CA Immobilien Anlagen AG (CAI) Earnings Call Transcript & Summary

Good afternoon, ladies and gentlemen, and welcome to the conference call of CA Immo regarding the full year results 2021. [Operator Instructions] Let me now turn the floor over to the company.

A warm welcome, everyone, to our full year 2021 conference call. My name is Silvia, and I'm on this call with my colleagues, Andreas and Keegan as well as the Capital Markets team of CA Immo. Thanks for taking the time to be with us today. First, let me start with a short introduction of my professional background. Before joining CA Immo at the beginning of this year, I spent 30 years in finance and real estate. Most recently, for 7 years at Barclays as Chief Operating Officer for Germany, the Netherlands and the Nordic countries. In addition to the usual task as the COO, I was also in charge of the corporate real estate and managed the redesign of all our offices in these countries. Additionally, I was Chair of the Association of Foreign Banks in Germany and a member of the Exchange Expert Commission. Before that, I was directly involved in the real estate business for 9 years as Managing Director of Investment Companies at Morgan Stanley and DEGI/Aberdeen as well as heading the real estate strategy for Dresdner Bank in the Allianz Group. I spent the first 14 years of my professional life at Deutsche Bank, mainly in structured finance and private equity in Frankfurt, London and New York. So I know both sides, the financial and capital markets perspective as well as the real estate business and I'm happy to bring both perspectives to CA Immo and look forward to developing this first-class company with my colleagues. But now let's go through an overview of achievements and highlights of the business year 2021, which was a highly successful one for CA Immo. And before, I hand over to Andreas, who will run through the financials, followed by Keegan, who will provide a portfolio update. Starting with our portfolio strategy, let me first emphasize the focus on our Tier 1 core markets, which offer fundamentally attractive conditions and on which CA Immo is striving to further expand its market position. In the past year, we were able to successfully continue the active capital rotation, thereby improving the quality of the portfolio in a profitable way by selling nonstrategic assets. Also in terms of cash flow resilience, sustainability and management efficiency and reinvesting the proceeds into our core business through acquisitions and development projects. The acquisition of a core property was around 10,000 square meters of lettable area in Düsseldorf strengthened the presence in our fourth strategic city in Germany, Düsseldorf. Keegan will elaborate on that transaction in more detail later. On Slide 3, I wanted to give a further outlook on our strategy. The COVID-19 pandemic has changed our working lives, reinforced and accelerated trends that existed already before. Trends such as mobile working and flexible switching between work and private life have been commonplace in the past 2 years and there has been much discussion about whether and in what form offices will still be needed in the future. However, the longer we were pushed into our home offices, the more obvious it became for many employees and employers that, yes, we can work at home but all the social functions such as communication, coordination and cohesion for finding creative new approaches and the professional infrastructure of the offices are missing. And from that, it was clearly emergent in the recent months, a call for more quality in the office segment, a shift towards higher-quality office space in better or more accessible locations. Quality over quantity, which can also be seen in the rent levels. In 6 of our 9 CA Immo core cities, we saw growth in top rents last year, while rents for B locations were stable or declining. In addition, advancing digitalization and demographic change are also leading to changes in the requirements for employee qualifications, thus intensifying the battle for the best talent. The importance of employee retention for companies is increasing. The result is, in turn, a greater importance of the office as a central place where team building and cooperation, but also identification with and loyalty to the companies, are shaped. Another trend we can clearly see is the desire for more additional services. Flexible space concepts that can be adapted quickly and without major efforts, to the changing requirements or even the possibility to reduce or expand rental space at short notice depending on demand are trends that we are seeing. Tenants today demand more than the production of pure space. It is often about very individual ideas of the tenants, and tenants are willing to pay for that. For example, they want outdoor space for work, sport facilities and special meeting places where there is good and healthy food. Furthermore, sustainability is increasingly important. We see this in the rising interest of our investors in this topic, but also in the market demand from the tenant side. And some of this is even driven by their employees. There are regulatory changes and increasing international reporting requirements for all companies, which require precise recording of energy usage, carbon footprint and resource consumption of buildings and its surrounding activities. This means new tasks and questions for the real estate sector as well as for many other sectors. According to a survey by the European Commission, about 75% of buildings in Europe are currently inefficient with a very low annual renovation rate of less than 1% of the national building stock on average. So what are the implications for our strategy? We think the future of the office lies in the high-quality premium segment, which means high quality of space, good location and accessibility, flexibility, sustainability, tenant comfort and well-being created by the office. Office buildings that can meet these requirements will retain or find tenants, remain stable in value and competitive. For us at CA Immo, this development confirms our strategic positioning as a premium provider of high-quality office space. And in future, it will even more be our goal to support our tenants and their working environment with the best product and the best services. We are well positioned to embrace these trends and the expected increasing market bifurcation between A, B and C qualities in light of, first, the quality of our portfolio but also, second, due to the ability to design owned buildings with deep in-house construction expertise and the ability to build for our own balance sheet. Now let me come to the summary of our earnings highlights. The business year 2021 was a highly successful one with a strong set of financials. We've managed to sustain our positive growth trends. Only our recurring result declined slightly, mainly due to the effect of nonstrategic disposals and linked rental income losses. However, this was already largely reflected in our FFO guidance of EUR 128 million, and we achieved this target. We had a very strong EBITDA, reflecting the asset disposals above book value and the record net profit with more than EUR 0.5 billion of revaluation result. We continue to focus our portfolio on high-quality office buildings through a number of successful transactions as well as our development activities in Germany and increase the value of the real estate assets by 12% to over EUR 6 billion. As shown with both graphs on the site, we are a net investor driving significant value, not only with our development activities, but also by selling nonstrategic assets and the correspondent redeployment into the core business. Keegan will talk in detail about the leasing performance, albeit difficult during the pandemic with very slow decision-making processes on the tenant side, we achieved a lot and are now seeing strong momentum with people returning to the offices. On Slide 6, you see that CA Immo remains a strong organic growth story with the progress on the land bank and active development projects, driving the significant revaluation result and which will continue to drive our NAV in the coming years, as indicated on the chart showing the estimated NRV contribution by our active projects under construction. The Upbeat project is a very good example of this, where we see the need for modern high-quality offices by a large corporate organization and we are developing this together with them. As I will not go through the development slide at the end of the presentation in detail, I just want to mention here that we obviously are monitoring the cost and supply environment very closely with our construction management subsidiary omniCon on site. So for these 4 projects, which are currently in building mode with an investment volume of about EUR 1 billion, we have already awarded most of the work packages, including the materials. Only about [ EUR 170 million ] are still open, mostly related to Upbeat. However, assuming a 20% overall price increase, this means a maximum risk of EUR 35 million which represents only about 3.5% of the construction volume of all these projects. So on Slide 7, you see illustrated how CA Immo's solid operational performance translates into an increasing value for all of our shareholders with one of the strongest total shareholder returns in the sector over previous years and a double-digit ROE of around 15% in 2021 compared to an average around 12% over the last 5 years. Despite the significant dividend paid out over the last 10 months, as shown in the lower chart, we have been able to maintain our solid balance sheet profile with strong equity ratio and low net LTV. With regard to our ESG commitment and activities, we have worked intensively in recent months to develop a climate strategy and commit to minimum targets for reducing the carbon footprint over the entire building life cycle. Accordingly, by 2030, we want to reduce the carbon emission of the building stock by 50% compared to 2019. All new construction projects are to be climate neutral in operation from 2030. Detailed measures on how we intend to achieve these goals are presented in our sustainability report, which was published yesterday as part of the annual report and can be found on our website. Slide 8 summarizes measures and project progress in this context, such as the purchase of green electricity and our Green Lease program with which we want to get our tenants on board and involved in our environmental protection initiatives. In this context, the focus on sustainability certification for our buildings remains essential for us. We have continuously increased the value and scope of certified buildings over the past years. As of year-end 2021, they accounted for 72% of the total portfolio by book value. Right now, we cannot say exactly how the general conditions for the economy or our sector in particular will develop in the coming months. While the pandemic is receding into the background, it is difficult to assess fully the far-reaching consequences of the conflict in Ukraine and the following geopolitical developments. For this reason, we have decided to provide details on financial targets for the business year 2022, only in the course of the coming months. As mentioned before, we have recently distributed dividends totaling EUR 6 per share and against this background characterized by high uncertainty and volatility, decided to carry forward the net profit for the 2021 financial year. Our focus will stay on managing our assets, our development and our existing and prospective tenants in the best possible way. At last week's MIPIM industry meeting in Cannes, I spoke to many market participants and actually returned with one certainty: As humans, we need personal meetings and energizing spaces for work to be able to master the future challenges ahead of us. And that is why I'm optimistic about the office as the anchor or campfire for companies. And with that, I hand over to Andreas, who will guide you through the 2021 financials.

