S Immo AG

VSE:SPI

Earnings Call Transcript 2022-Q3

[Operator]

Good morning, ladies and gentlemen, and welcome to the S IMMO AG Conference Call regarding the third quarter results '22. [Operator Instructions] Let me now turn the floor over to your host, Herwig Teufelsdorfer. Please go ahead.

[Herwig Teufelsdorfer, executive]

Thank you very much. Wonderful afternoon. We are happy to present the Q3 results 2022. I'm here with my colleague, Holger Schmidtmayr and would like to proceed with the key highlights and financials. If we are looking at the total revenues, we are happy that on a year-to-year basis, we were able to lift them by 29%, up to EUR 185.1 million, where of rental income is plus 15.8%, EUR 112.7 million. We were also in the position to increase our occupancy rate from 95% by end of the year 2021 to 94.2% and ending up at the gross profit of EUR 99.7 million compared to EUR 81.1 million as of Q3 2021. Whereof gross profit from rental is EUR 91.5 million, coming from EUR 75.4 million (sic) [ EUR 76.4 million ] in the last year.

If we come from the operating figures to the key financial figures as of 30th of September, we are happy to announce that we were able to lift the FFO per share from EUR 0.55 to EUR 0.68, which means an increase of 23.6%. Real estate portfolio has grown on the basis of IFRS book value as well by plus 9% on a year-on-year basis. Property valuations, so far EUR 27.3 million compared to EUR 145 million. So you see that, let's say, the heat in the market is more or less gone.

EPRA-LTV as of 30th of September this year, 33.5%. And the EPRA-NTA per share is EUR 28.29 compared to EUR 29.09.

What has happened on transaction and capital markets about the takeover by CPI Group? So CPI Property Group purchased a bit less than 27 million shares of S IMMO, ending up at 79.2%, shareholder capital as of 30th of September. And after the end of the extended acceptance period of the takeover on 18th November, it increased up to 88.37% of the shares directly and including indirectly via IMMOFINANZ.

Takeover triggered an extraordinary right of termination due to the change of control for the following bonds: The 1.75% and 1.2% green bonds, which we've been issuing throughout the last more or less 2 years; 3.25% to 3.25% bonds, cancel nomination value, you can find in the table as well.

So on 21st of November, so by last week, IMMOFINANZ announced that it has started negotiating with CPI Group to increase their stake in S IMMO to more than 50%. At the moment, currently, IMMOFINANZ is holding a direct stake of 26.49%.

If we come to the results in detail, as already mentioned EUR 185 million revenues, rental income thereof EUR 112.7 million. Revenues from operating costs, EUR 34 million. Revenues from the hotel operations, EUR 38.3 million, which is more or less the biggest increase and brings us to a result, which is more or less at the level of 2019. So we can say that the hotel markets and especially our hotels have recovered from COVID crises during the last 2 years.

Yes, gross profit, 99.7% compared to 81.1%. And no result from property disposal. Management expenses increased from EUR 19.6 million to EUR 23.3 million, which also includes the separation with [indiscernible]. So ending up at an EBITDA of EUR 76.4 million compared to EUR 61.5 million last year.

Operating income, EUR 96.4 million compared to EUR 199.6 million, whereas the difference coming from -- it's clearly from the lower valuation that we had, let's say, less high valuation. We didn't have the lower valuation, but the less high valuation than we had last year. And EBT of EUR 111.9 million compared to EUR 191.3 million last year.

Consolidated net income, EUR 99.1 million compared to EUR 160.5 million. If you look at the balance sheet structure on the next table, non-occurring assets summing up to EUR 2.964 billion and current assets EUR 725.7 million, which sums up to EUR 3.689 billion of balance sheet sum.

Coming to the funds from operations on development, starting with FFO Q3 2022. We had rent transactions, EUR 9 million. Rent like -- on a like-for-like basis EUR 5.2 million. Other rents, EUR 1 million. Other operating income increasing by EUR 1.2 million and higher hotel GOP, gross operating profit, by EUR 3.6 million. Financial results, EUR 7 million and ending up at an FFO of EUR 48 million in total.

