UBM Development AG ($UBS)

Good day, ladies and gentlemen, and a warm welcome to today's earnings call of the UBM Development AG following the publication of the full year 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 today's full year conference call just before the start of the Semana Santa, the Holy Week and Easter. We have a couple of good news and a promising shift in our strategy to present. Looking at the highlights of Slide 1, we have 5 major achievements or news and the outlook. First, we have promised you a profit in the second half of 2025 and are overdelivering with a profit for the full year. Two, we promised to sell 450 apartments, and we achieved 452. With EUR 118 million at year-end, cash stood higher than expected. By the end of March, we are able to state that already existing cash inflows will provide for the bond repayment on the 21st of May. And more important, we are able to announce already at this stage that we shall repay the hybrid upon the step-up date as also I spoke yesterday evening. Fifth, mentioned at the beginning of the call, we are going to adjust our strategy given the extreme demand for affordable housing and a clear business case, which we have developed and which didn't exist up to now. Finally, we expect to benefit not only from this move in strategy, but also from a new balance in the market after a radical shakeout and despite the macro uncertainties. So let me get a bit more specific by turning to Slide 2. After 2 loss-making years, we are returning to profitability. As can be seen in the Zoom, EUR 7.7 million in the fourth quarter overcompensated the first quarter loss, which kind of spilled over from 2024. Pretax earnings of EUR 4 million is higher than anticipated for the full year and clearly underlines the turnaround of our operational business. A more than 30% higher revenue, a EUR 18 million reduction in net debt and a staff reduction to almost 200 are rounding up the picture at year-end. By the way, we've reduced headcount by more than 40% over the last 4 years, and I expect the number to be closer to 150 than 200 by end of this year. In other words, we are acting out of a position of strength again, admittedly something we at UBM are proud of after 4 extremely challenging years for the industry. Please turn to Slide #3 for the major driver in 2025. We have hit an all-time high in individual apartment sales with 452 or 12% more apartments sold than in the strong year 2024. Remember, there has been no business case for institutional investors at the current price level and interest rate. The vast majority of sales occurred in Vienna and Prague, where we expect the market dynamics to continue based on what we are seeing in January, February and part of March. You may look at Germany as somewhat disappointing. For me, Germany represents an upside opportunity in the future. There's one thing for sure in all of our markets, prices in the premium living segment only know one direction, and this is up. Rather than starting to talk about premium and affordable, I turn the micro to Patrick, who will first provide you with detailed insights into our financials. Patric, please.

Thank you, Thomas. A warm welcome also from my side. Please turn to Slide #4. Let me walk you through our cash development and capital structure, both of which clearly reflect our successful focus on financial discipline and active balance sheet management. Starting with liquidity. Over the past periods, our cash position has remained fairly comfortable despite a number of significant repayments. This stability is the result of proactive cash management and timely access to the capital markets in recent years. In 2025, we successfully raised a total of more than EUR 160 million on the capital markets, making it the second strongest year in the last 10 years. This was also key in securing financial flexibility and optimizing our maturity profile. I will come back to our bonds in more detail on the next slide. At the same time, we executed targeted deleveraging measures in 2025. In particular, we repaid EUR 75 million through a bond redemption in November and an additional EUR 40 million in promissory notes in December 2025. In total, this amounts to EUR 89 million of repayments within less than 1 quarter. These repayments were achieved without overly stretching our liquidity position. As a result, we closed the year with a cash balance of EUR 118 million, above our guidance of around EUR 100 million. Please bear in mind that we were able to do so without any emergency sales and full preservation of our asset base waiting for more stable market conditions. Turning to our equity position on the right side. We see a very stable development over time with the highest equity ratio by year-end in the last 3 years. Our equity ratio currently stands at 32.1%, lying comfortably within our target range of 30% to 35%. This is a result of a clearly defined capital structure strategy. We have actively managed our equity base, including the use of hybrid capital. This is also why we have prioritized addressing the hybrid in the first half of 2025 before turning to the senior bond market in the fourth quarter. In parallel, our loan-to-value ratio remains below 50% in the current environment. We consider this to be a signal of strength. Overall, let me highlight 3 key messages. First, we are executing in a disciplined and forward-looking manner. Second, we maintain a robust and well-balanced equity position within our defined target range. And third, our capital structure remains fully aligned with our strategic priorities. This is essential as we move forward with our current strategic initiative, the portfolio rebalancing. Please turn to Slide #5. Let me start with the key message upfront. We have a EUR 56 million hybrid bond, which reaches a step-up date on June 18 this year. We intend to repay this instrument upon step-up amounting to a total of EUR 59.5 million, including accrued interest. As announced via our talk release yesterday evening, we are currently in advanced negotiations for subordinated Genussrechtskapital of up to EUR 90 million. Our intention is to replace the hybrid bond with this equity-like instrument. The main source of the Genussrechtskapital is expected to come from 2 parties for whom we are an important customer in the field of private building construction, which is currently going through rough times. It is IGO Industry and Porr. Porr has already granted Genussrechtskapital to UBM back in the year 2014, and we have repaid it fully over the following years. For completeness sake, the EUR 73 million sustainability-linked bond will be repaid on May 21, of course. Looking beyond 2026, the maturity profile looks very manageable. Next bond repayment of EUR 50 million is due in July 2027, and there are no further bond maturities until October 2029. This creates broad refinancing windows and high visibility. It allows us to act opportunistically and align future capital market transactions with favorable market conditions. Before I hand back to Thomas, I would like to thank you for all your trust and for the constructive dialogue throughout 2025. Back to Thomas.

