Aggregate Financial Services
Creating a Leading Real Estate Financing Platform
January 15th 2021
René Parmantier, CEO | Lars Schnidrig, CFO | Sebastian Ernst, AFS | Johannes Märklin, AFS | Dr. Kai Klinger, CMO
Disclaimer
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2
Corestate Announces Acquisition of Aggregate Financial Services as Core Component of Private Debt Strategy
Strong Strategic
Rationale for
Acquisition
Key Terms of
Transaction
Envisaged
Timeline
- Credit markets are currently constrained and disrupted, especially in higher risk asset classes, which opens an exceptional market opportunity to acquire Aggregate Financial Services ("AFS")
- HFS and AFS both have an unparalleled track record and significant complementary experience in real estate debt
- Together they will deepen the real estate financing value chain at Corestate and enhance our client reach both in terms of products and regions
-
In addition, this transaction creates debt and equity cross-selling opportunities, accelerates
Corestate's access to new client capital and adds a highly regarded management team - Transaction enables at least c € 10 m of annual run rate synergies1 and will be earnings accretive
- Purchase price consideration of 8.5 m new Corestate shares and € 5 m in cash to be paid on completion of offer implying a consideration of € 113 m net of € 17 m cash in AFS business
- Implied 2021E FV/EBITDA multiple of 6.5x (based on mid-point of AFS 2021E EBITDA guidance and excluding synergies)
- In addition, up to 1.5 m new shares in total could be issued over next three years on achievement of certain profitability metrics for AFS ("earn-out"): 0.5 m shares in 21E, 0.5 m shares in 22E, and 0.5 m shares in 23E
- The new shares are subjected to a long-termlock-up
- Offer announcement: 14 January 2021
- Publication of 2020 consolidated financial statements: w/c 29 March 2021
- Closing of transaction: 2Q 2021
1 Annual run rate synergies expected to be achieved within the next three years
3
AFS will Join Forces with Helvetic Financial Services ("HFS"), Corestate's Highly Profitable Private Debt Business
The post-COVID limited risk appetite in the banking market provides great opportunities for enlarging and deepening of our real estate financing business.
In our positions as Managing Partners of AFS and as new shareholders of Corestate we are proud to commit ourselves for the long term. As part of the next chapter of Corestate's evolution we plan to bring our extensive client network, where, more than 80% of
AFS clients do not take advantage of Corestate's products.
HFS is by far the most prestigious real estate mezzanine business in Germany. We are excited to realize synergies between our debt financing businesses, where AFS will bring highly complementary
products and clients and strongly benefit from HFS' market standing.
René Parmantier
Chief Executive Officer and
Chairman of the Management Board,
Corestate
Sebastian Ernst
Managing Partner, AFS and
Member of the Management Board,
Corestate
Johannes Märklin
Managing Partner, AFS and
Member of the Management Board,
Corestate
4
German Real Estate and Debt Market Update
A Global Flight to Safety and Structural Undersupply Driving Demand for German Real Estate
Structural Supply/Demand Imbalance for Residential Stock | Investment Returns |
700 | Completions ('000) | Government target rate ('000) | % p.a. | Rental yields, new dwellings | DAX dividend yields | |||||||||||||||||||||||||||
10 | ||||||||||||||||||||||||||||||||
600 | Rental yields, existing dwellings | 10Y Bund yields | ||||||||||||||||||||||||||||||
500 | 8 | |||||||||||||||||||||||||||||||
400 | 6 | |||||||||||||||||||||||||||||||
300 | 4 | |||||||||||||||||||||||||||||||
200 | 2 | |||||||||||||||||||||||||||||||
100 | ||||||||||||||||||||||||||||||||
0 | 0 | |||||||||||||||||||||||||||||||
1998 | 1999 | 2000 | 2001 | 2002 | 2003 | 2004 | 2005 | 2006 | 2007 | 2008 | 2009 | 2010 | 2011 | 2012 | 2013 | 2014 | 2015 | 2016 | 2017 | 2018 | 2019 | 2020 | 2021 | |||||||||
1997 | -2 | |||||||||||||||||||||||||||||||