Going further on to the debt financing profile. So in 2024, we see maturity of some of our financing, but more or less nothing more happening this year or in only smaller amounts in 2023. EPRA-LTV as of 30th of September sums up to 33.5%. And if we have a look at the debt bond structure, it's 58% of noncurrent bank loans, 3.1% issued bonds, issued bonds noncurrent fully 34.5% and 44% (sic) [ 4.4% ] on current bank loans. Average cost of funding, average is 1.58%, whereas cost of funding, including hedges, has come down to 2.13%, smaller increase compared to 2021. This is also in connection with the increasing interest that we see in the market.

If you go to the next sheet, share data, S IMMO, since January 2016, more than 300% compared to the ATX, 6.24%, yes. Not necessary to explain that the share price has come down due to the fact that the takeover by CPI is now more or less gone at the level of 26.49%. Shareholder structure as of 18th of November, 88.37% CPI Group and a free float of 11.6%, which led, at the end of the day, in our taken off the ATX. Yes, that is more or less from my side, in regard of the financial data, and I'm happy to hand over to Holger Schmidtmayr.

[Holger Schmidtmayr, executive]

Thank you, Herwig. Let's move on to the business model on Page 13. Here, I want to focus on the strategy update. We have recently given S IMMO strategy update, which we have published on September 15. What will remain in place unchanged is the regional and sectoral portfolio and also the rest of the points you see on Page 13, but the composition will change. And that's due to the rising interest rate environment. And due to this, we will modify the composition of our portfolio within this diversification.

We will reduce lower-yielding assets, which are mainly long-term value investments, specifically residential properties in Germany. And we have held these German residential properties for 15 years -- up to 15 years, and they have increased in value by up to 300%. So now it's time to cash in on this and to take the proceeds and go by high-yielding assets, particularly in Budapest, and we'll also look for some in Vienna. And the first step on this was the acquisition of a EUR 240 million portfolio from CPI in Budapest, 3 weeks ago.

As regards to property development, we see the current market not suited for major new supply. We will thus continue to proceed with our development and incur a corresponding soft costs. So all the architectural work and so forth and the zoning, but we will not commence construction activities in the next time.

So then let's move on to the portfolio itself, which is very familiar to you on Page 15. So a book value of about EUR 3 billion in assets, 30% of it is residential. So this is going down. Office, 46%, is going up. Retail, 13.4%, might be slightly ticking up depending on what we buy. And Hotel will mainly be flat at around 7%.

Moving on to the regional setup on Page 16. We currently have a setup of 63% Austria and Germany and 37% in CEE. We -- so what is sure is that the share of the Western share will decrease, and the CEE share will increase, and our shareholders will be happy because this will increase our income. I don't dare to state the percentage as such now, but it will move in this direction.

So if you look at the good book values, Germany, EUR 1.4 billion more or less, Austria EUR 0.5 billion and CEE EUR 1.1 billion. So you'll see them moving in the direction I've indicated.

On Page 17, the most important line is the second one, the portfolio occupancy rate. And this is an amazing line, which we're very proud of in this kind of market because we have vacancy rates across our markets that are around 5%, 6% or some even 2% only in residential. So there's S IMMO teams in Vienna and S IMMO teams on the ground, have been able and are obviously able to significantly outperform the market. And that's always a reason to be proud of.

When you see the rental yield the next line, and you see the 3.3%, the sales of 3.3% from resident -- belonging to residential. You see what I mean when I say, low -- sell low-yielding assets that have already had their run under the value angle because in a rising interest rate environment to hold on to this kind of property would, I think, be the wrong strategic decision.

Then on Page 17, you see also the respective distribution value between residential, so going down. Retail slightly ticking up and office for sure, going up. That's it about the portfolio, and I hand over to Herwig.