Thank you, Patric. Slide 6, please. The next big thing in Europe, particularly in UBM's markets, is undoubtedly affordable housing. While there is no specific terminology behind the English word, there is a certain confusion around the term Bezahlbares Wohnen in German. While Bezahlbares Wohnen often means very low maximum household incomes as a limit, generous public subsidies and maximum regulated rent levels, Bezahlbares Wohnen is targeting price levels which, a, provide a business case for institutional investors; b, a business model for developers and most importantly, c, the cost of housing not exceeding 30% to 35% of net disposable household income, which is, by the way, also in line with the definition of [indiscernible] and OECD. Admittedly, there has been quite a hype around affordable housing already for a while, but nobody could make the ends meet. Conventional construction costs have been soaring up. Supply has been steadily going down and building permission times increased significantly since COVID as did equity requirements by the banks or even regulators. The construction industry has reacted to this as they are the only ones to have the resources and execution competency. Porr under the brand of Porr Living, STRABAG under the brand of Moleno or Tetrix or [indiscernible] under the B-Solutions brand are today offering construction prices at or even below EUR 2,000 per square meter of lettable area above ground. That's important as opposed to gross floor area. We and the remaining developers are now following by opening ourselves to these technologies, irrespective of the various systems of assembly or the building materials and elements used. The same is true for geography. It is driven by demand and public framework conditions rather than by parameters like A city or size. As a result, UBM is going to pursue a 2-product strategy in the future, affordable housing on the one hand and premium living on the other hand. While affordable housing is primarily focused on price or the S in ESG, premium living continues to address the E in ESG, i.e., timber hybrid construction as well as renewable energy sources. Two product strategies have proven highly successful in other sectors in the past. Just think of Apple with its Pro Series and standard series or for the more fashion savvy listeners, think of H&M and COS. UBM has proven a track record of executing its shifts in strategy in the past. Just think of us moving from #1 hotel developer to one of the leading timber construction developers in Europe. We aim for an early mover advantage again when it comes to affordable housing. The still unanswered question is, how do we want to finance this shift in the light of the tight financial boundaries set by the industry environment? Well, have a look at Slide #7. We are going to rebalance our EUR 1.9 billion pipeline from Q3 of last year. EUR 0.73 billion of resi projects will continue as streaming living, unchanged from what we described and hopefully as successful as it was. A selected number of office and light industrial assets with a total volume of EUR 370 million have also made it to the cut and details are given in our backup. We have completed a number of projects since last September. Best examples are the office buildings LeopoldQuartier Office, Village im Dritten 9A or Timber Peak. Together with 6 projects, which we now have classified as nonstrategic, they are adding up to a book value of EUR 740 million. Selling them all creates a cash potential of EUR 360 million after redemption of bank debt and under the assumption, we are able to sell them at book value. The EUR 360 million of freed up cash are planned to be reinvested primarily in affordable housing, potentially creating a project volume of up to EUR 1.1 billion, assuming a leverage of 66%, which is far from aggressive for the rather low-risk affordable housing. The lower end of the range or EUR 0.8 billion would represent a leverage of only 55% or you could also take it as a rather cautious look at the shorter-term achievable sales volume. In total, the new pipeline will have a volume of up to EUR 2.2 billion or EUR 300 million higher than before. We realize that this portfolio rebalancing might require a more in-depth session than today's full year conference call, particularly for the analysts on the line. This is why we are offering a half-day session after the Easter break on Thursday, April 16. In preparation of this session, you find a full section on the portfolio rebalancing at the end of the backup of today's presentation. Given the time, let me rather proceed to our outlook at this point, which can be found on Slide #8. 2026 will be under the headline portfolio rebalancing in order to reshuffle resources to affordable housing, which is going to be the asset class on the highest demand and focus irrespective of the overall economic situation. The required cash will primarily come from the disposal of stainings as we want to remain a pure-play developer. This also requires an adjustment of our workforce in the newly cut portfolio and will benefit additionally our cost base. 2027 is seeing 3 major features with a positive impact on profitability. One is less competition; two is a widening supply-demand gap; and three, almost no repayments, as already mentioned, and this up to Q3 of 2029. We have delivered what we promised in 2025 despite all the uncertainties in the real estate market and the overall economy. We are determined to deliver also in 2026 on the basis of the presented clear road map and our track record. With this, I would like to conclude the formal part of our presentation. Thank you for your interest and open the line for your questions.

