Topic: UBM undertook an extraordinary revaluation of its projects and real estate, which resulted in depreciations to the tune of € 31.3m. The decision for the valuation was triggered by the current development on the real estate market with insolvencies picking up among smaller and medium sized players (Development Partner, Project Group, Euroboden, etc.) influenced by the increased interest rates.

The negative valuation results will consequently have an adverse effect on the company’s H1 release (31 August), where management expects a pretax loss of € 35m (eNuW old: € -3.9m). For the FY 23e, management now guides for a halving of the H1 loss based on the preliminary construction permit for the Timber Factory in Munich (Baubergerstraße), which was issued in July and will have a positive EBT effect of c. € 40m (eNuW). Although the company aims to conduct another revaluation in Q4, we regard this as reasonable (eNuW: FY’23e EBT of € -17m), as we do not expect a further worsening of the market situation.

On top of this, management also stated that it does not expect an improvement in the market in H2 and hence no significant sale by UBM. As project sales are the main source of income for a real estate developer, the company is now seen to provide a yoy top line decline of 19% to € 108m (eNuW).

However, despite the bad news and the muted short-term market outlook, we still regard UBM as well prepared for this perfect storm for the following reasons: (1) The company provides best-in-class metrics with an LTV of 41.3%, an equity ratio of 31.6% and a flat debt maturity profile with no refinancing requirement in next 18-24 months. (2) A cash position of € 250m (eNuW) provides sufficient firepower to collect some lucky-buys from struggling peers, as happened with the Donaumarina Tower acquisition from Signa.  (3) The deep pipeline (€ 2.1bn; 100% green-building certified) with a focus on hybrid-timber developments provides a major competitive edge in the carbon intensive real estate sector, as investors are getting increasingly under pressure to comply with the EU taxonomy. Demand for UBM’s developments should therefore be high going forward.

On this basis, the company looks set to come out on top of the ongoing consolidation wave in the real estate development market. Hence, we reiterate our BUY recommendation with a new PT of € 31.00 (old: € 35.00) based on DDM.