contractual rent commercial /sqm/m 8.85 7.89 9.61 8.48 Total vacancies residential % 5.3 8.7 24.0 8.6 Total vacancies commercial % 16.2 9.8 37.3 15.1 *) Fair value allocation as commercial or residential is based on the majority use of the building as commercial or residential space.
Contents 2 Markets 3 The conwert Portfolio in Figures 4-9 Investor Relations 10-31 Interim Management Report 12 Economic Backdrop and Property Markets 14 Business Performance 14 Business Developments 16 Revenue 18 Financial Performance 20 Financial Position and Assets 24 Segment Report 25 Austria Segment 26 Germany Segment 28 Other Countries Segment 29 Related Party Disclosures 30 Outlook 31 conwert Outlook 31 Events after the Reporting Period 32-49 Condensed Consolidated Interim Financial Statements 34 Consolidated Interim Income Statement 35 Consolidated Interim Statement of Comprehensive Income 36 Consolidated Interim Balance Sheet 37 Consolidated Statement of Changes in Equity 37 Consolidated Cash Flow Statement 38 Selected Explanatory Notes to the Condensed Consolidated Interim Financial Statements 52-53 Appendix 52 Financial Calendar 53 Imprint Numerous amounts and percentage rates were rounded and the addition of these individual figures can therefore produce results that differ from the totals shown. The interim financial statements as at 30 September 2013 recognised a gain on bargain purchase of 7.5 mn, which was amended to 1.0 mn in the fourth quarter 2013. For interim reporting purposes, recognition of this merger has been adjusted retrospectively.
Markets Core markets Other markets Core NRW Usable space: 236,582 sqm Vacancy rate: 11.9% Yield: 8.0% Rental income: 5.29/sqm/m Leipzig Usable space: 331,593 sqm Vacancy rate: 5.1% Yield: 7.8% Rental income: 5.21/sqm/m Berlin Usable space: 352,971 sqm Vacancy rate: 4.0% Yield: 6.2% Rental income: 6.01/sqm/m Potsdam Usable space: 119,395 sqm Vacancy rate: 1.5% Yield: 5.2% Rental income: 6.75/sqm/m Dresden Usable space: 48,156 sqm Vacancy rate: 5.1% Yield: 7.3% Rental income: 5.85/sqm/m Vienna Usable space: 356,543 sqm Vacancy rate: 9.7% Yield: 4.4% Rental income: 6.90/sqm/m 2 Interim Report 1-9/2014 Markets / The conwert Portfolio in Figures
The conwert Portfolio in Figures Property portfolio by region 1-9/2014 Austria Rental units No. 4,386 Parking spaces No. 4,693 Total usable space 1,000 sqm 562.1 Strategic vacancies % 4.5 Actual vacancies % 7.7 Total vacancies % 12.2 Property assets mn 952.1 Germany 2.8 BN property assets MN SQM 2.5 usable space Rental units No. 25,660 Parking spaces No. 8,260 Total usable space 1,000 sqm 1,883.0 Strategic vacancies % 1.0 Actual vacancies % 7.9 Total vacancies % 8.9 Property assets mn 1,781.8 31,042 rental units Other countries Rental units No. 996 Parking spaces No. 937 Total usable space 1,000 sqm 83.2 Strategic vacancies % 6.6 Actual vacancies % 25.1 Total vacancies % 31.7 Property assets mn 93.8 13,890 parking spaces Total Rental units No. 31,042 Parking spaces No. 13,890 Total usable space 1,000 sqm 2,528.3 Strategic vacancies % 1.9 Actual vacancies % 8.4 Total vacancies % 10.4 Property assets mn 2,827.7 3
Dresden is just as vibrant as us. Our apartment provides a balance, a place where we can relax. Caroline P. & Nicholas E., conwert tenants in Dresden
Investor Relations
Investor Relations 67.9 % free float 15.34 nav / Share Developments on the stock exchange The third quarter 2014 saw high trading levels on the Vienna Stock Exchange, whereby share prices were heavily affected. Equity trading volumes were at 11.4 bn and thereby 17% higher than the comparable period of the previous year (1-9/2013: 9.7 bn). Equity trading volumes were up considerably again in September versus the summer months, reaching 4.2 bn. Total equity trading volume on the Vienna Stock Exchange in the first three quarters of 2014 was 36.1 bn (1-9/2013: 28.9 bn), marking an increase of 25% this year. Despite the pleasing development of equity trading liquidity, price trends reflect the rather subdued sentiment on the markets. The reasons as many economists and analysts have confirmed are geopolitical crises as well as downward revisions of economic forecasts and profit warnings. The ATX reached its year low of 2,202.03 points on 29 September 2014. However, analysts have forecast price increases for the ATX by year-end, provided the geopolitical situation does not deteriorate. (Source: Vienna Stock Exchange, press release dated 5 October 2014 Third Quarter 2014: Equity Trading on Vienna SE Still Brisk, Market Sentiment Dims ) The economic backdrop led the ATX to decline by 13.5% in the first nine months 2014. In contrast, IATX, the Austrian property index, held steady and achieved a slight plus of 4.5%. In the same period the DAX recorded a slight decline of 0.8%. The FTSE EPRA/NAREIT Developed Europe Index was able to achieve a good performance and was up by 12.4%. In international terms, the general mood for investments in property-based securities therefore continues to be extremely positive. The conwert share in the first three quarters 2014 In the reporting period the conwert share dipped slightly by 3.2%, although this decline was far less pronounced than that of the ATX. The share started the year at a price of 9.33, before reaching a year high of 10.56 on 24 April 2014. The year low of 8.52 was hit on 24 June 2014. The share closed at 9.03 on 30 September 2014 and the discount to the net asset value (NAV) per share of 15.34 was 41.1% as of the reporting date. Share price since January 2014 120 100 80 Jan Jun Sep conwert ATX FTSE EPRA/NAREIT Developed Europe Index 6 Interim Report 1-9/2014 Investor Relations
Stock market listing conwert is one of the largest listed property companies in Austria and is listed on the ATX, the leading index on the Vienna Stock Exchange. As of the reporting date, conwert shares had a weighting of 1.7% on the ATX, 17.1% on the IATX and 0.4% on the international index FTSE-EPRA/NAREIT Developed Europe. On the Vienna Stock Exchange a total of 58,167,892 conwert shares were traded on 186 trading days (double counting), with a trading volume of around 549.5 mn. This corresponds to an average daily trading volume of 312,731 shares (1-9/2013: 341,161 shares) worth 3.0 mn (1-9/2013: 3.0 mn), also applying double counting. Among the 27 ATX companies, conwert ranked 15th in terms of annual trading volumes, while it was 19th in terms of free float market capitalisation. Shareholder structure *) As a longstanding core shareholder, the Haselsteiner Family Private Foundation held 24.4% of conwert shares; as of the reporting date, EARNEST Partners, LLC held 4.8% **) and FIL Limited (Fidelity) around 5.0% in conwert. Approximately 39.5% of shares were held by institutional investors at home and abroad, while private investors held a further 23.2% of free float shares. The number of treasury shares was unchanged at 3.0% ***). To the best of the company s knowledge, 23.7% of institutional investors were based in Austria, while 26.5% were in Continental Europe and 12.5% in the United Kingdom and Ireland. 