UBM Development AG (UBS) Earnings Call Transcript & Summary

Thank you, George, and good morning, everybody. Thank you for joining and hoping to make your time worthwhile despite the fact that we have already published our preliminary numbers. Turning to Slide 3. I would expect it comes as no surprise that UBM is showing a loss of -- for 2023 as almost all market participants have shown quite significant losses. What seems to be more important is the fact that we continue to buy and sell on the market and actively participate in the market. Number 2 bullet is we are also seeing 3 megatrends which clearly go our direction. Climate change, the imbalance between supply and demand and significantly rising rents. Three, 300,000 square meters of our pipeline will be constructed in timber, which makes us one of the leading developers of buildings which are constructed in this carbon neutral way. Four, it should also not be overlooked that we have successfully defended our market-leading ESG position in the [ tough ] real estate and construction market over the past 12 months. Number five, a solid balance sheet does not make us less cautious, but could be encouraging for both our shareholders and our bondholders. And finally, number six, the outlook is still far from bright. No doubt about this. But we expect that further sales of nonstrategic assets will support our liquidity position on the market. May I hand over to our CFO, Patric Thate, to put our numbers into context and perspective.

Thank you, Thomas. Good morning, everybody. Please turn to Slide #4. The 2023 results have been dominated by the revaluation of our assets. The revaluations of more than EUR 70 million, consists of adjustments in the book value of our financial assets of inventory as well as of assets in our equity holdings. Overall, the EUR 70-plus million of write-downs reflect approximately 7% of our asset base. On the other hand, we had positive effects from our residential projects, predominantly in the Czech Republic, as well as from the closing of the Baubergerstrasse deal. On top of that, we were able to generate the profit from the sale of a noncore asset also in the Czech Republic. Equity ratio was at 30.3% at the end of 2023, which is again in our corridor between 30% and 35%. Compared to Q3 2023, we even have slightly increased the equity ratio. The reason for that was the shortening of the balance sheet in Q4. Balance sheet total was at EUR 1.254 billion by year-end 2023. Besides the negative results, the shrinking equity in comparison to full year 2022 was predominantly driven by the repayment of the hybrid in 2023. Net debt was at EUR 610 million. Besides the already mentioned effect from the repayment of the hybrid, net debt increased also because of our investment policy. I will come to that in more detail on Slide #15. Consequently, LTV also increased, but the level is still okay compared to our competitors. Be assured that we do everything necessary to keep our solid balance sheet position. Back to you, Thomas.

