Mobimo Holding AG (MOBN) Earnings Call Transcript & Summary

Good day, and welcome to the Mobimo Holding AG Half Results 2020 Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Mr. Daniel Ducrey. Sir, please go ahead.

Thank you, Phoebe. Ladies and gentlemen, welcome to the presentation of our half year results. I'm pleased that you have taken the time to get the latest news on Mobimo despite the very hot summer temperatures we live in. The last couple of months have been quite interesting, as you may imagine, and we will come back to this later. But first, with me in the room, Jörg Brunner, CFO at interim, who puts together the financial statements with the financial team and is available for -- to answer some deep-diving questions, which you might have later on. Let's start with the operational overview of the last 6 months; then have a look on the heart of Mobimo, the investment and development portfolio and the pipeline; and then go to the figures; talk about the crew; and then venture an outlook. In the first half of the year, we worked hard on the portfolio. The Manegg project got the building permit. We had to decide whether we would take -- we would like to realize the profit of over CHF 20 million at once in the transaction market and thus also fulfill the goals of the development for third parties or whether it would be better to take these profits into our portfolio at an increasing value just via the profits from revaluation. And, in return, keep the rental income from this residential property in the city of Zurich in the portfolio in the long-term and thus profit from the -- from it annually. We decided for the second option. At the same time, we removed the property in Dübendorf from the investment portfolio, moved to the development portfolio, for which we also developed a design plan, which we will now sell in the market. This mixed-use building is in great demand on the market. The building permit is expected to be obtained within the next 6 to 12 months, depending to difficulties that may arise in the approval process. Then it should be noted that we have received encouraging market signals at various locations for letting our premises to new tenants. The apartments in the Mattenhof, for example, are over 90% let. And various individual, commercial and office spaces from the portfolio have been let in the last couple of months even given the difficult environment. Another important moment was the issue of the CHF 220 million bond in February 2020 at a very good coupon value of 0.25% for 8 years. It helps tremendously to lower further our financial costs. All this results in a net EBT of CHF 51.6 million, a good CHF 9 million better than last year. In June, we had already informed about the expected consequences of corona. It's important to note that the variety and diversity in Mobimo's portfolio has proven its worth. It pays off that hotel properties, which have generated solid returns over the last years; office buildings which are neutral; and residential properties which are now very stable and, despite lower returns, have increased in value are all in the same portfolio. It's not a fair weather portfolio, not a monoculture. It's a solid-performing portfolio mix quite resilient. We are in permanent talks with our tenants and not just since the lockdown. This has paid off in finding solutions with them now. Over 200 individual agreements have been concluded, but even with all this, at the end of the half year, it's still a visible impact, CHF 4.4 million due to corona. Roughly 3.5% of their rental income were lost due to the crisis. Let's have a look on the heart of Mobimo, the real estate portfolio. As mentioned in the introduction, we worked on the portfolio. In line with our strategy, the investment portfolio has continued to grow. This was achieved through the completion of buildings and sites. In the last 18 months, from 31st December 2018, the value of the overall portfolio has risen from CHF 3 billion to now CHF 3.3 billion. The completion of projects, revaluation gains and the acquisition of lands for developments were the main drivers. The development of the investment portfolio, which amounted in 2018, 31st December, at CHF 2.3 billion, has now risen to CHF 2.8 billion, plus CHF 517 million. This was particularly significant. The Labitzke district, Mattenhof and [ Aqua ] were the biggest milestones in this progress. Our pipeline of own projects is still well filled, but also shows some movements. Manegg should be mentioned here, which has been reclassified and now can start construction directly. As far as the projects in the planning stage are concerned, we are still involved in discussions with authorities on approvals for the first two, Rue de Genève and Tiergarten; and in early planning phases for the other ones. I'd like to take a moment on Manegg as an example to show what fine qualities and potential Mobimo's business model has and how much value it creates for Mobimo, which is also directly perceptible to the shareholder through the creation of NAV. As at December 31, 2019, the project was still listed at costs of building lands, in the promotion properties and at a value of CHF 14.7 million. We could have sold the project in the market. The building permit has been approved. We are ready to start construction. It is a residential building and in the city of Zurich. It's a no-brainer. We would have made a profit of over CHF 20 million, for sure. The development team made -- did a very good job. But we have decided to secure this rental income of CHF 3.5 million every year for us in the long term and keep the project for ourselves. Especially in the current times, this regular income is particularly important. This means that the profit of development is not materialized and reflected in the sale, but the added value created goes directly into the portfolio value of CHF 39 million. The profit is shown as part of the revaluation gain with CHF 23 million. On this slide, you can see the time line, the milestones of the development process of this project. It's comparatively short, speedy processing; a journey made in partnership with Logis Suisse, our partner. With this project, we will also demonstrate our ability to plan and build residential buildings at attractive prices within the city. Our pipeline for third parties is still large and has great potential. And we have been able to further expand our pipeline for condominium apartments, as you can see. This pipeline now is securing a constant output over the next few years. Our aim is -- here is not a peak, a one-time effect and then nothing, but a constant base load from this segment. Let us now look at the financial results coming out of all this activity altogether. Despite the far-reaching consequences of the crisis, our rental income almost reached the same level of the previous year. If we compare the 2 half years with each other, we could have shown approximately CHF 3.6 million additional revenues, especially due to the addition of the new districts and the marketing success we have. Unfortunately, corona then came along and resulted in a minus of CHF 0.8 million compared to the last year. The direct cost and rent -- to rent income ratio has remained at 14%. The success from developments includes various ongoing projects, is very low for the explained reason, this valuation gain from Manegg. The revaluation gain brings CHF 25.1 million, which -- from which CHF 23 million comes from Manegg. The rest of the portfolio have been neutrally balanced. We then sold also in the beginning of the year a small property in St. Gallen as a portfolio adjustment with a profit of CHF 1.5 million. We had lower operating expenses. And worth mentioning is the EBIT, which is CHF 10 million better than last year. The team has performed very well in these difficult times. Due to the last year's onetime special tax effects, the final result is now still CHF 1.8 million lower than last year. Nevertheless, the performance has been better. Of course, profit without revaluation is lower and therefore a point to check closely, but this year with Manegg and the revaluation of CHF 23 million is -- the figure needs to be seen in the right context. As expected, the vacancy rate is 5.5%. The net yield of the portfolio adjusted for the COVID effect, is 10 basis points lower in total, shown here. But in reality it's 5, and it's ever a question of rounding. Due to development of our rental income in the recent years for the half year, the planned progression of the profit from rental income has been slowed down. However, the increase of the potential rental income through additional spaces, which we have -- which we acquired, will inevitably lead to a further increase in rental income also and thus also in the further increase of the profit from this segment. Here is the detail of the composition of the revaluation gains and losses. The revaluation of investment properties under construction measures the creation of value from our own development activities, this CHF 29 million. The CHF 21 million from the residential properties show the robust performance of this segment. And the CHF 30 million losses and CHF 6 million profits shows the impact in the three segments: Hotels, gastronomy retail and then the office buildings. Despite the crisis, there was a further slight reduction in the discount and capitalization rates by the valuation team from JLL. The balance sheet is quite solid. The equity ratio is at 42.3% and therefore at a good place. Interest-bearing debt capital of 48.8% and a net LTV of 47%. And the interest coverage factor, as in the previous year, unchanged at 2.9%. The difference between net and gross LTV is due to the absorption of the bond in our portfolio. As far as the financing structure is concerned, we have, of course, a nice liquidity capacity with the bond issue at the beginning of 2020, which we will also actively manage in the coming months. Expiring bonds and mortgages in next 2 years are a great opportunity to further reduce our average financing costs and to obtain attractive condition. Well, leading a company successfully through turbulent times requires human resources. And in the first half of the year, Manuel Itten, our previous CFO; and Marc Pointet, Head of the Region West, left Mobimo. As a replacement for Manuel Itten, we were able to bring in Stefan Hilber. He will start on 2nd of November 2020. He will be able to further develop the already very high quality of reporting and the internal service of the financial department. The position of Marc Pointet will not be replaced as such. The respective divisional heads are now responsible for their area throughout Switzerland. Simplified and continuous process will be roll out and will help us to develop further. And on January 3 -- 4, 2021, Mr. Gerhard Demmelmair will join us. I'm delighted to hand over the portfolio and transaction division into his hands. He will continue the constant development of our portfolios toward our goal with dynamic [ alarm ]. Together with my colleagues and the whole company -- colleagues Tondel, Manser and Egli; and the whole company, sorry, I'm looking forward to integrate our new team members. Well, let's venture an outlook. The way ahead is very clear. We need to find balanced solution with the tenants with whom we did not already have a solution for the corona times, and to take time for this might be helpful. We need to continue to push the marketing efforts for vacancies we have in our portfolio at full speed. We need to start the construction of Manegg and obtain the building permit for Dübendorf. We have to prepare the future success of the company and its development by acquiring new objects and land plots for -- with development potential. We need to deepen the integration of sustainability in our daily work, further improving environmental performance. And finally, continue to implement our digitalization projects and realize, make effective the benefits expected out of it such as increase in efficiency. Thank you for your attention. I'm now all yours for all the questions you might have.