36.0% were in North America and 1.3% were in the rest of the world. *) In mid-november 2014, Petrus Advisers, LLC announced that they had crossed the 5% threshold. **) At the beginning of October 2014, Earnest Partners, LLC announced that they had crossed the 5% threshold. ***) Moreover, due to a buyback of 5.25% convertible bonds 2010-2016, 2.44% of the voting rights are attributable to conwert as per sec. 91a para. 5 of the Austrian Stock Exchange Act, although conwert is not permitted to exercise the conversion rights tied to convertible bonds in accordance with sec. 51 Stock Corporation Act. Performance 1-9/2014 conwert (3.2)% ATX (13.5)% IATX 4.5% DAX (0.8)% FTSE EPRA/NAREIT 12.4% Developed Europe Index Development as of 30 September 2014: since first listing (28/11/2002) (18.3)% since first listing p.a. (1.6)% 6 months (6.0)% 12 months 3.8% Shareholder structure as of 30 September 2014 conwert shareholders Institutional investors by region 39.5% Institutional investors 24.4% Haselsteiner Family Private Foundation 23.3% Private shareholders 5.0% FIL Limited (Fidelity) 4.8% EARNEST Partners, LLC 3.0% Treasury shares 36.0% North America 26.5% Continental Europe 23.7% Austria 12.5% United Kingdom and Ireland 1.3% Remaining countries 7
Stock market indicators 1-9/2014 1-9/2014 1-9/2013 2013 No. of shares on last trading day less treasury shares No. 82,782,809 82,782,809 82,782,809 Average no. of shares less treasury shares No. 82,782,809 82,879,175 82,879,175 Share price at start of year 9.33 9.77 9.77 Share price at end of quarter 9.03 8.70 9.33 Share price high 8.52 10.43 10.43 Share price low 10.56 7.44 7.44 Market capitalisation mn 747.5 720.2 772.3 Share buyback programme and sale of treasury shares In the first three quarters 2014 no treasury shares were bought back or used as acquisition currency. The percentage of treasury shares was therefore unchanged at 3.0% as of the reporting date. Convertible bonds In the third quarter 2014 there were no changes to the convertible bonds issued by conwert. Investor Relations in the first three quarters 2014 In the third quarter 2014 conwert held numerous talks with investors in the course of conferences and road shows. At the start of July 2014 conwert attended appointments in Geneva and Zurich as part of a road show with Credit Suisse and in mid-september the company participated in a road show in London with Kepler Cheuvreux. The end of September marked an investment conference in Munich organised by Baader Bank. The management team also held telephone calls and face-to-face meetings with investors and analysts. 8 Interim Report 1-9/2014 Investor Relations
Analysts assessments Eleven analyst groups had covered the conwert share by the end of the third quarter 2014. One institute gave a buy recommendation for conwert shares. Six analysts issued a hold recommendation and three a valuation of underweighted or neutral, while one analyst gave a sell recommendation. The price range was 8.70 to 11.50, with an average price target of 9.95. The conwert share was rated by analysts from the following institutes at the reporting date, 30 September 2014: + Baader Bank AG / Helvea SA + Close Brothers Seydler Research AG + Deutsche Bank + Erste Group Bank AG + Goldman Sachs International + HSBC Trinkaus & Burkhardt AG + J.P. Morgan Securities Plc. + Kempen & Co N.V. + Kepler Cheuvreux + KochBank GmbH Wertpapierhandelsbank + Raiffeisen Centrobank AG Information on conwert shares Investor Relations Manager Clemens Billek Shareholder Hotline +43/1/521 45-700 E-Mail Website Vienna Stock Exchange Bloomberg Reuters ISIN Type of shares cwi@conwert.at www.conwert.com CWI CWI AV CONW.VI AT0000697750 Ordinary shares No. of shares incl. treasury shares 85,359,273 Issued capital Segment Indices Specialist Market Maker 426.79 mn Vienna Stock Exchange, Official Trading ATX, ATX-Prime, IATX, FTSE EPRA/NAREIT Developed Europe Index Close Brothers Seydler Bank AG Baader Bank AG, CeFDex AG, Erste Group Bank AG, Kepler Capital Markets S.A., Raiffeisen Centrobank AG, Société Générale S.A., Spire Europe Ltd., Virtu Financial Ireland Ltd. Shareholder structure as of 30 September 2014 *) Haselsteiner Family Private Foundation 24.4%; FIL Limited (Fidelity) 5.0%; EARNEST Partners, LLC 4.8% **) ; total institutional investors 39.5%; retail 23.3%; treasury shares 3.0% ***) *) In mid-november 2014, Petrus Advisers, LLC announced that they had crossed the 5% threshold. **) At the beginning of October 2014, Earnest Partners, LLC announced that they had crossed the 5% threshold. ***) Moreover, due to a buyback of 5.25% convertible bonds 2010-2016, 2.44% of the voting rights are attributable to conwert as per sec. 91a para. 5 of the Austrian Stock Exchange Act, although conwert is not permitted to exercise the conversion rights tied to convertible bonds in accordance with sec. 51 Stock Corporation Act. 9
The perfect place for my daughter to grow up. Anett & Luna K., conwert tenants in Berlin
Interim Management Report
Economic Backdrop and Property Markets Economic backdrop The IMF s October 2014 forecast evaluated the global growth outlook as relatively pessimistic. Geopolitical uncertainty is hampering growth prospects, as reflected in weaker sentiment indicators. (Source: Oesterreichische Nationalbank, Latest on the Economy Reports and Analyses on the Economic Backdrop, October 2014) According to the latest flash estimate, seasonally adjusted GDP in the eurozone rose by 0.2% in the third quarter 2014 against the previous quarter and was up by 0.8% against the same quarter of the previous year. (Source: Eurostat, GDP up by 0.2% in the euro area and up by 0.3% in the EU28, press release dated 14 November 2014) The Governing Council of the ECB decided on 6 November 2014 that the interest rate on the main refinancing operations and the interest rates on the marginal lending facility and the deposit facility would remain unchanged at 0.05%, 0.30% and -0.20% respectively. (Source: ECB, Monetary policy, press release dated 6 November 2014) Operating environment Europe While the Austrian property investment market rose by around 48% in the third quarter 2014 against the same quarter 2013, the overall European investment market recorded a plus of 27% in the same period. Germany reported year-onyear growth of 30%. (Source: CBRE Austria, Record investments on Austrian property market Austria follows European trend, press release dated 27 October 2014) Operating environment Austria Investment market The first half of 2014 was already very strong for the Austrian property market, with investment volumes of 1.3 bn. A further 770 mn was invested in Austrian property in the third quarter, corresponding to a volume of 2.1 bn from January to September 2014. (Source: CBRE Austria, Record investments on Austrian property market Austria follows European trend, press release dated 27 October 2014) Housing market According to Otto Immobilien, the Vienna apartment building market is back in full swing after a weak start to the year. Several interesting transactions are still expected in the current year. Overall, prices are forecast to hold steady, with a slight upward trend. (Source: Wirtschaftsblatt, Stable level, increasing demand, article dated 24 October 2014) 12 Interim Report 1-9/2014 Interim Management Report Economic Backdrop and Property Markets