Thank you, Patric. Let me go into a bit more detail regarding our ability to act in a really difficult environment. And now this is an important sentence that I want to say, the transactions market has not been closed for us at UBM in Q4, contrary to quite a few quarters before. We were able to sell our stake in Palais Hansen in Vienna to our long-term partner, Vienna Insurance Group as well as a sizable logistics project in the Czech Republic, as mentioned by Patric. At the same time, we have acquired what will now become one of the tallest timber buildings in the world, the Timber Marina Tower. Contrary to many other cities, we are witnessing a shortage of new work office space in Vienna with only a handful of new office projects in a city of more than 2 million inhabitants. This is also why we have bought ourselves into the Central Hub project, which will be completed and ready for tenants as early as first quarter of next year. This is also in Vienna. It is the only light industrial and office project, which I am aware of at the moment. I do not want to go through all the granted building permissions or project updates as we have been continuously reporting on them over the last months. This, together with our reliability on the capital market and our lead position in ESG will pay back. Why? Well, in the darkest hours of the night one tends to forget about the next morning. Please turn to Slide #6. I Climate change is going to continue a long time after the real estate market has been sorted out. Ecological conversion necessary cannot be achieved without the building industry, which is contributing no less than 37% to all carbon emissions worldwide. Timber is the most significant lever in building construction, 2.3 billion tonnes of CO2 could be partially avoided by using timber instead of concrete, aluminum or steel wherever possible. The building sector so far has been failing to meet its decarbonization target, as can be seen on this chart. For the last couple of years, it is difficult to believe that politics will watch this doing nothing. There's only one planet and Europe's most obvious competitive advantage is to be one of the most livable parts of the world. The second megatrend as can be seen on Chart #7, is the exponentially growing imbalance of demand and supply, particularly when it comes to the residential sector. The lack of housing has become sociopolitical dynamite. The most recent elections in Austria are proving my point. Austria's second-largest city, which is Graz, is governed by communist and in Salzburg which is my birth town, we see a coalition between social democrats and communist winning their elections with one promise. We are going to deliver more affordable housing. As we all know, the proof of the pudding is in eating. One thing which cannot be denied, however, is the rule of demand and supply. Ultimately, the only structural way to bring down housing prices is more supply. Politics start to react on this revelation and offer measures such as no real estate registration fee or loan subsidies. While this looks to me at least, more like [ plaster aid ] the ultimate solution lies in tax incentives, such as accelerated depreciation, not only for housing, but for all buildings. What appears to be a real estate crisis today will develop into a construction crisis tomorrow with hundreds of thousands of employees losing their jobs. The real estate industry is a little bit what bees are for nature. If the bees die, there will be no fertilization of plants, which ultimately means that the entire ecosystem will collapse. You think I'm exaggerating, wait for the next couple of months. Rather than continuing to speak about doomsday scenarios, however, I would like to point out the third mega trend after climate change, as already mentioned, and the supply and demand imbalance as described right now. The third mega trend is the significant increase in rents. One of the issues for the real estate industry is the speed in which inflation and the other interest rates have been increasing. Clearly, the world has been caught on the wrong foot. One of the most late coming and particularly fastest increases in inflation ever left the rent levels behind. They are picking up and sometimes even explode. As I would call, a 20% increase in newly let apartments in Berlin last year. While we all expect inflation to drop and drop further, rent levels are only knowing one direction - up. And this will be true for a considerably longer period of time, as illustrated by Slide 8 of our presentation. It takes time, but it will inevitably happen. Let us now turn to Slide #9 and the message #3 of our presentation. Very important one, too. The building material of the 21st century is timber. It does not only reduce carbon emission, it even stores CO2 for an almost unlimited period of time. Some of you might have scratched their heads if building material as old as wood, probably the oldest building material of mankind is really going to make it to #1 in the 21st century. But look around you today. This is what the entire industry is starting to do. Multistory housing, office, sky scrapers, logistics, even overground parking facilities. They are all designed in timber construction. Some architects even believe that they have no chance whatsoever if they don't provide a draft in timber construction when they go into a competition. While timber construction projects might not stay the USP for UBM, UBM is in a leading position in Germany and Austria and therefore, is also well positioned to become the #1 developer of timber projects in Europe. We are talking about 75% of our projects which are executed or planned in timber with the percentage still rising. But we are not only strong in timber, we are also strong and Resi. We have almost 1,000 apartments under construction in Vienna's Village in Dritten together with ARE and LeopoldQuartier living together with resi projects in Germany and Prague, we are talking about 3,275 units in total. In a shrinking supply situation as many developers had to stall or even cancel their projects, there can be no doubt, prices will benefit from the shortage of supply. And this is true for a longer period of time, not just for the next couple of months. Finally, UBM has also been jumping on another train. The light industrial and office or if you want, business park boom. Please have a look at Slide #11. As a direct consequence of the pandemic, onshoring has become more than a [ buzzword ]. Research and development are brought back to Europe, and 2023 has seen almost 50% of the investment volume go into such developments. With the timber factory in Munich, UBM, together with ARE again is developing the most sizable business part in timber construction in the capital of Bavaria. We are talking about almost 60,000 square meters of gross floor area in 4 separate buildings or also 4 separate stages. Offering space for a carpenter as much as for the headquarters of a [indiscernible] company. And they are more light industrial projects in our pipeline such as Timber Works also in Munich, and we shall keep you posted on this latest trend. At the same time, we are successfully defending our #1 position regarding sustainability. Have a look at Chart #12. We are proud of the only B minus prime rating by ISS ESG as much as of our platinum rating by EcoVadis and a B rating by CDP. Green is an integral part of our strategy and thereby has become part of our DNA. Best proof on the green lease framework, which has now been followed success -- which has followed successfully our launch green finance framework. And let me not forget to mention our ESG report, which is almost 140 pages. This report, and we are now on Chart #13, based on GRI standards, documents, our corporate carbon footprint, our ESG risks and opportunities and is preparing ourselves for CSRD and EU taxonomy at the very early stage for a company of our size. A centralized data collection together with an ESG-Cockpit will ensure a leading edge over competition also in the future. Needless to say, our ESG report has been audited again by PwC on a voluntary basis. At this stage, let me hand back to Patric for more financials.

