UBM Development AG (UBS) Earnings Call Transcript & Summary

Good day, ladies and gentlemen, and a warm welcome to today's earnings call of the UBM Development AG following the publication of the Q3 figures of 2025. We are delighted to welcome the CEO, Thomas Winkler; and the CFO, Patric Thate, who will speak in a moment and guide us through the presentation and the results. After the presentation, we will move on to an analyst Q&A session. As an institutional investor, we would like to invite you to contact UBM Development AG directly after the earnings call to clarify any questions you may have. We are looking forward to the results. And having said this, Mr. Winkler, please, the stage is yours.

Thank you, Ingmar, and good morning, everybody. Thank you for joining our quarterly management presentation and your interest in UBM Development. If we move to Chart 1, the headline of this chart could also be promised and delivered. This might sound boring, particularly for the analysts because they like to report about something new. But for us, it's exciting. One, we promised that the resi asset class is out of the crisis. Q3 delivered another proof with resi sales having increased by 25% over the first 3 quarters 2024. Our pipeline of 2,800 apartments should give you comfort for the future. Two, we promised a profitable Q3, and we delivered it, together with a strong balance sheet and an equity ratio of 30%. We have also successfully issued another green bond and have raised a total of EUR 166.5 million from the capital markets this year alone. Four, we promised a business model improvement and it's underway. Five, we have promised to stay the sustainability industry leader in the DACH region and delivered it by the reaffirmation of our rating. And finally, six, we have promised a significantly better 2025 than 2024, and we confirm this outlook today at the end of November. Please follow me to Chart #2. In the third quarter, we continued to see very strong momentum in residential sales with 355 units sold year-to-date, we are clearly on track to reach around 450 units for the full year, i.e., by year-end. That would represent more than a 10% growth compared to last year, even though 2024 included a one-off global sale of 124 apartments in Munich, which makes the performance this year, at least to my reading, even more impressive. At Leopold Quartier in Vienna, presales are now above 70% and the first buyers will soon be handed over their apartments. Na Plzence, Prague is above 65% presales off plan, even though completion will only be in 2027. And Village im Dritten in Vienna is above 60% on average across all 4 resi projects. These high presale levels give us a solid forward visibility and underline the resilience of demand in our core markets. Vienna and Prague remain the key drivers of this strong momentum. Please follow me to Chart 3. Let us have a closer look on Vienna, Prague as well as on our core geographies in Germany and why the demand-supply imbalance can only continue and will support our prices. Let's start on the left with Vienna. Here, you can see a very clear trend. Residential completions are falling dramatically by more than 46% from '23 to '26. This decline affects all segments, ownership, free market rent and subsidized housing. At the same time, Vienna's population is growing with 22,000 new residents in the last 12 months. And more and more project developers drop out of the market, and we see this development to continue also in the future. The result is clear, less supply, more demand to come. This explains why average prices in the inner districts, so not only in the first district, all within the [indiscernible] are now close to EUR 9,500 per square meter. If you look at the center chart, we see a very similar picture in Prague. Prague has one of the longest-lasting housing under supplies in Europe. Prices increased again in Q3. Remember, it was 17% in a year-on-year comparison in the half year by up -- so the prices went up 1.3% compared with Q2 and now stand at around impressive EUR 7,111, of course, in Czech koruna per square meter. The typical apartment size is 63.8 square meters. UBM is perfectly positioned in Smichov, one of the most attractive residential micro locations in the city. On the right, you see the heat map for Germany, visualizing the imbalance between demand and supply. Our cities, if I may say so, Munich, Frankfurt and Berlin, remain deep in the red, meaning demand significantly exceeds supply. With 76% or more than 300,000 square meters in timber-hybrid projects, we are well on our way to becoming one of the leading developers of timber-hybrid buildings in Europe. This has only been possible because even throughout the challenging past 4 years, we continue to invest consistently in our pipeline, more than EUR 108 million this year alone. You can find the details in the backup. Today, we are benefiting from projects that are nearing completion and can be brought to the market. In other words, UBM is fully participating in the residential rebound. Now to Patric.