Commercial property and office market In the third quarter 2014 around 90,000 sqm of office space was let in Vienna; nevertheless, office take-up for the full year is only expected to total around 250,000 sqm, a fall of 20% on the previous year. (Source: CBRE Austria, Record investments on Austrian property market Austria follows European trend, press release dated 27 October 2014) Operating environment Germany Housing market The German market for residential portfolios generated transaction volumes of around 2.1 bn in the third quarter 2014, representing an increase of around 0.2 bn since the preceding quarter. Turnover from January to September 2014 totalled around 9.1 bn, corresponding to growth of around 4% against the same period 2013. The number of residential portfolios traded fell by 8% to 141, whereby 26 packages consisted of at least 1,000 units. For the full year 2014 transaction volumes are expected to reach around 11.0 bn (average 2009-2013: around 7.4 bn). (Source: Savills, Residential Portfolio Market Q3 2014, press release dated 7 October 2014) Regional housing market Berlin generated the highest revenues in Germany with almost 22,000 units traded in the first nine months 2014 and the city is the most important player on the whole German housing market. This year very few residential packages were sold in other extremely expensive cities such as Hamburg, with around 1,000 units traded, or Munich, with around 460 units traded. (Source: Savills, Market Overview Investment Market Germany, Q3 2014) Investment market commercial property Transactions on the German investment market for commercial property totalled 25.4 bn in the first nine months 2014. This is the best nine-month result since 2007. Compared to the same period in 2013, this represents an increase of around a third, or 6.3 bn. Around 22% more was invested in the third quarter against the preceding quarter, at 8.5 bn. The German commercial property market continues to benefit from the strong influx of foreign capital. Office properties remained the most sought-after asset class, with almost 13.0 bn and a share of around 51% of total volumes. Retail properties took second place with almost 6.4 bn, a share of around 25%. (Source: CBRE Germany, Investment market commercial property 3rd quarter 2014: transaction volumes exceed 25-billion-euro mark in the first nine months, press release dated 1 October 2014) 13
Total usable space by segment (in 1,000 sqm) 30/09/2013 Austria Germany Other countries Total Space by usage type *) (in 1,000 sqm) Business Performance Business developments Property portfolio and assets At 30 September 2014 conwert s property portfolio consisted of 2,528,293 sqm usable space (30/09/2013: 2,425,077 sqm). Despite numerous sales in the past twelve months, the increase in total usable space is due to the consolidation of a residential portfolio from GE Capital Real Estate Germany (GE portfolio). The number of rental units also rose to 31,042, following on from 28,961 units in the comparable period of the previous year. 27,893 units were residential (30/09/2013: 25,801 units) and 3,149 units were commercial (30/09/2013: 3,160 units). The number of parking spaces stood at 13,890 as of the reporting date (30/09/2013: 13,139 parking spaces). At the end of the third quarter 2014 conwert held property assets of 2,827.7 mn (30/09/2013: 2,798.9 mn), an increase of 1.0% against 2013 owing to the purchase of the GE portfolio. In the first three quarters 2014 conwert sold commercial units for 10.9 mn at a margin of 14.4% and residential units for 60.0 mn at a margin of 14.8% over the IFRS carrying amounts. In total 1,055 units and 311 parking spaces were sold in Austria, Germany and the other countries. 30/09/2013 Residential Commercial Total Property assets by segment 120 94 1,016 1,663 952 1,782 619 1,721 85 2,425 562 1,883 83 2,528 2,799 2,828 718 676 1,707 2,425 1,852 2,528 *) Fair value allocation as commercial or residential is based on the majority use of the building as commercial or residential space. 30/09/2013 Austria Germany Other countries Total 14 Interim Report 1-9/2014 Interim Management Report Business Performance
Performance of rents and vacancy rates conwert s rental business recorded a stable performance. The average apartment rent at 30 September 2014 stood at 5.54 sqm/m (30/09/2013: 5.48 sqm/m) and the average rent for commercial property was 8.48 sqm/m (30/09/2013: 8.38 sqm/m). Average rents *) (in /sqm) 30/09/2013 Change residential 5.54 5.48 1.1% commercial 8.48 8.38 1.2% *) Fair value allocation as commercial or residential is based on the majority use of the building as commercial or residential space. The occupancy rate improved once again by 11.9%. At the reporting date the vacancy rate was 10.4% (30/09/2013: 11.8%). The strategic vacancy rate improved from 2.6% in the previous year s reporting period to 1.9% at present as a result of completed renovation and development measures. The actual vacancy rate stood at 8.4% at the reporting date (30/09/2013: 9.2%). This is a good development in view of the consolidation of the GE portfolio, which had an above-average vacancy rate on the date of consolidation. On a like-for-like basis, vacancy rates overall fell by 7.2% to 9.5%. Property services In the first three quarters 2014 conwert service companies sold 1,936 units, of which 971 units were from 64 property sales. In total 67.8% or 1,312 of the units sold were for conwert and the remaining 32.2% for third parties. In the first nine months 2014 new rental agreements are in place for 535 units (incl. parking spaces) in Austria. In the other segments new rental agreements were concluded for a total of 3,433 units (incl. parking spaces) of which 3,205 units in Germany and 228 units in the other countries 75.1% were for conwert. At the reporting date conwert property management companies managed a total of 57,901 units with 3,245,361 sqm usable space (30/09/2013: 3,211,643 sqm). The space managed therefore remained stable. 5,839 of the managed units were in Austria and 52,062 in Germany. Space managed by segment (in 1,000 sqm) 1,083 3,336 31/12/2012 31/12/2013 Austria Germany Total Space managed (in 1,000 sqm) 1,755 2,664 4,419 4,419 415 2,124 2,678 3,093 969 31/12/2012 31/12/2013 conwert Third parties Total 3,093 410 2,310 2,835 3,245 936 3,245 15