[Herwig Teufelsdorfer, executive]

Thank you, Holger. Let's summarize our activities in sustainability, mainly focusing on ESG reporting and ESG ratings. If we have a look on the table on the right-hand side of this chart, we see that we've been increasing the ratings in all rating classes, meaning ISS coming down from average 5.67 to 2.33. MSCI ESG rating from to BBB to A and, Sustainalytics ESG risk rating coming down from 21, which meant medium risk to low risk at the level of 15. And our efforts paid off also in a double rewarding in regard of the EPRA sBPR rewards 2022. So meaning that we have been donated with most improved as well as bronze medal in this regard.

First time reporting within the 2021 annual report, as you know, first-time application on the EU taxonomy. Also, first time consideration of the TCFD recommendations concerning climate risk management, greenhouse gas protocol concerning the calculation of greenhouse gas emissions and real estate-related EPRA sustainability indicators.

We implemented as digital [indiscernible] system. We are updating all relevant ESG ratings, already shown and talked about just before. And what we've also been doing is the implementation of a comprehensive ESG strategy with, in total, 49 goals leading to 169 measures on a daily operating basis and with clear responsibilities within the teams all over the 8 countries, we are working in.

Green buildings and certifications, as of the 30th of September, a bit less than 25% already with certificates, BREEAM, LEED and WELL, meaning 289,000 square meters of main usable area, and nothing has changed in this since the last quarter, but will definitely do in the future as well. That's so far on the Q3 results from our side. Thank you for your attention, and happy to answer your questions.

[Operator]

[Operator Instructions] And the first question comes from Christoph Schultes.

[Christoph Schultes, analyst]

Thank you very much for the presentation. I have 1 question to your financing. If we maybe can go back to Slide #10, where you have the debt structure fixed, there is non-fixed. And then you'll say also the cost of funding, including hedging. My question would be, how much of the variable rate is hedged? Or in other words -- other way around, how much of your debt is not hedged?

[Herwig Teufelsdorfer, executive]

So it is more or less all hedged, what we have been on these model portions, but far above 90%.

[Wilhelm Bayer, executive]

Yes. And the usual, Chris, it's swaps and caps, and still some time going for those derivatives. So at the moment before the sales that we maybe will consider, nearly everything is hedged. No change there.

[Christoph Schultes, analyst]

Okay. Great. So that means we should not expect any significant changes in your financing expenses for the, let's say, next 2 or 3 years?

[Wilhelm Bayer, executive]

There will be smaller changes, Christoph, simply because some of our strike prices are relatively high for the newer hedges, but only insignificantly. So the majority is hedged at very competitive strike rates.

[Operator]

And the next question comes from Thomas Neuhold.

[Thomas Neuhold, analyst]

Thank you for the presentation. I have 3 questions, and I [ such as ] to take them one by one. First is, can you give us an update where you stand on your German residential portfolio disposal?

[Herwig Teufelsdorfer, executive]

Yes, definitely. We started the selling off by January this year, so let's say, some 6 weeks before the war in Ukraine started. We were more or less focused on institutionals but have seen that there is very little chance after the 24th of February to find the institutionals to buy portions of this. So we changed our strategy. We have already sold till end of September, let's say, 1/6 of our portfolio. We are very close to signing off a bigger portion, which should be closed by end of the year, coming up then to, let's say, some 60% of the portfolio -- of the residential portfolio being disposed.

What has changed in this regard is that, as I mentioned before, institutionals are more or less not on the market anymore. So we are, at the time, more or less selling in portions, let's say, between EUR 1 million and EUR 30 million. So it's high net worth individuals buying. It is smaller investors buying. And as I said, there's 1 bigger deal that we think that we can finish by end of this year.

[Thomas Neuhold, analyst]

Can you please also comment on the pricing. What kind of selling prices you have achieved or plan to achieve compared to last [ couple of years ]?

[Herwig Teufelsdorfer, executive]

So by the 1/6 that we have already sold, we are above the valuation of 30th of June, 2022.