[Operator Instructions] And we have Mr. Stefan Scharff. Scharff, you Should be able to speak now and place your question.

I have a couple of questions. The first question is, can you give us a split for the 452 residential apartments, which you sold last year and perhaps also say something about the 10-year swap rates were up the last 3 weeks about 40 basis points and the financing conditions deteriorating in the last weeks, making financing for residential apartments more expensive, at least in Germany. What is your view here for sales of apartments in Germany and your general view on the economic situation?

Great questions, Stefan. Let me take the first one. It's definitely the easier one, which is the breakdown of our apartment sales. I give you the rough numbers, but 220 are coming from Austria, predominantly from Vienna. 200 are coming from Czech Republic, Prague only and around 30 from Germany and Poland. This is why I said you might look at Germany as somewhat disappointing. But I think it creates an upside for us in 2026 because there is definitely no press release I'm aware of that there is a higher supply coming to the market, and there is reports of up to 1.2 million apartments missing. So I look at it positively. Shall I answer the overall economic question? Well, everybody knows that we cannot say anything about it because it all depends on the duration of the conflict, the war in Iran. Everybody has thought that it will take much shorter than it already takes. And we are well aware of the impact and have not been ignorant to them and still get some optimism out of it because there are things that need to be done. In our case, it's this shift to affordable housing. But I think overall and knowing where you are sitting, which is right in the heart of Germany, there's no way around than fixing the infrastructure in Germany. And always complaining and asking yourself, what's going to happen next and what could get wrong on top of it is kind of not a good way of tackling the future. I hand the question for the 10-year swap rate to Patrick.

I mean, predominantly, you answered that, Thomas, because we are not more clever than the market. We see that the market is nervous. You can see that on the swap rates. You can see that on the 10-year bond. You can see that everywhere. I mean that is one part of the equation of somebody. And just to be reminded, we are selling the apartments to individuals currently. We are not selling them to bonds because they are anyhow out of the window that they can make heads or tails on their investment calculation. So an increasing interest rates on this side is not helping at all for these bond investors, but investors who are not there can't be going out of the market because they are anyhow not there. So the question is what are the individuals are doing? Does that have a big impact on their plans to buy an apartment? And secondly, what are the banks doing in terms of are they providing liquidity in terms of debt? Or are they just sneaking away from the market? I can't answer this question yet. As Thomas was pointing out, it's an unsecured timing currently. We are all hoping for a quick end of that Iranian conflict so that we come back to what we have seen a positive trend in selling apartments.

Okay. I see. If we have a look at your new strategy, that makes sense. The affordable housing segment is booming for sure, in the next years. I have 2 questions. The first is how much can you save through standardization and modularization to make it cheaper, the square meter prices? And the second question, perhaps more important is on Slide 7, you introduced your plans to sell about, let's say, EUR 700 million or EUR 750 million and put this money, this capital into the new affordable housing business. Can you please give us a schedule here? Or is there a schedule to say this year, we can sell EUR 250 million or EUR 300 million and another EUR 300 million next year? And if yes, or this schedule, which properties like, say, hotels or which office projects like, say, Dusseldorf could fit most to be sold quite soon?

