Editorial

The 2008 business year will long be remembered for the impact of the global financial crisis on the real estate sector. Despite this highly challenging set of circumstances, we scored some striking operational successes in 2008, including a rise in rental income and satisfactory levels of new lettings. However, these achievements were counteracted by significant value adjustments to the property portfolio, a development that led to the unfortunate result of clearly negative consolidated net income.

What were the causes of this result? A great deal has been written about the general economic situation, so we will content ourselves with offering a summary of the key factors and their impact on our sector. In the second half of 2008, the drastic distortion on the capital markets produced a clear rise in refinancing costs for banks as risk surcharges on loans hit new highs. As a highly capital-intensive sector, the real estate industry segment was directly and adversely affected by the tightening of loan terms and the higher cost of credit. Restricted access to debt financing was also the main reason behind the sharp fall from the third quarter onwards in the volume of transactions on the property investment market. The decline in the number and volume of real estate transactions across Europe also put severe pressure on property prices. Needless to say, we regard it as our duty to value our properties in line with market realities. Even when real estate prices are falling, this market trend is reflected in our portfolio in the shape of depreciation and revaluation losses.

Focus on strengthening cash flow

As the Management Board of CA Immo, we are not prepared to hide behind the effects of macroeconomic factors and sectoral trends. Instead, we will utilise all possible scope for action in order to ensure CA Immo is positioned as strongly as possible within the challenging environment. In 2009, the clear operational emphasis will be on measures aimed at maintaining and strengthening our operational cash flow as well as the selective implementation of strategically significant development projects. To this end, we are currently introducing a package of proactive initiatives designed to avoid vacancy – in times of deep economic uncertainty in particular, securing rental revenue is priority number one. Accordingly, we also plan to adapt our entire organisation around the new pace of expansion and development and cut our operating costs.

As far as development projects are concerned, the realisation of planned projects is one way to release capital tied up in these ventures, thereby strengthening the capital base of the Group for the long term. However, restrictive conditions on the financing market will necessitate a reduction in development activity on projects of long-term strategic importance. Moreover, we will not be undertaking any purely speculative development projects. We will place security first by maximising pre-letting and agreeing forward sales before construction starts. In our view, the recent sharp drop in building costs also represents an opportunity. On the sales front, recent successes (such as the sale of the ATMOS building in Munich, sold in March 2009 immediately after completion) prove that even in difficult climates such as that which currently prevails, quality and prime locations can produce demand for our properties at acceptable prices.

Uncertain environment persists for CA Immo shares

In view of continuing uncertainty on the capital markets, it is impossible to say when the operational measures we are currently introducing will bring about an upturn in our share price. Last year, our share sustained a fall of around 73 %, a development in line with other property securities in Austria (the I-ATX, the Austrian real estate securities index, slumped by over 82 % over the year). Our share price was recently trading at less than one fifth of its intrinsic value (NAV). In historic terms, this painful trend represents an extreme movement in share prices, not only for us but for the entire listed real estate sector. Most analysts agree that a sustained recovery will only come about when the banking sector – closely aligned to the property sector – regains a measure of stability.

Outlook for 2009

As 2009 began, the banking sector was continuing to issue gloomy reports and macroeconomic forecasts were still pointing to a worsening of the economic downturn. There can be little doubt, therefore, that 2009 will be a difficult year for the property sector and thus for CA Immo. This makes it all the more critical that we consistently implement the measures we have set ourselves, in particular,: the stabilisation of rental income, the reduction in operating costs, the selective realisation of strategically significant development projects and the careful monitoring of risk.

We can achieve all of this on the basis of our fundamentally sound substance: thanks to long-term rental agreements and creditworthy tenants, CA Immo is well placed to count on a secure revenue stream, even in tough times; similarly, existing liquidity and the balanced maturity profile of our financial liabilities provide the robust capitalisation needed to ensure we can cope with a market phase of restrictive financing conditions.

Rest assured that in the future, despite the difficult conditions we are currently experiencing, we will do everything in our power to return the figures that we present to positive territory for the long term. Thereby, revive the attractive picture that reflects the sound foundations of CA Immo.