– Group net loss for the year at EUR -2.9 million, individual financial statements at EUR -1.9 million.
– Separate financial statements significantly impacted by non-cash extraordinary write-down at a property company
– High equity ratio and low loan-to-value demonstrate financial stability
– Stable development of rental income in existing portfolio
– Net asset value (NAV) at EUR 1.66 per share as of December 31, 2022
– Portfolio of existing properties continues to show very stable value overall, with market values significantly above book values for the most part
– Positive overall assessment of business performance and economic situation
The annual report of InCity Immobilien AG (“InCity AG”) published today shows a net loss (HGB) of EUR 2.9 million for fiscal year 2022 at the Group level; at the individual financial statement level, the net loss amounted to EUR 1.9 million. Thus, the final results correspond to the preliminary figures published on March 28, 2023. The decline in earnings compared to the previous fiscal year (2021: EUR 1.0 million in the consolidated financial statements and EUR 2.1 million in the single-entity financial statements) is mainly due to one-off effects, as a significant positive effect on earnings was incurred in the previous year (mainly the sale of the portfolio property “Werftstraße 3” by way of a share deal). In addition, the separate financial statements of InCity AG for 2022 reflect a non-cash extraordinary write-down of around EUR 1.8 million on the “Stiftstraße 18/20” portfolio property in Frankfurt am Main held by InCity subsidiary IC Objekt8 Frankfurt GmbH due to an existing profit transfer agreement with this company.
“At the Group level, the result was in line with our planning, but the result of the separate financial statements – taking into account further one-off effects that significantly cancel each other out – was below the forecast, in particular as a result of the extraordinary non-cash write-down on the portfolio property of IC Objekt8 Frankfurt GmbH (“Stiftstrasse 18/20″). With the exception of this property, however, the market values of all of InCity’s other portfolio properties continue to be above their HGB carrying amounts – for the most part significantly so – although it is essentially the changes in capitalization interest rates that have led to a reduction in the market values of portfolio properties for the first time in several years. The latter was to be expected in view of the general market trend, and the continuing high level of hidden reserves in our existing portfolio is an indicator of the quality of our real estate, particularly against this background, as is the stable development of income from the rental of our portfolio properties,” says CFO Helge H. Hehl.
As of the balance sheet date on December 31, 2022, the InCity Group’s portfolio of existing properties comprised a total of seven properties, including five residential and commercial buildings and two office properties in Berlin and Frankfurt am Main. Thus, the number of portfolio properties held by InCity remained constant in fiscal year 2022. The HGB carrying amount of the existing portfolio amounted to around EUR 149 million as of December 31, 2022 (December 31, 2021: around EUR 152 million); the decrease is explained by the regular depreciation to be taken annually under HGB as well as the extraordinary non-cash write-down on an existing property mentioned above. There were no disposals of or additions to portfolio properties in the past financial year.
In total, the Group generated revenues of around EUR 7.7 million in fiscal year 2022 (previous year: around EUR 7.5 million), the vast majority of which came from income from the rental of portfolio properties. This amounted to around EUR 6.9 million, compared with around EUR 6.7 million in the previous year.
In addition to the active management of its portfolio of existing properties, the InCity Group continued its own project development activities, for which IC Bau GmbH was newly established as a wholly owned subsidiary of InCity AG in 2021, as planned in the reporting year. The focus of project development activities continues to be the realization of a new office property to be built in Schönefeld in the immediate vicinity of the capital city airport BER, for which IC Bau GmbH was mandated by a third party as general contractor in July 2021. In addition, InCity 2022 has been mandated at Group level under the asset advisory and related services agreement concluded at the end of 2016 by a subsidiary of InCity AG with the Luxembourg company Aereo Gate Properties S.A. (formerly: Lilienthalpark-Flughafen Berlin Fund SCS).