Tricky questions, but I still try to give you a satisfactory answer. Your first question was what is our calculation. I should rather refer you to the construction companies. Now I know that they haven't been all too detailed because all the construction companies like to talk about civil engineering and public contracts. But they all have slides in their decks. And what is most important is they all promise us EUR 2,000 per square meter of lettable area, okay, above ground. That's also important because there was a lot of confusion, and there was a lot of talking about EUR 2,000 per square meter, but if it's per gross floor area and if it's not including the areas that are still required like underground parking, it's no good. So from that point of view, they offer it. And what we had to kind of make peace with ourselves is that if it's in elements that do not consist of timber, it's fine. It still fits into our adjusted strategy because it's the S in the ESG. It's the social part because otherwise, there will be no living room provided for the people who are currently seeking apartments on the market. I think -- I personally think you will see 2 developments. The one is that elements are assembled, and these elements are purchased according to availability and price. And we have put in the backup on the very last slide, an illustration, of course, of our sister company because we are most familiar with what they are doing and all the interesting kind of "innovations" that they have, the plug-in cable connections, the pre-wall units, the timber frame external walls. And you're absolutely right. It's all about the standardization. And we even hope, but this is what we need the public authorities to is a kind of -- and I need to say it in German, typification as we see in cars. It makes no sense once you have a proven system out there to wait for individual permits because they take endlessly, and we need the public to play along with us. And this is also, by the way, and you haven't asked for it, but I answered it, why we are also completely agnostic to locations. We go now also to B and C cities. We go to wherever we are welcome because we want to achieve faster permissions and less bureaucracy. And if this is promised, it will be decisive for us deciding for a location. We want the Hamburg model simplifications throughout Germany and also Austria. They are then probably called Vienna model, but there should be no other difference. And finally, we also hope that there will be reasonably priced communal land reserves that will be made available for the market. Now that was the one. The other one is the schedule that -- and as I said, there is plenty of information in the backup, and we will spend half a day with you on the 16th of April, including our CTO, which should be helpful. Now on the schedule of the sales, it is a difficult one because the transaction market still is a very, very kind of unreliable source, which is maybe a bit of a harsh word. I think what is fair to say is that the hotel transaction market has opened. And I'm not only talking about the transactions that are led by [indiscernible], which I think is great news because [indiscernible] is an institutional established investor. It's not an exotic investor of any kind. They have bought the Andaz in Vienna. They've bought Motel One and 25hours hours in Cologne. And they are not the only ones, and that is basically what my transaction people came back with from [indiscernible] income. Everybody is interested in hotels. So my educated guess would be looking at Slide 32, where you see the standing assets that the first category is not by coincidence the hotel category. And we have the Voco in Den Hague, the Kempinski in Jochberg, which are also up for sale. Now the -- the other potential is the nonstrategic projects because we have projects that are even in the process of gaining building permission, but they are now outside what we think we should do, and they are also listed on this slide. And last but not least, again, not asked but answered, with the office, we are least optimistic, but we have bought time for the office sales by having refinanced them. We bought time to rent them out, which proves to be more difficult than we thought. And we've bought time to bring them to the market at reasonable multiples because there is one thing for sure. There is no new supply coming to the market, but there is demand for new office space. I hope this answers your questions.

That seems to be the case. Thank you very much for the questions, Mr. Scharff. And we move on to the next participant dialed in by phone. Elias New, you should be able to speak now.

I hope you can hear me.

Yes, we can.

My first question would be on participation capital. So just wondering what the reasoning was for deciding to issue participation capital rather than a new hybrid bond. So the question is really why equity rather than debt? And what was the rationale for the EUR 90 million in size relative to the hybrid bond repayment of around EUR 65 million. And any additional details you could share in terms of the rights associated with this participation capital would be very helpful as well.

