S IMMO AG (SPI) Earnings Call Transcript & Summary

Good afternoon, ladies and gentlemen, and welcome to the S IMMO AG conference call regarding half year's results 2021. [Operator Instructions] Let me now turn the floor over to your host, Mr. Ettenauer.

Thank you. Good afternoon, everybody, and welcome to S IMMO half year's earning call. As you probably know, we have been the target of a takeover bid by IMMOFINANZ and had an extraordinary AGM in the meantime. Without further elaborating on the specifics, I'd just like to recap that we deemed the offer price to be too low and that the bid was withdrawn in the end. Early in Q2, we communicated to the market that we see a rebound in Germany, that we expect significant positive property valuations. As you will see, those valuations, based on external appraisals, have materialized in our Q2 results. [indiscernible] has also delivered on one other thing that we announced, namely that we've sold our stake in CA IMMO in July and are now ready to broaden our income-generating portfolio. Having said that, let's now go to the details of our Q2 results and start with some highlights on Slide 3. As a general note, I'd like to call your attention at our operational figures. For Q1 last year, we're still largely unaffected by COVID-19, meaning that for a significant part of our half year, we are actually comparing pre-Corona with Corona figures. Having said that, we still managed to increase our top line by about 4% to EUR 91.1 million. Rental income increased by more than 5% and came in at EUR 63.9 million, which is mainly due to acquisitions. Our occupancy rate remained highly unchanged in comparison to prior year and stood at 93.2%. Our gross profit, excluding hotels was quite satisfactory and came in at about EUR 51 million, that's nearly 12% more than last year. FFO 1 per share increased from EUR 0.24 per share to EUR 0.36. And earnings per share due to our valuation results increased from EUR 0.22 a to as much as EUR 1.93 per share. As communicated earlier, property valuations, especially for Germany, went up significantly and exceeded EUR 130 million. Out of our good operating result, this had a direct impact on our EPRA NAV, which increased to EUR 27.5 (sic) [ EUR 27.51 ] per share. LTV improved once more and stood at 45.3% at quarter end. As far as capital markets and transactions are concerned, S IMMO first green bond was issued in Q1 and the acquisition of the campus office building Bucharest was closed in June. Our share buyback program ended at the end of Q2. Further, we sold off roughly 6% stake in S IMMO in July, thereby turning in a significant profit of nearly EUR 100 million and generating a cash inflow of more than EUR 230 million, all before taxes. Of course, you will only see this in our financials for Q3. With that, let me now move to the details of our P&L on Slide 4. As I already mentioned, both rental income as well as total revenues increased over prior year. Our hotel GP also improved over prior year by about EUR 2 million, and operating costs went down by a bit despite higher maintenance expenses. As a result, our gross profit increased quite a bit over prior year and went from EUR 45.7 million to EUR 53.2 million. Even though management expense is up, also in connection with takeover offer we had to work on, our EBITDA increased from EUR 36.1 to EUR 39.6 million. The main drivers of our exceptionally good results can be seen after EBITDA. Thus, if you page over to Slide 5. On Page 5, you can see the very pleasing increase in property valuation, which went from EUR 10.2 million last year to as much of EUR 131.5 billion this year. But also our financial results improved significantly over prior year and went from minus EUR 21.8 million to minus EUR 2.2 million. This change is mostly due to the receipt of the S IMMO dividend in the first half year of Q2 and positive derivatives valuations. On the tax line, you can see the typical offset to the positive development on valuations. Overall, I'm very pleased that they can present an increase of our bottom line from EUR 16.1 billion to EUR one hundred and EUR 137.3 million. Just to put that into perspective, with these numbers, we were taking more than eightfold the result of the prior year and all of that in the midst of a worldwide crisis. Now let's skip to page -- Slide 6, balance sheet. You can see a simplified balance sheet with higher value to properties and the higher balance sheet total due to our good results and acquisitions and improved equity ratio and a comparable cash base of about EUR 128 million. Now moving to page -- Slide 7. We plotted FFO 1 and EPRA NAV since half year 2017. Both figures exhibited a steadily rising trend at the start of the pandemic. And after the EPRA NAV now stands at the highest level ever. But also FFO I is back on growth track that hopefully will be prolonged. The next slide, page -- Slide 8. Here you can see a waterfall chart of our FFO 1. Clearly, the increase from EUR 17.4 million to EUR 25.6 million can be explained by an increase in our top line and improved Hotel GOP, the receipt of a dividend from CA IMMO in Q2 and, on the flip side, an increase in administration expenses. Now on Page 9, we plotted the development of our EPRA NAV per share since 2011. I believe the chart speaks largely for itself. Also, we calculated our dividend adjusted 10-year growth rate for EPRA NAV and the share price development. I think it's safe to say that both numbers are quite satisfactory, also in an industry-wide comparison. Let me now move to some more details for our property valuation results which, to a large extent, is attributable to Germany. However, also Austria and even CEE contributed positive net valuations despite the ongoing crisis. We looked at it by use type, residential is the biggest driver behind the increase, but also office came in strong. Let me now spend some words on our investment in S IMMO and IMMOFINANZ. First, we sold our 5.96% stake in S IMMO into start of takeover offer in July. The offer price of EUR 37 per share allowed us to lock in a cash inflow of nearly EUR 235 million before taxes, which corresponds to almost EUR 100 million total investment return. The dividends received over the total holding period amounted to about EUR 25 million, meaning that with the sale, we conducted -- concluded a quite successful investment. And now freed up cash for direct, even more FFO I accretive property investments. Our 13.4% investment in [ IMMOFINANZ ] stake has a value of about EUR 342 million at yesterday's price -- closing price and of EUR 476 million latest disclosed EPRA NTA. To date, we received -- we have received EUR 24 million dividends from the investments. Now let's go to debt financing. Slide 12 shows our maturity profile, which is quite balanced and holds no big risk in the foreseeable future. As for LTV, we stood at 45.3% at quarter's end, also with a secured LTV of 29.4%, there's still quite some potential for financing if the need arises. Going to the bottom left-hand side, you can see an overview of our debt structure. The majority of our financing of stable bank loans and rest are bonds with a maturity profile that's well spread out over the years. Further, about 14% of our bank loans are fixed rate and 86% are variable loans. However, it's important to note that we have interest rate derivatives in the nominal value mostly matches available loan rate loans. As far as cost of funding is concerned, the overall leverage exclusivities amounts to 1.6%. Also, we can point to a continuous decrease in cost funding, including derivatives from 2.67% in 2017 to 2.17% at the end of Q2, which also constitutes an improvement over year end. Having covered our balance sheet, let's now take a peek at how S IMMO faces the stock market. Let's go to Page 13. We plotted the share price development of S IMMO against the ATX and the IATX. Of course, like everybody else, our stock took quite a hit from the crisis, but still outperformed the ATX. As far as shareholding structure is concerned, our largest shareholder is IMMOFINANZ with 26.5%. Indirectly, Aggregate Holdings S.A. holds 10.8% and EUROVEA holds 5.21%. More than 57% are in free float. Now let's hand over to Herwig Teufelsdorfer.

Thank you very much, Bruno. A very warm welcome from my side. As Bruno Ettenauer has already given you a detailed update on the financials, let me guide you through the key figures reflecting our portfolio and give you an update on our most recent activities regarding acquisitions as well. So if we look, our diversified portfolio, almost nothing has changed, minor shifts in regard of the book value of the different types of use. So the residential share has grown by 1.3% points as well as the office as we also acquired and got on balance sheet our Campus 6.2 and 6.3. So the total book value increased from EUR 24.8 million to 20 -- 2.7 -- [ EUR 2.48 million ] to EUR 2.7 million shown on IFRS side. We are still generating strong earnings as we see on the next slide. So not very new information on that to you. But coming to the next slide, 17, the portfolio overview as of the 30th of June 2020. What is the main information? The office income has grown by 6% compared to the first quarter of this year and equals up to 1.9% on a year-on-year perspective. We are also on a recovery regarding the hotels. There's a plus of 60%, but we are still down by 20% compared to last year. But hotel market is recovering very well. And what we also have to say is that regarding the rent restrictions, which we have seen throughout the last 18 months in Berlin, we have nearly collected all the missing rents over there. So we are up to 98% of the collection of the missing rents, the difference between the restricted rents and the contracted rents. So all in all, we have a clear focus on the cash flow for the coming periods. Let's go to acquisition and project developments. In the next step, as we already mentioned, we closed the acquisition of Campus 6.2 and 6.3, 20,000 square meter lettable space, 2 buildings in line with very prominent tenants like Microsoft and Societe Generale with a vault of 7.25 remaining years. Acquisition value was about EUR 97 million. It is qualified or prequalified building with LEED gold in place as well as WELL silver prequalified and putting an additional rental income of EUR 6.7 million per year. Very modern building, we have a running track on the roof with 325 meters and our e-car chargers in place, 11 storeys, more than 400 parkings. We are still looking for new acquisitions in prime locations only with good access to public transport. So we are at the moment in negotiation and talks for investments in Bucharest about 50,000 square meters LOIs in preparation. Coming to Budapest, there's an investment location as well. Also, over there, we have some further acquisitions in preparation. We are talking about the higher double-digit million range investment where we have exclusivity till the end of September. All the 4 mentioned items in regard of the quality of location as well so building itself imply to this investment possibility. Yes. Moving over to our land bank, not very much changed since our last call. We are working in regard of our projects on master plans as well as on town planning. The strategy on it as anticyclical acquisition to secure long term earnings, average acquisition costs slightly above EUR 15 per square meter, and we are working on that. Next topic, sustainability, ESG, what to say about this. All in all, we are following a holistic approach regarding the ESG topics, which means that by beginning of September, there will be a new colleague and ESG officer on duty. What have we done in the meantime, currently, 25% of our lettable area in buildings is certified, which more or less applies to the office building. And this means, compared to 2019, that we had an increase of above 26% of certified area in this regard. What are we doing? Particularly, we are about to install a 250-kilowatt peak photovoltaic project on one of our buildings here in Vienna. We are heading for rating by 2022 in regard of ESG. We are not sure at the moment if it will be ISS or Sustainalytics. We're working on that. This means also that we will stick to the GRI standards starting by this year, but having the full year then by next year 2021. And it will be, as I said before, a holistic approach on that, meaning that it's not only a certain project. It will be the whole look on how we do our business in regards of ESG criteria. So with that, I would like to thank you for your attention, and we're looking forward to discussing your questions right now. Thank you very much.

[Operator Instructions] And the first question comes from Oliver Simkovic.

3 from my side, if I may. The first one regarding hotels that they showed a relatively good performance, especially in the second quarter. Could you give us more information about this? And also what your expectations are for the time ahead so the summer months? Then my second question is on then IMMOFINANZ stake. Are you already in concrete negotiations here with a potential buyer? And should we expect a disposal rather sooner than later? And lastly, on the AGM, you have not set a date yet. Could you maybe give us your thoughts on this and when we can expect that to happen?

Okay. Thank you. I would come back to your question regarding the hotels. So what we see is that in Hungary with the variants that we have over there, we are, again, earning money on this. So we are more than covering the cost. In regard of city tourism, we are still facing some problems regarding our 2 Czech hotels. But nevertheless, they are catching up. And we think that due to the regulation situation that we see over in Europe that this will catch up. We are not sure when we will come back to the state that we had before the crisis, but think that this will be in place by mid of next year. And especially also the Marriott here in Vienna is catching up month-to-month due to the fact that we see that some small conferences are starting over there. And in that regard, we are not worried about the evolution of the market and the revenue situation in all of the hotels that we see.

And looking back at -- sorry, looking back at the second quarter, here, you had revenues, I believe, around EUR 8 million. Can we expect something like this also for the summer quarter or even better than this?

We definitely do expect that there will again be an increase so that the third quarter will be above the result of the second.

This is [indiscernible]. We have to see I think the occupancy is increasing so far. There's some special effects we had in the first half of the year. So let's see. I think at this early stage, probably it's -- we definitely hope that the operational results will get better, and we are on the trend for that. If we can -- if we see it in the numbers really because there's been also subsidies and stuff that you'll have to see for the second half of the year.

Now let me answer your question concerning our stake in IMMOFINANZ. As Herwig have pointed out that it's our goal to sell it and to this angle, the situation, you have to know and you're aware that they are also our largest shareholder. So it's not that easy and to a certain extent also connected. We started -- what I can tell you there is a great appetite in the market for the stake, which is very helpful. The last development of share prices also underlines this assumption. I can give you a detail, let's say, timing, but can -- we can solve the issue until year's end. I'm not pretty sure. But currently, I think we are feeling good mood. And as far as no, I think we'll be acting in the overall interest of our shareholders, but also of the IMMOFINANZ, and I expect that IMMOFINANZ is behaving in the same manner. In terms of AGM, we have not set out, let's say, clear date when we -- let's say, we'll have the AGM. The reason is simple, that is connected to the question of IMMOFINANZ. I think as you might know, the AGM of IMMOFINANZ will be on the 19th of October. So I think we will be somewhere around that. We have but not yet decided if we do it before or later on.

And the next questioner is Stefan Scharff.

Yes. Good afternoon from Frankfurt. And first of all, congrats for a strong half year report, almost 50% in FFO is not too bad, I guess. So my first question is about your letting performance. Perhaps you can give us an update here about some new rental contracts or also some prolongations in your markets and how the square meter prices developed as your occupancy rate is still above 93%. That's high. So I guess, you also have a good news from the letting performance.

Yes. That's -- the thing is that we had some -- or we still have some strategic area, strategic lettable space that we are now going to work on in Germany. So I would say that the occupancy rate will definitely increase -- definitely increase again. So we were waiting with the reletting of this more than 90 flats we see in Berlin. We see almost no effects in regard of our retail portfolio regarding the tenants over there. So what we see is that we definitely stay stable and will increase the figures on this.

Okay. Okay. And one word, perhaps about the acquisitions you plan. I could read in your half year report that Budapest or Bucharest might be options. Do you expect some acquisitions to come in the second half of the year?