Yes, good afternoon from my side. Thanks, Silvia. I hope you're all well. I'm very pleased to present you our 2021 financial numbers, again in a very special year. So let's start with Page 11. As you heard from Silvia, the office sector is changing rapidly. I mean we are convinced at CA Immo that high-quality, excellent location, accessibility, flexibility and sustainability as well as tenant comfort are key prerequisites from our client, our tenant base. In order to ensure our strategic positioning as a premium office landlord, we also need to rotate our portfolio, which we are doing very successfully since 2019. And this is also one of the main reasons, together with the lower occupancy in CEE, why our rental income has declined by 2.8% in 2021, reaching now EUR 229.1 million. In this context, we sold very successfully 3 non-core assets in CEE and 2 in Austria, of which one is a hotel, all above book value, and Keegan will elaborate further on this. As a result, we were able to exit also the Slovakian market, which is clearly non-core to us. EBITDA grew by 7.4% to EUR 210.1 million on the back of the strong sales result as just described. We reported a net revaluation result of EUR 541 million, which I will explain in more detail later. So despite the still ongoing special COVID-19 pandemic-related circumstances, results for the period were EUR 479.8 million, so roughly 90% above 2020 results, which again, obviously mainly driven by a higher revaluation result. So let's now move on what drove our top line, so rental income and NRI. So Page 12 shows you the rental bridge and clearly underpins why the top line is slightly down. Around EUR 14.1 million rental income was added in financial year 2021 compared to the previous year due to completed development projects and acquisitions. It's basically the sum of these 2 numbers, the EUR 5.6 million and the EUR 8.5 million, but it also shows that the sale of assets as a result of our strategic capital rotation as described above, so around EUR 10.3 million, and a weaker letting and occupancy performance mainly in CEE of roughly the same number has overcompensated this growth. So overall, rental income decreased by 2.8% to EUR 229.1 million period-to-period. Importantly, in financial year 2021, our NRI was impacted through COVID less than the previous year, by around EUR 3.1 million, which is substantially below the level in 2020. So this shows you that our portfolio has a high level of resilience. Cash collection for the year 2021 was around 98%. Let's move to, as I said before, do a little bit deeper dive into revaluations. As you know, there was a full overall external valuation carried out as of the key date December 31, 2021. As already published, our talk early February, we recorded a net revaluation result of EUR 541 million, consisting of EUR 602 million gains and EUR 61 million losses. So let's start with the gains. They are the following main reasons why we had these significant valuation gains. Despite the COVID-19 pandemic, Germany is still regarded as a leading real estate market in Europe with a safe haven status. Within Germany, Berlin and Munich are the most attractive cities with strong fundamentals and therefore, the main drivers for the revaluation result, as you can see at the bottom right chart. In addition, our newly completed building Mississippi, Missouri in Prague, saw a valuation uplift of around EUR 18 million in 2021 when it switched from development status to income-producing assets. The second part of the rise in fair values in Germany is driven by development as well as zoning and planning progress of our land bank. In financial year 2021, this accounted for around 40% of the overall net result, which I would describe as the alpha, so the active and operational driver for our valuation gains, as you can see on the bottom left bar chart. So main revaluation drivers on the development side were our projects Upbeat and Hochhaus am Europaplatz, both in Berlin as well as our Tower ONE in Frankfurt, which is almost completed. The largest rise in the fair value is driven by the Upbeat valuation uplift of around EUR 100 million as a result of the 100% pre-lease which we signed with DKB and I already reported on this last year in the Q1 financial figures. So coming to the losses. The losses are mainly related to certain assets in CEE for very specific asset reasons due to higher vacancy in some cases, resulting in slightly higher yields and longer rent-free periods. As a result of the Q4 valuation exercise, gross initial yields for the entire investment portfolio decreased overall to 4.5% compared to 5.1% a year ago. And in Germany, the yield compressed from 3.5% to 3.3%. So this now brings me to FFO and the FFO bridge to compare with 2020. And I will also highlight the COVID-19 effect. So importantly, on Page 14, we achieved our FFO guidance of EUR 128 million. And that's why -- let's directly switch and go into the bridges. As you know, we booked COVID-19 effects mainly as rent reduction. So for example, in the case of legal restrictions and as bad debt provisions. In fiscal year 2021, we had EUR 3.2 million less FFO I COVID-19 effects compared to 2020, when total FFO effect was negative EUR 6.4 million. Our remaining COVID effect is primarily linked to a bad debt provision and missing rent for one hotel in Vienna, which was closed for most of the time. However, similar to the rental income, we had lower FFO, driven on the one hand by lower rental income in CEE, mainly in Hungary, and on the other hand, by missing rental income due to completed sales like the ones which I mentioned before, due to our strategic capital rotation program. In total, EUR 7.9 million, which you can see here also in the bridge. Hence, higher FFO due to acquisition project completions and higher JV results, in total EUR 18 million, were not able to overcompensate the missing FFO from sales and higher vacancy, mainly in CEE. As a result of this and also due to finance -- higher finance costs, FFO was slightly down compared to prior year period and stood at EUR 128 million. However, as said before, totally in line with the guidance we were giving last year. Page 16 will now get us to the balance sheet as of 31st of December 2021. So investment property under development increased by around 39% to EUR 1.1 billion compared to Q4 the year before, mainly due to continuous investment and revaluation gains through the financial year 2021. I already elaborate on that in relation to our project in Berlin and our tower in Frankfurt. Cash decreased to EUR 633 million, mainly due to the first part of the special dividend of EUR 252 million already being paid out in end of last year and due to a bond we paid back in early Q3 last year with an amount of EUR 108 million. So long-term debt in total decreased to EUR 2.2 million, as you can see here, mainly due to the bond I just mentioned we paid back and as a result of the conversion of the convertible bond last year. So let's move to balance sheet ratios. I think main message is our balance sheet remains rock solid. Net LTV stood at 31%, so hence, around 270 basis points lower than in 2020; and equity ratio is at 46%. As you know, our IG rating was reduced by 1 notch to Baa3 with a negative outlook as a result of the takeover and stake increase by Starwood Capital, which is a standard procedure in the M&A context. I think in this regard, I can tell you, we are working with Moody's to further improve our investment grade rating and get rid of the negative outlook on the back of our strong balance sheet and capital structure. So with this, I would now also like to show you that our shareholders equity on Page 18 is up despite the high payout to shareholders of EUR 6 per share. Again, thanks to our strong 2021 results and the conversion of the convertible. I mean this makes CA Immo of the highest-paying dividend stocks, if not the highest, in the European space. And I think as a result, and this is also shown here on the next page, despite the high dividends paid out to shareholders, our EPRA NTA, which is the key KPI in this context, is up in absolute terms, as you can see here in the red boxes and pretty much on the same level as last year also on a per share level standing right now at EUR 40.05. So this brings me to financing on the Pages 23 through 25. Our maturity profile continues to be well staggered and diversified. In February, we paid back one of our older Austrian-style bonds with a coupon of 2.75%. The remainder of our 2020 maturities mainly relate to German-secured financings of around EUR 100 million which have been either already extended or are in advanced discussions with our banking pool. But anyway, these are small volumes in relation to our total debt package. End of 2021, we were able to secure a new sustainability-linked RCF with a volume of EUR 300 million, which also size-wise is more appropriate of a company of our size. Our in-place total financing costs remain at around 1.5% and average debt maturity stands at around 4.3 years. Our debt remains hedged by around 90%. All other covenants, as you can see here, are stable and robust and provide us significant headroom. Importantly, that's the last comment, net debt over EBITDA stays well below 10x with 9.3x, mainly driven by our strong sales results. So with this, I hand over to Keegan to give you an update on the portfolio and in particular, on the capital rotation program. Thank you.

