Mobimo. Swiss residential real estate still on the ascent. Mobimo. Equity Note. Rating: Buy

Transcription

1 AA Mobimo Equity Note Rating: Buy Stock Market Data Sector Financials Industry Group Real Estate Price (CHF) week high week low Market cap (CHFm) Shares out (m) 6.2 Free float (%) 100 S&P / Outlook n.a. / n.a Moody's / Outlook n.a. / n.a Sustainable Yes Bloomberg MOBN SW Equity Performance % 1m 3m 12m Perf. Abs Rel. to SPI Share Price Performance (CHF) Apr 11 Jul 11 Oct 11 Jan 12 Mobimo Contact Rainer Skierka Equity Analyst rainer.skierka@sarasin.ch SPI Source: Datastream Swiss residential real estate still on the ascent Distinct strategy and an attractive real estate portfolio in Switzerland Preference for residential real estate enhances income potential Well-stocked project pipeline and sound capital base facilitate future growth Attractive valuation and shareholder-friendly payout policy We rate Mobimo shares with a Buy Sound business operations Mobimo is one of Switzerland s leading real estate companies with a combined real estate portfolio in the German and French part of Switzerland of 128 properties as of yearend The portfolio is valued at CHF 2.2bn with a target rental income of CHF 98m. Mobimo s business activities range from long-term ownership and management of office, commercial and residential real estate to constructing and selling residential property and developing commercial real estate. Mobimo is focusing greater attention on developing and constructing investment property for its own portfolio. In the mediumterm, Mobimo targets to be equally invested in office, residential and commercial properties. The group s flagship project is the Mobimo Tower (combination of a five star hotel and 53 luxury apartments) in Zurich-West. In August 2011 the Renaissance Zurich Tower Hotel and the apartments were ready for occupation. Condominium sales --- so far seem to take longer than originally expected (year-end 2012). With an equity ratio of 47% (target: >40%), a debt-to-equity ratio of 69% (target: <150%) and an interest coverage of 3.0 (target: >2.0), Mobimo remains soundly financed. The vacancy rate declined from 5.1% to a comparatively low 3.3%. The net yield on the investment properties was 5.0% (5.1%). Promising outlook thanks to strong momentum for Swiss properties Mobimo is planning and working on investment projects and numerous development projects with an investment volume of CHF 1.6bn in the German and French speaking part of Switzerland. This investment potential in attractive locations means the company is only marginally affected by the current strained situation on the transaction market. The main areas of its focus in 2012 will be space marketing, condominium sales and the ongoing development of its project pipeline. Since the expansion of the residential component of the investment portfolio means a number of properties will now be managed as investment properties rather than sold as condominiums, sales income from promotions will fall over time, but the proportion of regular rental income will continue to rise. In addition to these developments, Mobimo also offers development services for third parties up to and including turn-key real estate investments for institutional and private investors. Area, site and project developments are realised in a way which meets market needs sustainably. 1 Mobimo --- Equity Note