Revenues Rental income rose by 8.2% to 181.4 mn, following on from 167.6 mn in the same period of the previous year. The main growth drivers were the consolidation of the GE portfolio and the subsequent increase in property held in Germany. Net Rental Income (NRI) increased by 4.9% to 112.9 mn (1-9/2013: 107.6 mn). However, the NRI margin declined to 62.2% as a result of higher property expenses in the first nine months 2014 (1-9/2013: 64.2%), even though the NRI margin for the third quarter 2014 recovered to 64.0%. The net initial yield stood at 6.3%, following on from 6.0% in the comparable period. Proceeds from the sale of properties decreased as planned by 57.6% to 70.9 mn (1-9/2013: 167.2 mn). The planned reduction in sales income led to a 25.5% decline in conwert revenues to 259.1 mn (1-9/2013: 347.5 mn). The focus of sales activities was on Germany in the first three quarters 2014, with sales revenue totalling 46.4 mn. Sales revenue amounted to 23.3 mn in Austria and 1.2 mn in the other countries. Total sales revenue were 70.9 mn, whereby the IFRS margin amounted to 9.1 mn or 14.7%. The management stands by the guidance of generating 150-200 mn in sales proceeds by year-end 2014. Revenue from external property services decreased by 45.9% to 6.8 mn (1-9/2013: 12.6 mn), resulting from the concentration on selected service mandates for third parties. Revenue from internal services amounted to 26.2 mn (1-9/2013: 34.1 mn) at the reporting date. This reduction is mainly the result of the streamlined corporate structure in Germany which led to lower internal commissions. Revenues Rental income Sales proceeds Service revenue Total 1-9/2013 167.6 167.3 12.6 347.5 1-9/2014 181.4 70.9 6.8 259.1 Revenue by segment 1-9/2014 1-9/2013 Change Austria Germany Other countries Others Group eliminations Group Group Rental income 47.8 129.5 6.3 0.0 (2.2) 181.4 167.6 8.2% Sales revenue 23.3 46.4 1.2 0.0 0.0 70.9 167.3-57.6% Service revenue 12.1 20.0 0.7 0.2 (26.2) 6.8 12.6-45.9% Total revenue 83.2 195.8 8.2 0.2 (28.4) 259.1 347.5-25.5% Rental income by segment before eliminations (in %) 1-9/2014 1-9/2013 Austria 47.8 50.3 Germany 129.5 113.5 Other countries 6.3 4.7 16 Interim Report 1-9/2014 Interim Management Report Business Performance
NRI by segment 1-9/2014 1-9/2013 Austria 30.7 33.0 Germany 74.5 66.5 Other countries 3.2 3.0 Group eliminations 4.5 5.2 Group 112.9 107.6 Sales revenue by segment (in %) 1-9/2014 1-9/2013 Austria 23.3 94.3 Germany 46.4 67.8 Other countries 1.2 5.2 Sales revenue margins (in %) Investment Properties property held for sale IFRS margin 1-9/2012 4.6 21.0 8.8 1-9/2013 3.9 30.0 12.8 1-9/2014 (2.2) 28.1 14.7 Property services Third-party revenues Internal revenues Total service revenues before eliminations 1-9/2012 19.4 43.0 62.4 1-9/2013 12.6 34.1 46.7 1-9/2014 6.8 26.2 33.0 17
EBIT 91.6 1-9/2012 *) adjusted EBT 22.5 1-9/2012 *) adjusted 92.3 75.5 1-9/2013 *) 1-9/2014 36.0 (27.8) 1-9/2013 *) 1-9/2014 Financial performance *) In the reporting period conwert generated lower operating income than in the comparable period as a result of the higher property expenses related to the portfolio purchased in Germany in 2013 even though an increase in rental income and a reduction in vacancy rates were achieved. At the end of the third quarter 2014 earnings before tax, depreciation and amortisation (EBITDA) stood at 82.5 mn (1-9/2013: 92.8 mn). Earnings before interest and tax (EBIT) decreased from 92.3 mn at the reporting date of the previous year by 18.2% to 75.5 mn. As in the first half of the year 2014, negative fair value adjustments for individual properties in other countries were a contributing factor. conwert is involved in advanced sales negotiations with potential buyers for the portfolio in the Czech Republic and for assets in Slovakia. This required a negative fair value adjustment of around 5 mn for individual properties in the first half 2014. Furthermore, conwert reduced the fair value of an office property in the Ukraine by around 2 mn. A revaluation of 1.3 mn was also applied in the third quarter 2014 as a result of property sales which will only be realised at a later date. In total net income from fair value adjustments amounted to (6.0) mn. There were positive developments in personnel expenses, which fell by 16.6% to (20.4) mn (1-9/2013: (24.5) mn). While other operating expenses remained almost unchanged at (28.8) mn in the first three quarters 2014 (1-9/2013: (28.9) mn), the management assumes that there will be a significant decrease in other operating expenses for the full year 2014. Earnings before tax (EBT) stood at (27.8) mn as of the reporting date (1-9/2013: 36.0 mn). A key factor in this decline was net finance costs, which increased in particular in the first half 2014 as a result of a negative non-cash effects from swaps, due to the decrease in the interest rate curve. These non-cash effects totalled (45.0) mn from January to September 2014, following on from (0.9) mn in the previous year. Net finance costs amounted to (103.3) mn (1-9/2013: (56.3) mn). Owing to these negative influences in the reporting period, conwert recorded a loss after income tax and non-controlling interests of (19.9) mn (1-9/2013: 24.7 mn). Undiluted earnings per share including non-controlling interests were (0.28) (1-9/2013: 0.27). *) The interim financial statements as at 30 September 2013 recognised a gain on bargain purchase of 7.5 mn, which was amended to 1.0 mn in the fourth quarter 2013. For interim reporting purposes, recognition of this merger has been adjusted retrospectively. 18 Interim Report 1-9/2014 Interim Management Report Business Performance
Overview of selected financial performance indicators 1-9/2014 1-9/2013 adjusted Change Rental income mn 181.4 167.6 8.2% Proceeds from sale of properties mn 70.9 167.2-57.6% Revenues from property services mn 6.8 12.6-45.9% Total revenues mn 259.1 347.5-25.5% Property expenses mn (68.5) (60.0) 14.1% Expenses from the sale of properties mn (61.8) (148.3) -58.3% Other operating income mn 2.9 7.0-58.3% Personnel expenses mn (20.4) (24.5) -16.6% Other operating expenses mn (28.8) (28.9) -0.2% EBITDA mn 82.5 92.8-11.2% Net income from fair value adjustments mn (6.0) 0.0 - Negative fair value adjustments mn 0.0 (0.8) - for properties held for sale Depreciation, amortisation mn (1.0) (0.7) 37.9% and impairment EBIT mn 75.5 92.3-18.2% Net finance costs mn (103.3) (56.3) 83.6% EBT mn (27.8) 36.0 - Profit/loss mn (19.9) 24.7 - Profit/loss after mn (23.0) 22.0 - non-controlling interests Funds from operations before sales mn 25.6 27.7-7.6% income and one-off items (FFO I) *) Cash profit **) mn 27.9 31.1-10.4% Net rental income (NRI) mn 112.9 107.6 4.9% Earnings per share mn (0.28) 0.27 - Diluted earnings per share mn (0.14) 0.29 - FFO I/share 0.31 0.33-7.3% FFO II ***) /share 0.36 0.48-24.7% *) 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 the share attributable to non-controlling interest + 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 FFO I 13.4 1-9/2012 *) adjusted FFO II 47.4 1-9/2012 *) adjusted 27.7 25.6 1-9/2013 *) 1-9/2014 40.0 30.1 1-9/2013 *) 1-9/2014 Funds from operations (FFO) and cash profit The portfolio acquired in 2013 in Germany led to higher property expenses in the first nine months 2014, causing a 7.4% decline in funds from operations before sales income and one-off costs (FFO I) to 25.6 mn (1-9/2013: 27.7 mn). At the reporting date FFO II (FFO I including sales income) stood at 30.1 mn, after 40.0 mn in the previous year s reporting period. Despite a 57.6% decline in sales income, this represents a decrease of 24.8%. The cash profit (FFO II less cash taxes) amounted to 27.9 mn as of 30 September 2014, following on from 31.1 mn on the same date 2013 a fall of 10.4%. In the reporting period FFO I per share shrank by 7.3% to 0.31 (30/09/2013: 0.33). FFO II per share slipped back to 0.36 (30/09/2013: 0.48). The FFO II return in relation to the share price at the reporting date 30 September 2014 *) was 4.0%; the FFO I return was 3.4%. *) The share price of conwert shares stood at 9.03 at 30 September 2014. 19