Of course, Elias, let me tackle this question. So first of all, the hybrid is also accounted as equity. So we are talking about 2 instruments, which are both in the area of equity when it comes to IFRS accounting. The difference between the 2 is not too big in terms of Genussrechtskapital and hybrid. It's both deeply subordinated. The construction, which we have in the Genussrechtskapital, which we are planning to sign is close to the hybrid we had. One big difference is there is no step-up in Genussrechtskapital. So you have a fixed interest rate, which in theory, at least, can be used forever. And the termination like also in the hybrid because that is the way why we count it as equity is up to us in the end. It's not up to the one giving the capital to us. So your question was also why EUR 90 million and not just replacing it. I mean, we have the chance to get to a little bit more equity without having capital issuance. We think we should tackle that because a solid equity structure is giving us also the opportunity in order to rebuild a little bit the company, as Thomas was pointing out, because you need 2 things maybe you need, for sure, capital to do so and equity can help you as well if you are planning to reshape your company. That is the reason why we did it, and that is also the reason why we decided to do it up to EUR 90 million. Does that answer your question?

Yes, that's great. That's very helpful. And I think you mentioned that there will be 2 tranches. Has the first one being concluded? Just in terms of the time line there, that would be helpful.

I didn't say it's 2 tranches. What I said in my speaker notes is that we have probably 2 major sources, which is IGO and Porr who are up to signing, and it's like a bilateral you're doing. The first one we will see very quickly. The second one will be seen before the repayment. That is why we are so keen of saying we will repay the capital when it's up for the step-up. So we will see that early Q2, maybe Q1 even.

Okay. Great. That's very helpful. And my second question would just be on your early expectations for 2026. I mean I appreciate you already touched upon office and hotels remaining somewhat uncertain. But any commentary on your sales expectations in residential would be very helpful also in terms of apartment numbers, et cetera. Any sort of early thoughts on that would be greatly appreciated.

Yes. Hopefully, not repeating myself, but we have a sales process running at the moment for the Andaz in Prague and for the Jochberg hotel in Jochberg, the Tirol. And we will very soon after the Easter break open a sales process also for the Voco the Hague. So we have 3 sales process ongoing. When it comes to apartments, there was a lot of skepticism when we kind of were very upbeat on the development of 2025 back in 2024 because we sold already 400 apartments and everybody said, well, that's going to be a stretch to beat this one. Well, we've beaten it by 12%. We see the usual seasonality, if you want. January is a weak one and part of February is also kind of weak, but then we compare it on a seasonal basis. Here in Austria, we are selling apartments very well. And in all of our developments, remember, we are currently completing 750 apartments. Half of them have been sold a bit more than half of them that have been sold. The other half is going to get off the shelf. Now even better is Prague, where we are basically sold out with Na Plzence 1. And we wait for the building permit because otherwise, we cannot kind of draw up the contracts. We wait for the permission for Na Plzence 2, which is opposite and is kind of the mirror Na Plzence 1, and we were even able to increase the prices. So we have another 150 or so apartments on the other side of the street. And then we come to our German projects. The one I'm most optimistic about is the Thulestrase project in Berlin because everybody is aware of the Thulestrase -- sorry, of the Berlin apartment situation. And it hasn't gone any better. And we also get a KfW 40 subsidy for this. So it's even interesting for kind of private investors, if you want. So I expect the pace of sale to continue pretty much in line with what we've seen in 2025. And there's no reason or no indication from our experience in the first 3 months that would let me be pessimistic about it.

And we get to the next participant. Christian Bruns, you should be able to speak now and raise your question. Well, seems to be a bit tricky. Mr. Bruns, you should be able to unmute yourself and place your question. Okay. So then there are no more questions on the line, and we, therefore, would come to the end of today's earnings call. Thank you, everyone, for joining and your shown interest in UBM Development. Should further questions arise at a later time, please feel free to contact Investor Relations. A big thank you to Mr. Winkler and Mr. Thate for your presentation and the time you took to answer the questions. I wish you all a lovely and successful day. Stay safe. And with this, I hand over again to Mr. Winkler for some final remarks.

Christian Bruns, I'm sorry if you didn't come through with your questions, but place them with us, and I might even get on the phone bilaterally with you. And I hope to see you on the 16th of April back here. I also, in the name of everybody around this table here in Vienna, would like to wish you a very happy Easter time. Let's keep our fingers crossed that the situation in the Middle East is kind of getting a bit more under control. I think this is what we all do. And let's focus on what we can influence. There's one thing for sure. Nobody here in Vienna neither around the table nor anywhere else is able to influence the conflict in Iran, but we are able to do something about the living situation of so many, and this is what we want to tackle. With this, thank you very much for your attention, and have a good day.

Thank you. Sorry for having technical problems.