90 | 94 | 98 | 02 | 06 | 10 | 14 | 18 | |||||||||||||||||||||||||
Source: Federal Statistics Office (Completions 1991-2019), German Government (Target 2018-2021; Federal Ministry of the | Definition: Rental yields = Rents to prices (ex transaction costs, ex maintenance, ex taxes and ex credit) | |||||||||||||||||||||||||||||||
Interior, Building and Community) | Source: Bloomberg Finance LP, bulwiengesa, Deutche Bak Research |
European Dry Powder for Real Estate Debt
US$ (billions)
20
18
16
14
12
10
8
6
4
2
0
Jan-05 | Jan-06 | Jan-07 | Jan-08 | Jan-09 | Jan-10 | Jan-11 | Jan-12 | Jan-13 | Jan-14 | Jan-15 | Jan-16 | Jan-17 | Jan-18 | Jan-19 |
Source: JLL
- Germany is largest housing market in Europe and is structurally undersupplied
- With government bond yields close to historic lows, German residential properties look even more attractive on a relative basis
- Credit remains accessible, as dry powder of European debt funds continues to grow
- Negative bond yields have investors searching for yield: long-dated real estate debt in prime locations is seen as an attractive alternative
5
German Real Estate and Debt Market Update (Continued)
Rationalization of Lending has Created Opportunities for Alternative Financing Solutions in the Real Estate Debt Market
European Real Estate Debt Fundraising
LTV and Margins for Existing Properties Mezzanine Financing in Germany
Cumulative capital raised (LHS)
(US$bn) 60
50
40
30
20
10
0 |
Cumulative number of funds (RHS)
Number of funds 120 100 80 60 40 20 0
LTV | Coupon | ||
95 | 1200 | Mezzanine Coupon in bps | |
Mezzanine LTV in % | 90 | 1000 | |
85 | 800 | ||
80 | 600 | ||
75 | |||
70 | 400 | ||
65 | 200 | ||
60 | 0 | ||
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Source: JLL
Q1 18 | Q2 18 | Q3 18 | Q4 18 | Q1 19 | Q2 19 | Q3 19 | Q4 19 | Q1 20 | Q2 20 | Q3 20 |
Source: Prime Capital
Expected Yield of Senior CRE Loans
Core | Core+ /Core Dev | Value add/Core+ Dev | Opportunistic/value add Dev | |||
Expected return (p.a.) | ||||||
8% | ||||||
6% | ||||||
4% | ||||||
2% | ||||||
0% | Loan-to-value (LTV) | |||||
40% | 50% | 60% | 70% | 80% | 90% | 100% |
As of: 29 May 2020; Source: DWS International GmbH. Forecasts are not a reliable indicator of future returns. Forecasts are based on assumptions, estimates, views and hypothetical models or analyses, which might prove inaccurate or incorrect
- Banks have rationalized their real estate lending activities and net lending has been negative recently
- Non-banklenders and specialist debt funds are becoming increasingly popular alternatives for commercial real estate borrowers
- Mezzanine lenders are managing to obtain more favourable terms (e.g. higher coupons and lower LTVs) as a result of this trend
- There remain significant refinancing requirements in the market, creating abundant opportunities for alternative lenders to take advantage of decreased competition and capitalize on more attractive loan pricing
6
AFS Team Joining Management Board with Extensive Real Estate Private Debt Experience
Sebastian Ernst | Johannes Märklin |
Managing Partner | Managing Partner |
- The managementof AFS has extensive experience in the international capital market business
- Before founding AFS, the team held various management positions at Deutsche Bank AG in investment banking
- These included the following core areas:
- Global distribution and structuring of capital market products
- International responsibility for credit trading and banking books
- International issuing and syndication business
- Management, control and organization of business processes
AFS as Part of Corestate:
- Founders will receive shares with a long term lock-up
- They will remain Managing Partners in AFS for at least three years, and will be members of the management board at Corestate and members of board of directors at HFS
7
AFS is a BaFin-Regulated Securities Trading Bank with a Wide Spectrum of Offerings
CORPORATESINVESTORS
Aggregate Financial | |
Services | |
MEZZANINE | FUNDS |
FINANCING | SOLUTIONS |
REAL ESTATE | PROMISSORY |
LOANS | NOTES |