Thanks, Thomas. First of all, please have a look on the left side of the slide. I'm now on Slide 14. Let me draw your attention again on the fact that we have no repayments on group level until the fourth quarter of 2025. So next year's fourth quarter. That gives us some time to wait for the market to recover and to refinance our bonds. We are prepared to act quickly when opportunities in the bond market arise. As already mentioned in the last call, we took the window of opportunity in a very challenging market environment in June last year and issued UBM's first green bond. We were satisfied with the retail markets demand for our new products, allowing us to place EUR 50 million. Just as a reminder, what happened on the bond side last year when it comes to repayments. In the first half of the year, we repaid EUR 52 million of our outstanding hybrid bond before the step-up and repaid, refinanced the 2018 bond in November with an outstanding amount of EUR 91 million at that time. Let's take a look at UBM's cash position. Please turn to Slide #15. There is no doubt that cash is the most crucial asset at present. We are working hard to preserve our cash position and are therefore happy that we closed 2 important sales of noncore assets in the last quarter of 2023 as mentioned by Thomas before. Overall, the cash reserve was at more than EUR 150 million by 31st of December. Let me mention once more that we did something for our project pipeline also in 2023. We acquired the Timber Marina Tower in Vienna as well as closed the transaction of the Timber Port project in Dusseldorf. On top, we invested in a 25% share of the project Central Hub in Vienna. On the bond side, I have already mentioned that we have repaid 2 bonds from liquidity. Overall, we invested EUR 175 million into our development pipeline in existing projects. This is another factor which differentiates us from most of our competitors. We still invest and work on the level of maturity of our project pipeline. Latest examples are the village in Dritten plots, the start of the erection in mines as well as the LeopoldQuartier plot A, C and D. A good part of financial resources and effort has also been allocated to achieve building permits where we are in the phase of having a valid [indiscernible]. This is especially true in Germany with timber living, timber factory, timber works, timber port and others. To sum it up, our current cash position is solid, managing cash remains our top priority for the foreseeable future. We have managed and will be able to manage our different sources of cash, be it sales of development apartments, be it sales of noncore assets, be it tap in the bond market. We have not, like many others, just preserved cash by not investing into the existing pipeline. Nevertheless, the cash we generated in the last years is used for the current economic challenges instead of bargain hunting. Let me now hand back to Thomas for the outlook.

Yes. And let me wrap it all up by looking at Slide #16. As we were unable to provide you with a guidance at this stage, we want to try to be concrete regarding what can be expected by UBM over the course of the next month. We promised more as sales to come. Standing at the beginning of the second quarter, we dared to guide that we realistically expect liquidity inflows in excess of EUR 75 million in the first half of this year from this source. The majority will be received in the second quarter, and we do not want to say more until the ink is dry under the various contracts, but you also know us and how we tend to be rather conservative in our guidance. It will be another proof for our ruthless focus on cash management and will provide comfort under the current market conditions. We do not only execute on our timber pipeline with a groundbreaking ceremony of LeopoldQuartier on Tuesday next week as the next step, but also hope for filling the majority of the vacant 29% of Timber Pioneer. So 29% are still up for rent in the Timber Pioneer. The demand in Frankfurt is slow, but it is there. Opportunities for the future arise from further standardization and modularization as well as from working as a service developer for stranded assets. On the market environment side, I would like to provide you more with a summary than with new facts. We see rising rents already, and they will continue to rise far longer than inflation. The reason beyond indexation is a widening housing supply gap as much as an office supply gap in Vienna and a light industrial boom in the 7 A-cities of Germany. Now the biggest hope on a macroeconomic basis is a turning point in the interest rates. With economy growth rates diminishing close to a recession and inflation rates between 2% and 3% already throughout most of Europe, the question is not if, but only when ECB will have to lower rates. It's not going to happen this afternoon. Some are hoping it's going to happen in June. Some more skeptical people are expecting it to happen after the summer, but it is going to happen. If I were able to tell you more precisely, I would probably not be on this conference call. So let me conclude the formal part of our presentation and open the line for your questions. Thank you for your attention.

[Operator Instructions] Our first question comes from Stefan Scharff with SRC.

Stefan here from SRC Research. My first question is this market situation is difficult and may offer some opportunities to buy. And if you would be interested to buy opportunities, which kind of opportunities in which locations you would be interested?