Financial Position and Assets Balance sheet structure 3,038.3 3,038.3 507.9 322.0 Analysis of financial position At 30 September 2014 conwert had total assets of 3,038.3 mn, representing a slight decline of 4.0%, following on from 3,165.7 mn at 31 December 2013. This decline is primarily due to a reduction in investment property and other financial assets, which include receivables from property sales. 2,530.4 Assets Current assets Non-current assets 1,618.3 1,098.0 Equity & Liabilities Current liabilities Non-current liabilities Equity The value of investment property fell by 5.2% to 2,479.6 mn, following on from 2,616.6 mn at the end of the previous year. The value of properties held for sale amounted to 223.7 mn at the reporting date (31/12/2013: 251.5 mn) and the value of assets held for sale was 128.0 mn (31/12/2013: 0.0 mn). Because of advanced sales negotiations, 124.5 mn in assets from property companies was reclassified between the two items. Current assets totalled 507.9 mn. The equity of conwert underwent a slight decline of 2.7% to 1,098.0 mn (31/12/2013: 1,128.6 mn). The equity ratio increased slightly by 1.1% to 36.1% (31/12/2013: 35.7%). At the reporting date gearing stood at 158.2% (31/12/2013: 154.2%). Overview of balance sheet 31/12/2013 Change Total non-current assets mn 2,530.4 2,666.4-5.1% Investment property mn 2,479.6 2,616.6-5.2% Investments in associates mn 16.8 15.6 8.3% Financial assets mn 5.9 7.8-23.6% Total current assets mn 507.9 499.3 1.7% Properties held for sale mn 223.7 251.5-11.1% Assets held for sale mn 128.0 0.0 - Cash and cash equivalents mn 94.6 128.6-26.4% Total assets mn 3,038.3 3,165.7-4.0% Total equity mn 1,098.0 1,128.6-2.7% Non-controlling interests mn 63.3 61.9 2.3% Total non-current liabilities mn 1,618.3 1,532.3 5.6% Non-current interest bearing loans mn 1,129.1 1,081.6 4.4% and borrowings Bond liabilities mn 64.7 64.7 0.1% Convertible bonds mn 207.5 205.2 1.1% Total current liabilities mn 322.0 504.9-36.2% Current interest bearing loans and mn 234.9 378.0-37.8% borrowings Total equity and liabilities mn 3,038.3 3,165.7-4.0% EPRA NAV (basic) per share 15.34 15.40-0.4% Equity ratio *) % 36.1 35.6 1.4% Gearing **) % 158.2 154.2 2.6% Net debt mn 1,737.5 1,740.6-0.2% *) equity including non-controlling interests **) total net debt/total equity 20 Interim Report 1-9/2014 Interim Management Report Financial Position and Assets
EPRA NAV EPRA NAV (Net Asset Value of the European Public Real Estate Association) underwent a slight decrease of 0.4% against the end of the reporting period of the previous year to 15.34 per share (31/12/2013: 15.40 per share). It did, however, increase slightly against the second quarter 2014 (30/06/2014: 15.23 per share). NAV breakdown *) (in mn unless otherwise indicated) 31/12/2013 Change Equity 1,098.0 1,128.6-2.7% No. of shares as of reporting date less treasury shares 82,782,809 82,782,809 - Equity attributable to conwert shareholders 1,034.7 1,066.6-3.0% Revaluation of sell portfolio 22.2 26.3-15.6% Fair value financial instruments **) 116.3 84.2 38.1% Long-term financing from tenants 10.1 11.4-11.4% Deferred taxes 86.5 70.1 23.4% Basic EPRA NAV/share (in ) 15.34 15.40-0.4% * ) determined on the basis of EPRA criteria ** ) Net value; 25% corporate tax is deducted from the fair value of financial instruments in the EPRA NAV per share calculation. Non-current and current liabilities At the reporting date conwert s financing volumes amounted to 1,657.8 mn (31/12/2013: 1,751.7 mn). Of these, 1,129.1 mn related to non-current loans and borrowings (31/12/2013: 1,081.6 mn) and 234.9 mn to current loans and borrowings (31/12/2013: 378.0 mn). Loans and borrowings worth 22.6 mn (31/12/2013: 0.0 mn) were reclassified into liabilities held for sale in light of the advanced sales negotiations. EPRA NAV / share (in ) 15.79 15.40 15.34 At the end of the reporting period the conwert Group s financial liabilities were subject to the following terms (the data are based on contractual, non-discounted payments). The following table also gives an overview of the financing volumes subject to fixed and variable interest before transaction costs are applied. Loans and borrowings worth 26.9 mn are recognised as current owing to the contractual agreement for either party to be able to cancel them at any time. 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 2.4 mn within one year, 9.1 mn in one to five years and 15.4 mn with a term over five years. 31/12/2012 31/12/2013 Financing volumes before transaction costs Financing volume of which at fixed interest rates of which at variable interest rates of which remaining term up to 1 year 138.1 22.1 116.0 of which remaining term of 1-5 years 946.5 359.9 586.6 of which remaining term of more than 5 years 583.6 204.9 378.7 Total 1,682.2 586.9 1,081.3 21
Loan to value (in %) 54.4 55.9 54.7 The maturity structure of loans and borrowings due within one year not including loans and borrowings which both parties have a right to cancel at any time breaks down as follows at the reporting date: Loan volume due by 31/12/2014 33.5 between 01/01/2015 and 30/09/2015 40.9 Total 74.4 31/12/2012 31/12/2013 Financing volumes as at Range Number of banks Total 5.25% convertible bonds 132.0 *) 4.5% convertible bonds 75.5 *) 5.75% retail bond 64.7 *) < 20 42 banks 323.0 20-50 8 banks 234.0 > 50 8 banks 828.6 *) share of borrowed capital in convertible bonds 84.8% of financial liabilities were hedged against interest rate risks at the reporting date; this figure has slipped back slightly against the end of 2013. The effective interest rate of the financing volume was 2.67% before hedging costs and 4.32% after hedging costs. The average remaining term for loans and borrowings was 8.58 years. Net financial liabilities related to conwert property assets slipped back to 1,546.3 mn in view of liabilities held for sale (30/09/2013: 1,521.2 mn). As a consequence, loan to value (LTV), i.e. debt in relation to property projects minus cash and cash equivalents, improved to 54.7% (31/12/2013: 55.9%). This also includes the reclassification of property assets worth 124.5 mn into the item assets held for sale. 22 Interim Report 1-9/2014 Interim Management Report Financial Position and Assets