Thank you, Thomas, and good morning, everybody. Please turn to Slide #5. In the third quarter, we continued the positive momentum from earlier this year. After returning to a black zero in the second quarter, we were able to build on that foundation and increased our earnings before tax to EUR 1.9 million in Q3. This marks our second consecutive profitable quarter. Once again, the key driver was a strong performance in individual apartment sales coming out of POC. Revenue for the first 9 months has now reached EUR 97 million, reflecting this continued sales momentum. At the same time, we maintained strict financial discipline. Net debt stands at EUR 583 million. Our balance sheet remains stable at EUR 1.164 billion. Overall, the trend is very clear. Revenues are growing, earnings improving and the balance sheet remaining in good shape. With the profitability Q3 behind us, we are on track for a profitable second half of the year, delivering what we promised. Let us now take a closer look at the key performance indicators. At the end of the third quarter, our equity ratio stood at 30%, within our target range of 30% to 35%. Equity amounted to EUR 349 million. In recent years, we have successfully strengthened our balance sheet structure, most recently through the issuance of a green hybrid bond in May, which further improved our equity base and capital structure. Our cash position remains stable and in line with our internal planning. We closed Q3 with EUR 142 million cash, which once again demonstrates our strong and reliable cash management over the years. At the same time, our access to financing remains open when it comes to project financing and the capital market. In the fourth quarter, we will further improve our balance sheet and corresponding balance sheet ratios by repaying the remaining 2019 bond and promissory notes approximately EUR 90 million in total. Let us now take a closer look at our bond maturity profile and the successful issuance of EUR 75 million green bond last month. Please turn to Chart #7. We have built a strong and reliable track record in the capital market. And at the end of October, we successfully issued our fourth green bond, further underscoring our commitment to sustainable financing. This year alone, we raised EUR 140 million in bond financing and another EUR 26 million promissory notes. We are one of the few developers who are able to tap the capital market. We have flattened the redemption profile for the years ahead, which gives us more predictability and stability in our financial structure. With the full transition of our bond financing to green instruments, we are exactly where we want to be strategically, focused, consistent and aligned with our long-term positioning. Before we move on, I want to take a moment to thank all our investors for their trust, especially those joining us on today's call. Your continued support is something we truly appreciate. Let us now turn to UBM's business model or more precisely to our adapted business model. As a project developer, we operate along a clearly structured value chain that takes us from the initial idea to the completed property. It begins with the concept phase where vision and objectives are defined. In the planning phase, these are translated into concrete steps and form a reliable basis for implementation. A key element of our adapted business model is prefabrication. It shortened construction times and therefore, interest expenses, reduces cost risks, improves planning reliability and enables economies of scale and consistent quality through industrial production. That we have successfully put this approach into practice is demonstrated by our first timber-hybrid project, Timber Pioneer in Frankfurt, where we achieved a prefabrication rate of 23%. This project marked the starting point of our journey into serial and modular construction and already showed the benefits of prefabrication. In the following project, the LeopoldQuartier -- LeopoldQuartier office in Vienna, we increased the share to 43%. The direct comparison illustrates how consistently we have evolved our business model within a short period and how we continue to learn from each project to further enhance efficiency and quality. As you know, we have discussed operational improvements in detail in several previous conference calls, so I will keep it very brief here. All underlying assumptions come from real UBM projects and the full breakdown is provided in the backup. On the residential side, our tomorrow view shows clearly rising margins driven by lower construction and incidental costs, while sales prices go up. Margin per square meter more than doubles, which underlines the potential of standardization and consistent execution. In office and light industrial, construction costs are moving in our favor as well. If we achieve our targeted cost levels and sell at around 5% yield or 20x annual rent, the asset class becomes profitable again and not only breakeven. The detailed calculation is also included in the appendix. The core message is simple. Our measures are working, and we can restore profitability in both asset classes. Back to Thomas.