SECURIZATIONS | |
OF RECEIVABLES | |
AND LOANS | |
WHOLE-LOANS | REAL ESTATE |
BONDS | |
1 CorporateFinance
2 CapitalMarkets
3 Structuring
Institutional
4 Clients and
Sales
- Financing advice on small to mid-size tickets
- Advice on takeovers, mergers and sales
- Support and strategic advice for corporate clients
- Highly flexible, agile and independent
- Support of corporate customers in the issuance of financial instruments and assignable loans
- Securities Trading
- Capital structure optimisation
- Structural arrangements of financing instruments, collateral structures, corporate law and company structures
- Internal support of the transaction teams in legal aspects
- Placement of transactions with institutional investors
- Development of product ideas based on investor needs and regulatory requirements
- Supporting institutional investors with regard to ongoing investment needs
8
Track Record of AFS Growth
- 2.4 m
- 1.1 m
(Revenue 2018)
(EBITDA 2018)
- 20.8 m
- 12.9 m
Guidance FY21
(Revenue 2019)
€ 25 - 30 m (Revenue 2021E)
(EBITDA 2019)
€ 15 - 20 m (EBITDA 2021E)
July 2018
Commencement of business as a company in accordance with Section 34c Gewerbeordnung (loan broker)
May 2019
BaFin licence as financial services provider
August 2020
BaFin licence as a securities trading bank
>40 transactions
>€ 3.0 bn
Grew from 3 | |
founders to 20+ | 270 years of |
financing volume
since 2019
in 18 months
Banking License
- BaFin regulated securities trading bank licensed (Section 32 of the German Banking Act) to provide a range of banking transactions and financial services
Real Estate Structuring and Consulting
- Arranged and structured real estate loans
full time | experience |
employees |
Placement, Investment and | ||
Acquisition Brokerage, | Real Estate Underwriting | |
Investment Advice | ||
▪ Brokered and placed | ▪ Further increase of revenue | |
originated loans and secured | through primary issuance and | |
financings | secondary trading of illiquid | |
securities | ||
9
Enhanced Real Estate Debt Offering for our Clients to go with our Diversified Product Line-up
One-Stop-Shop
Products
Return1
Integrated Platform
Clients / Investors
Equity Product Range | Debt Product Range |
Residential | City Quarters | Office | Logistics | Micro Living | Senior | Whole | Mezzanine | Debt Advisory | |
and | |||||||||
Loan | Loan | Structuring | |||||||
3.5%-4.5% | 3.5%-5% | 3.5%-4% | 4%-6% | 5%-5.5% | 3%-5% | 5%-7% | 10%-13% | Fee Based | |
Asset & Property Management
Fundraising, Reporting, Risk Management, Financing etc.
Semi Institutional | Institutional | Retail | ||
(>300) | (>100) | (>70.000) | ||
Significant underallocation to (German) Real Estate: currently 9.8%, target between 11-13%2
Integration of AFS balances our equity range and helps expand our debt business
1 After costs. The returns are based on average performance from the past. All figures are preliminary and only represent forecasts that are not guaranteed; | 10 |
2 Research as of 2019. |
Strong Synergies Unlocked Through Acquisition
- HFS Fund Expansion
- Cross Sell Products
- Cost Rationalization
▪ Combination with AFS will accelerate fund raising for HFS mezzanine funds and whole loan with new target fund size of
- 2 bn+
▪ The joined platform will significantly diversify the current debt value chain from the mezzanine business of HFS on the product side
▪ Complementary investor bases with ability to cross sell products
▪ AFS will substantially expand the client base at Corestate (access to additional corporate and real estate clients) with a wide range of synergy effects
▪ More than 80% of AFS clients will be new to Corestate
▪ AFS deals create additional asset management opportunities
▪ Operational cost savings across combined business
Identified annual run rate synergies of at least € 10 m within the next three years
11
Significant Growth in Corestate's Debt Funds through AFS Integration
Mezzanine Funds Showing Strong Organic Growth
(in bn€)
2,3 | ||||||||||
c 2,1+ | ||||||||||
2,1 | c 2,0 | |||||||||
1,9 | c 1,8 | |||||||||
1,7 | c 1,6 | |||||||||
