annual financial statement 2011 - conwert Immobilien Invest SE

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CONWERT IMMOBILIEN INVEST SE ANNUAL FINANCIAL STATEMENT 2011 38 OUTLOOK FOR 2012 In the financial year 2011, conwert underwent a restructuring phase. In many areas of conwert the necessary transformation process was initiated and has already been completed in some parts. This step is required in order to turn conwert from a medium-sized company into an organisation that meets the standards of a growth-oriented ATX group. This has an impact on both the entire organisational structure of the Group, which we cleared out and simplified in a first stage, and on all internal processes, systems and guidelines. In 2011, the entire organisation structure was realigned and professionalised. This process will be continued in 2012. In particular the structure in Germany will be subject to restructuring and simplification in the year 2012. The service structure was already adjusted in 2011. The effects will be seen in 2012. However, efficiency increases are planned for the German service providers also in 2012, which will contribute to an increase in profitability of the conwert Group in 2012 and the subsequent years. The entire IT landscape of conwert was put on a more stable foundation and simplified by a newly hired IT manager in 2011. This led to massive cost reductions in 2011, which will take full effect in 2012. Apart from the reduction of vacancies, the service segment of RESAG Property Management, which does not yet fully meet the standards in terms of profitability and service quality, needs to be improved. The restructuring of RESAG Immobilienmakler GmbH, which was initiated in 2011, will be continued and intensified under the management of Jasmin Soravia, the new regional manager for Austria. As a partial success in this restructuring process we managed to redefine the contract between conwert and RESAG Immobilienmakler, in which conwert holds a minority interest, in tough negotiations. The exclusive character of the sales relationship with RESAG Immobilienmakler GmbH has thus been cut down. The existing 3-year contract was replaced by a 1.25-year contract, and as of 31 March 2013 conwert can freely choose its external sales partners. Moreover, the portfolio to be marketed by RESAG Immobilienmakler GmbH was redefined and massively limited. For this purpose, conwert has established its own internal sales team. Furthermore, with immediate effect, conwert will no longer pay a seller’s commission to RESAG Immobilienmakler GmbH, which will generate a substantial cost benefit for conwert as early as 2012. On the administrative side conwert will also reduce the cost structure in 2012. The introduction of SAP, which will be completed in the first half of 2012, will lead to a substantial improvement in our administrative system. Furthermore, the structures of our management and service-providing units will be adapted in the year 2012. The portfolio adjustment will initially require higher expenses, namely to carry out these sales, but will also enable an adaptation of the structures to the size of the remaining portfolio. Although this process was started in 2011, it will not produce results until 2012. With the introduction of a central purchasing and procurement department in mid-2011, we now centrally define a series of refurbishment and development standards and have cut down on the number of companies we cooperate with on refurbishment and development measures to a limited number of technical partners with whom we work together exclusively. To name only one example: In the past, conwert used to work with more than 540 suppliers in Vienna alone; this list has now been reduced to 20. This obviously will lead to massive savings in 2012 and the subsequent years. In keeping with better corporate governance, the central procurement department also ensures that the central management of awarding building and renovation contracts is based on predefined guidelines. With regard to our investments per sqm in our portfolio, we substantially exceed the investments made by our competitors. On the one hand, this is attributable to the inefficient way of awarding contracts and the lack of control of refurbishment activities in the past; on the other hand, it is due to the resulting investment backlog, on which we caught up in the past year. We assume that we will have to invest significantly less in our portfolio in the years to come as our investments will be better adapted to the market conditions as a result of enhanced control and higher efficiency.
INTRO | | CONSOLIDATED FINANCIAL STATEMENTS | FINANCIAL STATEMENTS MANAGEMENT REPORT Outlook and post-balance sheet date report In 2011, we issued a new tender for the valuation of all our properties and awarded new contracts. In Germany, the revaluation contract was granted to CBRE, in all other regions to a consortium led by Cushman & Wakefield. As a result of this new tender, the valuation costs were lowered by 0.3 million € per year and the figures confirmed by international experts. The German portfolio has been rebalanced. Inner-city locations recorded an increase in value while the value of locations on the outskirts decreased. The valuation reflects the demographic development. conwert will complete its restructuring in 2012 and pursue growth again. However, sustainable growth of our profitability and our cash flows is only possible through critical mass at individual locations and improved economies of scale. In addition, it is only possible to generate sustainable positive FFO (Funds from Operations) from the portfolio management in locations where the rental yield allows it. At our location in Vienna, we do have the critical mass, but with an average rental yield of less than 4% and leverage in excess of 50%, it is hardly possible to generate positive cash flow from an asset portfolio after investments. The future business model in Austria will therefore strongly deviate from the business model in Germany. This results in two strategic guidelines for the Austrian portfolio. Firstly, the portfolio of properties yielding less than 4%, which is currently too high, has to be reduced further. At present, the Austrian property portfolio has a value of 1,362 million € and will shrink to a base of just under 500 million € in the next few years. This portfolio will consist of properties generating yields with a minimum return on equity of 4.5% on the one hand; on the other hand it will comprise development objects and trading properties, where there is considerable development potential and a resale is possible within 2 years. Therefore, conwert will also make opportunistic purchases in Austria again. An analysis with a view to tax legislation has shown that it is advantageous to carry out such transactions with ECO companies. In order to be able to implement the adaptation of the business model in Austria, we deliberately enhanced the expertise of the conwert Group in the development segment and sales in Austria and installed a new management team. The objectives look different for the German market. Rental yields in Berlin, Dresden and Leipzig are still highly attractive, also in central locations, at an average of 6.3%. With such rental yields we generate a positive cash flow even after investments; through the internal service team conwert usually improves the purchase yield substantially. The strategic orientation of the German portfolio will therefore concentrate on purchases in our core locations, and on sales in such locations where conwert lacks the critical mass. Moreover, the focus was placed on an increase in the efficiency of managing the portfolio. conwert also expects higher profitability in this area in the next year as a result of the measures implemented in 2011. With respect to the property portfolio, two main objectives will be focused on above all in the coming two years. On the one hand, the sale of assets of up to 1.0 billion €, primarily in Austria, is planned, with proceeds on the sale of properties expected to amount to about half, i.e. 450 million €, in 2012. At the same time conwert pursues the goal to increase the average yield to 6.5% across the entire property portfolio by the end of the year 2013. This target is supposed to be met above all by strengthening the German asset portfolio, through the purchase of development and trading objects as well as through the sale of ECO objects with high vacancy rates and low yields. In order to meet the acquisition targets, conwert has adopted a budget of more than 225 million € for purchases in 2012, which will range between 20 and 30 million € per transaction. Larger transactions have deliberately not been budgeted as it is difficult to foresee the probability of occurrence and therefore the strength of our guidance would be negatively affected. The management and the Administrative Board are, however, also analysing structures in which individual transactions with an equity volume in excess of 100 million € can be carried out and in which conwert could participate in possible partnerships/partial purchases. 39
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