Thank you, Patric. Slide 9, please. As I mentioned before, the carbon pricing of buildings is without an alternative. Buildings produce 37% of all carbon emissions worldwide. If you want to soften the cost of climate change, you need to price the CO2 emissions, be it through carbon taxes, be it through emissions trading certificates. This puts timber at an advantage or will increase the price of steel and cement as building materials going forward. Where do we stand with UBM's carbon balance sheet? More than half comes from our development activities, which is no surprise. More than 70% -- 75% of our future projects are in timber construction and will benefit the carbon balance sheet. Remember, 1 cubic meter of timber stores 1 tonne of CO2, 1 cubic meter of concrete emits between 600 and 800 kilograms of carbon in its production. Roughly 1/5 of our carbon footprint is generated by our standing assets. Our offices and carb emissions from mobility is less than 10% and therefore, of minor importance. We have developed a clear transition plan with defined targets and most importantly, all our employees are fully bought in. Wait for the carbon footprint to come back to the agenda. It might happen rather sooner than later. Let me come to the close of our formal presentation by turning to the outlook on Slide 10. As can be seen from the first 9 months numbers, 2025 will be significantly, significantly better than 2024. This is what we predicted, and this is what we shall deliver. The flights to real assets has started, and I expect hotels to be the next asset class to get out of the crisis, good for us as we still have "5 hotels on the shelf." The demand supply gap is widening in residential. The answer how to provide sufficient housing will influence, if not even decide the next elections throughout Europe. The big open question, of course, is when is office going to come back? The honest answer is we all do not know. So we better have a plan B as it will be executed for Timber Pioneer. We are parking this asset for up to 3 years by financing it as a standing asset, which should free up a double-digit million liquidity effect for us. However, liquidity management remains in our focus and will occupy our minds also most of next year. At the same time, the foundation for future profits will also be started to be laid next year. With this prediction, I thank you for your attention and would like to open the line for your questions.

Yes. Thank you very much for the presentation, and we will now move on to the analyst Q&A session. We kindly request that analysts ask questions during Q&A. All other participants are invited to contact the Investor Relations team following the call. Thanks for your understanding. [Operator Instructions] We start with Mr. Bruns.

Congratulations for the second quarter consecutive quarter with a positive EBT. I have several questions on the gross profit margin in Q3 seems to be quite high, above 50%. Could you give us a little bit background on this figure? And can we expect a similar strong performance in Q4? And maybe in addition, can you give me an update how many completed apartments in which cities have not yet been sold? And of course, I'm also very interested in the situation in the hotel sector, so under standing assets. There you report that the real estate office market remains difficult, but I would also like to know your assessment on the hotel sector.

Maybe I start, Christian, on the profit margin, good question. So predominantly, our profit currently is coming out of the already sold apartments because we are showing that from the POC point of view and most of the apartments, which are under construction are in the erection phase, meaning they come to an end. So predominantly, this is coming. On the future trend, this will prolong for a certain time. And as we give the apartments in the next step to the buyers and hopefully, we are also selling the ones which are not sold yet, which was another question you had. So it comes from the apartments.

Let me jump in here. You've asked for the completed apartment projects, which we have only 3, okay? One is Timber Praha, and we have approximately a dozen of apartments, 12 apartments left. It might also be 10 by now. So a small number out of 64 apartments, if I remember correctly. And in Mainz, we have approximately 35 completed apartments not sold. And in Vienna, only Village im Dritten #11, so field #11 is completed, and there are 3 apartments left that have not been sold yet. So you see we are -- I could say, on a basis of completed apartments, we are almost sold out. Then your other -- does this answer your question?

Yes, it does.

