S Immo AG

VSE:SPI

Earnings Call Transcript 2022-Q1

[Operator]

Good afternoon, ladies and gentlemen, and welcome to the S IMMO AG conference call regarding the first quarter results 2022. [Operator Instructions]

Let me now turn the floor over to your host, Dr. Bruno Ettenauer.

[Bruno Ettenauer, executive]

Good afternoon, everybody, and welcome to the S IMMO Q1 conference call. The first quarter was influenced by the geopolitical developments, especially Ukraine war, the changed interest rate environment and the voluntary offer towards IMMOFINANZ and the final tendering into the offer of CPI.

That said, let's go to the details of Q1, and start with some highlights. We managed to increase our total revenues up to EUR 57 million compared to EUR 43 million in Q1 2021. Rental income increased up to EUR 35.8 million. Occupancy rate remained rather unchanged. And the gross profit from letting went up to EUR 28.6 million.

Turning to the financials. FFO per share increased from EUR 0.13 to EUR 0.21. EPRA NAV reached EUR 29.31, EUR 0.02 more than the end of last year. NTA went up to EUR 29.11, again, EUR $0.02 more compared to year's end.

In the transaction capital market, we were largely driven, but it take over a bit towards IMMOFINANZ and the final sale of S IMMO shares into the offer. We're able to issue a green bond in January 2022 with EUR 50 million.

Now as already mentioned, the total revenues increased to EUR 57 million, including revenues from hotel operation. The increase in rental income is partly approximately 4.5% like-for-like change. That means we were able to increase the rental income from our stable portfolio, and the remaining difference comes from the properties acquired in 2021. Net revenues from hotel operations were positive in the amount of [ EUR 1.2 million ] compared to a negative [ EUR 1 million ] in the Q1 2021. Management expenses due to higher consulting costs because of the capital market activities in the first quarter. [ Hotel operation ] had no impact. It sounds technical minus 1, but we have to mention that we had no acceleration in Q1.

The positive sign on the financial result is not an error, but again, it was driven by lower interest rates, the positive valuation of our derivatives and of course, EUR 2 million special effect from the sale of S IMMO shares. The tax expense, plus EUR 2 million, decreased by deferred taxes as a consequence of a lower corporate tax rate in the future.

Let's continue with Slide 7, showing a simplified balance sheet, which is slightly higher property value and a slightly higher balance sheet compared to year-end. Our owned-operated properties stands at EUR 180,930,000. But I have to mention the fair value is EUR 238.5 million. The position, other financial assets decreased significantly due to the sale of S IMMO shares and the sale of the IMMOFINANZ shares in Q1. The corresponding position and the balance sheet is cash and cash equivalents, which went up to EUR 778 million, and it's the other proceeds from the sale of the IMMOFINANZ shares in Q1 and the proceeds from the green bond in January 2022.

In terms of the position on the deferred tax liabilities, it decreased from EUR 253 million to EUR 236 million due to a lower corporate tax rate, which I mentioned already.

Let's now go to the FFO I, which we posted on Slide 8. And you see the development starting with EUR 9.5 million on year end -- Q1, sorry, in 2021. Adding rental income coming from transactions of acquired properties in 2021. Then the rent -- like-for-like comparison of the rent on sustaining portfolio, and then positive also the hotel GOP of EUR 2,550,000 which led to FFO 1 in Q1 of EUR 13,518,000.

The same picture of the NAV development on Slide 9, showing the development of the NAV. Again, we started with the book value equity at the first of 2022, with EUR 1.662 billion. Then we added the gross profit of EUR 29 million, and the valuation of financial instruments in the P&L as well as other comprehensive income of roughly EUR 40 million, and lower interest rates paid in -- compared to the years before, which led in total NAV of EUR 1.709 billion. In terms of our debt profile, nothing changed significantly. We have no major repayments in the coming 2 years, and no other risk foreseeable. Again, we have to mention even in 2024, we have some balloons. We were able to prolong them in the past, and so we meet a very stable environment in terms of maturity profile. The April LTV went down consequently due to the large cash position, and now stands at 30.8%. We follow a strict hedging policy in terms of our debt. That means nearly 100% of all our outstanding debt as well as outstanding funds are either fixed rate or hedged by derivatives. In terms of the average cost of funding, there is no major change. It's all in together with our hedging cost is 2.10%, which is well in the same -- at year end. And so again, we're a stable debt profile.