1,5 | Post AFS | |||||||||
c 1,3 | integration | |||||||||
1,25 | ||||||||||
1,3 | ||||||||||
1,11 | 1,16 | |||||||||
1,1 | ||||||||||
0,96 | ||||||||||
0,9 | ||||||||||
0,7 | 0,76 | |||||||||
2015 | 2016 | 2017 | 2018 | 2019 | 2020E | 2021E | 2022E | 2023E | 2024E |
Acquisition of AFS Accelerates our Real Estate Debt Strategy
- Grow mezzanine funds size/volumes to € 2 bn+
- Increase customer base for mezzanine financings and structuring and increase overall pipeline by € 400 m
- Increase investor base in mezzanine fund
- Addition of lower risk AFS mezzanine fund
- Existing HFS fund could continue to act as shorter term and also as a bridge product to new lower risk mezzanine fund
- Launch of whole-loan fund in 2021
12
The Combination Creates Value for Shareholders with a Compelling Business Rationale and Financial Impact
Business
Growth
Financial
- Adds scale and diversification through new real estate debt advisory and structuring business line
- Access to additional counterparties and investors to cross sell all Corestate products
- Further development and diversification of the successful real estate debt and
mezzanine business with new product opportunities, complementary services | ✓ | |
and regional expansion | ||
▪ AFS has a licence under Section 32 of the German Banking Act, for the issuing, | ||
proprietary trading and placement of financial instruments | ||
▪ AFS founders Johannes Märklin and Sebastian Ernst will become members of the | ||
management board at Corestate and members of board of directors at HFS with a | ||
long-term commitment | ||
▪ Ability to increase HFS and mezzanine funds with new investor capital | ✓ | |
▪ Large pipeline of transactions for new financings secured in 2021 and beyond | ||
from existing customer base | ||
▪ Identified annual run rate synergies of at least € 10 m1 benefitting all shareholders | ✓ | |
▪ Highly accretive on earnings per share in first full year | ||
▪ Improved credit profile as acquisition comes without debt |
1 Annual run rate synergies expected to be achieved within the next three years.
13
Fundamental Value of AFS in Excess of € 170 m
Financial Rationale | |||||
Shares | 8.5 m | + | 1.5 m | = | 10 m |
Over the next | ✓ Expansion of Corestate debt product | ||||
three years |
€ 10 m | |||
synergies | |||
+ c 50%1 | ✓ | ||
AFS's | € 20 m | ||
EBITDA | |||
2021E | € 15 m | ✓ | |
Guidance | |||
✓ |
2021E EBITDA | Earnout EBITDA | 2023E Pro forma EBITDA |
post-synergies |
Earnings accretive
€ 10 m of annual run rate synergies2
Supportive for deleveraging
1 From midpoint of 2021E EBITDA; 2 Annual run rate synergies expected to be achieved within the next three years.
14
Outlook on Corestate's Operations: 2021 Upswing Driven by Fundamentals and a Prosperous Private Debt Sector
Long-term Market Trends Intact and Highly Supportive for Organic Growth Prospects
- Real estate markets will gain momentum through 2021 on the backdrop of more visibility on post-COVIDscenarios and further increasing investment pressure
- General trends like urbanization and demographic changes remain in place
- Focus remains on core/core+ assets amplified by opportunistic deals esp. from repricing in sub-sectors
- Catch-upeffects in transaction pipeline
- Performing real estate mezzanine business
- Further organic AuM growth of at least 5-10%
With AFS a New Chapter in the Company's History is Ready to Get Opened
- Benefiting from banking regulation: advantageous position of AFS due to reduction in traditional banks' lending business post-COVID, giving AFS the potential to undertake more deals at higher fees
- Strong AFS pipeline for 2021 to support growth: 14 mandated deals and 9 further potential projects in the pipeline for early next year
- New business lines arising from extended license to support additional income
- Expect strong growth of the external client base
- Increase of HFS fund size by c € 500 m by 2023 accelerated by AFS
- Annual run rate of at least € 10 m revenue and cost synergies within the next three years
15
Appendix: The Competitive Advantage of AFS
- