UBM Development AG (UBS) Earnings Call Transcript & Summary

Hello, and a warm welcome to today's earnings call of the UBM Development AG following the publication of the H1 figures of 2026. 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. And with no further ado, Mr. Winkler, please, the stage is yours.

Thank you, Marika, and welcome, everybody. Thank you for joining UBM's conference call on the first half of 2026 with, what I would say, a fair number of highlights that deserve the name highlight. Looking at Slide 1 of our presentation, what did we achieve? Our turnaround has solidified, and we are able to report a significant earnings swing before and after tax. Second, the boom in residential sales continued and with more than 200 premium apartments, we repeated the record sales number from last year. Three, we are making good progress in affordable housing, our major strategic initiative, more details later. Four, the enabler is a strategic sales program, as announced previously, with first assets having been sold at or above book value in current market conditions, it could be called a good start. Five, our equity ratio has further improved and even lies above our target range of 30% to 35%, while our net debt decreased to just below EUR 475 million. The outlook is all about affordable housing, affordable housing and affordable housing. I see a good chance that we can take a leading position again in this segment. More in a minute. Let us first zoom in on the half year earnings swing, looking at Slide 2. An earnings swing from a loss of EUR 6 million to a profit before tax of more than EUR 7 million cannot be overestimated in a transitional year like the year 2026. Enabled by our successful resi business on the one hand and the first asset sales on the other hand, it also shows up in revenue increase of 36%. We are not back to normal, but the direction justifies some optimism. To have a closer look into the resi boom, please follow me to Slide #3. We have hit last year's record level spot on and projects like LeopoldQuartier C, Village im Dritten 11A or Na Plzence Phase 1 are sold out by now because you get the figures here by end of June. The boom holds. Please allow for highlighting the Prague residential market. From the launch of our sales in Na Plzence Phase 1, we were able to increase the square meter price by no less than 20%. But you are sold out, you might say. And my answer is true, but only for Phase 1. We see the same interest in Phase 2, which is in the mirrored project on the other side of the street in Smichov and shows up in the order backlog, one of the hottest districts in Prague. The Czechs are almost obsessed, if I may say so, with owning real estate and particularly their own apartment. We have a different trend in Vienna and the big cities in Germany. In Vienna, almost 80%, 8-0, of the apartments are for rent. This market is grossly undersupplied and our initiative in affordable housing is precisely targeting this market. Please turn to Slide 4. What is the issue? Even though Vienna has been a shining example for reasonable cost of living compared to cities like London, Paris or Zurich, we now see an interesting phenomenon. Those who are and have been happy campers, if I may call them, do not move out of their apartments, even if they are too big when the kids have moved out. The few new apartments are facing demand by a growing number of people desperately looking to find some living space at reasonable cost. I'm not sure if we should call this locked in or locked out phenomenon. The issue is neither unique to Vienna nor easy to fix. With the apartments coming to the market at square meter prices well above EUR 8,000 and the current interest rate environment, we see rents promising a reasonable return close to EUR 30. This, however, represents often a portion of the disposable household income well above 40% to 45%, far from affordable. The same is true with regional differences for many of the attractive cities in Europe. This constitutes a serious political issue with people demonstrating on streets in many countries, the pictures from the news. We, this is the developers and the construction industry, are challenged to bring down the cost of housing by thinking out of the box. UBM, together with Porr Living, developed a first pilot project in Vienna to prove that affordable housing, eating up a maximum of 35%, better 30% of the net household income is doable. It is a new way of thinking rather than stripping off quality. It is moving the construction site into the factory and assembling standardized elements rather than building prototypes because nothing else is what we are doing up to now. As can be seen from this slide, we are talking about timber frame wall facade elements with pre-installed windows and outside shading. We are talking about every apartment with a balcony photovoltaic for hot water supply and heating or cooling by heat pumps. All of this resulting in a very low monthly operating cost of EUR 1.70 to EUR 1.90 per square meter. Pre-installed central home technology piping and electricity units or plugging systems reduce the need for skilled workers. The same is true for the bathrooms or the kitchens. They come complete. With prefab elements, we are talking scale effects and a significant reduction of construction time. This, combined with a number of highly efficient layouts is a solution. The best is that UBM is not only sitting on the land for the picture pilot project, but 6 more plots in Vienna, resulting in over 50,000 square meters of rentable area, perfectly located for the purpose of affordable living. I shall provide you with some more information in the outlook. Before this, I would, however, like to ask Patric to share with you a bit more of the commercial considerations behind affordable housing and also update you on our financials. Patric?