And let's continue with Page 11. Page 11 shows, again, the development of share price in the last 6 months, which is a very stable one, and shows an increase over the last 6 months of close to 15%. In terms of the share structure, nothing changed yet. There is a 42% shareholder of CPI Property Group, including 26% indirect shareholding via IMMOFINANZ. And second largest shareholder is EUROVEA with 5.2% together roughly 50%.

In terms of coverage, I mean, you see that some of the coverage was done before the Ukraine war started, and some were done afterwards. But I think it's somewhere between EUR 23.9 and EUR 28, not including changes via a changed interest environment.

Now let's go to the next topic, which is the company's strategy and business model, which is presented by Friedrich Wachernig. Friedrich, it's yours.

[Friedrich Wachernig, executive]

Warm welcome also from my side. Thank you, Bruno, for giving a detailed update on the financials. Let me now guide you quickly through our company strategy, and give you some key figures regarding our portfolio and our current project developments.

Starting on Slide 13. I think we can agree that our business model has proven its benefits over the last quarters, and is continuing to do so as we face a new set of challenges. Therefore, let me be very clear about something. We do not plan to change this strategy, especially regarding our markets. The diversification and the combination of markets in CEE, Austria and Germany has proven to be the right strategy for S IMMO. And we will keep the balance between Eastern and Western Europe, stable within our portfolio.

We manage long-term portfolio and strive for when you generating assets. We reduced risks and enhanced chances by investing in different regions and types of use. In doing so, we can rely on great in-house expertise and experience, and a deep market knowledge. All this results in a high quality portfolio, a stable cash flow, stable credit rating and last but not least, consistent dividend payments.

But now let's go into more detail regarding our portfolio. On the next slide, you can see our diversified and balanced portfolio. Our total book value of more than EUR 2.8 billion is composed of roughly 32% residential, 44% office, 14% retail, 7% hotels and nearly 3% land bank. The main focus of all our asset management activity is to generate a strong cash flow throughout our portfolio.

You can see that roughly 2/3 of our portfolio is located in Germany and Austria, generating total revenues of about EUR 27.9 million in the first quarter of 2022. 1/3 of our portfolio is in the CEE region, and sums up to revenues of roughly EUR 29.1 million as of 31 March 2022. The properties in CEE generate more cash flow, whereas the portfolio in Germany is the biggest driver of the revaluation result. Throughout the whole German portfolio, we have seen a total of 330 million revaluation gains over the last 3 years. At the moment, we think about realizing some of these scales by selling properties in Germany. And if we decide to do so, we will reinvest the incoming profit on the Austrian market. This is because the Austrian real estate market is currently quite attractive, and also as I've stressed before, because we want to keep the balance between CEE and Western Europe.

On Slide 17, you can see the portfolio broken down by asset type and region. Obviously, office makes up the greatest part of our portfolio within almost half of the lettable area, and more than 44% of the total book value of our properties. Holders on the other side only make up for 7% of our total book value.

There's a considerable variety in rental yields regarding the different types of use. So you can see retail delivers a yield of 7.5%, office of 6%. And residential is typically very well below that, coming in at 3.3%. In the pie charts below, you can also take a closer look at the various asset types broken down by region.

So much on our outstanding portfolio, let me now hand over to Herwig, who will give you an update on our latest acquisition, Bucharest.

[Herwig Teufelsdorfer, executive]

Friedrich, thank you very much. Good afternoon, ladies and gentlemen. I'm very happy that we are able to announce that we've been signing contracts regarding the acquisition of Expo Business Park at Bucharest, 2019 built offices in 3 buildings, in total, 41,500 square meters and an annual rental income slightly below EUR 8 million per year, and an occupancy rate of 96%.

We are very confident that we are able to close this deal within a reasonable time. This acquisition will show another high-quality office. It is qualified as BREEAM Outstanding as well as WELL Health & Safety certification, very well publicly connected and in top location of Bucharest.

