S IMMO AG: Strong start to 2018
- Earnings per share increased to EUR 0.22
- EBT rose to EUR 18.1m
- 2018 to be a transitional year after large-scale sales in prior years
- EPRA NAV improved to EUR 17.79 per share
The listed real estate investment company S IMMO AG once again demonstrated its operational strength in the first quarter of 2018. S IMMO pursues a cycle-oriented strategy and has realised profitable property sales in the past two years with a total volume of roughly EUR 700m. Despite the therefore reduced rental income, the net result for the period remained stable in annual comparison. According to Ernst Vejdovszky, CEO of S IMMO AG, “2018 is a transitional year for us. We will offset the sales that have been completed in the past few years with purchases and project developments, but it will take a little bit of time. That’s why we are especially proud of the fact that we were still able to increase our earnings per share.”
Rental income and strong profit from hotel operations
During the first three months of 2018, S IMMO’s total revenues amounted to EUR 43.5m (Q1 2017: EUR 46.5m). As expected, the large-scale sales in recent years led to a decline, but this was mitigated by a positive like-for-like performance of the portfolio properties and acquisitions. Following the successfully completed renovation of the Vienna Marriott Hotel, revenues from hotel operations increased significantly to EUR 10.0m (Q1 2017: EUR 7.4m). Positive development was also observed in property operation, the operating expenses were improved from EUR 16.5m in the prior year to EUR 14.4m in the first quarter of 2018.
Active in the acquisition of properties
The sales completed in recent years will be gradually mitigated through investments and project developments. To this end, S IMMO has been particularly active on the German market this year, with a continued focus on medium-sized German cities that are enjoying strong economic development and offer growth potential. 18 properties with a total purchase price of EUR 26.3m were acquired in the first quarter, and agreements were concluded for 13 additional properties with a total transaction volume of EUR 43.6m through the end of May.
Other financial assets – mainly the equity investments in Immofinanz AG and CA Immobilien Anlagen AG – came to EUR 453.1m as of 31 March 2018 (31 December 2017: EUR 300.2m). This is significantly higher than S IMMO’s acquisition costs. Until May 2018, dividend payments totalling roughly EUR 19.4m were received through these investments.
Positive effects in the financial result
As expected, EBITDA fell from EUR 19.5m in the first quarter of 2017 to EUR 17.3m in the first quarter of 2018. Due to the effects described above, EBIT declined from EUR 27.2m in the first quarter of 2017 to EUR 24.9m in the first quarter of 2018.
The financial result improved considerably year-on-year, improving from EUR -9.3m to EUR -6.7m thanks to positive derivatives valuations, the elimination of the participating certificate expenses and the lower cost of funding. The cost of funding (financing costs including bonds and derivatives) was reduced from 3.08% as of 31 March 2017 to 2.56%.
Improvement of EBT and earnings per share
EBT rose to EUR 18.1m (Q1 2017: EUR 17.9m). Due to higher tax expenses net profit for the period came to EUR 14.7m (Q1 2017: EUR 16.2m). Earings per share attributable to shareholders in the parent company increased to EUR 0.22 (Q1 2017: EUR 0.21). The book value per share came to EUR 14.37 as of 31 March 2018 (31 December 2017: EUR 14.21), EPRA NAV improved to EUR 17.79 as of 31 March 2018 (31 December 2017: EUR 17.63).
Much like the major international stock markets, the S IMMO share moved sideways in the first quarter and was listed at EUR 16.10 as of 31 March 2018. A positive note is the fact that the share’s liquidity increased: In April 2018, there have once again been some changes in the company’s shareholder structure. Management sees this as a confirmation of the attractiveness of an investment in S IMMO.
Outlook for 2018
Taking advantage of property cycles is an essential part of the company’s strategy. S IMMO AG is currently continuing to benefit from the positive economic developments in its markets as well as the low-interest environment and the high price levels in many real estate markets.
As Friedrich Wachernig, member of S IMMO AG’s Management Board, explained, “We currently see an attractive price level primarily in up-and-coming German cities such as Leipzig, Kiel and Rostock. These cities have a good demographic profile and economic growth potential as a result of the population influx. The purchase of properties with stable yields and a lower rent level ensures sustainable cash flows while also creating upside potential. This is how we plan to secure earnings for the future.”
The renovation of the Sun Plaza shopping centre in Bucharest was successfully completed in the first quarter. In addition, the first tenants are currently moving into the Einsteinova Business Center, and the office building The Mark in Bucharest is expected to be completed this year. Renovation work on the Siebenbrunnengasse residential and office building in Vienna will also commence this year.
Consolidated income statement for the period from 01 January 201 to 31 March 2018
in EUR million/fair-value method
|thereof rental income||24.6||28.9|
|thereof revenues from operating costs||8.9||10.1|
|thereof revenues from hotel operations||10.0||7.4|
|Other operating income||0.6||0.5|
|Expenses directly attributable to properties||-14.4||-16.5|
|Hotel operating expenses||-8.1||-7.2|
|Income from property disposals||0||1.7|
|Book value of property disposals||0||-1.7|
|Gains on property disposals||0||0|
|Earnings before interest, tax, depreciation and amortisation (EBITDA)||17.3||19.5|
|Depreciation and amortisation||-1.8||-2.1|
|Results from property valuation||9.4||9.8|
|Operating result (EBIT)||24.9||27.2|
|Participating certificates result||0||-0.7|
|Net income before tax (EBT)||18.1||17.9|
|Taxes on income||-3.4||-1.8|
|Consolidated net income for the period||14.7||16.2|
|of which attributable to shareholders in parent company||14.7||13.7|
|of which attributable to non-controlling interests||0||2.4|
|Earnings per share (in EUR)||0.22||0.21|