Yes. Look, Stefan, let me answer this question. We are not buyers at the moment to be honest. I think we've evolved enough due to the special situation in Vienna. We've gone for the Timber Marina power and invested in the central hub in Vienna's 21 project. We have a clear market overview, and we know quite a few market participants who are looking for new office space. Often the case is that they are reducing the office space, but we don't care because we are not the owners of the old office space, and they want to have a completely new layout. And when I talk about a handful of projects, I mean 5. Maybe there are 6 or 7 Indiana and I've missed out on 2, but we have a total of 5 office projects in which two, we have under control. So we are pretty confident, but we had lengthy discussions should we dare to do this investment or not. At the moment, and this is why I've mentioned the service developer and we are more interested to help out particularly banks who are also helpful to us to get the stranded development projects completed. And that is maybe less rewarding profit-wise but is also less cash consuming because just in case we haven't mentioned it about 15 times in our presentation, cash management is the #1 focus. And the good thing is, particularly for guys like you who've been following us for the last couple of years, we have been talking about this since 2020. And therefore, I'm not eager to appear as a buyer on the market.

Okay. Okay. I see. What is your impression of the office market and about the development of the transaction level? We have a very low transaction level in office market and also not too high in hotels market. So what could this mean for the next quarters and also mean for the next valuation result? Do you expect a recovery to come in the second half of the year? Or might just be too early?

Well, I think if I got your question right, it is twofolded question. And the latter part of the question, I would like to hand over to Patric in a minute, which is do we see further write-downs? So this is for Patric. Where do I see the office market at the moment? Well, it's going to stay difficult. And coming back from [ Mitten ] our Head of transactions reported that, well, there is an interest, but we are talking about 20x annual rent, which is a 5% kind of yield, if you want or if you are in Austrian because we like to look at it on a yield basis. This is definitely too high or too low if you look at the rent multiple for the projects that we have. And here, I think we really have to wait for a signal from Frankfurt, but not from the rent market but from ECB. The moment this happens, I think there's enough money in standby that wants to be invested not right now as the office transaction market is going to remain difficult for the rest of the year for sure. When it comes to hotels, the mood is a bit more positive but the level of transactions is as bad as it is in every asset class. I mean it is not one asset class that is booming. And so this is why we are talking so much about the noncore asset sales, which is usually standing assets in our portfolio because that seems to be the more promising niche for 2024. I don't dare to make a prediction for 2025 because at the end, everybody -- if the first starts to run into one direction, the herd will follow. Everybody then runs into the other direction. But I do not expect the transaction market, particularly for the 2 asset classes that you've asked for to improve significantly over the course of the year. The stress is on significantly. Now I would like to hand over to Patric regarding further write-downs.

Stefan, difficult question to answer, but I did my best as always. So if we look at the write-downs, the revaluations, the pressure was coming last year in 2023 from [ the May ] basically. And there, the predominant pressure was coming from the interest rates, which were a little bit leveled out by the rents, but it turned out that the evaluations in the books of evaluation when books had to come down. So is there to be expected a further pressure from the interest rates? I think Thomas talked about ECB. Currently, nobody in the market is seeing that there is a lot of pressure in the direction of increasing interest rates. And on the current interest rate levels, so they have done their jobs. Is the coming pressure from the rent, most probably not, rent increasing even faster than expected. So, again, from that angle, we are not seeing too much pressure. But the pressure can come from a different angle, and this is when there are market transactions with objects with offices whatever being closed or comparable to your office you have in your books. So if on the next side of the street, a plot is being sold on a prior sale, and it is a public known information, the surveyor needs to make it [ mass ] on the market transaction not coming from the cash flow you might assume. And that can't be foreseen easily if the pressure is coming. And if you are, I have to say, unlucky enough that it is something which is comparable to what you have in your books.

Yes, yes. One question perhaps about your Timber Pioneer. You have the Poleczki park in Warsaw. You have also the hotels; 2 in Germany, 1 in Netherlands and 1 in the Czech Republic. And the other big thing is the Timber Pioneer which is now leased about 75% or 80% after you also rented the retail space. But there are about 20% or 25% of the space left. Are you here in close negotiations for rental contract? And also what could this mean for sale of Timber Pioneer if we have a kind of recovery coming in the second half or say at the beginning of next year?

