This week, S IMMO announced the completion of the Vienna Twin Tower purchase from IMMOFINANZ AG. The two office buildings, which have a combined gross floor space of 66k sqm are part of the 128k sqm portfolio (6 objects) that the company signed an LOI for in February. A decision to acquire the other four objects has not been made yet (no expiration date).

The Twin Towers have a current valuation of € 194m and generate annual rental income of € 12.6m at a <10% vacancy level. As this is a related party transaction, we estimate the purchase price to be close to the recent valuation, indicating a gross initial yield of 6.5%.

This once again proofs the company’s strategic alignment as successful: While S IMMO is disposing its residential assets in Germany (avg. GIY of c. 3%) at only minor discounts (eNuW: 5%), the company is acquiring high yielding assets like the Twin Towers on the other hand, allowing for an increased portfolio efficiency and additional shareholder value creation.

As the buildings were built more than twenty years ago, S IMMO intends to implement significant refurbishment measures. We estimate additional costs of € 1,600-1,800 per sqm in order to make the buildings carbon neutral. The measures should be finalized by 2030, when the location will be connected to Vienna’s subway network, which should further elevate the value of the properties and facilitate a possible disposal.

Besides the acquisition, S IMMO also announced the successful launch of a new green bond. The subscription period of the 5.5% bond with a total nominal amount of € 75m was closed early due to high demand, proving investors’ confidence in the company. The funds will be used for (1) refinancing and (2)  further ESG certified acquisitions, likely in the CEE region. Importantly, metrics should continue to be solid as the pro-forma LTV (ex acquisition & bond) should be at c. 34% (eNuW), significantly below the peer group average.

In light of the ongoing successful rebalancing of the portfolio as well as continuous strong operation, we regard the current valuation as undemanding (52% NTA discount). Remains a BUY with an unchanged PT of € 17.00 based on NTA and DDM.