Strong operational business performance in Germany and Poland in the first nine months of 2022; extensive refinancing measures completed; dividend for 2022 to be suspended to strengthen capital and financing base

• FFO I of EUR 49.1m in Q3 2022 and of EUR 145.3m as of 30 September 2022 (+7% and +6% year-on-year, respectively)
• On-schedule completion of c. 2,000 rental apartments in Poland expected in Q4 2022/Q1 2023; sales on an upward trend despite difficult market environment; result operations in Poland increased to EUR 11.4m as of 30 September 2022 (+87% y-o-y)
• FFO I and FFO II guidance for 2022 confirmed, full-year forecasts for development of vacancy and growth in rents already exceeded in third quarter
• Extensive refinancing measures completed: Rights issue of EUR 202m, reduction of capex requirements for business activities in Poland, early refinancing of all bank loans expiring in 2023 with creation of new liquidity of EUR 161m; dividend payment for 2022 suspended to further strengthen the capital and financing base
• New guidance for 2023: FFO I of EUR 170-174m and FFO II of EUR 240-246m

Hamburg, 21 November 2022

Strong operational business performance in first nine months of 2022 – Full-year guidance for FFO I and FFO II confirmed

As in the two previous quarters, TAG Immobilien AG (TAG) again delivered a strong operating performance in Q3 2022. FFO I, which currently still includes only the German rental business, amounted to EUR 49.1m in Q3 2022, and EUR 145.3m for the nine-month period ended 30 September 2022. Compared to the two prior-year periods, this represents an increase of 7% and 6%, respectively. On a like-for-like basis, the portfolio generated growth in rents of 2.5% p.a. (financial year 2021: 1.3%), including the effects from vacancy reduction. Vacancy in the Group’s residential units decreased to 4.8% in Q3 2022, compared to 5.2% in June 2022 and 5.5% at the beginning of the year.

Business also developed positively in Poland, despite the difficult market conditions due to high inflation and high interest rates. By mid-2024, the portfolio earmarked for letting will comprise around 4,000 apartments, of which c. 2,000 units will be completed in Q4 2022/Q1 2023 as planned. Apartment sales, too, have been on the rise again in Poland in recent months. After sales figures had declined to around 150 apartments per month in the middle of the year, the level of the beginning of 2022 was nearly reached again with almost 200 apartments sold in September and around 220 apartment sold in October 2022. The result from business operations in Poland, which besides FFO I is an essential component of FFO II, amounted to EUR 11.4m in the first nine months of 2022, after EUR 6.1m in the previous year. A strong increase in earnings in Poland is expected in Q4 2022, as the majority of handovers of apartments planned for 2022 will take place in the final weeks of the year.

Against this background, the company confirms its full-year guidance for 2022 for FFO I of EUR 188-192m (EUR 1.20 per share) and for FFO II of EUR 247-253m (EUR 1.58 per share). The full-year forecasts for development in vacancy in the German portfolio in 2022 (decrease of c. 0.3% to 0.5% points) and for like-for-like rental growth (1.5% to 2.0% including effects from vacancy reduction), which were already exceeded by the end of the third quarter, also remain unchanged and should be achieved or exceeded by the end of the year.

Extensive refinancing measures implemented; LTV reduced to below 45% as of the reporting date

Rights issue to reduce bridge financing and strengthen the capital base

In July 2022, gross proceeds of EUR 202m were raised through a rights issue, which, in addition to existing cash, were used to repay the bridge financing from the acquisition of ROBYG S.A. (ROBYG) by EUR 340m to currently EUR 310m. The term of this bridge financing was also extended in July 2022 by a further six months to January 2024. Mainly as a result of the rights issue, the loan-to-value (LTV) ratio fell to 44.9% as of 30 September 2022, compared to 47.0% at the end of the previous quarter and 43.2% at the beginning of the year.

Significant reduction in capex requirements for business activities in Poland

A few months ago, the investment planning in Poland was already adjusted to give priority to projects intended for sale. Since then, the letting projects on which construction has already begun are being completed, but no letting projects will be started until further notice.

The sales business in Poland, which is not very capital-intensive due to the ongoing customer prepayments, leads to substantial and plannable cash inflows. 99% of all apartments to be handed over in 2022 had already been sold. For the apartments to be handed over in 2023 according to the schedule, the pre-sale status already exceeds 60% at the end of Q3 2022. Against this backdrop, the net financing needs for all operating activities in Poland through the end of the 2023 financial year is expected to be at only around EUR 50m.

Early refinancing of bank loans completed with significant inflow of liquidity

In the past months, the early refinancing of all bank loans for real estate portfolios in Germany whose terms end in 2023, was carried out and has been almost completely implemented as of today. In total, this involves a new loan volume of EUR 260m with terms of between five and ten years at an average interest rate of c. 3.9% per annum. Since the expiring loan amounts, which have an average interest rate of c. 3.4% p.a., only amount to EUR 116m, this early refinancing results in a liquidity inflow of EUR 144m.

Including a newly concluded bank financing of EUR 17m for an acquisition from previous years, additional liquidity of EUR 161m was generated. The corresponding loan agreements have either already been signed or are expected to be signed shortly; their interest rates have already been fixed.

