ARGO Properties (ARGO) Q1 2024 earnings summary

Executive summary

• Q1 rental revenue was €5.926m, up 23% YoY; net income was €4.020m versus a €12.946m loss in Q1 2023.

• Like-for-like rent growth was 10.3% annualized; new-lease rents rose 8.7% YoY to €12.01/m², implying 47% uplift potential to in-place rents.

• The rental-to-condo (R2C) program launched in Leipzig and Dresden; 17 of 25 allocated apartments were sold or under exclusivity for €3.7m, at 37% economic gross margin.

• Strategy combines property upgrades, refinancing, apartment sales and reinvestment, with a target to double residential units by 2030.

Financial highlights

• Rental revenue was €5.926m versus €4.831m YoY; rental gross profit was €5.199m versus €3.821m.

• Apartment sales generated €0.732m revenue and €0.283m gross profit; total gross profit was €5.482m and operating profit before fair-value changes was €3.292m.

• Net income was €4.020m and included a €45.352m net fair-value loss on investment property; appraisers’ weighted capitalization rate rose 11 bps QoQ.

• Annualized free cash flow was estimated at €22.9m, comprising €18.8m average annual refinancing proceeds for 2022–23 plus €9.1m annualized Q1 FFO, less €5m annual capex.

• Cash, cash equivalents and restricted deposits totaled €41.9m at March 31, including €20.1m in pledged deposits.

Outlook and guidance

• Plans call for expanding apartment sales, improving gross margins and building sales infrastructure for materially larger activity from 2025.

• R2C proceeds are expected to fund acquisitions at a 2:1 apartment reinvestment ratio; proceeds from 100 upgraded-unit sales could provide equity for 200 new units, assuming 50% leverage.

• The target is to double the residential portfolio by 2030; post-quarter exclusivity agreements covered 24 additional Leipzig and Dresden apartments for a projected €4.4m purchase price.

• Continued rent growth is expected from renovations and housing shortages; new-lease rents in one portfolio example were projected to rise 4%–8% annually.

• Development projects are expected to begin during 2024; further projects and development rights are being identified and advanced.