With a Consolidated Loss of EUR 2.9 M ACC. to HGB, Incity’s on Target for 2022 – Continued High Hidden Reserves in the Portfolio

• Net loss for the year of EUR -2.9 m for the Group and of EUR -1.9 m for the single-entity financial statements
• Single-entity financial statements mainly characterised by non-liquidity-related extraordinary depreciation at a property company
• High equity ratio and low loan-to-value prove financial stability
• Stable development of rental income in the property portfolio
• Net asset value (NAV) of EUR 1.66 per share as at 31 December 2022
• Property portfolio continues to have great value stability overall with a vast majority of market values significantly above carrying amounts
• Positive overall assessment of business development and the economic situation

The annual report of InCity Immobilien AG (“InCity AG”) published today reports a net loss (acc. to HGB) of EUR 2.9 m at Group level and a net loss of EUR 1.9 m at single-entity annual financial statement level for fiscal year 2022. The final results thus correspond to the preliminary figures published on 28 March 2023. The decrease compared to the results of the prior fiscal year (2021: EUR 1.0 m at Group and EUR 2.1 m at single-entity annual financial statement level) results in particular from one-off effects in the prior year with a significant positive profit contribution (mainly the sale of the portfolio property at “Werftstrasse 3” by way of a share deal). In addition, InCity AG’s single-entity annual financial statements for 2022 are also characterised, due to an existing profit transfer agreement with the InCity subsidiary IC Objekt8 Frankfurt GmbH , by a non-liquidity-related extraordinary depreciation of the portfolio property held by the latter company located at “Stiftstrasse 18/20” in Frankfurt am Main in the amount of approximately EUR 1.8 m.

“At Group level, the result was in line with our planning; by contrast, the result of the single-entity annual financial statements – taking into account further relevant mutually  offsetting one-off effects – fell below the forecast figure, mainly due to the extraordinary non-liquidity-related depreciation of the portfolio property held by IC Objekt8 Frankfurt GmbH (“Stiftstrasse 18/20”). However, with the exception of this property, the market values of all other portfolio properties of InCity remain – for the greater part significantly – above their HGB carrying amounts, although the changes in capitalisation interest rates have, for the first time in several years, led to a decrease in market values for the portfolio properties. The latter was to be expected based on the general market development, and particularly in view of the above, the hidden reserves of our property portfolio, which continue to be high, are an indicator of the quality of our properties, as is the stable development of the income from the rental of portfolio properties”, says CFO Helge H. Hehl.

As of the balance sheet date on 31 December 2022, the InCity Group’s property portfolio comprised seven properties in total, five residential and commercial buildings and two office properties in Berlin and Frankfurt am Main. The number of portfolio properties held by InCity thus remained constant in fiscal year 2022. As of 31 December 2022, the HGB carrying amount of the property portfolio amounted to approximately EUR 149 m (31 December 2021: around EUR 152 m); the decrease can be explained by the standard annual amortisations and depreciations to be carried out according to HGB as well as the above-mentioned extraordinary non-liquidity-related depreciation of a portfolio property; neither additions nor disposals were recorded in the past fiscal year.

In total, the Group generated sales revenue of approximately EUR 7.7 m in fiscal year 2022 (prior year: around EUR 7.5 m), the greater part of which by far resulted from rental income from portfolio properties. These amounted to approximately EUR 6.9 m after around EUR 6.7 m in the prior year.

In addition to the active management of its property portfolio, the InCity Group continued its own project development activities, which it had resumed and for which IC Bau GmbH was founded as a wholly-owned subsidiary of InCity AG in 2021, according to schedule in the reporting year. The focus of the project development activities continues to be on realising the construction of a new office property in Schönefeld, in the immediate vicinity of the capital city’s  BER airport, for which purpose IC Bau GmbH was mandated as a general contractor by a third party in July of 2021. In addition, as part of an asset advisory agreement concluded at the end of 2016 between an InCity AG subsidiary and the Luxembourg company Aereo Gate Properties S.A. (formerly: Lilienthalpark-Flughafen Berlin Fund SCS) and the related activities, InCity generated sales revenue at Group level of approximately EUR 0.8 m in 2022, the same as in the prior year.

The InCity’s Group EBITDA was approximately EUR 2.6 m in fiscal year 2022. The decline compared to the prior-year value of around EUR 5.5 m is largely explained by a positive profit contribution generated in the prior year (EUR 3.6 m including final consolidation effect) from the sale of 100% of the shares in the property company holding the portfolio property at “Werftstrasse 3” in Berlin, which was not accompanied by a new profit contribution from the sale of a portfolio property in the reporting year. This effect was partially but not wholly offset by operating surplus of the portfolio properties (EUR +0.5 m), lower one-off and special effects in other operating expenses (EUR +0.1 m) and income relating to other periods (EUR 0.1 m). In addition to the reduced EBITDA compared to the prior year, the decrease in consolidated earnings was mainly due to the unscheduled non-liquidity-related depreciation on the portfolio property at “Stiftstrasse 18/20” in Frankfurt am Main in the amount of approximately EUR 1.8 m, which became necessary in the reporting year because of the market valuation by an external third party as of the cut-off date on 31 December 2022. This negative effect on earnings below the operating result (EBITDA) was partially offset by the fact that there was no amortisation of financial assets in the reporting year (prior year: EUR 0.6 m) and by lower interest expenses compared to the prior year balanced against interest income (total: EUR 0.2 m).