The EBITDA of the InCity Group amounted to around EUR 2.6 million in fiscal year 2022. The decrease compared to the previous year’s figure of around EUR 5.5 million is mainly explained by the fact that in the previous year a positive contribution to earnings (EUR 3.6 million, including deconsolidation effect) was generated from the sale of 100 % of the shares in the property company holding the portfolio property “Werftstraße 3” in Berlin, which was not offset by another contribution to earnings from the sale of a portfolio property in the reporting year. This effect was partially, but not fully, offset by additional operating income from the portfolio properties (EUR +0.5 million), lower non-recurring and special effects in other operating expenses (EUR +0.1 million) and income relating to other periods (EUR 0.1 million). In addition to the year-on-year decline in EBITDA, the main reason for the decrease in consolidated net income was the unscheduled, non-cash write-down of around EUR 1.8 million on the “Stiftstrasse 18/20” portfolio property in Frankfurt am Main, which became necessary in the reporting year due to the market valuation by an external third party as of the reporting date of December 31, 2022. This negative effect on earnings below the operating result (EBITDA) was partially offset by the fact that there were no write-downs on financial assets in the reporting year (previous year: EUR 0.6 million) and lower interest expenses compared with the previous year, netted against interest income (total: EUR 0.2 million).
Despite the increasing challenges posed by the market environment characterized by rising inflation, higher interest rates and economic upheavals resulting from the war in Ukraine, the InCity Group’s existing portfolio continued to prove resilient in 2022 and generated stable income. The very good occupancy situation was maintained in almost all portfolio properties, and the payment rate remained close to 100%. A slight temporary increase in the vacancy rate compared with the previous year resulted primarily from the expected expiry of a lease with an existing tenant in the “Stiftstraße 18/20” property in Frankfurt at the end of July 2022. In the case of the penthouse and residential units in the “Jägerstraße 34/35” properties in Berlin that are still to be developed and the three apartments at “Leipziger Platz 8” that are currently being converted, InCity AG is aiming to complete some of these residential units in mid-2023 and the other units in 2024.
Continued high equity ratio and low LTV demonstrate financial solidity
The equity ratio of InCity Immobilien AG was 89.6% at the balance sheet date of December 31, 2022 (December 31, 2021: 91.3%). In the Group, the equity ratio was 45.9% as of the balance sheet date (December 31, 2021: 50.1%) and thus remained at a high level. The decrease in the equity ratio in the Group compared with the previous year is mainly due to the consolidated net loss for the year generated in the reporting year in connection with the balance sheet extension due to the progress of construction work on the new office property to be built in Schönefeld.
The LTV (loan-to-value) ratio was 29.7% as of December 31, 2022 (December 31, 2021: 27.8%) and thus remains at a low level compared with the industry as a whole. The LTV compares the Group’s net financial liabilities at the balance sheet date with the market values of the properties.
Hidden reserves remain at a high level
The intrinsic value (“net asset value”, or “NAV” for short) of the InCity AG share was EUR 1.66 per share as of December 31, 2022 (December 31, 2021: EUR 1.88 per share). The reduction in the NAV reflects in particular the development of the market value of the existing real estate portfolio. In the context of the valuation carried out by an external third party as of December 31, 2022, this was determined to be EUR 207.0 million (December 31, 2022: EUR 227.2 million). This decrease is mainly due to an increase in the capitalization rates used (or the decrease in the multipliers used on the achievable market rents of the portfolio properties). Only in the case of “Stiftstrasse 18/20” in Frankfurt am Main was it necessary to recognize an extraordinary non-cash write-down in the HGB accounts – as already described above – because the current market value determined here is lower than the HGB carrying amount (amortized cost: acquisition cost less scheduled regular depreciation in accordance with the useful life). For the six other portfolio properties, the market values determined as of the reporting date continue to be above amortized cost – for the most part significantly so.
With regard to the Group’s HGB earnings, it should also be noted that scheduled depreciation reduces earnings. The difference between the fair value and the carrying amount – the so-called hidden reserves – amount to approximately EUR 58.3 million (December 31, 2021: around EUR 75.0 million). Despite the reduction in market values as of the balance sheet date, the market values are therefore around 39% higher than the HGB carrying amounts.