2 Valuation Metrics 2011A 2012E 2013E P/E MV/Revenues P/NAV Net debt/equity ROE (%) Div. yield (%) Book Value/Share P/E Comparison (12m forward) Key Figures Mobimo 2011A 2012E 2013E Sales (CHFm) Pre-Tax Profit (CHFm) PBT margin (%) Net margin (%) Net income (CHFm) EPS (CHF) EPS growth (%) Portfolio Split Rental Income 2011 by Usage SPI Source: DataStream 48% Zurich 28% Lake Geneva 10% Eastern CH 10% Northwestern CH 4% Central CH 33% Office 19% Residential 16% Retail business 13% Other type of usage 11% Business/Industry 8% Hotel/Gastronomy Source: Mobimo Attractive new developments and projects The targeted development of attractive residential and commercial properties ensures that Mobimo will continue to grow. Properties destined for the company s own investment portfolio with an investment volume of around CHF 340 million are currently under construction or close to completion. These additions will generate further potential rental income of around CHF 19 million a year. There are plans for more projects for the company s own portfolio with an investment volume of around CHF 660 million. The most significant building projects include those at Torfeld Süd in Aarau, La Poste in Lausanne, Am Pfingstweidpark in Zurich, the Labitzke site in Zurich acquired in 2011, and the newbuild of an apartment complex in Regensdorf. Within condominium business, projects with a value of CHF 270 million are under construction, and further projects with a value of CHF 330 million are at the planning stage. Planned Mobimo properties in Zurich-West Source: Mobimo Strong business momentum in 2011 Favoured by a high business dynamic, Mobimo posted a record result for the 2011 financial year. The operating result (EBIT) rose by 18% to CHF 121 million and net profit incl. revaluation increased by 22% to CHF 81 million and by 12% to CHF 50 million excl. revaluation. Earnings per share of CHF 9.53 prior to revaluation allow Mobimo to once again distribute to shareholders CHF 9.00 per share. Mobimo completed several construction projects in the year under review, improved the quality of its investment portfolio and, in completing the Mobimo Tower, reached another milestone in the company s history. This dynamic activity led to net income from revaluations of CHF 41 million compared to CHF 29 million in Proceeds from the sale of condominiums (trading property) rose to CHF 22 million from CHF 8.4 million. In all, apartments were sold for CHF 133 million. Although net rental income was 4% lower at CHF 76 million, the quality of the rental income was significantly higher. The reduction in rental receipts resulting from extensive sales of investment properties was largely offset by new rental income from the development of real estate for the company s own portfolio. The investment properties completed in 2011 offer potential rental income of around CHF 16.5 million per year. A total of eight properties were sold for CHF 89.6 million during 2011, yielding a net profit of CHF 2.5 million. The related optimisation of the portfolio and the strong demand for rental space led to a very low vacancy rate in the investment portfolio of 3.3% (2010: 5.1%). The real estate portfolio reported a total value of CHF 2,171 million at year-end 2011, which was 8% higher than a year ago. CHF 1,469 million (1,335 million) were related to investment properties and CHF 703 million (677 million) to development projects. Long-term refinancing secured In order to hedge against the unwelcome outcome of a high interest rate environment, Mobimo succeeded in noticeably lengthening the average residual term of its financial liabilities from 5.1 to 9.2 years at advantageous conditions. Around CHF 193 million of new own funds flowed into the company in December 2011 as a result of a capital increase. The equity ratio at year-end 2011 stood at a solid 47% compared to 45% at year-end Swiss real estate still on the ascent Positive value drivers show continuance Hardly a day goes by without the media reporting on soaring Swiss property prices. It may be the explosion in the price of villas in Geneva, or the relentless rise of property prices in Zurich, or the discussion of whether we are in a property bubble. It's worth remembering that the Swiss real estate market made history some 20 years ago when the property bubble burst which led to losses in the banking sector of more than CHF 40bn. It's not surprising therefore that concerns are now being voiced again that we might be facing a similar situation at present and that history is threatening to repeat itself. 2 Mobimo --- Equity Note