Very good question. Look, let me start with the last one, the Timber Pioneer one. We have rented out 10,000 square meters of office space, okay? And we have rented out the 1,000 square meters of very rough numbers of retail and recreation space because we've rented part of the ground floor to [ 7 Eleven ] fitness center. So we have now 4,500 square meters of office space still up for rent. And as we have an anchor tenant who's taken 2/3 of the office space, he's taken almost all floors. And so we have smaller office space per floor that we are currently putting on the market. Now the good news is, and as I've mentioned, the Frankfurt office market is slow, but it is there. And the demand is particularly there for smaller tenants. So the issue with the smaller tenants always is that it takes longer to pin them down because they can shop around, and they want flexibility and they don't know should they rent 500 square meters or 750 square meters and so on. But we are confident because of the viewings that we are having in the Timber Pioneer that we are able to rent it out almost completely. I mean there's always a couple of square meters less at the end, but that doesn't make any difference for selling it. Now when it comes to selling, we are not throwing our trophy asset on the market without giving it a second thought. And there, the big question is what happens after probably only 25 basis point interest rate change? Is the market coming back strongly? Or are the people kind of you know afraid that, that could be a bull's trap I think one would say on the equity market. And depending on this, we will decide later in the year. What we do and what we have already agreed with our partner is we do a vendor -- technical vender due diligence so that we could be quick or quicker in selling the asset if there is an interest because usually, the technical due diligence is heating up 3 months plus in the sales process. Now you've mentioned a couple of other -- I don't want people to be confused. Poleczki is no worry for me. It's rented out more than 90% and it pays its interest and repayment. So the issue is I don't -- I'm not a holder of real estate. So I'm a developer I would love to sell it. And the decision that we've taken with Poleczki Park is that we now sell it in pieces. That's a fairly recent one, okay? Because there was a about cannibalization. If you sell one building and sell another building to somebody else. But I don't think that this is the big -- it is as big an issue as the overall Poleczki business part, which is simply too big to go in one transaction. So I expect standing assets and just have a look in our backup. We have listed them neatly there that they will go. Now the last question that you -- or the last part of your question that you had was on hotels. Here, unfortunately, I have to kind of slow you down in maybe some optimism because the issue is everybody of us has experienced higher rates when making holidays or doing business trips in the hotels, but the higher rates are a function of higher cost. So the full recovery of the hotel market is really dependent on the occupancy rate. And I'll give you an example in Prague, okay, we are still significantly, I think 20% below the arrivals in -- at the airport. And that is a very strong indication at least for a luxury hotel, as we have in Prague. And that, of course, puts pressure on the occupancy rate, even though rates are on the up or going up, let me put it this way. And I would kind of summarize it that hotels okay, cost me more of a good night sleep 18 months ago than they do right now.

Okay. Okay. Yes, thanks for the answers. And yes, let's see how quick some asset classes can recover and let's see how inflation develops. The new numbers from the U.S. were very bit bad as inflation was up in March, but let's see if in Europe, the trend for reduced inflation will prevail. So that Central Bank has the chance to bring down interest rates quickly. So thank you very much, guys.

Our next question come from Simon Stippig with Warburg Research.

A couple of questions from me and some follow-ups. First one would be in regard to sales -- understanding portfolio sales, you just mentioned in Q2. Could you at least tell from what geography they will come from? And then second one, in regard to the standing portfolio sale and your EUR 75 million liquidity inflow. Is that a net cash inflow? Or is that a liquidity before debt inflow?

Okay. These are easy ones, so I take them. Geography buys, it's across all our geographies. okay? We've mentioned the Czech Republic other than Austria in the fourth quarter. And so maybe it's more related to Poland and in Germany, but it's across the geographies. The EUR 75 million is net, okay? It's, of course, after repayment of debt.

Okay. Great. And then in regards to the lease up, could you comment on the central hub lease up? Is that already leased to a certain extent? Or do you see demand for it?

Well, it is leased out, but only to a very limited extent because, of course, people are very short-term oriented at the moment. There were rumors on the Central Hub, and I'm not confirming them, but I'm also not denying them that the [indiscernible], okay, is looking for a laboratory space. And there is no laboratory space throughout Vienna. So they might be in a very good position when it comes to a AAA tenant, if you want for it. I am not worried. Otherwise, we would not have invested. But this is one of the more interesting office projects in Vienna, it's opposite to Siemens headquarters. And it offers a lot that is simply not there in Vienna. So I believe that within the next 12 months, which is -- well, 10 months, I should say, which is the period until completion, we will see a fairly high rent level there, but no signed contracts apart from a few at the moment, which are interesting enough, the more difficult ones in regard of the floors.

Okay. Great. And then one follow-up on the valuation. You mentioned in comparable transactions, whereas obviously your only source or only likable source for potentially further downward pressure. Here my question is for surveyor, wouldn't they differentiate between a fire sale and a transaction in a normal market or in a market under pressure because I mean, given the insolvency proceedings and plenty of insolvency proceedings from project developers in Germany, actually fire sales are -- should be quite likely. Is there any discussion and differentiation of the characteristics of a sale?