[Operator Instructions] Our first question will come from Alessandro Taiana with UBS.

Yes. I have 2 questions. The first one is regarding your costs and more precisely your direct expenses, your staff costs as well as OpEx and admin expenses. Here you've been able to cut down, and I was wondering how much of that was induced by COVID-19. And how sustainable are these cuts?

I might gave you an answer already on this. So the -- effectively you have seen that the company made a big effort and it's a teamwork here. It's not a onetime effect. It's more in the process of how we do things with a little less people. The head count has gone slightly down, and the overall expenses of the company have been closely managed and monitored. It's not a spectacular cut of 25% or 40% you have seen, but you have seen a tendency and this will be sustainable. This is something which we will maintain, which is not due to corona, but it's our way of doing business.

Okay. And I apologize if you've already discussed this, but my line was interrupted for a brief moment. I would like to ask if you can comment on any regional differences that you may have witnessed, so far, maybe during the negotiation of any support measures; or if any region has been impacted more severely; and differences in development activities, et cetera?

This question is not corona specific, Alessandro. Switzerland effectively is very different in real estates or in Geneva, which is highly ruled as soon as you attach to residential. And other parts of Switzerland, especially [indiscernible] [ quite free of it ]. And the market situation in the region of Zurich seems to be very stable and ongoing. Same in some parts of center of Switzerland and probably a bigger -- a bit bigger or faster impacts in the western part. But this is something which is a general situation in Switzerland, was true before corona and is true now. Then the differences in talking with our clients or with our tenants is simply due to cultural differences, but nothing special to be mentioned here.

[Operator Instructions] Our next question will come from John Vuong with Kempen.