If we move further on to sustainability, ESG reporting and ESG ratings. So the organizational anchoring of ESG in staff unit, Executive Board and Supervisory Board already has taken place. First time reporting according to the GRI standards Core option is already done within the 2021 annual report. And we -- a first-time application of the EU taxonomy within our report also consideration of the TCFD recommendations concerning climate risk management as well as the greenhouse gas protocol. We are not able to deliver new ratings at the moment. We are in this process and are quite confident that we are able to deliver new and better figures in this regard by the second quarter.

If we move further on to Slide 22, you see the list of our green buildings and certifications. It's slightly above 20% of our whole portfolio measured by usable areas. And with the Expo Business Park, we are very confident to line this up within a reasonable time.

Coming to Slide 23. Bruno already mentioned before, there was another green bond after the first green bond last year with a volume of EUR 50 million and interest rate of 1.25% per annum, term of 5 years, which we have done. So the total amount of green bonds issued by S IMMO is in total EUR 200 million at the time.

That's it so far from my side. Thank you very much for your attention, and we are looking forward to receiving your questions.

[Operator]

[Operator Instructions] And the first question comes from Stefan Scharff from SRC Research.

[Stefan Scharff, analyst]

Stefan here from SRC. I have 2 questions. The first question is, you have a very good results in terms of EBITDA, plus 30%. And also FFO, which was more than 50% plus. But now looking for the next quarters, there will be no dividend inflow from CA IMMO and IMMOFINANZ. This is about EUR 17.5 million net inflow. So what can you also do? Or what is your acquisition policy for the coming quarters? We have now seen Campus and also BudaPart Gate during the last year, helping to bring up the top line. And what else is in your -- is in your thoughts to expand the portfolio? And will this also help to close the gap, which comes from the missing dividend inflows?

[Herwig Teufelsdorfer, executive]

Thank you for your question, Stefan. We are already in negotiations regarding further acquisitions here in Austria. We're also having a look at the German market. And we are quite confident that we will be in the position to, let's say, come up to the 2 positions, which we've been losing due to the sell-off of our shares of CA IMMO as well as IMMOFINANZ.

[Bruno Ettenauer, executive]

Maybe I can add something. I mean you have seen that our revenues from hotel operation grew significantly, and we believe that this will continue, that we have -- will have a far better result compared to 2021. We will not, let's say, reach the results of 2019, before the crisis, but we intend to become close. In terms of occupancy, we are close to that in terms of [ costs not ]. But overall, we are quite confident that we will have a much higher result in terms of revenues from hotel operations, and that will also be a good contributor for the FFO 1.

[Stefan Scharff, analyst]

Okay. That means you could imagine to buy in Germany, but also in CEE countries as you have done in the past?

[Bruno Ettenauer, executive]

Definitely, yes.

[Stefan Scharff, analyst]

Okay. And what is your general opinion about the interest rate environment? And what means this for your financing side? Your financing side, your net financial result was plus this quarter, but I think in other quarters, the financing expenses will outweigh the interest derivatives income coming from the hedges.

[Bruno Ettenauer, executive]

Yes. Frankly speaking, we don't know about that. We have built up a hedging policy in terms of the existing ones. So we are not immediately touched by changing interest rate in terms of the existing ones. We also bought some EUR 200 million [ forward ] in terms to be prepared for interest in the future. So from that point of view, and [ I'm with you ], we benefit of the existing hedges as well in the OCI as well in the P&L. But we're also prepared for the oncoming changes with a hedging strategy of EUR 200 million, additionally.

[Operator]

[Operator Instructions]

And the next question comes from Oliver Simkovic from RBI.

[Oliver Simkovic, analyst]

You mentioned that you're considering sale of some properties in Germany. Could you quantify the volume of what you're looking at here, and what locations this mostly relates to?

[Bruno Ettenauer, executive]

Yes. We are concentrating, of course, on residential properties, which are not that centrally located. We are not talking about building yet. We are talking about multiple [indiscernible] everywhere else. But this depends that we think that sometimes it makes sense to monetize valuation gains, let's say, from the past, and bring into cash again. So that is something which is a normal procedure with S IMMO digital in the past, I think, 3 years before they also saw the portfolio. I mean, that is something where we act on market circumstances and will take benefit of valuation gains from the past.