Suspension of the dividend for the 2022 financial year to further strengthen the capital and financing base; no further equity measures required

TAG’s Management Board and Supervisory Board plan not to propose a dividend payment for financial year 2022 at the Annual General Meeting, which resolves the appropriation of profits for FY 2022. This is a departure from the previous dividend guidance, which envisaged a dividend payment of EUR 143m (EUR 0.81 per share).

Martin Thiel, CFO of TAG: “This decision was not easy for us as TAG has paid significant and continuously increasing dividends for years. But we recognise that in the current market environment, consistent measures are required to address adequately the uncertainty we are currently seeing in the capital markets. Inflationary trends and sharply higher interest rates are having an impact in the form of volatile capital markets and investment markets that are difficult to assess. Therefore, we are striving to take all measures that are possible and appropriate using our own resources and independent of unpredictable market developments. After careful consideration of the advantages and disadvantages from our shareholders’ point of view, we feel that suspending the dividend is a consequential measure. In conjunction with the refinancing measures already implemented for 2023, this places the company’s capital and financing basis on a sustainably stable foundation for the years ahead. And in view of the rights issue that has already been carried out, this means that no further equity measures will be necessary.”

As soon as the capital and investment markets have returned to normal, TAG plans to resume its dividend payments and return to its previous distribution policy of 75% of FFO I. A decision on any proposed dividend payment for 2023 will not be made until the end of next year at the earliest and depends on market conditions and the refinancing of all financial liabilities by the beginning of 2024; essentially this refers to the outstanding bridge financing. In this connection, beyond new financing, targeted sales of residential properties in Germany are to be further advanced.

Changes in the credit rating

TAG currently has credit ratings from Moody’s (Ba1, outlook stable) and S&P Global (BBB-, outlook negative). The Moody’s rating reflects a downgrade from Baa3 to Ba1, i.e. outside the investment grade range, in October 2022. S&P Global confirmed the existing BBB- investment grade rating in November 2022, but changed the outlook from stable to negative.

Except for a 0.5 percentage point increase in the interest rate on the EUR 310m bridge loan granted through January 2024, the Moody’s downgrade had no impact on TAG’s financial liabilities. Should TAG no longer be rated investment grade by S&P Global in the future, this would not have any effect on financial liabilities either – except for a 0.5-percentage point increase in the interest rate of promissory note loans totalling EUR 64.5m with maturities of between three and seven years. In particular, there are no financing commitments or financial liabilities that are linked to the existence of an investment grade rating.

Both rating changes reflect the significantly more difficult market environment for German residential real estate, to which TAG has already responded comprehensively with the aforementioned refinancing measures, including suspending its dividend payment for FY 2022.

Guidance for the 2023 business year

For the 2023 financial year, the following FFO I and FFO II guidance is given with today’s interim report:

• FFO I: EUR 170-174m (EUR 0.98 per share)
• FFO II: EUR 240-246m (EUR 1.39-1.40 per share)

The expected decline in FFO I in 2023 by c. EUR 18m (-9%) is mainly the result of a planned c. EUR 10m increase in interest expenses, c. EUR 4m higher income taxes, expected cost increases for maintenance expenses of c. EUR 4m, and increased risk provisions for bad debt allowances and for non-allocable ancillary costs due to higher energy prices of c. EUR 4m. The positive contribution from letting activities in Poland included in the FFO I guidance, which will still be of minor importance in 2022, amounts to around EUR 4m for 2023. The FFO I guidance was made based on the current property portfolio, i.e. it does not take into account any further acquisitions or disposals.

With regard to FFO II, the smaller decline of c. EUR 7m (-3%), despite the c. EUR 18m reduction in FFO I, is due to projects with higher sales prices in Poland as well as to the fact that ROBYG will be consolidated for a full financial year in 2023 (as opposed to only from 31 March in 2022) and thus higher revenues from residential sales will be realised.

For total like-for-like rental growth, i.e. including the effects from vacancy reduction, a value of c. 2.0% to 2.5% p.a. is assumed for the German portfolio. For the vacancy rate in the Group’s residential units, a further decline of c. 0.3% to 0.5% points is expected.

“For 2023, we expect a year-on-year reduction in FFO I. Higher interest rates are a main contributor to this development, but we are also making sufficient risk provisions to hedge against the higher maintenance prices and the sharp rise in energy costs. The latter in particular will be a significant burden for many tenants, and we must react to this. One gratifying development is that our business activities in Poland will bring a significantly higher contribution to earnings in 2023, and hence a stable FFO II performance,” comments Claudia Hoyer, COO of TAG, on the guidance for the 2023 financial year. “In the medium term, i.e. in 2024 and 2025, we do not expect any further reductions in FFO I, as the completion of the apartments still under construction in Poland will result in a portfolio of almost 4,000 apartments and, despite increased financing costs, we are well positioned in Germany with affordable rental housing even in a difficult economic environment.”

For further details on the third quarter of 2022, please refer to the interim statement published today and the presentation at www.tag-ag.com/investor-relations.

Overview of key financials

in EUR m

Contact details

TAG Immobilien AG

Dominique Mann

Head of Investor & Public Relations

Phone +49 (0) 40 380 32 305

Fax +49 (0) 40 380 32 390

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