S Immo AG

VSE:SPI

Earnings Call Transcript 2022-Q2

[Operator]

Good afternoon, ladies and gentlemen, and welcome to the S IMMO AG conference call regarding the half year results 2022. [Operator Instructions] Let me now turn the floor over to your host, Dr. Bruno Ettenauer.

[Bruno Ettenauer, executive]

Thank you. Good afternoon, ladies and gentlemen, and good afternoon, everybody. I welcome you to the S IMMO Half Year's Earnings Call. As you might be aware, the first half year was influenced by geopolitical environment changes, I mean, Ukraine war, a change of interest rates, inflation and unclear outcome of the corona crisis, and additionally, for S IMMO, also the change of the status of the S IMMO lifting, the voting cap and creating the necessity of a mandatory takeover bid by CPI. Seeing that, let me now start with the highlights of the first year's results, and we will add some comments to things have happened afterwards immediately.

First of all, as of Page 4, we managed to increase our total revenues to EUR 119,600,000, which is a plus of almost EUR 30 million. Thereof, EUR 73 million rental income, which is more than 10% compared to last year. Occupancy rate remained largely unchanged on a high level of 94%.

Going to the financials. FFO I per share increased to EUR 0.42 per share, which is an increase of 15% compared to last year. The real estate portfolio increased by 9.6%, close to EUR 3 billion, but still a sufficient cash is available Property valuation based on external valuation in half year showed a positive result of EUR 20.8 million, but of course, it's behind the historical year of 2021.

EPRA NTA has stayed at EUR 29.06, which is largely unchanged and only EUR 0.03 behind. Transactions on the capital markets, I mean, the market was largely driven by the sale of the IMMOFINANZ in the second quarter, but also because of the acquisition of Expo Park and the definitive agreement with CPI, which caused the extraordinary shareholder meeting in June.

Let's go now into more detail in the figures. As already mentioned, the total revenues increased to EUR 119.6 million, including revenues from hotel operations. The increase in rental income is partly approximately 4%, an increase on a like-for-like basis. The remaining difference comes from the property that was acquired in 2021 and 2022.

Net revenues from hotel operations were positive in the amount of EUR 6.2 million, which is a large increase compared to last year. Management expenses grew due to higher consulting costs because of the capital market activities, especially with the negotiation with CPI. Property valuation based on external relation had less impact compared to 2021, but remains still positive.

Financial results still about 0 because of lower interest expenses, a positive evaluation of the derivatives of about EUR 60.6 million. The tax expense decreased by deferred taxes as a consequence of a lower corporate tax rate in the future.

Let's now go to the next slide, continuing with a simplified balance sheet showing a slightly higher property value, the slightly higher balance sheet total. Our self-managed hotel showing normal devaluation and shown at cost, which means that the fair value increased from EUR 238.5 million by EUR 6.6 million to EUR 245.1 million. The position, other financial assets decreased significantly to the sale of single shares and the sale of IMMOFINANZ shares.

The main change happened in the cash position, which increased due to the proceeds from the sale of the IMMOFINANZ shares of EUR 400 million, and the proceeds from the Green Bond minus extraordinary payments of loans in Germany, and the full cash payment for Expo Business Park. Meanwhile, we achieved a bank loan on the loan-to-value of about 50%. The position of issued bonds, noncurrent liabilities decreased because of the change of control class, which was well exercised in the amount of EUR 105 million.

Going to the next slide, which shows a plotted FFO I evolution. I mean, the main driver of the increase, of course, were the income coming from transaction, which is EUR 5.9 million. But as I already mentioned, an increase on a like-for-like basis in the amount of EUR 3.2 million. And the positive GOP hotels should be by EUR 2.9 million. And of course, on the downside, higher financial costs which led to a FFO in the first half year EUR 29.4 million compared to EUR 25.6 million last year period and shows a significant increase in FFO I, and therefore, the ability also to pay dividends in the future.

Let me now make the same exercise with the plotted NAV, starting with EUR 1.6 billion, adding the EBITDA of EUR 48 million and the valuation of derivatives in the amount of EUR 66 million, the property valuation of EUR 20 million and its large minus the dividend paid out in Q2, leading to NAV of EUR 1.7 billion, EUR 117,993,000, which is also a significant increase compared to last year.

I mentioned already the evaluation results and they were quite positive. I mean, we had a very perfect year in 2021. But we are still positive. That means increased interest rates have not damaged our valuation. So we came at the result of plus EUR 20.4 million in total, mostly in Germany, half of that, EUR 11.5 million, but also Austria and CEE.