[Thomas Neuhold, analyst]

Okay. And can you give us a general comment on what the revaluation result could look like in the fourth quarter? Did you have already discussions with your operator to be stand roughly?

[Herwig Teufelsdorfer, executive]

We started the upraising process, but it is too early to give any indication. Our services are working on this, but we have not seen any number so far.

[Thomas Neuhold, analyst]

And the last question I have on potential future rent increases. We have seen quite high inflation rates, and I remember that a lot of your rental contracts have inflation linked. Can you comment on potential rent increases in the next 6 to 12 months?

[Herwig Teufelsdorfer, executive]

Yes. So in Austria and in CEE, we have more or less all our rental contracts indexed. And we have between 40% and 50%, depends on the type of use in Germany as well. What we are going for is as we did at the beginning of corona crisis. So if we are legally allowed to increase the rents, we would definitely go for it, but not at any cost, which means that if tenants are not able to bear this due to their business, we will definitely come to a solution with the tenants because it's even better, applying rental increase only, let's say, by 75% or 80% of the extent that would legally be possible instead of looking for a new tenant. And this is what we've seen brings the best outcome and the best results between the landlord and the tenants at the end of the day.

[Operator]

And the next question comes from Stefan Scharff.

[Stefan Scharff, analyst]

Stefan here. I have a couple of questions. The first is about your offices in Germany. It's more or less EUR 400 million. And are there also plans to sell some office properties if this is possible and current trend for decreasing multiples due to the deteriorating financing conditions?

My second question would be the FFO bridge. There, you showed a split for the like-for-like rents, up EUR 5 million. Perhaps you can split it more for regions or asset classes, this decent hike in like-for-like rents.

And another question is an update about the bond cancellations.

[Herwig Teufelsdorfer, executive]

Thank you very much, Stefan. Let's start with the first question in regard of disposing our commercial portfolio in Germany. At the moment, it is not planned to dispose it in a way as we see it now for residential. In fact, getting in contact with potential investors with the resi portfolio, there is one or the other question. If we would not be willing to sell it off, if the price fits and is high enough, we can imagine to do so with definite objects, but it is not planned at the moment to start the program as we have with the residential portfolio.

So second question I think was the rent -- the like-for-like rent in the FFO bridge with EUR 5 million. And I would like to hand over to Willi Bayer.

[Wilhelm Bayer, executive]

Stefan, as you may remember, we don't have our objects in companies to use type the [indiscernible] segregation. What I can say is we have about 5.8% in total like-for-like. And the majority comes from Germany and CEE in terms of absolute figures. So we have about EUR 2.7 million in CEE, EUR 2 million in Germany and about EUR 600,000 in Austria. But no split by use type, if it helps.

[Herwig Teufelsdorfer, executive]

Last question, Stefan, you had in regard of the bonds. We had these 2 green bonds, the 1.25% and the 1.75%, summing up to EUR 150 million, so total bonds, some and it was EUR 104 million were handed in from this EUR 150 million. And the second, 2 bonds, 3.25% ones, it was more or less exactly 50%, meaning EUR 48 million out of the EUR 96 million.

[Stefan Scharff, analyst]

Okay. Perhaps I have 1 add-on question. It's about shifting away the portfolio from Germany more to Eastern Europe. You are in Hungary, Romania, Slovakia and also in Croatia, but are there more or some other interesting countries that you might step in? I'm thinking of Poland as you are not in Poland so far or some other markets.

[Herwig Teufelsdorfer, executive]

So I would say, in the nearer future, we will definitely not extend our range of countries, especially North Poland. We have never been in Poland. We would definitely stay in 1 of the 6 countries -- 6 CEE countries we are already in but not extending our range.

[Operator]

So at the moment, there seem to be no further questions. [Operator Instructions] Okay. So there seem to be no further questions. So let me hand back over to your host for some closing remarks.

[Herwig Teufelsdorfer, executive]

Thank you very much. Thank you for your attention. Thank you for your questions. Stay safe and healthy. And yes, have a nice Christmas. Thank you, and goodbye.