Of course, they do so, Simon. But the problem always is there is not much market transaction. And most of the market transactions are in the area of fire sale, starts with the question what is the fire sale and what is in the fire sale. So yes, there is a discussion around that. But I was stressing that point because I see that as one of the risks when it comes to valuation. And as I pointed out, the question was in the direction from Stefan, are you seeing any risks? And the answer is, when I see a risk, it comes from that angle. Yes, they differentiate, but if it is most of the market, sooner or later, they will take that into account.

Great. Understood. And then one, in regard to dividend and your dividend as pensions -- or suspension for this year. Could you maybe had some additional insights into your dividend suspension decision, and we talked about it in the last conference call already. But then also, you wrote that you did that also in solidarity with other stakeholders and maybe here also some insight would be much appreciated. And then if you don't pay a dividend, if I go actually down your capital structure up, your capital structure, depending on risk. Does it have any implication on the hybrid bond coupon or can you actually confirm that you continue. I mean you have a lot of cash, but I just wanted to ask because next suspension would be probably a hybrid coupon bond suspension and your peers such, not naming them, but Germany, there are a couple of peers that didn't pay it. And obviously, you are in a different position. But I just ask for -- yes, and following up your dividend decision.

Okay. Let me take the dividend and pass the hybrid on to Patric. On the dividend, we've been very explicit. It's a cautionary measure, okay? Could we afford to pay a dividend? Yes. Would it be justifiable? No. Why? Because if you make a loss, you have no profit that you can distribute period. Okay? And if you ask about the solidarity, you're talking to one -- I ask the shareholders to have solidarity with me. Nobody in UBM is getting a bonus for 2023. Nobody, okay? And that clearly is -- has not been an easy decision because as often is the case in a difficult environment, people put much more efforts into what they're doing than sometimes if you have tailwind. And I don't want to stress the cycling analogy. Still, we have decided, no, there is no profit, there's nothing to distribute. Not for our shareholders, not for our employees, including my [indiscernible] and my board colleagues. And before you ask this, not for the state. Still, if you look at our tax rate, you can see that because of deferred taxes, okay? Our tax rate is somewhat counterintuitive. But that has more something to do with deferred taxes and what have you. So overall, it is a cautionary measure, and we've also been very explicit that it doesn't change our policy of intending a dividend continuity. The moment we make profits again, we also will recommence the payment of dividends. This year, or I should rather say, for 2023, I would have thought it's obscene to do that. As much as I felt, it is not right that I attend MIPIM because I think it's always sending the wrong signals. So back to -- or not back, I refer to Patric when it comes to hybrid.

Yes, hybrid. I mean -- as you have pointed out, it is an option as we are paying no dividend, we could also think about not paying out the hybrid interest with one thing which is different that if it's just a timing issue instead of not paying it because sooner or later, we will have to pay it. We can decide on do we want to pay it in June? Or are we waiting until a later point in time. There are some pros and we have some cons regarding this decision. Pros, for example, it's a EUR 5.5 million number. And current environment, maybe a EUR 5.5 million number could be invested very widely and could bring a lot of profit. And the EUR 5.5 million interest decision would be also coming with no additional interest because if you put that into the future, you're not paying any interest on that. The conversation is it has an impact on the bond market, maybe not only on the hybrid bond market, but on the under bond market. So in a nutshell and probably not an answer would satisfy you, we are not obliged to pay them, but we will decide on this one closer to the appointment date, and that will be somewhere in June.

Okay. And one last one on your outlook. You mentioned you have previously had that already, but then you could imagine that you become a service developer for stranded assets. And here, I wonder how quickly could you ramp up that business? And are you already in discussions for that? Are there any liabilities attached here if you function as a service developer, can you just -- a little bit more insights in the -- yes, into this business segment you could do for obviously a limited time.

