S IMMO released FY ’23 figures, showing strong operational results as well as a lower-than-expected devaluation of the real estate portfolio.

FY rental income came in at € 203m (eNuW: € 193m; eCons: € 191m), up 30% yoy thanks to acquisitions to the tune of € 1bn, mainly in Austria and the Czech Republic as well as an improved l-f-l rental level of the portfolio. Importantly, revenues from hotel operations increased by 24% yoy to € 70m (eNuW: € 65m; eCons: € 64m), thus significantly exceeding pre-pandemic levels (2019: € 59m). Overall revenues (incl. service charges) increased by 29% yoy to € 336m (eNuW: € 321m; eCons: € 323m).

Against this backdrop, FFO grew by 52% yoy to € 99.7m (eNuW: € 101m, eCons: € 84m), mainly driven by the improved top-line as well as operating leverage on the G&A level. Yet, despite the strong operations, the result from property valuations again came in negative at € -109m, which was however below market expectations (eNuW: € -148m, eCons: € -134m). Moreover, when taking a closer look at the regional split, one can see that especially the German portfolio saw a strong devaluation (€ -118m) while the CEE portfolio even gained value (€ 37m), although part of this was due to  purchase price adjustments. Nonetheless, this once more supports management’s decision to shift the strategic focus towards the higher yielding Eastern European office market.

In fact, S IMMO recently published a strategy update, stating that the whole German portfolio is now included in the disposal program, which initially only included the German residential portfolio. On top of this, the company aims to gradually streamline the portfolio, focusing on the divestment of small and medium-sized office properties with limited development potential, possibly leading to a market exit in Croatia (€ 75m BV) and Slovakia (€ 150m BV). While management did not put a number on the disposal programs, we estimate it to comprise properties worth c. € 750m (incl. Zagrebtower), which are set to be disposed within the next three years (eNuW). The freed funds are seen to be merely invested into office and retail properties in Austria and the Czech Republic. Here the company, recently signed an LOI acquire an office and retail portfolio in the Czech Republic from parent company CPI (€ 495m BV).  

Based on continued strong operations and metrics as well as the possibility of a delisting offer looming, S IMMO remains a BUY with a new PT of € 19.00 (old: € 18.40) based on NTA and DDM.