3 Market value 2011E of Swiss real estate CHF 2,600bn Source: Sarasin, Wüest & Partner We believe the prospects are essentially still intact for the Swiss property market to continue its successful run. However, the situation needs to be reviewed more frequently than in the past. The lights are currently still green for the most important value drivers of the Swiss real estate boom (low interest rates and immigration), although for certain other drivers (economic growth, strong Swiss franc, disposable income) they are in a transitional period and are set to amber. The proportion of wealthy citizens is comparatively high, and disposable incomes are stable. The level of immigration into Switzerland is still high with approx. 75,000 people per year. The financial situation of private households is generally solid. Attractive economic conditions coupled with a flexible labour market, a currency that is strong at the moment, high living standards and low taxes by international standards make Switzerland an attractive location for multinational organisations and subsequently for highly qualified professionals. Other factors include the effects of the eurozone crisis in the respective countries (high level of public debt and tax burden), which boost the relative attraction of Switzerland as a destination for prospective immigrants. Another aspect driving demand and subsequently prices higher is the continuing nervousness on stock markets, which encourages the "flight into real assets". Demand for property as an investment Prices are also increasing due to growing interest among private and institutional investors looking for alternative investments with attractive and stable returns. According to latest CS statistics, the value of owneroccupied homes rose by around 8.6% across Switzerland in 2011, while singlefamily houses increased by 6.4%. The price of owner-occupied apartments in major conurbations such as Zurich, Basel and Lausanne recorded double-digit percentage increases. These price rises were much higher than the 10-year average of 4.7% for properties in apartment blocks and 3.1% for single-family houses. Despite the bleaker economic situation, prices are not expected to soften in 2012 but rather to continue rising at average or even higher rates. Nonetheless, warnings of a property price bubble forming due to low mortgage rates and the potential threat of higher interest rates, now even voiced by the OECD and the IMF, have become an issue. Demand from abroad remains high By contrast, international investors do not seem to be as preoccupied as the Swiss by a potential property crash in Switzerland, mainly because in their eyes the advantages of owning Swiss property outweigh the associated risks. According to a survey by Ernst & Young, European investors consider Switzerland to be one of the most attractive locations for investing in real estate. Here the strong Swiss franc, low interest rates and inflation protection are just some of the advantages cited as reasons for choosing Switzerland as a location. Price development of owner-occupied vs. rented homes Miete - Angebotsmieten Miete - Bestandes- und Neumieten* EWG - Transaktionspreise EHF - Transaktionspreise Source: Wüest & Partner, BFS Price rises from an international perspective The above mentioned price forecasts allow a number of conclusions to be drawn. There are likely to have been price rises in some areas experiencing high demand such as the Greater Zurich and Geneva regions or popular tourist destinations like the Upper Engadine. New tenants, particularly if they emigrate from comparatively expensive urban centres such as London or Paris, often tend to be prepared to pay much more for accommodation than the level that is typical for Switzerland. This in turn means that the comparison base for sought-after locations is becoming more international as well. Not a one-way street leading upwards only Even so, it should be remembered that despite the many positive attributes, Swiss property prices should not be seen as a one-way street leading upwards. Even the local market will eventually undergo a correction one day. However, based on the lessons learned from the previous property crash and corrective measures should allow to deal with the crisis more effectively. Commercial properties The markets for commercial real estate (office and retail space) are at far less risk of overheating than the residential market. In 2009, they felt the direct effects of Switzerland s brief recession in the form of lower demand. Given the current slowdown of the Swiss economy, the prospects for the office and retail property segment remain patchy, above all because of the potential overcapacity created as new properties come onto the market. However, institutional investors are still investing increasingly in real estate due to the lack of investment alternatives and low interest rates. Net yields for office properties in prime locations Net yields in % and rents in CHF per square meter/ year Zürich Netto-Spitzenanfangsrendite Genf Netto-Spitzenanfangsrendite Spitzenmiete Zürich Kreis 1 (rollend über 4 Quartale, rechte Skala) Spitzenmiete Genf Zentrum (rollend über 4 Quartale, rechte Skala) Source: Wüest & Partner, UBS Advantages of Switzerland as a location Here Switzerland benefits from the major advantages it has to offer international service companies: political stability, a central location in Europe, excellent infrastructure, a high standard of education and an attractive quality of life. These are all additional stabilisers of demand for office 3 Mobimo --- Equity Note

4 properties. The risks lie elsewhere: we expect development activity to increase, as declines in initial yields mean that, from a return perspective, investment properties are often no longer an attractive purchase. As yields fall, investment in commuter belt locations is likely to expand, leading to an increased risk. Confidence defines 2012 outlook Mobimo s management is confident about the new financial year despite the challenging economic environment. Apart from continued quality improvements of its real estate portfolio, Mobimo will focus on realising its various building projects, marketing space, selling condominiums and selectively adding to the project pipeline as well as build its new business area «Investments for Third Parties». Demand for first-class, residential and office properties situated in privileged urban locations is still robust, benefiting real estate companies with an above-average highquality portfolio. Hence, the preconditions remain fundamentally favourable for a prevailing positive performance by Mobimo. For 2012, we expect that Mobimo will achieve a full-year result that will enable it to continue their attractive payout policy. Mobimo shares remain a Buy With Mobimo, we are convinced by the confirmation of its strategic direction with an emphasis in future on residential property and less exposure to development projects as proven by its most recent investment decision (Zurich-West and Zurich-Altstetten). We believe this will help to improve the risk profile of the business as well as its earnings and dividend potential. We therefore continue to view Mobimo shares as an attractive, solid alternative to direct property ownership keeping in mind stock-specific risks. The attractiveness of the shares is also enhanced by the company s shareholder-friendly payout policy - especially appealing to private Swiss investors - in the form of par value or capital reserve repayments (FY2011A: CHF 9.00 per share) exempt from withholding and income tax. The shares not only offer a net yield of more than 4% (sector 3% - 6%), but are trading at a premium of only 9% (sector 15%) to its net asset value (FY2012E: CHF 202 per share) justified by its growth. We reiterate our Buy rating on Mobimo shares. Update as of: Mobimo --- Equity Note