In terms of asset types, residential was not that dominant as it was in the years before. Office was the best performer with EUR 10.8 million, retail was slightly negative and hotel was 0. I mentioned already that this valuation does not include the owner-operated hotels, which showed an increase of EUR 6.2 million as shown in the other comprehensive income. So all in all, I think a quite positive results, and we are optimistic looking into the second half year.

Now going forward to Page 11, which shows our debt maturity profile, which is still balanced and holds no risk in the foreseeable future. What I have to mention is that this does not include another change of control which could be exercised within the next days in the amount of EUR 96 million, where also it is 2 bonds within the amount of EUR 96 million, as I mentioned, and the coupon of 3.25% risk maturities in 2025 and 2027. 100% of our financial liabilities are hedged, and we have secured another hedging for another round about EUR 200 million with a term of 10 years for further investments in the future.

Looking at the EPRA LTV, it came down due to the significant cash at a low level of 34.4%. In terms of costs, as you might have seen in the slide, it's stable and roughly about 2.10%, and the loans and the bonds without the hedging instruments in place would we have an average cost of 1.5%. So quite stable and still balanced.

Going to the next page, which is a little bit as a historic approach because, as you might know, the shares have changed meanwhile significantly, so the major shareholder, meanwhile, is CPI Group being close to 80% in terms of voting rights, 83%. So this has changed significantly. We are still in the after sale period, so the after sale will expire on the 18th of November. And then we know the final result of the [indiscernible] I think that will change this shared data also to a certain extent.

That's the financial part. Let me now hand over to Herwig. Please continue with our company presentation.

[Herwig Teufelsdorfer, executive]

Thank you, Bruno. Good afternoon, ladies and gentlemen. Business model and strategy unchanged so far, meaning long-term portfolio management combined with value-generating strategy. As we've already seen within the presented figures, focus so far is still Germany Austria and CEE [Audio Gap] strategy with the well-spread maturity profile is also what we have seen within the figures. This should lead at the end in having still a high-quality portfolio with stable cash flows, balanced risk reward ratio as well as dividend payments as we've seen throughout the last month and stable credit rating.

Let's move over to the portfolio. Portfolio still well diversified. If we look on the shares regarding the book values, meaning that we are at a bit above 30% for residential, office part is 44%, retail at 14%, hotels have increased up to 7.1% due to the valuation and the land plots at 2.9% -- sorry, hotels is 6.6%.

We are still generating strong earnings and cash flow throughout our strategy of substantial values in Austria and in Germany, as well as opportunities in CEE countries, meaning that the book values in Germany have increased up to EUR 1.378 billion. Austria almost unchanged. And in CEE, we have also increased semis more or less with the lettable area. As Bruno already mentioned, we acquired the Expo Business Park. And so we were able to increase the lettable area within CEE up to 436,000 square meters coming from 403,000 by the end of '21.

If we break the portfolio down by the type of use. Next, Page #18, we see that everything is more or less unchanged to the end of 2021 and still stable so far.

Acquisitions, so I already mentioned the Expo Business Park, we were able to acquire Expo Business Park, closed the deal in May 2021. And with a rental income of EUR 7.9 million, occupancy rate above 96% and well-known and stable tenants within. It's been an outstanding location over there with 3 buildings.

Going on with sustainability. Let's have a look on ESG reporting, as well as ESG ratings by the 2021 annual report, we did for the first time reporting according to the GRI standards core option, also following the application or applicating the new taxonomy and also having, for the first time, in consideration the task force on climate-related financial disclosure recommendations concerning climate risk management, greenhouse gas protocol, as well as the real estate-related EPRA sustainability indicators, which led at the end of the day to our ESG ratings, meaning that Sustainalytics ESG risk rating has gone down to low risk coming from medium risk. And in average, our ISS ESG quality score is at an average of 2.67, as well as the MSCI ESG rating is an A.

What did we do in addition to this, we had the expansion of our data collection and analysis, introducing digital environment data management system within our group, also implementing a digital whistleblowing system and also updating the aforementioned ESG ratings. Meaning, at the end of the day, that we were able to lift the portion of certified main usable area within our portfolio from 21.4%, up to 24.7%, and increasing this also by more than 44,000 square meters due to acquisition, the aforementioned export in Bucharest, but also doing new certifications within our portfolio, meaning the Buda Center, which was certified in 2022 with BREEAM very good.

Yes, mentioning also the release bonds in the volume of EUR 15 million, senior unsecured at an interest rate of 1.22%. As of 11th of January 2022, additional information is already mentioned by Bruno before.

That's it so far from our side. Thank you very much for your attention, and we are curious to hear your questions and answer them.