[Oliver Simkovic, analyst]

So there's no fixed portfolio set yet a volume that you would intend to place on disposal?

[Bruno Ettenauer, executive]

I mean it depends on the market, frankly speaking. If we see that the market is quite favorable, then we will increase our sales portfolio. And if we see it's not that -- we are not under pressure. We have a lot of cash on the balance sheet. So we have no hurry to exercise this.

[Oliver Simkovic, analyst]

My second question, I mean, you have a quite significant cash position now. I understand that some of this will get reinvested, and you also plan some additional sales of assets. Would you consider maybe paying off a special dividend eventually if the environment doesn't allow for full reinvestment of this position?

[Bruno Ettenauer, executive]

Frankly speaking, what did in the past and is the policy is that we, let's say, a permanent delivering dividends in the past over a year. And I think the extraordinary dividend doesn't make sense from our point of view, we face a challenging environment, and I think cash is the best, let's say, instrument to face it.

[Operator]

The next question comes from Jakub Caithaml from Wood Company.

[Jakub Caithaml, analyst]

A follow-up on Oliver's question. What would be the -- approximately the investment volume that you would be looking to purchase now kind of excluding potential disposals in Germany because they would probably influence this as well. What will be now kind of the target LTV level given this uncertainty in the market ahead of us?

[Bruno Ettenauer, executive]

I mean what we also take advantage of the current situation that we expect that we can have access to properties which we normally have no access, that is key. Therefore, we are not, as mentioned in the hurry to be and to act immediately. I think we have -- easily can use EUR 500 million from our cash for investments, and are not changing our CEE not that dramatically afterwards. So that is something which also fits to the company that you want to tenant and what the opportunities arise in the future.

[Jakub Caithaml, analyst]

Great. Maybe on the offer, can you indicate roughly increase, the voting right cap gets removed on the coming AGM. What is the indicative time line of the kind of further steps?

[Bruno Ettenauer, executive]

I mean, basically, we cannot put any speculation about the result of, let's say, if it's except not accepted to lift the voting cap. But if they do so, we expect -- we need, let's say, antitrust, let's say, [indiscernible] CPI not trust approval in the various countries where we are active in. And we don't know, but let's say, end of June, [indiscernible] then there is a normal take procedure, which includes offer period and of course, includes also [indiscernible]. And so I think we'll see the outcome -- the final outcome if it's positive. I mean, the voting cap is abolished, then I think will last until the end of November, I would say, this year.

[Jakub Caithaml, analyst]

Great. Understood. And then lastly, coming back to the markets. I mean would you say that you are -- or are they seeing some impact of the changing interest rate outlook, and maybe the more difficult macro outlook ahead in the pricing of real estate or availability? I mean are certain deals which were difficult to get access to maybe coming to the market? Are you already seeing in case you are speaking with banks, some changes in the cost of financing? I mean I understand that the swaps have gotten more expensive now. So maybe another leg or another way to view this, I mean, for parties which would rely on bank financing for acquisitions, which may not necessarily for supply for S IMMO has their cost of funding already changed? And are you maybe also from your discussions with the appraisers seeing some effect this may be having on the market yields already?

[Bruno Ettenauer, executive]

I mean, frankly speaking, until now, there is not that major change seen in the market. But of course, we will see it. That's -- I think that's pretty clear. I mean in terms of -- we have a plus 100 basis points in the interest 10 years maturity. And therefore, I think we will see it also in the midterm, long-term financing. Banks, frankly speaking, depends heavily on the quality of the finance, I think as long as we can offer, kind of, let's say, high-quality properties, I think we have good access to bank financing, and therefore, we are not -- and as you mentioned already, we are not going for a higher -- high LTV. So the leverage should be somewhere about 40%, 50%, so that we have also, let's say -- and therefore, I think knowing that, I think we will have good access to acquisitions, maybe others not, that is helpful for us.

[Operator]

There are no further questions.

[Bruno Ettenauer, executive]

If there are no further questions then I would like to thank you for participating in today's call. Our next call will take place by the end of August when we will present the results for the first half of 2022. Until then, I hope you will be able to enjoy a relaxed and safe summer. All the best. And bye-bye from Vienna.