Thank you, Thomas. Good morning, everybody. Back in May, I walked you through our sample calculation for affordable housing, a net selling price of around EUR 5,000 per square meter, a monthly rent of EUR 15 per square meter, an annual return of 4% for an institutional investor and some -- as one of the key factors and the residual of the calculation, a land price of EUR 850 per square meter residential floor area. The obvious question was, does that EUR 850 stand a reality check. This slide tries to get answers. The table on this slide offers you an overview of how much we can invest in terms of land price per square meter residential floor area across 15 cities in Germany and Austria. How do we get to our own figures? We take the rent that is achievable in each city, capitalize it at the 4% yield an institutional investor expects and derive from that the land price we can justify paying. That is the dark green bar. The light green bar does the same thing from the other direction. It starts from average net household income, applies the 33% that a household can reasonably devote to housing and derives the land price. The dash line running across the chart is the EUR 850 per square meter from our sample calculation. Take Vienna, the third example from the left. An average market rent of roughly EUR 22.5 per square meter justifies a land price of around EUR 1,641 per square meter. Measured against household income, the figure is even about EUR 1,794. As we developed our strategy, it was clear that we would see regional differences. And that is the point of this slide. In order to achieve the yield an institutional investor expects, we don't have to achieve acquisition with EUR 850 per square meter residential floor area in every city. In nearly all of the investigated cities, the price per square meter could be higher. In other words, our model does not depend on finding exceptionally cheap land in one particular city. It works across a broad set of markets, including the 6 cities marked with an asterisk where UBM is already developing residential projects. Land cost is highly location dependent and directly tied to achievable rents. This chart is not a shopping list, and it is not a statement that we will pay these prices in the end. Two takeaways from this slide. First, the affordable housing calculation is not a Vienna special case. The arithmetic works across our markets. Second, we are entering this segment with a clear quantified benchmark for what we are prepared to pay. Please turn to Slide #6. At the full year presentation and again in May, we told you that we need to free up cash from our standing and nonstrategic portfolio in order to refinance the strategic shift. This slide is proving a successful start of our sales progress. The first is Ekazent Paket 6, a standing asset or rather a package of leasehold rights to various commercial properties in Vienna and the Greater Vienna area. This partial sale transaction amounted to around EUR 35 million. UBM's ownership share was 50% of that. The cash inflow to UBM is EUR 11 million, of which EUR 10 million was received in the second quarter and a further EUR 1 million will follow in the third quarter. The second was a nonstrategic asset held 100% by UBM. The volume is EUR 10 million, and here, the full EUR 10 million comes to UBM in cash, EUR 5 million in the third quarter of 2026 and the remaining EUR 5 million in the first quarter of 2027, so not part of our cash numbers yet. Taken together, that is around EUR 21 million of cash. The most important point is both were executed at or above book value. No doubt, this will not apply to every transaction in the future, but it is an encouraging start. Please turn to Slide #7. This slide brings me back to the 2 ratios we watch most closely, equity and leverage. Starting on the left, equity stood at EUR 374 million at the end of June and the equity ratio at 36.6%. That is above our target range of 30% to 35%, and it is the highest level in the last 3.5 years. The drivers are the positive half year result and more significantly, the EUR 25 million of Genussrechtskapital issued in the first quarter. A ratio at this level gives us flexibility at a point in the cycle where we are building a new pipeline in affordable housing, and we would rather enter that phase with capacity than have to create it. Turning to the right-hand chart. Net debt came down to EUR 475 million from EUR 546 million a year ago. That is a reduction of EUR 71 million year-on-year and the lowest level we have reported in years. The loan-to-value ratio stands at 46.5%. Two key messages from my side. First, the equity ratio is above our target range. Second, net debt is at its lowest level in years. With that, I would like to thank you for your attention and hand back to Thomas.

Thank you, Patric. Why do we think affordable housing is the next big thing, particularly for UBM? Well, let us have a look at the market environment as described on the right-hand side of Slide 8, by the way, our last slide of the official presentation, but there are plenty of slides in the backup that I would refer you to because they are really interesting. Austria is seeing rent rises on average of 5%. Vienna is expected to be even at 7%. This is well above inflation and is going to continue above inflation for the foreseeable future. As mentioned before, Vienna is a traditional rent market with 77% of the population being renters. With less than 10,000 apartments expected to be completed this year and approximately only 2,250 freely financed apartments, which are also free on the market compared to an estimated 13,000 to 15,000 needed, it is easy to see a growing demand for affordable housing. The situation in Germany is no better rather the contrary. According to the Finance Minister, Lars Klingbeil, Germany is short of 1.4 million apartments today. I've seen a figure yesterday of 1.34 million apartments, doesn't make a big difference. And with an expected 185,000 units completed in '26, the shortage is growing by 200,000 per annum. A growing number of permissions, which we see in Germany, together with a growing number of cancellations, which we also see in Germany, does not change the picture. This is underpinned by a very low number of listings in most urban markets in Germany. While the promise of EUR 23 billion of government subsidy programs gives hope, the political debate in cities like Berlin does not help. The Warsaw rent market with rent levels above EUR 20 per square meter a month is rounding up the situation. Here, we have a potential of another 50,000 square meters right next to Poleczki Park. It's actually part of Poleczki Park not being built up. This means UBM has identified a potential of more than 100,000 square meters of affordable living in its existing portfolio. Nothing is ready to be built immediately, but we have all the ingredients in-house. This perspective justifies the headline of our outlook, affordable housing is the next big thing. I'm not sure if I've already mentioned this one. I guess there are a number of questions, and let me open the line now for them, and thank you for your attention.

[Operator Instructions] Mr. Stefan Scharff.

My first question is about the affordable housing projects to come in Germany. When will we see the first project and perhaps there is room to change some project types in Munich for affordable housing. The second question is about the bond market. You tapped the bond market almost in every of the former years in fall, September or October, November. So are there any plans to go to the bond market again? I know the equity ratio is quite high, but also we have the cash position slightly below EUR 100 million, and it was mostly between EUR 130 million or EUR 150 million.

Okay. These are your 2 questions, Stefan?

Perhaps I have 1 or 2...

Excellent. Excellent. But then let me start. Of course, as a UBM expert, you have noticed that we didn't mention Germany. The reason is we have one small plot identified that could be used for affordable housing. We are currently investigating it, and we hope that we can report on it in our Q3 call. But by and large, the properties that we own at the moment are not ideal for affordable housing for the simple reason that they are in super prime locations, and therefore, the land cost is above our limits. And that kind of answers your question with Munich. Part of the Munich project as every resi project is, of course, for subsidized living. And that's a different story, but that has nothing to do with our affordable housing. Our affordable housing is a different way of building the properties and is clearly targeted for an institutional investor to buy it and rent it out, whereas the locations that we are talking about here are all locations for ownership preferably. I hope this answers the first question. And for the second question, I will refer to Patric.

Stefan, bond market tapping was the question, if I'm right. So what we always do, we take a closer look at the market. And meanwhile, I have the impression that not everything what Mr. Trump is doing in the U.S. is immediately doing a lot of fluctuations in the market. So if the markets are in a good condition, we are, as always, looking carefully and thinking about if we can do a bond transaction or not. In terms of cash, yes, of course, when you are in a strategic environment where you want to change the strategy and start a new asset class, affordable housing, there are some sources of cash in the company. One is the cash we are sitting on, which is a little bit lower, as you have pointed out, as we have repaid a bond with EUR 73 million in the second quarter. But you can use money from the market. And if there is a good opportunity, we will look at that and see what we can do with it.

Okay. How are the sales generally doing in Germany? I know you have the Mainz HAVN project, and there are still some apartments to sell. How is the sale progress doing there? And the other question is you also mentioned it in your half year report, you have the 5 hotels to sell. What can we expect here about transactions to come in the second half of the year? Or is it still too early and it's more a topic for '27?

Again, you are always identifying the gaps, which is fair enough. Look, we've always been picturing Germany as the upside, and I still hold this up. But as much as we love to talk about the Czech market or I should rather say the Prague market, difficult it is to talk about the German market. I mean you have seen price developments in the German market going the wrong direction from our point of view because prices have not increased anymore. And the Germans, if I may say so, as I have lived long enough in Germany, are very, very kind of pessimistic at the moment. So the overall mood in the market is not ideal for selling really good quality apartments as we have them in Mainz. Still, okay, we see a slow kind of pickup, and I keep up my hope that Germany, okay, because there is very low sales figures included in the first half year is an upside more than anything else. Now you have asked for our hotels, and that's also a good question. And I must say I've been more upbeat about the hotel transaction market like 6 months ago than I am right now. We see that over summer, even the kind of drought situation, the lack of water in the rivers and therefore, the river tourism, the ever-changing situation with Iran and things like this has again made hospitality business plans a bit more cautious, which is not helpful for negotiation speed. We are still in talks on our hotels. We also very openly have flagged that we want to sell them. We are a developer. We are not the real estate management company. But I don't dare to give you a good timing, not even kind of -- is it still in '26 or is it in '27. My hope, of course, is that we will sign and close accordingly at least one deal in '26. But as I've described, I can't give you a guarantee on this one.

Okay. I see. I see. Perhaps I have one final question. It's about the 2 offices in Mainz, the Timber Peak and also in Frankfurt, the Timber Pioneer. Here are some in Frankfurt just a little bit and Mainz a bit more, some office space available. Are here some current negotiations or, let's say, some rental contracts you can talk about?

No, nothing that we want to talk about because, I mean, it's stupid to talk about something before the ink is dry. But we see interest. And even though interest is materializing in a signed contract now in a time frame more of 9 to 12 months than 3 to 6 months, I'm optimistic for some progress in this one. The Frankfurt market is the most difficult one when it comes to buildings outside CBD and outside the towers, okay? And even there, my colleagues tell me that they do rent activities with 500 square meters to 900 square meters, which is very little per tenant. So yes, you are right. The things are slower than expected. It comes back to the overall kind of broken spirit that I must say we are seeing in Germany. But there is interest that could materialize in contracts also for Mainz, which is actually a great situation because you can live where you work. You have the 15-minute city materialized. And it's a really beautiful icon building the highest, by the way, in Mainz, and it is in timber construction. We stand by. We keep the tension up.