So thank you very much, Andreas, and thank you to everybody on the call for taking the time to be with us today. First, I'd like to say thank you to all the hard-working and dedicated CA Immo staff. I think as you've heard, 2021 was a year that was characterized by a degree of uncertainty across our markets on a macro view. So that being said, we've accomplished a lot and I'm incredibly proud of what we've collectively achieved as a team. So maybe taking a little bit of a step back, kind of looking bigger picture on our outlook on the world. I mean one, I think consensus is very much coalescing around the fact that inflation could be a little bit more sustained and longer term rather than transitory, when we were talking and looking at the world this time last year. And that there seems to be a little bit more consensus about slowdown in growth, in particular in the eurozone, whether that's driven due to supply chain bottlenecks for energy, raw materials, automotive, food, global increase in commodity prices, energy prices or particularly in the Central European markets, labor shortage, where unemployment in most of these markets is sub-5%. So that's something that we're looking at and the potential for stagflation in particular, as we see a tightening monetary policy, right? ECB, Fed, but also some of the independent central banks in Central Europe, like in Poland and Czech Republic, have moved on towards a rate tightening cycle and phasing out QE over time. Looking a little bit at the COVID landscape, a lot of the restrictions that were put in place during the course of last year were pretty severe in some of our markets, in particular, Austria, which are now in the process of being rolled back. So for instance, here in Austria, the mandatory vaccination requirement is something that is being rolled back. And what we've seen is even in our portfolio, in particular the fourth quarter of the year, building utilization was up much higher than it was 12 months previously. That being said, we're definitely seeing that there seems to be a bit of a spike again in terms of case count, in particular in Germany and Austria. And I think Silvia mentioned MIPIM, which looks like it was a little bit of a super spreader event. So we're monitoring this and watching very closely as to what the implications could be for occupancy and utilization of our buildings. And I think the big unknown is the uncertainty around Russia and Ukraine and what this will result in. But without a doubt, it will have a political and an economic impact. When you look at Russian energy, it's roughly 10% of EU's primary energy and it could also potentially lead to a degree of repricing of risk. Looking at CDS spreads over the last couple of weeks, they've moved out across the board in all of our markets, but there's definitely been a significant uptick in particular to the CEE markets that are closer to the eastern front in that regard. But whatever happens, our expectation is that there's going to be a significant humanitarian crisis that will stress politics and economies in all of our markets. We've seen that some estimates are indicating already over 2 million migrants have gone from Ukraine into Poland. And I would say one of the things that I'm very, very proud and very happy to have seen is the collective response at a political level, on a European Union level, in a local government level, but also through the business community and individuals in terms of what they've done to help mitigate this crisis and stuff. So we hope for the best, but I think we all need to plan for the worst in that regard. Maybe touching a little bit about energy supply. When you look at our portfolio, it's powered effectively through 4 inputs, right? Gas heating, gas, oil and electricity. Gas is -- directly powers about 30% of our income-producing properties, with district heating powering the rest, albeit district heating is by and large majority powered by gas followed by coal. So it could be the case that in the event that there is a gas shortage during next winter, coal energy could be increased to help power district heating, but it could also be something that does create some potential shortages. In 2021 in Germany, Hungary, Austria, we fixed our gas prices until 2025. So we actually executed on a purchasing procurement program where we locked in a price of around $0.02 per kilowatt hour. That would, today on a mark-to-market basis, be closer to 9%. So conceptually, we have a contract that should secure us gas until 2025, albeit there's counterparty risk with regards to the suppliers in these instances and their ability to procure gas and not have a force majeure event. So we are monitoring the situation very closely. We've seen already the first dialogue come, particularly out of Germany, in relation to what would happen in the [ event ] of shortages. And we are conscious that the reductions would prioritize mission-critical assets such as hospitals in the first instances, followed by residential and then followed by commercial, which is where we would be. So we've started looking at what are alternatives. And unfortunately, it looks like there's no immediate viable alternatives to change the source of heating and cooling in our existing income-producing assets, but it is very much something that we're also thinking about how do we change when it comes in terms of our development pipeline. So for instance, the unbuilt assets or the properties that are still in the construction phase where we can change and say, for instance, incorporate a larger degree of heat pumps and geothermal energy production on site. A, it's good in terms of increasing on-site renewables; and b, it's good to reduce the dependency on the network in that regard. So these are things that we continue to look at across our portfolio as the year progresses. Maybe touching a little bit more on the market. I would say -- I would echo what Silvia said in terms of activity being very much focused on the prime end of the office portfolio, on the office market. I think that is something that perhaps not all of our peers agree with. So we definitely hear that also some of our peers say the quality of office is not necessarily the most important thing from an occupational point of view. And I think we strongly disagree with that. During the course of last year, we did a round of interviews with our top 40 tenants where we engaged with them on a one-on-one basis to really understand after 1.5 years of COVID, how are they thinking about their occupational requirements, what do they need, for instance, what do they want? What are their expectations for space of the future? And absolutely without a doubt, across the board, the main