Yesterday, we had a call with DI Herwig Teufelsdorfer, member of the management board, to discuss the recent Q1 release as well as the outlook for 2023. The key takeaways:  

Revenues in Q1 increased by 39% yoy to € 80.0m (eNuW: € 79.2m), mainly driven by several major acquisitions in the CEE region (Budapest & Bucharest) in 2022 which also led to a 60% yoy increase in rental income to € 47.6m (eNuW: € 49.3m). Notably, revenues from hotel operations showed a further recovery, growing by 17% yoy to € 13.4m (eNuW: € 12m), which equals a full recovery compared to pre-Covid years. In fact, utility rates in some hotels almost reached 90%, a trend which continued in the Month of April and May, as we have been told.

Aside from the release, S IMMO performed another major acquisition in the high yielding CEE region, as the company acquired four objects in Prague. The portfolio has a total value of € 168m and generates an annual rental income of € 8.4m, implying a 4.2% yield. While 87% of the rental income is generated by three office properties, the portfolio also includes a 160-room hotel (Courtyard by Marriot). This underpins management’s confidence in the reinvigorated segment, which is also backed by tourism data from Germany’s Federal Statistical Office stating that overnight stays in April reached pre-Covid levels.

Going forward, Mr. Teufelsdorfer reiterated the company’s intention to dispose the majority of the German portfolio, especially residential objects. While € 570m of the initial € 1.07bn have already been sold, we estimate another € 300m to be disposed until FY24e. Given an average LTV of 30%, this would yield € 210m in proceeds ex financing. Moreover, the company aims to put smaller, non-core assets up for sale (eNuW: € 50-100m).

The freed funds will be merely invested higher yielding office objects in the CEE region, where we observe a yield delta of 3-4pp compared to German residential. Hence, the rebalancing of the portfolio (e.g. further increasing the share of CEE office properties) should generate an additional € 20-30m in annual rental income, thus creating significant shareholder value.

BUY with an unchanged PT of € 17.00 based on NTA and DDM.