Yes. Well, if you look at the most prominent and probably definitely in Austria, the largest bankruptcy ever, I shouldn't call it bankruptcy but insolvency, you see how slow things move. In this respect, it is even in our interest because it means over the next 5 years, the projects will be sold. Now we all know that the project that has been started and where you have installed construction in the first floor is not getting any better by leaving it stand around and securing it. Because you at least need some security to have it protected. I expect this business to start in the second half of the year. I'm not aware of any competitor who has been awarded with a major contract as yet for finishing construction works. Other than from Mezzanine Capital Partner because Mezzanine Capital is always waiting actually for this situation. Because they wipe out the equity and are prepared for the situation. But in many cases, the administrator is struggling to get a good overview. And as you all have seen, it's always complex. Now do we have the capacity? Yes, we have. Are there any liabilities attached? I think that was the third part of your question. No other liabilities as we always have, which is we have to work diligently. I mean if we deliver a work, which is not diligent enough, of course, we are liable for it. But we would not -- I repeat, we would not be prepared to go into the risk that is attached with getting it sold for certain amount because it's no good time for risk-taking at the moment. Our risk appetite is fulfilled. And as Patric has presented it in one of his slides, originally, we've accumulated EUR 423 million to go for bargain hunting. Now we need it for our day-to-day business. And I think the encouraging factor to take away from this conference call is we still operate. We -- as I said, next week, we have the groundbreaking ceremony for the LeopoldQuartier and we are not intending to stop at EUR 175 million of investment is the best proof that we put our money where our mouth is and that we can afford to do this because, as I also mentioned it, may be a little bit too pathetic. In the middle of the night, you sometimes forget about the break of dawn and that there will be daylight again. But I know you well enough, Simon, I'm sorry, that I pick you, I could pick any of the participants on this call. In 18 months, time from now. You ask me where are your profits? The market is back again, the market has been sorted out. So where are your profits? And then I can't tell you I have been overly cautious and stopped everything that could stop. I hope this answered your question.

Yes. Sounds reasonable. And if I may, just one quick follow-up in regard to your hybrids because what you mentioned is that if you keep back paying the coupon and then you wouldn't pay interest at all and it's reasonable also. But then what would you expect would be the impact on your margin expansion? Because obviously, if you then -- maybe you pay back the bond in November 2025 or you refinance it with a new bond. So what would you expect then in your margin to expand if you were to go then to the bond market? I know it's very hypothetical and not very easy to answer, but I just try my luck.

Well, you can all try your luck, but let me jump in here because I think Patric has everything said that can be said about this topic. The core question is can we invest EUR 5.5 million more profitable, okay? Elsewhere. And that is a question that we have to answer closer to the repayment date, and you know we've always been kind of very thin liped -- not the right expression in English. We never gave any clear guidance also in terms of repayment, repaying a hybrid bond or whatever, until recently, before it's because why should I deprive myself of flexibility without being in a situation where I have to do that. So I ask for your understanding that you will get this answer in due course and soon enough before the repayment date that interest payment date, which is the 18th of June.

Our next question comes from Philip [ Genevant ] with New Wave.

Yes. Thank you very much and from Hamburg. As we're approaching the hour mark, maybe only a quick one to conclude here. First of all, a follow-up to Simon's question, the first one, the EUR 75 million net inflow from the disposals, what is the corresponding gross figure on that one?

I didn't catch that, what is the corresponding?

The gross cash inflow, so pre redemption of financing on that.

I'm still stuck at it sorry, because I'm now 61. So my hearing is -- one last try. So what is the corresponding?

EUR 75 million of net liquidity inflow. What is the gross figure. So what is the gross figure on that?

Okay. And what are the other questions? Maybe we take them all and then answer that step by step.

What we'll do so. In general, you were referring to selling noncore assets. Can you put a price tag on your disposal pipeline for 2024? Or the overall disposal pipeline?

Okay. Another one?

Another one would be generally on the short-term financing/you have around about EUR 100 million of development financing due in 2024. Is this an easy matter of easy prolonging this? Or how confident are you on that matter?

Okay. The last question is probably the easiest, and I hand it to Patric.

I didn't catch this question because it's not my hearing. I think it's the line. So can you repeat it Phillip? No, I'm sorry.

Yes, sorry. Let's try one last time. If you cannot hear me well enough, I can also put the questions into an e-mail later to you. But the EUR 100 million short-term development financing, which is due in 2024. This is like an easy prolongation with the banks? Or I mean, how confident are you on that?

Well, okay. You're talking now about the project financing, if I get you right through the line. How confident I am refinancing it? I'm very confident refinancing it because that is an ongoing thing. I'm doing all over the price. I have done that in 2023, 2022. So it's an ongoing process. We can refinance them. The thing we are seeing with the banks, and that is something, I think, can be unwielded that banks are going into the discussion with the LTV levels you had in the past. For example, a refinancing where we are coming out of a plot of land and going into a construction. It is an easier one because normally, the LTV level in construction is better than on a plot of land. If it's coming out of a construction because maybe we can't sell it and it's going into a standing financing. You immediately have the question on the table is the LTV you have in the in the construction phase [ valid ] for standing. And normally, with standing as a bit of lower LTV ratios. And therefore, sometimes you have to give a little bit back to the banks. But overall, I am not worried about the refinancings I have on the table currently on the project side.