takeaway and the #1 priority that came out of those discussions was the quality of the office space and the quality of the location, but the quality of the office space taking an absolutely top position in terms of what their priorities are. And perhaps that's also because the portfolio that we have and that we continue to try and position our business around, is very much focused on A-class offices in prime locations and we are very much trying to target what I would say are kind of blue chip international institutional occupiers, who we believe will also have the ability to absorb higher rental costs in the future as we try and push reversionary rent increases through, because they see office as a different type of space. They are not a cost-sensitive price and quality-insensitive occupier, but they are somebody who sees their occupational space as ability to drive that corporate identity. And it's a service for their employees as well, too. So that is something that we absolutely see as a high priority for our tenants. And I think 2 other interesting takeaways that we received was, one, an absolute increasing of importance and requirements for e-charging stations for electric automobiles as well as the ability to do digital monitoring of consumption. So energy intensity on own use as well as overall building. And that's something that we continue to do. So for instance, in Germany and Austria, we've now rolled out smart digital meters across all of our buildings there. So we can provide that consumption data and it's something that we continue to roll out in Central Europe over the course of this year as well, too. So in those prime areas and the market generally, I would say what we're seeing is that prime rents are holding firm and actually increasing, but secondary are decreasing. So again, we've had a number of instances last year in our portfolio where we've increased in-place rents on renewal in Germany by 50% in some instances, by really being able to drive that reversion and not all tenants are happy about it, but a majority of them sign up to the lease because they know where the market is. So prime rents continue to advance, secondary rents continue to decline and to stagnate, albeit we are seeing that incentive packages are increasing pretty much broadly across all markets. They're still coming from a very low base in Germany. And in the Central European markets, we've actually done better than what we were underwriting and expecting for the year. But it is very much, in particular, a case where we're also seeing a higher fit-out requirement as tenants' demand for the quality of space increases. But all in all, I would say the year was probably characterized by a longer decision-making period. So overall, we're very happy with the leasing that we did. We'll touch on that in a little bit. And we definitely saw a pickup in the second half of the year. The fourth quarter in particular accounted for about 30% of all of our leasing activity last year. But a lot of decision-making was postponed in 2020. We saw it being picking up in the second half of 2021 because the occupational requirements and demands for tenants can't be postponed indefinitely. So that is something that we definitely saw kind of push through during the course of Q4 last year and an acceleration of take-up in that regard. Similarly, on the supply side, we've seen a slowdown in the construction activity. So in some markets, there's still a nominally high level forecast for the next number of years. Berlin and Munich, in particular, are markets that have high levels of future construction supply. However, those seem to be getting mothballed and rolled quarter-to-quarter. And I think it's going to become harder as well too, as you see inflation, labor costs and a higher cost of finance as well, too, perhaps. Overall, transaction markets remain uncertain at the moment right now. So we saw a lot of activity during the course of last year, but given what's happening in Ukraine and Russia, at the moment, there seems to be a bit of a polarization. Some of the new market entrants or capital from North America or far Asia, for instance, seem to be holding back a little bit. Domestic investors continue to look forward into it in advance. But it is a little bit one where people are waiting to see how the market develops. I mean in Q1, we closed 7 transactions on the disposal side. Those were all signed up to during the course of Q4 last year, but all of our buyers performed. So when we needed to notarize and when we needed to close, everybody closed on time, despite some of these already occurring after the initial tensions in Russia and Ukraine, between Russia and Ukraine. So people continue to perform, albeit there is a bit of uncertainty how pricing will develop over the next 12 months, say. Prime yields remain stable, but with an uncertain outlook because of Russia and Ukraine, but also potentially any impact from a rising rate environment, in particular in the U.S., while logistics and PRS remains the sector of majority focus at the moment. Maybe jumping a little bit into the portfolio. You've all seen these slides before in terms of the key metrics. GAV is up 12%, as Andreas said, to EUR 6.3 billion. Income-producing assets are up 5% to 4.9 despite the capital rotation. Why is the rate of growth for GAV higher than for the income-producing assets? That's because GAV also includes our development pipeline, where as work in progress and costs are spent, it's capitalized into the development basis. Germany is up 3% and now accounts for 50% -- a little over 50% of the overall income-producing portfolio, while office is up to 91%. You can expect to see those continue to increase, in particular in Q1, we closed the sale of 2 hotels, which will, again, further reduce our non-office exposure over time. So maybe moving a little bit forward. These, again, are all slides that you're very familiar with. And we can jump real quickly into the leasing. All in all, 240,000 square meters of space was signed in '21. I mean that's a near record year for us in terms of the total volume of space. We continue to see the ability to be able to push rents up, not only in Germany, but also in some of the core CEE markets as well. I'll talk shortly about 2 office buildings that we brought online in Prague, where we set record rents for the submarkets and see real reversionary potential for the existing buildings that we own nearby. All in all, when you look at the existing vacancy, 16% of what we have vacant has already been leased and we're just in the process of fitting out and handing that space out to tenants. So vacancy all in all was down year-on-year from about 95% to 89%, albeit flat on the quarter. And that's something where there's a number of factors as to what -- that to do. For instance, we brought online some development projects in Germany that are still in the stabilization phase and we're leasing up the final vacancy and fitting out that space. We had 1 or 2 tenants who unfortunately went bankrupt unexpectedly. We moved some tenants into some of our new buildings. So we moved them from an existing income-producing asset into some of our development projects and are now finalizing the re-leasing of that vacant space. And also, we had some tenants who simply downsized or left because we couldn't accommodate their expansion requirements or also because they were unable to pay the rent that we were looking for and that we believe is where the market was. So I think we expect to continue to see this. In a base case, we can expect to continue to see this go up during the course of the year as we stabilize and fit out and finalize the rest of space. But again, there is a degree of uncertainty in the market due to Russia and Ukraine. So capital rotation, we've talked a lot about it, 17 transactions. There's the EUR 9.3 million of annualized income that we've lost. But I think main takeaway is when you look at this, a, material premiums to book value, where we've been selling; and b, a real sharpening of the underlying quality, location, size and all other metrics of the portfolio. So exiting a market like Slovakia, exiting a subscale logistic asset in Germany, exiting a stabilized office asset in Budapest, exiting our hotel exposure or some B class assets in Hungary and Austria. So these are assets that for us, we've either executed our business plan, don't see an appropriate level of incremental return and have simply been able to sell or they are things where we've been able to get a good price for things that don't fall within the strategic profile of what we're looking to do anymore. This similar trend continues into 2021. So here's the 7 deals that we've already closed during the course of the year. Again, 2 hotel properties that we've exited, one in Munich and one in Frankfurt as well as a B class office building in Budapest and a portfolio of land plots in Mainz. Again, very, very happy with the results and the pricing that we've been able to achieve on those. Looking a little bit more as to a select view of some of the pipeline that we have. So we have 2 deals in exclusivity at the moment right now that we're working very, very fast towards signing on. One of those is a B class office asset in Vienna. The other is a mixed-use office and residential building that we're developing together with a partner in Mainz. But then again, you can see a little bit more of an example of some of the things that we're working on, Bodenseestraße is a peripheral car parking and industrial building in West Munich; Ratoldstraße, is a pure-play residential development; and some other subscale office assets which we've effectively executed our entire business plan on. Maybe talking a little bit about something that happened post the quarter end. As Andreas mentioned, capital rotation, we've reinvested in our development pipeline. We've reinvested in our value-accretive CapEx, in our income-producing assets, but we're also continuing to buy externally. KS 67 is a deal that we closed. It signed in December but closed in Q1. It's about EUR 100 million. And it's something that we like for a number of reasons. So again, it fits the bill when it comes to prime CBD location. So absolute city center in a submarket that has barriers to entry, 2 blocks away from Köningsallee, which is kind of the main prime high street in the city, very high-quality A-class space, proximity to services and amenities. It has low energy intensity and it's under-rented with reversionary potential. So it's something that we think fits the bill of what occupiers of the future are going to be looking for. And we have a main lease in place to a German Fin-Tech financial company, which should also be benefiting in a rising rate environment. So this is something we're very happy with and it's a market that we like and it continues to increase our exposure in this area. And here is a few pictures of the development that transferred over during the course of last year. This is our last developments or ground-up developments that we have in the Austrian and Central European portfolio. I would say a very successful development. So 2 buildings, Mississippi and Missouri. This completes the now 5 building campus of River City in prime central Prague in the KarlÃn submarket. You can see there that it's right on the water. It's very green. You have excellent views of the historical city center. I think this is something we're, again, very proud of. We're now 90% occupied, all of the office space is leased. We're handing out the space and fitting out the space for the last tenants. The last little bit of vacancy is primarily the ground floor retail, which you could see there in the picture on the lower left, albeit we've been holding some of that space back during the winter and plan to be out and leasing it during the springtime when the environment for the outdoor area and the park that you can see there, which is being built, is finalized and constructed. But again, very happy also with what we've been able to achieve in terms of rents, setting record rents for the submarket, but also being able to attract a real unique pool of occupiers. So this is a bit of a tech cluster. So you have a lot of IT and software companies that are in our buildings around here. For instance, eBay has just done a regear with us in one of the other buildings, but we've also managed to pull a number of Magic Circle law firms, for instance, who historically have always been in the real historic city center of Prague, but we've been able to pull them out to this submarket. And I think this is something that will also allow us to catalyze a bit of redevelopment in and around this submarket here. So I think we're happy with that. And on that note, I would say just to wrap up, you've seen this slide before, but I think the important point here is, again, in an inflationary environment, nearly 100% of our income is euro-denominated and over 96% of our leases are index-linked to CPI. So okay, it's only a hedge for inflation when market rents advance in line with inflation, but I think we have a few areas of protection here as well, too, given the highly under-rented nature in particular of our German portfolio. So a lot of reversion that we see possible and in the interim period we are able to index our leases forward. So on that note, I will stop and say thank you for your time and hand over to the moderator for Q&A.