Cash flow Cash flow from operating activities increased in the first three quarters 2014 on the basis of the Group loss after tax by 38.8% from 102.4 mn in the previous year s reporting period to 142.1 mn. Cash flow from investing activities amounted to (2.6) mn (1-9/2013: 55.0 mn). In the first three quarters 2014 cash flow from financing activities was (170.6) mn (1-9/2013: (159.5) mn), with a subsequent reduction in cash and cash equivalents to 97.5 mn at the end of the reporting period. This represents a decrease of 31.1 mn against the comparable period of the previous year (1-9/2013: (2.2) mn). Overview of cash flows 1-9/2013 1-9/2014 adjusted Change Net profit for the period (19.9) 24.7 - Operating cash flow 81.9 77.1 6.3% Cash flow from operating activities 142.1 102.4 38.8% Cash flow from investing activities (2.6) 55.0 - Cash flow from financing activities (170.6) (159.5) -7.0% Change in cash and cash equivalents (31.1) (2.2) - Cash and cash equivalents at start of period 128.6 137.2-6.3% Cash and cash equivalents at end of period *) 97.5 135.0-27.8% Change in cash and cash equivalents (31.1) (2.2) - *) Cash and cash equivalents include cash and cash equivalents in sales worth 2.9 mn. Stake in KWG Kommunale Wohnen AG In the third quarter conwert purchased a further 139,451 shares in KWG Kommunale Wohnen AG, thereby increasing its stake to 77.8% or 12,360,860 shares. After the end of the reporting period conwert acquired additional shares and currently holds a 78.8% stake. 23
Segment Report As of 30 September 2014 the conwert portfolio consisted of 31,042 rental units with total usable space of 2,528,293 sqm and 13,890 parking spaces. The majority of the property portfolio is in Germany, which accounts for 82.7% of rental units and 74.5% of rentable space. The vacancy rate stood at 10.4% at the reporting date, a reduction of 11.9% compared to the previous year (30/09/2013: 11.8%). The strategic vacancy rate was 1.9% at the end of the third quarter 2014. Like-for-like On a like-for-like basis the vacancy rate for the hold portfolio also decreased by 7.2% to 9.5% as a result of newly let properties. Average rent crept up to 6.48 sqm/m, leading to a slight increase in rental income per month (on a runrate basis) of 2.3% to 12.0 mn (30/09/2013: 11.8 mn). Hold portfolio (like-for-like) 30/09/2013 Change Austria Average rent /sqm/m 8.14 8.04 1.2% Vacancy rate % 11.6 10.5 10.2% Rental income mn/m 3.3 3.3-0.9% Germany Average rent /sqm/m 5.95 5.81 2.5% Vacancy rate % 7.7 8.8-12.6% Rental income mn/m 8.4 8.1 3.3% Other countries Average rent /sqm/m 8.41 8.49-1.0% Vacancy rate % 34.0 37.9-10.3% Rental income mn/m 0.4 0.4 6.4% Total Average rent /sqm/m 6.48 6.36 1.9% Vacancy rate % 9.5 10.2-7.2% Rental income mn/m 12.0 11.8 2.3% As of 30 September 2014 conwert held property assets of 2,827.7 mn (30/09/2013: 2,798.9 mn). A key factor in this slight increase compared to the reporting period of the previous year was the acquisition of the portfolio from GE Capital Real Estate Germany (GE portfolio) in 2013, which more than compensated for the numerous sales in the past twelve months in terms of value. The assets of the Germany portfolio amounted to 1,781.8 mn at the end of the third quarter 2014. This corresponds to a share of 63.0% of total property assets. In terms of usage type, 1,852,027 sqm or 73.3% of the overall portfolio consisted of residential property and 676,266 sqm or 26.7% was commercial property as of the reporting date. 24 Interim Report 1-9/2014 Interim Management Report Segment Report
Austria segment Revenues and earnings Revenues in Austria fell by 48.0% to 83.2 mn (1-9/2013: 159.9 mn) as a result of the planned significant decline in proceeds from the sale of properties in the reporting period of the previous year. Proceeds from the sale of properties were therefore 75.3% lower than the comparable reporting period and amounted to 23.3 mn (1-9/2013: 94.3 mn). 114 residential units and 45 commercial units, as well as 86 parking spaces, were sold in the first three quarters of 2014. The average sales margin was 12.8%. Rental income declined by 5.0% to 47.8 mn (1-9/2013: 50.3 mn) due to the sale of the aforementioned properties and individual units. Revenues from property services shrank to 12.1 mn (1-9/2013: 15.3 mn). Consequently EBIT fell by 35.0% to 22.1 mn (1-9/2013: 34.0 mn). Net finance costs amounted to (25.7) mn as of the reporting date (1-9/2013: (28.7) mn), leading to EBT of (3.5) mn (1-9/2013: 5.3 mn). Austria segment income statement overview 1-9/2014 1-9/2013 Change Revenues 83.2 159.9-48.0% Rental income 47.8 50.3-5.0% Proceeds from the disposal of properties 23.3 94.3-75.3% Revenues from property services 12.1 15.3-20.9% EBIT 22.1 34.0-35.0% EBT (3.5) 5.3 - Property portfolio As of 30 September 2014 the conwert portfolio in Austria had 2,676 rental units and 854 parking spaces classified as residential property and 1,710 rental units and 3,839 parking spaces in the commercial property sector. Total usable space stood at 562,093 sqm, of which 207,433 sqm or 36.9% was residential and 354,660 sqm or 63.1% commercial. It was possible to reduce the overall vacancy rate in comparison to the previous year to 12.2% (30/09/2013: 13.8%). As of the reporting date the residential vacancy rate was 5.3% (30/09/2013: 7.8%) and the commercial vacancy rate was 16.2% (30/09/2013: 17.1%). The strategic vacancy rate was 4.5% as of the reporting date. At the end of the third quarter 2014 property assets in Austria totalled 952.1 mn (30/09/2013: 1,016.5 mn). The 6.3% decline in the value of assets is due to the sale of properties which was carried out as planned. Selected portfolio indicators for Austria segment Vienna Residential Austria Commercial Austria Austria Austria 30/09/2013 Rental units No. 3,390 2,676 1,710 4,386 4,684 Parking spaces No. 2,560 854 3,839 4,693 4,718 Total usable space 1,000 sqm 356.5 207.4 354.7 562.1 619.4 Total vacancy rate % 9.7 5.3 16.2 12.2 13.8 Strategic vacancy rate % 3.3 1.3 6.3 4.5 6.3 Initial yield % 4.4 4.2 5.6 5.1 5.1 Average rent /sqm/m 6.90 5.84 8.85 7.65 7.6 Property assets mn 648.9 343.6 608.5 952.1 1,016.5 25