Understood. Perfect. Shall we try the other questions again or shall I send them to you by mail?

I apologize because it is a bad line. If you don't mind, if you put them in writing because they seem to be fairly detailed from what I could catch, we'd be happy to give them out to you and everybody else who is interested it, just drop off the line, if you want it. Okay?

Yes, excuse from my side for the bad connectivity. I don't know what the problem is. But I will shoot you a mail later.

Our last question comes from Philip [ Hipps ] with RBI.

First of all, I mean, there has been a lot of questions asked. So one that would be last by me is, you saw a decrease of personnel expenses of around 20% year-on-year on the back of reduction of employees. Do you see the level of employees that you have now or personnel expenses that were incurred now at a level that you need to execute your pipeline? Or is there some further efficiency to be gained in the future?

Yes. Very good question. Obviously, it's not only the reduction of personnel, but it is a mix of effects. We have, of course, an increase. I mean, in Austria, okay, because we are in Austria according to the labor contracts that we have a big company. We had to increase the cost by 9%. Overall, the question, I think, goes more into the direction is are we done with 265 employees? It strongly depends on what I've explained regarding distress asset service provider contracts. If we get such and that is also our interest because we want to keep the people that we have right now. We are talking about something around 250 people that we would have. If nothing comes out of it, of course, the pressure to reduce personnel is there to a certain extent. However, let me put it into perspective. Contrary to production companies okay? Our personnel costs are not saving us are not killing us. And we have had a quite significant reduction in cost there. And you may expect due to the cancel -- or not payment of bonus, okay, that this is on a sustainable basis. And if it's not, because we pay bonuses, it's also positive because it means that we are profitable again. So from that point of view, I think we feel comfortable with the level around 250 people, but only subject to us obtaining some service developer contracts going forward. Otherwise, we would go for further cost optimization. Also on the personnel side. We are, at the moment, focusing on other operating costs, okay? And that starts with I don't know, extending our company cars for another year rather than buying them and ends with doing no UBM day which is costing us -- which would cost us EUR 250,000 just to give you examples on this. We are scrutinizing, of course, also our advisory cost. Because obviously, it's not only us who are suffering but also our lawyers and our other consultants. And in this respect, I think other than what is the counter effect from indexation and inflation, you may expect the pressure on the cost side to continue. However, and I don't want to pour water into the wine. You must be aware that the cost structure of a developer is different to what I have been experiencing in myself when I still work for production company because that is an obvious one. There what to do.

Makes a lot of sense. Thanks for the color. Maybe one more follow-up. You mentioned the service developer opportunities. So would you see it more as a profit center, if you can receive one of these contracts? Or do you more see this as a continuation of ability to continue to work with the current scale of your organization? And are these contracts more highly competitive to be bid on? Or are there not many players like you that are actively working?

Yes. Phillip, you've almost answered the question yourself because there is not too much competition around I mean you know yourself, 580 insolvencies in the real estate development business. Or in the real estate business in Germany alone last year. You are reading newspapers better than me. So I'm not going to mention the names where there are question marks behind it. I'm not aware of too many companies other than us who would be able to finish larger-scale projects without the people who asked you putting into a higher risk category. So I think it's not going to be a very competitive market. It's more a market of trust and reliability. And here, we have our competent promise fulfilled every time we gave it. So it would be on a cost-plus basis this answers the question. It's going to be -- it has to be profitable. It's not to cover our fixed costs. okay? But the profitability level, of course, is much lower than compared with our development business, which, of course, has a certain speculative element because when we buy a piece of land, we usually don't build on it what is already permitted to do that, but to try to squeeze out more of it, try to do intelligent projects on it. And that's a big lever for profitability, whereas on the service developer side, just to give you an idea, we are talking something between 5% and 10% of margin.

Makes sense. Thanks for answering it. I don't have any further questions at this point.

Sure. Well, I then would like to thank you. I hope we haven't been too long in the answers, but we wanted to give you an additional benefit for looking at the full year numbers even despite the fact that we've published preliminary numbers. And thank you for your interest in us. I would now hand back to George. And if he didn't get any last-minute questions, I would like to ask him to wrap up our call. Thank you.

Thank you.