IVG posts record profit in 2007

2007 was a successful year for IVG Immobilien AG. “We are very pleased with the consolidated net profit we generated, and we reached our strategic goals largely. The realignment of our company – in particular the positioning of our divisions as profit centres – will lead to substantial synergies and efficiency gains in future. Thus we created a stable platform for future development”, said Wolfhard Leichnitz, CEO of IVG Immobilien AG, when he presented IVG’s performance of the past financial year today in Bonn.

IVG’s key financials reflect the company’s successful performance last year. The Group’s consolidated net profit increased by 162 per cent, from 115.1 million euros in 2006 to 301.0 million euros in 2007, and IVG more than doubled its EBIT to 475.6 million euros, relative to 222.9 million euros in the previous year. The net asset value (NAV) increased by more than 23 per cent to 29.03 euros per share (2006: 23.56 euros). Earnings per share amounted to 2.34 euros, which was an increase of 163 per cent relative to the earnings generated in the previous year (0.89 euros). Against the background of this performance, the Board of Management and the Supervisory Board will propose to the Annual General Meeting another increase in the dividend to 70 cents per share, which will be 40 per cent higher than the dividend distributed in the previous year (50 cents per share).

The Performance of IVG’s Four Divisions

All four divisions contributed to IVG’s good overall performance last year. In the past fiancial year, the operational performance of the division IVG Investment was characterised by substantial portfolio growth (plus 94 per cent), reaching a market value of 5 billion euros (2006: 2.6 billion euros). The share of German properties increased considerably as planned and at year end 2007 amounted to 69 per cent (2006: 40 per cent).

The division’s EBIT increased by 5.7 per cent to 244.8 million euros (2006: 231.5 million euros). This was due not only to value adjustments – both realised and unrealised – and higher rental income as a result of the substantial portfolio growth, but also higher rents and the reduction of vacancies.

Finally, one of the division’s milestones was also the preparation of the ground for the planned REIT. In 2008, all German office properties of IVG Investment that fit the strategy will be concentrated in the IVG Office REIT, which will have a volume of 3.5 billion euros. The IVG subsidiary was already granted pre-REIT status in August 2007. The preparations for the REIT are on schedule. IVG plans to place at least 25 per cent of the share in the stock market. However, IVG is not under any time pressure; the question as to when the shares will be floated will depend on the development of the capital market environment.

IVG Funds can look back over a successful year, both in terms of its range of closed-end funds for private investors and in terms of its range of property funds for institutional customers. In the private investors segment, the placement of equity increased by 70 per cent to 427 million euros. Two factors contributed to this positive development: the EuroSelect 14 The Gherkin fund and IVG’s first fund of funds – the EuroSelect Balanced Portfolio UK, both of which were successfully issued and placed. In the institutional investors segment, IVG was entrusted with significantly more transactions, the volume increased to more than 2 billion euros. IVG Funds increased its EBIT by 87 per cent to 81.0 million euros (2006: 43.4 million euros).

IVG Development was repositioned as a separate division during the past fiancial year. This division is responsible for IVG’s project development business in defined target markets in Germany, Western Europe and CEE. IVG Development’s ambitious market approach is primarily reflected in the expansion of the project pipeline by 83 per cent to 2.5 billion euros (2006: 1.4 billion euros). Last year, IVG Development sold a total of eight properties and initiated 20 new projects. The division’s EBIT increased from 17.1 million euros in 2006 to 80.5 million euros in 2007.

The IVG Caverns division builds and rents out underground storage facilities for oil and gas (caverns). In the past financial year, IVG Caverns operated for the first time as a separate division. IVG Caverns also achieved a significant and successful expansion of its business operations. In 2007, the division concluded 21 new tenancy agreements for caverns. In addition, IVG Caverns obtained the rights to build 25 additional caverns. Its EBIT increased from 26.8 million euros in 2006 to 124.0 million euros in fiscal 2007. This was primarily due to revaluation gains resulting from the fact that six converted caverns went into operation for E.ON Ruhrgas.

Since the capital market does not give adequate credit for the value of the caverns business in the IVG share price, IVG has initiated a sales process to examine the option of a partial or full exit. Another alternative will be to transfer the developed caverns to a fund. An investment bank has already been mandated. Interested investors will soon be approached. IVG expects the process to be finished in the second half of the year.

Value-based Management

In the past financial year, IVG fully revised the Group’s own value-based management. To this end, IVG developed and implemented a specific value-based management concept for each of its divisions. The key parameter for measuring the value contribution of each division is the return on invested capital (ROIC). If there is positive difference between the ROIC and the expected weighted average cost of capital (WACC), the enterprise value will increase. Bernd Kottmann, Deputy Chairman of the Board of Management, explained this step as follows: “A consistent focus on value-based management helps to achieve two goals: first of all, it significantly strengthens the company’s value creation capacity; and secondly, it further increases the company’s transparency for the capital market.” Last year, IVG generated a ROIC of 8.5 per cent; in all of IVG’s divisions, the ROIC was higher than the cost of capital:

Value Indicators for the Group and its Divisions

	WACC (before taxes) in %	ROIC (before taxes) in %	Value contribution in millions of euros
Group	6,5	8,5	120,6
IVG Investment	6,0	6,7	25,9
IVG Funds	7,5	11,8	26,2
IVG Development	10,0	13,2	21,6
IVG Caverns	5,5	19,7	89,3

Outlook
IVG Immobilien AG is well prepared for the future. “Last year, we made major efforts to develop our strategy and to realign our company. We are now well positioned. Our goal for the current financial year is to increase our operational performance”, said Wolfhard Leichnitz as he described IVG’s future course. The objective is to make systematic use of potential synergies between the various divisions and to continue to increase the overall company’s efficiency by optimising processes.

The turbulences that have occurred in the financial and capital markets have significant, direct and indirect effects on the real estate sector. This also affects IVG’s business performance: In fact, IVG Investment will considerably benefit from the expected rent increases of the properties added to the portfolio. However, in view of the market environment, IVG does not expect any contributions from value adjustments, either realised or unrealised. The EBIT generated by the IVG Funds division will be at the level of the previous year. The IVG Development division is also expected to show a positive performance and the EBIT to be at least at the level of the previous year.

Regarding the expected consolidated net profit, Wolfhard Leichnitz explains: ”The capital markets are in a deep crisis, which will have a considererable impact on our industry. A reliable quantitative forecast for 2008 is therefore not possible. Since we do not assume that we achive any increase in value from our investment portfolio in 2008, we expect a much lower consolidated net profit in 2008 than in the previous year. This outlook does not reflect potential effects on our profit from a monetisation of our caverns business.”

Overview of Key Financials in 2007

	2007 in millions of euros	2006 in millions of euros	Changes in %
Revenues	532,4	446,2	19,3
Total income	1.187,5	663,8	78,9
EBIT	475,6	222,9	113,4
Consolidated net profit	301,0	115,1	161,5
Earnings per share (in euros)	2,34	0,89	162,9
Dividend per share (in euros)	0,70*	0,50	40,0

* proposed

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* IVG_BPK Presentation.pdf

IVG Immobilien AG

IVG Immobilien AG is one of Europe’s major real estate investment companies and manages real estate assets worth above € 20 billion in its four divisions IVG Investment, IVG Funds, IVG Development and IVG Caverns. The company’s investment focus is on office properties at selected top European locations. IVG uses its network of local branches to seize local market opportunities and generate attractive returns for its investors.

source : IVG