Germany segment Revenues and earnings Owing to a decline in revenues from sales and property services against the comparable period, revenues in Germany fell by 7.2% to 195.8 mn in the first three quarters 2014 (1-9/2013: 211.0 mn). In contrast, rental income rose by 14.1% to 129.5 mn (1-9/2013: 113.5 mn) as a result of the portfolio purchased in August 2013. Proceeds from the sale of properties underwent a planned decline of 31.6% to 46.4 mn. By the reporting date 870 residential units and eight commercial units had been sold, along with 218 parking spaces. The average sales margin was 15.5%. Revenue from property services amounted to 20.0 mn, which was 32.7% less than in the comparable reporting period (1-9/2013: 29.7 mn); the key factor here was the concentration on selected mandates in the service sector. Despite an increase in property expenses, EBIT was up slightly by 1.4% to 59.5 mn (1-9/2013: 58.7 mn). The rise came from a reduction in personnel expenses and other operating expenses. Net finance costs continued to increase as a result of the negative performance of swaps and totalled (72.0) mn (1-9/2013: (26.4) mn). Germany segment income statement data 1-9/2013 1-9/2014 adjusted Change Revenues 195.8 211.0-7.2% Rental income 129.5 113.5 14.1% Proceeds from the disposal of properties 46.4 67.8-31.6% Revenues from property services 20.0 29.7-32.7% EBIT 59.5 58.7 1.4% EBT (12.6) 32.3 - Property portfolio As of 30 September 2014, the property portfolio in Germany consisted of residential property with 24,669 rental units and 5,074 parking spaces, as well as commercial property with 991 rental units and 3,186 parking spaces. Total rentable space stood at 1,882,980 sqm as of the reporting date, of which 1,609,349 sqm or 85.5% was residential and 273,631 sqm or 14.5% commercial. Despite the acquisition of the GE portfolio in the 2013 business year with a vacancy rate above the average of conwert s overall portfolio it was possible to achieve a significant reduction in every vacancy rate, with the overall vacancy rate at 8.9% (30/09/2013: 9.7%), the residential vacancy rate at 8.7% (30/09/2013: 9.2%), and the commercial vacancy rate at 9.8% (30/09/2013: 12.7%). As of the reporting date the strategic vacancy rate for the total space was 1.0%, thereby almost unchanged against the comparable reporting period (30/09/2013: 1.1%). Property assets in Germany totalled 1,781.8 mn at the end of the reporting period (30/09/2013: 1,662.6 mn). This significant increase in the past twelve months is primarily due to the purchase of the GE portfolio. The planned optimisation of the portfolio in North Rhine-Westphalia and Rhineland-Palatinate currently covers five large areas in Dortmund, Essen, Siegen and Bad Sobernheim, with around 65,000 sqm usable space. Residential renovations are continuously underway; major construction work on the properties will begin in stages from September 2014 to March 2015, with completion planned in the fourth quarter 2015. 26 Interim Report 1-9/2014 Interim Management Report Segment Report
Selected portfolio indicators for Germany segment Residential *) Germany Commercial *) Germany Germany Germany 30/09/2013 Rental units No. 24,669 991 25,660 23,246 Parking spaces No. 5,074 3,186 8,260 7,475 Total usable space 1,000 sqm 1,609 274 1,883.0 1,720.6 Total vacancy rate % 8.7 9.8 8.9 9.7 Strategic vacancy rate % 1.1 0.2 1.0 1.1 Initial yield % 7.0 6.6 6.9 6.7 Average rent /sqm/m 5.50 7.89 5.84 5.77 Property assets mn 1,408.3 373.4 1,781.8 1,662.6 *) Fair value allocation as commercial or residential based on whether the majority of the usable space of the building is used for commercial or residential purposes. conwert s core markets in Germany segment Berlin Berlin 30/09/2013 Potsdam Potsdam 30/09/2013 Dresden Dresden 30/09/2013 Leipzig Leipzig 30/09/2013 Core NRW *) Core NRW *) 30/09/2013 Rental units No. 5,186 4,420 1,671 1,671 656 793 4,771 4,479 3,343 3,742 Parking spaces No. 1,120 788 937 935 160 150 570 497 1,124 1,211 Property assets mn 409.8 381.2 186.9 184.1 44.4 51.5 256.7 243.8 169.9 170.2 Usable space 1,000 sqm 353.0 310.0 119.4 119.4 48.2 59.0 331.6 310.4 236.6 258.3 Share of entire % 14.0 12.8 4.7 4.9 1.9 2.4 13.1 12.8 9.4 10.7 portfolio (based on space) Usable space 1,000 sqm 332.6 291.4 119.4 119.4 39.4 48.8 310.7 289.4 216.7 242.2 residential **) Residential % 94.2 94.0 100.0 100.0 81.8 82.8 93.7 93.3 91.6 93.4 share ***) Commercial % 5.8 6.0 0.0 0.0 18.2 17.2 6.3 6.7 8.4 6.6 share ***) Total vacancy rate % 4.0 4.3 1.5 1.4 5.1 20.7 5.1 6.7 11.9 13.2 Strategic vacancy % 0.9 0.6 0.0 0.0 0.2 15.1 0.4 0.3 0.3 0.2 rate Average rent /sqm/m 6.01 5.89 6.75 6.66 5.85 5.71 5.21 5.04 5.29 5.22 Initial yield % 6.2 6.0 5.2 5.2 7.3 6.4 7.8 7.4 8.0 8.5 *) became a core market in the course of the KWG consolidation in the first quarter 2013; Core NRW includes the cities Wuppertal, Düsseldorf, Ennepetal, Hagen, Cologne, Mühlheim, Remscheid, Velbert and Wülfrath **) Fair value allocation as commercial or residential based on whether the majority of the usable space of the building is used for commercial or residential purposes. ***) based on sqm 27
Other countries segment Revenues and earnings Revenues in other countries were 21.9% lower than in the comparable reporting period, declining to 8.2 mn (1-9/2013: 10.5 mn). Lower proceeds from the sale of properties were also responsible for the decrease in this segment. Following on from 5.2 mn in the reporting period of the previous year, they stood at 1.2 mn as of the reporting date. A total of 15 residential and three commercial units were sold, along with seven parking spaces; the average profit margin was 23.0%. Successful new lets led to a 34.0% rise in rental income from 4.7 mn in the previous year s reporting period to 6.3 mn by the end of the third quarter 2014. There was a parallel increase in revenues from property services, which were up slightly from 0.6 mn to 0.7 mn. Negative EBIT amounted to (6.1) mn (1-9/2013: (0.4) mn). Net finance costs increased from (1.3) mn in the comparable reporting period to (5.6) mn. Other countries segment income statement overview 1-9/2014 1-9/2013 Change Revenues 8.2 10.5-21.9% Rental income 6.3 4.7 34.0% Proceeds from the disposal of properties 1.2 5.2-76.9% Revenues from property services 0.7 0.6 16.7% EBIT (6.1) (0.4) - EBT (11.7) (1.6) - Property portfolio As of 30 September 2014 the conwert segment other countries included residential property with 548 rental units and 351 parking spaces as well as commercial property with 448 rental units and 586 parking spaces. Total rentable space amounted to 83,220 sqm, of which 35,245 sqm or 42.4% was residential and 47,976 sqm or 57.6% commercial. As of the reporting date the total vacancy rate was 31.7% (30/09/2013: 38.2%), marking a significant reduction. For residential space the vacancy rate fell to 24.0% (30/09/2013: 34.8%), while it declined to 37.3% for commercial space (30/09/2013: 40.9%). The strategic vacancy for the total space was 6.6% at the reporting date. At the reporting date property assets in the other countries segment amounted to 93.8 mn (30/09/2013: 119.8 mn). conwert will continue to focus on the two core markets Austria and Germany. In line with the corporate strategy, the goal is to sell off properties in other countries and conclude activities in the relevant CEE markets. The value of the portfolios in the Czech Republic and Slovakia make up about half of the remaining assets in other countries. conwert is currently involved in advanced sales negotiations for both portfolios with interested parties. 28 Interim Report 1-9/2014 Interim Management Report Segment Report / Risk Report / Related Party Disclosures
Related Party Disclosures Related companies and persons are disclosed in the consolidated financial statements as of 31 December 2013. Business dealings with related parties are conducted on an arm s length basis. Executive Board and Administrative Board Approx. 0.6 mn was paid during the reporting period (1-9/2013: 0.9 mn) for services provided by related parties (remuneration for the Executive Directors). The Administrative Board received remuneration in the amount of 0.1 mn during the reporting period (1-9/2013: 0.4 mn). The attendance fee for meetings due to the Administrative Board for the third quarter 2014 is not settled until the fourth quarter 2014. Alexander Tavakoli, a member of the Administrative Board, invoiced 36,000 of consulting services to conwert during the reporting period. The consultancy agreement was cancelled as of 31 March 2014. Transactions with associates The loans granted to associates as of the reporting date relate to project financing. 31/12/2013 Loans 1.5 1.5 Outstanding receivables 0.2 0.5 Outstanding payables 0.1 0.0 01/01-01/01-30/09/2013 Revenues from property services 0.6 1.2 Property expenses 0.2 0.8 Interest income 0.1 0.2 Transactions with other related parties Companies which are part of the STRABAG SE Group provide facility management services for the conwert Group and invoiced services worth 0.3 mn in the reporting period. conwert rents residential, office and parking spaces to companies in the STRABAG SE Group, for which 39,932.12 was charged in rent during the reporting period. 29
Outlook Economy Eurozone economy In 2014 real GDP in the EU is forecast to grow by 1.6% against the previous year; eurozone growth is likely to be 1.2%. (Source: Statista, European Union & Eurozone: Forecast of real GDP growth in 2014 and 2015 (year-on-year), 5 November 2014) In mid-october 2014 Oesterreichische Nationalbank revised its economic forecasts for Austria downwards and now expects real gross domestic product (GDP) to grow by 0.8% this year. (Source: Oesterreichische Nationalbank, gloomy economic outlook until year-end, press release dated 21 October 2014) According to forecasts, GDP in Germany will undergo a 1.7% rise in 2014 against the previous year. (Source: Statista, Forecast of year-on-year changes to gross domestic product (GDP) in Germany from 2014 to 2018, 28 October 2014) European property market CBRE assumes that investments in Europe in 2015 will reach a similar level to the record year 2007, with more than 250 bn. (Source: CBRE Austria, Strong performance of property investments in Austria, press release dated 8 July 2014) Austrian property market The second half of 2014 is even expected to surpass the first half, so that an absolute record year is possible. Furthermore, CBRE Austria has also forecast a slight price rise resulting from increased demand and lower interest rates. (Source: CBRE Austria, Strong performance of property investments in Austria, press release dated 8 July 2014) Supply is set to remain the limiting factor for market volumes on the Austrian residential property market to the end of 2014 and beyond. Excess demand is therefore likely to become even more acute. There could be an upswing in the market as a result of the recent amendments to building regulations, e.g. those related to loft conversions. (Source: EHL, Current Vienna Apartment Building Market Report 2014) Take-up on the Vienna office market is likely to reach around 250,000 sqm in 2014, thereby slightly lower than the previous year s level. Demand in the higher priced segment continues to rise. (Source: EHL, Office Market Report, Autumn 2014) German property market Germany s strong economy and limited fluctuation in rents and prices continue to make it one of the world s most sought-after locations for property investors. The extremely favourable financing conditions with interest rates at a historic low across the entire term will also ensure that the investment market remains highly dynamic. Consequently, CBRE has forecast fullyear transaction volumes for 2014 of well over 35 bn. (Source: CBRE Germany, Investment market commercial property 3rd quarter 2014: transaction volumes exceed 25-billion-euro mark in the first nine months, press release dated 1 October 2014) Even though growth in prices has recently slowed on the German housing market, residential property investors are likely to continue to focus on cities and municipalities, excluding prime locations, and to increase their share of the overall market. (Source: Savills, Residential Portfolio Market Q3 2014, press release dated 7 October 2014) Property experts assume that the fourth quarter 2014 will see extremely strong turnover in the commercial segment. In contrast, transaction volumes on the housing portfolio market are expected to remain at the level of the preceding two quarters, i.e. around 2 bn. (Source: Savills, Market Overview Investment Market Germany, Q3 2014) 30 Interim Report 1-9/2014 Interim Management Report Outlook / conwert Outlook / Events after the Reporting Period
conwert Outlook The first nine months of 2014 were characterised by the sharp rise in financing costs, which was the result of the falling interest rate curve, as well as the generation of stable operating results. In operational terms, conwert will continue to focus on the core markets of Austria and Germany in the coming months. By year-end 2014 the vacancy rate is set to be around 10%. Sales for some properties outside conwert s core markets are already underway or in the preparatory phase. Management continues to assume proceeds from sale of properties totalling 150-200 mn by the end of the year. The liquidity freed up through sales is to be used in particular for strengthening and consolidating the financing structure, whereby the conwert management is focusing on a timely approach to refinancing demand and reducing the average interest rate costs. The LTV ratio will be between 50 and 55% by the end of the business year. FFO I (excl. sales income) should amount to over 30 mn by year-end 2014. Events after the Reporting Period By October 2014 conwert had slightly increased its stake in KWG Kommunale Wohnen AG (KWG) to 78.8%. 150,000 KWG shares were purchased at an average price of 6.28 per share. In November conwert bought back 5.25% convertible bonds 2010-2016 with a nominal value of 34.8 mn for 36.5 mn. The implicit yield was 1.2%. The buyback over par should be viewed in the context of the high coupon. Furthermore, at the start of the fourth quarter 2014 conwert succeeded in selling the majority of the property portfolio in Slovakia as part of a share deal for 6.0 mn. The properties were sold at their carrying amounts. The sale relates to two properties in Žilina and an undeveloped plot in Bratislava. The total usable space of both properties is around 9,200 sqm, the plot has a surface area of 2,200 sqm. 31
We ve fulfilled our dream of having our own office now we re looking forward to becoming parents. Florence & Manuel F., Office tenants of conwert in Berlin
CONDENSED CONSOLIDATED Interim Financial STATEMENTS AS OF 30 SEPTEMBER 2014