Perfect. Then your other question was on hotels. Well, I've mentioned it in the call already. And my kind of light at the end of the tunnel stems from the Expo Real, right? [indiscernible] That was at the beginning of October. And I'm still waiting for news to be officially publicized. But there was talk about serious institutional investors. I'm not saying that others are not serious, but I'm talking about the big names, okay, are coming back and buying hotels, for example, here in Vienna. If this is happening, this might be kind of the signal for everyone else that they might be too late and they will come back to the market because what we've seen in the last 3 years were not the big institutional buyers, but either family offices for smaller hotels, i.e., below 150 keys or like more exotic buyers that wanted to own a hotel in a city they haven't been. So for us, this means as we have, as I said, 5 hotels on the shelf, that could be a positive one. I don't expect that prices will immediately recover to where they should be. But as the price for newly built hotels is above the existing ones simply because of the construction price development, I expect that these will be cleared before the rest. And we all know that we have several cities where you don't find a bed neither in the hotel segment nor in the Airbnb segment now before Christmas. Does this answer your question?

Yes. Thank you very much. But this will not be the case. There will be no divestment in the current year, I think.

No, I don't expect one this year. And then you need to see that the lead time for such negotiations is a minimum of 4 months, but the average is 6 months. And I've also seen negotiations taking 9 months. So you need to consider the lead time, and this is why I'm not disappointed or kind of hesitant about the rumors that I picked up at Expo Real because that is 2 months ago.

Thank you very much for your questions, Mr. Bruns. And we move on to the next participant, Mr. Scharff, you should be able to speak now.

Stefan here from SRC Research. I have a couple of questions. It's about your projects. Let's talk about Timber Peak in Mainz, which is to be completed until the end of the year. That means in the next weeks. So perhaps could you give us an update here? And also about the B section of LeopoldQuartier in Vienna. This could rather be a hotel perhaps or also be a serviced apartment property. So what are your plans here? And yes, for Mainz, of course, how is the letting at the moment? And how are the negotiations for more space to rent?

Thank you, Stefan, for your questions. Well, in Mainz, we have one office project and the office projects are the only ones that we need to find tenants, okay? Because for the resi projects, we find buyers. Now we have Dexcom as the main tenant in Timber Peak, and it occupies 23%. The build-out is happening as we talk. And for those who are on LinkedIn or other social media, they almost get live pictures because there is a very regular reporting on the progress that they are making and the views are amazing, even though it's like mobile phone pictures. So that's where we stand. We hope of course, for more tenants in the near future, but too early to report. The interest is there, okay? And your second question was on Leopold B. That's a completely different story because we haven't even started with Leopold B. Leopold B is divided in 2 parts. There's Leopold B1 and sorry for being a bit technical and not very sexy names. That is facing the street and that needs to be commercial living, i.e., it could be a hotel. It could be long-stay apartments or something of this kind. Leopold B2, okay, facing to the backyard, which is not the backyard view, but like more noise protected is a forward resi apartment project, which depends a bit on B1, okay? And I think this is kind of answering your questions, but maybe you repeat the one that I might have missed.

No, no. That's it because a hotel might work because it's so close to the first quarter in Vienna and to the city center of Vienna, so a hotel might properly work there.

It will definitely work. I mean the question is if it works for us commercially. I mean, without wanting to sound arrogant, but I think location-wise, it's very difficult to point out a new build project in Vienna that has a better location than the LeopoldQuartier because as you pointed out and you are familiar with Vienna, it's adjacent, okay, there's a little canal, the Donaukanal, separating the first district from this project in the second district. And what also is worth mentioning, it's not even 10 minutes walking distance from Augarten. Now if anybody who hasn't been to Vienna knows Augarten, it might be from the [ Poland ] but it's a big recreational park. So it's like green city. It has enough parking for offices. And location-wise, it's difficult to be beaten.

Yes, yes, I did the property tour and you sold already almost all apartments. That was great. Yes. And another topic is the timber works in Munich. It's like Timber Peak in Mainz, also about 10,000 square meters. And here, completion is planned in about 2 years in the mid of 2027. Perhaps what are your plans here? Or do you also have some negotiations here with tenants as this is a good leading commercial project in Munich?