5 Company profile Mobimo, founded in 1999 and listed on the SWX Swiss Exchange since 2005, is a real estate group active in investment and development properties. Mobimo invests in commercial and residential real estate and has an attractive portfolio mix of properties in the segments mentioned. The firm strives to invest 75% of its available funds in investment properties that generate a stable return and 25% in development properties. Mobimo invests exclusively in real estate located in Switzerland, mainly in the business centres of Zurich, Lucerne/Zug, Basel, St. Gallen and Lausanne/Geneva. As of year-end 2011, 35% or CHF 750 million of Mobimo s CHF 2,171 million total real estate portfolio was invested in residential properties (incl. trading properties), and 65% or CHF 1,421 million in commercial properties. This makes Mobimo one of the leading real estate companies in Switzerland. SWOT Analysis Strengths Focus on the growing residential real estate segment Leading promoter of owner-occupied housing in the greater Zurich area Shareholder-friendly payout policy through capital reserve and par value reductions that are exempt from withholding taxes Opportunities Concentration on fast-growing regions in Switzerland Optimizing revenues and boosting profitability High equity ratio enables further expansion steps Weaknesses Pressured by domestic and international rivals that are competing to acquire real estate assets Potential impacts from legislative and regulatory changes Constrained availability of lucrative and profitable real estate assets in Switzerland Threats Weakening of the real estate market and resulting revenue declines and valuation losses Impacts from sharply rising refinancing costs Attractiveness of urban areas where some prices have risen too far, too fast (Zurich and Geneva lake areas for example) might decrease Valuation / Peer Group Comparison Data as of P/E EPS growth (%) P/NAV ROE (%) EBT % Div. Yield (%) A 2012E 2013E 2012E 2013E 2012E 2013E 2012E 2013E 2012E 2011A 2012E Allreal Holding BFW Liegenschaften 20.4 n.m. n.m. n.a. n.a. n.a. n.a. n.a. n.a. n.a. 2.8 n.a. Intershop Holding PSP Swiss Property Swiss Prime Site Warteck Invest 31.1 n.m. n.m. n.a. n.a. n.a. n.a. n.a. n.a. n.a. 2.9 n.a. Zueblin Immobilien n.m n.a. 0.5 n.a. 3.5 n.a Average Mobimo Source: Datastream 5 Mobimo --- Equity Note

6 Sustainability rating Company Rating low high Sustainability Matrix low high Industry Rating Rating category: Definitive as of :48:53 Source: Sustainability Research Sustainability Analysis Methodology Our environmental and social analysis of companies is based on a proprietary assessment method developed by Bank Sarasin. It incorporates two dimensions which are combined in the Sarasin Sustainability-Matrix : Industry Rating: Comparative assessment of industries based upon their impacts on environment and society. Company Rating: Comparative assessment of companies within their industry based upon their performance to manage their environmental and social impacts. Assessment criteria When rating individual companies, we look at how they deal with industry-specific environmental and social risks and how they exploit the associated opportunities. The main criteria are identical for all industries. They are compared with the industry average in the company s environmental and social profile and then aggregated into an overall rating. The weighting of the main criteria and the selection of the sub-criteria are industry specific. 6 Mobimo --- Equity Note

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