[Operator]

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

[Stefan Scharff, analyst]

Good afternoon from Frankfurt. Stefan here. The first question is about your outlook. You mentioned in your half year report that you might assume, might consider to sell some assets in Germany. As you see, the market is on a high level, and there is perhaps not too much potential left and shifted to more yields in other regions. Perhaps you can say a little more concrete how much you might shift from Germany to other regions and which other markets are interesting for you. You acquired in Bucharest, for instance. So perhaps you can also say a little bit about the situation in Romania or in other CEE markets. What do you think about inflation about the economy there and the chances that are offered by the current situation.

[Herwig Teufelsdorfer, executive]

Stefan, thank you very much for your question. Regarding the German portfolio, yes, it's true. We're having a look on the market. We've been very successfully in this market now for the last 15 years. I think, acquiring a very nice portfolio with rising values throughout the last years. We are thinking of disposing parts of this portfolio as we think that other owners could be the right ones after that period of holding within our company.

We will have a look on a portion of, let's say, below EUR 200 million in the next future, having a lot of folks to potential investors and trying to sort out which would be the best portion for us to dispose at the time. In regard of the market situation, I would like to hand over to Bruno.

[Bruno Ettenauer, executive]

Thank you, Herwig. I think what we intend to do is to leverage our presence in the CEE area. That means we are concentrating in areas where we are already active in. And therefore, we are looking at Hungary, we are looking a little bit around. But what we have learned in past, learned in the past, especially was that certain, let's say, the size, gives you additional market access, and therefore, we intend to leverage that. So we are concentrating on these markets, mainly maybe Hungary a little, and mostly, and let's see if it happens around. But this is still our focus right now.

[Stefan Scharff, analyst]

Okay. You mentioned, Herwig, EUR 200 million is might be a size for sales transactions. Is it fair enough to say until end of next year? Or in which time frame, what is realistic here?

[Herwig Teufelsdorfer, executive]

So Stefan, let me clarify. The EUR 200 million is not a portfolio that we are disposing. EUR 200 million is the whole -- is the summed-up disposal at least. We think that throughout 2023, we will be able to find the right investors for these objects, maybe smaller portfolios that we are disposing, but also single objects as well. We are trying to find the right buyers for each of them.

[Stefan Scharff, analyst]

Okay. And looking at your debt side, the recent cancellation of the bondholders for the 2 Green Bonds. All in all, it's more than EUR 100 million, it's EUR 104 million or EUR 105 million, and there might come a bit more now that 2 other bonds where the people, the investors can cancel until 29 September. So that might be up to another EUR 100 million or EUR 96 million. What means this for your strategy on the debt side and your financing strategy? You have a very good cash position far above EUR 500 million, EUR 570 million, but what means this now for your plans on the financing for the next months.

[Bruno Ettenauer, executive]

Stefan I mean, you mentioned roughly, we have EUR 575 million cash at end of half year. Meanwhile, we had a drawdown from a loan facility for the Expo Park, which brought another EUR 60 million roughly. And unfortunately, a repayment of about EUR 100 million for the Green Bond and maybe we have no idea and we want to speculate how much is, let's say, repaid in terms of the bond with EUR 96 million. But I think we have sufficient cash in place, and we do not intend to increase our leverage rate. That is what we keep.

And as mentioned already, we have already secured another EUR 200 million long-term low interest rate that we secured on that side. So I think we have plenty of room to maneuver, and I think it's -- cash will not be the resource where we have problems currently.

[Stefan Scharff, analyst]

Okay. And perhaps the last question, the indexation of your rental income. Can you give us more insight about the indexation and about the situation with your tenants in this more difficult overall economic situation.

[Bruno Ettenauer, executive]

Well, as mentioned already, we benefited, frankly, speaking, last year, half of the year, with the increase with the like-for-like is mainly due to the inflation rate indexation. And I would say, mostly all of our leases have this linked to inflation, and we can add the inflation. It's a different story means of parts of our portfolio in Germany, Central portfolio where we have other instruments in place or requirements in place. Until now, I think we -- our expectation is that tenants are able to meet these higher rents. But of course, it will happen in midterm. I think we can always add inflation, inflation, inflation. So at a certain extent, I mean, the tenants will try to negotiate these increases. And frankly speaking, as mentioned already, we have blocked our loans, interest rates are fixed. So we have over some room for being flexible on that.

[Stefan Scharff, analyst]

Okay. The hotel business was quite good with a strong rebound in earnings the gross earnings up from EUR 2.2 million to more than EUR 5 million. So can you say a bit more about July and August about the third quarter? What is your impression or what are the data coming from your hotels?

[Bruno Ettenauer, executive]

We stay and remain optimistic. I mean, it was a perfect summer this year. Hopefully, we do not meet another corona wave in autumn. But if this continues, we'll have very, very good results also in the third and the fourth quarter.

[Operator]

[Operator Instructions] There are no further questions.

[Herwig Teufelsdorfer, executive]

So thank you very much for joining us.