Despite the increasing challenges due to a market environment characterised by rising inflation, higher interest and economic upheaval as a consequence of the war in Ukraine, the property portfolio of the InCity Group continued to prove its resilience in 2022 and generated stable revenue. The very good letting situation in nearly all the portfolio properties was therefore maintained, and the rate of payment was unchanged at approximately 100%. A slight, temporary increase in vacancies compared to the prior year primarily resulted from the expected expiry of a lease agreement with an existing tenant in the property located at  “Stiftstrasse 18/20” in Frankfurt at the end of July 2022. Regarding the penthouse and residential units still to be expanded in the Berlin property “Jägerstrasse 34/35” as well as the three flats currently being renovated at “Leipziger Platz 8”, InCity AG aims to complete some of these residential units in mid-2023 and the remainder by the end of 2024.

Continuously high equity ratio and low LTV prove financial stability

InCity Immobilien AG’s equity ratio was 89.6% as of the balance sheet date on 31 December 2022 (31 December 2021: 91.3%). The Group’s equity ratio was approximately 45.9% as of the balance sheet date (31 December 2021: 50.1%) and thus remained at a high level. The decrease of the Group’s equity ratio compared to the prior year is mainly due to the consolidated net loss generated in the reporting year in connection with the increase of total assets as a result of the progress in construction of the new office property in Schönefeld. The LTV (loan-to-value) was 29.7% as at 31 December 2022 (31 December 2021: 27.8%) and thus continues to be at a low level in an industry comparison. The LTV compares the net financial liabilities of the Group on the balance sheet date with the market values of the properties.

Hidden reserves remain at a high level

The net asset value (NAV) of InCity AG’s shares was EUR 1.66 per share as of 31 December 2022 (31 December 2021: EUR 1.88 per share). The decrease of the NAV reflects the development of the market value of the property portfolio in particular. As part of a valuation performed by an external third party as of 31 December 2022, the market value was determined to be EUR 207.0 m (31 December 2022: EUR 227.2 m). This decrease mainly relates to an increase in the capitalisation interest rates used (or the decrease of the multipliers used on the achievable market rents for the portfolio properties). For “Stiftstrasse 18/20” in Frankfurt am Main alone, an extraordinary and non-liquidity-related depreciation – as described above – became necessary for HGB accounting, as the currently determined market value is below the HGB carrying amount in this case (at amortised cost: acquisition costs reduced by the standard amortisation according to the expected useful life). For the six other  portfolio properties, the market values determined as of the cut-off date remain – the greater part significantly – above the acquisition costs at amortised cost.

With regard to the HGB result of the Group, it should also be noted that scheduled depreciation and amortisation reduce the result. The difference between the market value and the carrying amount – known as hidden reserves – amounts to approximately EUR 58.3 m as at 31 December 2022 (31 December 2021: approx. EUR 75.0 m).

Despite the decrease in market values as of the balance sheet date, the market values are therefore about 39% higher than the HGB carrying amounts overall.

Positive outlook for fiscal year 2023

With a view to the current fiscal year 2023, the Management Board forecasts a net loss for the year of between EUR -3.8 m and EUR -4.3 m in the InCity consolidated financial statements. This will primarily be due to ordinary HGB depreciation of around EUR 1.9 m on property, plant and equipment, of which in turn around EUR 1.8 m is attributable to the portfolio properties, as well as investments in the portfolio. The latter are expected to amount to between EUR 3.1 m and EUR 3.6 m and will not be capitalised, and instead have a negative effect on results. The vast majority of the planned investments are value-enhancing measures.

The Management Board currently projects a net loss between EUR -0.4 m and EUR -0.9 m for 2023 at single-entity annual financial statement level for InCity AG. It should be considered here that the asset management fees of the portfolio-managing companies of the InCity Group that amounted to around EUR 0.6 m in 2022 will no longer be collected by InCity AG from fiscal year 2023 onwards, but instead by its wholly-owned subsidiary, IC Immobilien Betriebsgesellschaft mbH, and can therefore flow indirectly to InCity AG via profit distributions in future. This planning does not take into account any positive profit contributions that could result from potential acquisitions or sales of portfolio properties.

“Overall, we anticipate that the banks active in real estate financing will continue to pursue cautious financing policy. In view of the unchanged, solid financing structure of the InCity Group and the high quality of the properties in our property portfolio, however, we are looking  forward to the coming months with confidence”, says Michael Freund, CEO of InCity Immobilien AG. “On the one hand, our property portfolio proved to be comparatively resilient in a challenging economic environment in the past – in connection with the COVID-19 pandemic and the war in Ukraine with the respective macroeconomic consequences – , and on the other hand, we see good opportunities to participate in a new economic upswing with our properties as it gains momentum.”