[Operator Instructions] The first one is from Stefan Scharff.

Yes. Silvia, all the best for your new commission. And I was also at the MIPIM and you had, I think, a very interesting talk or panel discussion at the Berlin stand, but I was stuck in another meeting. But I think it was a very, very good fair this year. My first question would be about your capital rotation program. You already did something and managed to improve your portfolio. Perhaps you can say a little bit more after the sale of 2 hotels in Frankfurt and Munich last year and one at the beginning of this year and the residential project in Mainz to UBM some weeks ago, what else is possible or likely in this year for strengthening your portfolio and selling nonstrategic assets? I remember that you already mentioned Romania is on your agenda and there's also the option for a total sale.

Yes. I mean I'm happy to jump on that. Stefan, nice to hear from you. I mean one on Romania, so this is something that we announced to the market, that we are looking at what our options are and we are open to a number of different outcomes and continue to explore those options, albeit our primary focus is exploring the potential sale of the platform, including the team and property in whole. So we had a number of meetings during the course of the last 2 weeks with our kind of prelaunch launch. I would say what we've seen in terms of the investor appetite is the buyers or the potential buyers who we always thought would be interested, so the regional or the local buyers, have continued to confirm their interest, albeit some of the further away investors from North America and far Asia, for instance, who were long shots in the first instance, have -- have kind of become a little bit more wary generally about the entire European landscape. So it's something that we're continuing to progress with and we're continuing to work on and we are not a distressed seller. We're not a forced seller in any way, shape or form. We think we have one of the best quality portfolios in the market. We have one of, if not the best quality team on the ground, but for various reasons as we've previously communicated, we are focusing on rotating our business more towards the German kind of core Central European markets. And we will continue to progress and explore the potential for ideally, I would say, a full sale of the platform and the property. But that's something that is still too early to be discussing in more detail on. And again, I think on Page 37, I gave a bit of an overview as to some of the other properties that we actually have in the pipeline right now. So for instance, the top 2 buildings, Handelskai here in Vienna as well as the Kaufmannshof project in Mainz, both of those are in exclusivity, in the due diligence or documentation process. We feel pretty confident that those will get done. Bodenseestraße in Munich, for instance, that's already in a second-round bid phase. And then at the bottom here, Ratoldstraße, ZigZag, Vizivaros in Budapest, are all in the marketing or in the preparation phase. So I think when we're looking at our portfolio, we're continuously thinking about every asset and how does it fit in when it comes to the quality, the location, the size, the scalability, the incremental return that we can continue to earn on holding that asset. And if there are situations where we can monetize future profit, where the forecast rate of return is lower than what we think is appropriate or when it's nonstrategic in terms of location, sector, size, quality potential and resilience, we'll move forward on that basis. So it is something that we're -- again, we're open to a lot of different outcomes in these regards and we're progressing and seeing how the market is behaving. But so far, in particular for the deals where we are in exclusivity, we're not seeing any impact from the higher inflation, the rising -- the potentially rising rate environment and the conflict in Russia and Ukraine.

