Topic: S IMMO released a solid Q2 results, showing significant top-line growth thanks to last year’s acquisitions. However, devaluations, especially in the German portfolio, overshadowed the else good operational result.

Q2 revenues increased by 30% yoy to € 81.4m (eNuW: € 81.8m) mainly driven by the acquisitions in Budapest and Bucharest in 2022, resulting in a rental income increase of 24% yoy to 46.3m (eNuW: € 47.5m). On top of that, revenues from hotel operations continued to recover, growing by 25% to 18.0m (eNuW: € 16.0m), thus exceeding the pre-Covid 2019 levels of € 15.3m.  

Q2 FFO also saw a strong increase by 63% yoy to € 24.9m (eNuW: € 23.6m), on the back of the aforementioned acquisitions, scale effects leading to a significantly reduced operating margin (+1.7pp yoy) as well as increasing CPI-linked operating cost revenues.

While the operating business remains on a strong level, the company faced some devaluation pressure, especially in Germany. In fact, 99.6% or € 80.5m of the total H1 devaluation of € 80.8m is attributable to the German portfolio (-6.4%), which is largely in line with what we have already seen at residential peers like LEG or Vonovia. In contrast, the Austrian portfolio was only devalued by € 7.6m (-1.6%), while the CEE portfolio even gained € 7.2m (+0.5%) in value. Overall, the company had to devalue its portfolio by 2.5% in H1, resulting in a portfolio value of € 2.6bn (ex disposals & properties held for sale). The EPRA NTA decreased accordingly to € 25.2 per share.

However, this also proves two major advantages of the company’s portfolio and strategy: (1) The comparably low devaluation (VNA -6.8%, LEG -7.4%) shows the strength of the regionally diversified portfolio. (2) The valuation gain in CEE and the devaluation of the German properties clearly displays, that the company’s strategic shift away from the German residential market is already paying off. So far, S IMMO has signed disposals to the tune of € 617m while an additional € 340m might be added. The cash inflows from the disposals will be merely invested into higher yielding assets in the CEE region.

This strategic advantage paired with industry leading metrics (

see here

) is handing S IMMO one of the best risk/reward profiles in the industry at the moment, in our view. We hence reiterate BUY with an unchanged PT of € 17.00 based on NTA and DDM.