Okay. Okay. Another question is about the dividend topic. Last week, there was the EUR 2.50 special dividend. But even if I deduct this from your cash, you still have about, let's say, EUR 400 million in cash. And if you can make some successful sale transactions in Romania or also in Vienna or Mainz, so there will be another cash inflow. So is there a chance for the second half of the year, let's say, if all the successful sales transactions and a good and very solid healthy balance sheet, that you decide to give again EUR 1 as you did the years before? Or you think this is too ambitious?

Maybe I'll touch on that. Obviously, Stefan, hi from my side. Yes, I think you rightly pointed out we have cash coming in from sales. We also, as you also have seen in the presentation, we bought an asset in Dusseldorf. We paid a bond back. So there are a number of liquidity events which will then obviously be reported with Q1 reporting. We have the RCF, which obviously is also there to help -- to help us. I think it's too early to tell what we will do. I think obviously, key is to have the financial flexibility. Also what Keegan said, to be active in the market, we will continue our capital rotation. And then we will obviously evaluate down the road whether it makes sense to revisit our position. But right now, we feel good with that. I mean there's a lot of uncertainty in the market, in particular, also on the financial markets, as you can see also when it comes to getting access to unsecured instruments. So -- and we really made a decision in the Board, together with our Supervisory Board, to act prudently given the uncertainty in the market.

So yes, I fully understand. Just seeing that you have a very low net LTV of 31%, you might say, or I might say it's a bit under leveraged, but so there is potential from your balance sheet point of view. But I also understand your point that the situation is quite shaky in Europe at the moment. Another question is about Poland. In Poland, we have seen a very high 8% inflation in December. And now we see many, many refugees coming from Ukraine to Poland and bringing up the population and bringing up the workforce also in Poland. And at the moment, you have with Poland, a market of -- or a size of EUR 500 million or EUR 550 million, perhaps you can give us a little bit more color what you plan for Poland?

Yes, sure, I'm happy to talk on that as well. I mean Poland for us is very much a Tier 1 market. Q4 last year, we also signed and closed a great lease with AstraZeneca, about 24,000, 25,000 square meters of space, materially ahead of our original underwriting when we acquired that property. I think we've also seen some very positive signals from the market. So for instance, Google has just announced they've signed on the acquisition of their multi-tenanted headquarters, which is pretty much directly across the street from 2 buildings that we own, at a record yield of about 4.3%, also a EUR 600 million deal. So I think that again just really illustrates the type of blue chip institutional quality occupier who is committing to this market for a long time. So I think like you say, inflation is high, but it's in line with the numbers that's been printed across a lot of our markets right now. I think that this crisis has also -- the migration crisis, the refugee crisis, has also kind of reset local domestic politics, right? Biden will be in Poland during the course of this week. There's been a strengthening of NATO on the eastern front in Poland and Romania, in particular. It's perhaps tempered some of the ambitiousness of law and justice in particular, and has coalesced, I think, and hopefully, is coalescing the whole concept of liberal democracy and European Union. We see good leasing activity in this market. We see good opportunities in some of our assets for value accretive CapEx and we continue to look as well for external acquisitions. We're working on a transaction right now that we have optionality on and we will continue to be disciplined with regards to our capital deployment. But it's a market that we see, yes, there is a lot of inward migration. Yes, it is low employment, question as to how productive and what the long-term consequences will be. But Poland even before the crisis had around 1.5 million Ukrainian migrants already legally working in the country. So there's a very kind of shared cultural history in that regard. And there could be some silver lining and some pluses here as well, too. So it's something we watch very closely.

Okay. So the one high-rise will be completed this summer. Your pre-let is now about 60%. Perhaps you can give us a bit more color what occupancy you expect for the summer? And how do you -- the square meter rents in Frankfurt?

So I mean, yes, happy to talk on that as well, too. So we will hand over the space to first tenants during the course of next quarter, so a hotel and a handful of occupiers. We're about 60% leased across the board. We have good discussions ongoing with last tenants to fill up pretty much the rest of the building. So we have exclusive negotiations ongoing with another 3,000 square meters that we hope to sign during the course of April and we actually have during the course of this week kind of decision-making dates and leadership meetings for a good chunk of the remaining space as well, too. But I think we need to be cognizant that in a multi-tenanted building, it will also take time until we're able to hand out and fit out the space. So I expect that we'll see significant progress on the leasing side during this year, all things equal, right, taking the global macro into account, taking COVID into account and everything. Albeit my expectation is that the fit-out process and the handout process will take us closer towards the end of 2023 until the building is fully up and running. I mean where are we today? We're achieving and we're forecasting that we will likely achieve about EUR 1 million of additional annualized income versus what we were underwriting back in 2019 due to the ability to get better rents than what we think or what we originally thought. I think we've seen some record rents and some record transactions in the submarket. DWS, for instance, with NPS have just bought Marienturm. I mean that was a print at around EUR 18,000 a square meter. So I think there was some commentary on that. You've seen a few other deals in the markets where rents are hitting EUR 40. I think we have, in my mind, what I'm very happy with, with Tower ONE is we have an incredibly high-quality building. We have the right-size floor plates. We have the right-size amenities, technology as well as consumption ability, right? So when you look at Frankfurt as a market, typically, this is a market that has a very focused CBD, the banking district, but we were able, for instance, to bring Credit Agricole, who is still a blue-chip European financial, out of the banking district into this Europaviertel submarket and I think that's done on the basis of the building that we have. So we're pretty optimistic about the pipeline that we have. It's obviously taking longer than we would have hoped, but I think that that's the story for the market generally and it's not something that's specific to our capabilities or our properties.

So we do have some more questions. The next one is from [ Clark McPherson ].

Thank you for hosting the call. I just have a question focused -- or several questions focused on the comment about the Baa3 rating. I'm wondering -- that you mentioned you're in discussions to try and resolve the outlook on that rating. Given that part of the rating rationale was actually the debt level, the debt at the Starwood level, which I presume you don't have too much control over, I'm just wondering what measures are available to you to actually try and improve that outlook? And what's the dividend plan that you announced for this current year, is that in any way part of these discussions that you might be having with Moody's? And finally, any idea on the timing of when we could expect some sort of guidance on that outlook?

Sure. Happy to touch on that. Obviously, as you rightly say, I mean the rating is not entirely in our control because we have a majority shareholder. But obviously, as you also know from last year, the majority shareholder has committed himself to keep the investment grade rating. I mean there obviously was the downgrade. I mean we always said, I mean we do everything what is possible from our end to improve our ratings. So we delivered very strong results. We further sharpened our business profile. We will continue to increasingly focus on the German, more stable market, which is also totally in line with what our majority shareholder wants. So I mean it's hard to predict when will that happen. I mean obviously, we will engage with Moody's, our rating agency, to deliver what is required from our end and then we will see what the results will be. But clearly, I mean our business and I personally believe that investment grade rating is a key requisite. I mean we want to refinance ourselves in the Eurobond market and the better our rating, the better it is for all our shareholders. So this is something which we would take very seriously. But obviously, I'm not in a position right now to give you any sense of probability or timing.

And would the dividend, the dividend be somewhat dependent on getting...

No. I mean I think our decision to basically say we propose not to pay the dividend for -- from last financial years is totally related to the fact, obviously, to 2 facts. One is we paid out already EUR 6 over the last year or so. So I think it's a pretty significant payout to shareholders. But also, I mean there is uncertainty in the market, which recently apart from COVID have dramatically increased due to the crisis in Russia, Ukraine. And I think we just want to be prudent. And I think these 2 reasons basically said to us, I mean let's skip this for this year. But obviously, our key ambition is to go back to a continued and stable dividend policy, which we will then restart hopefully very soon.

So next up is Jakub Caithaml.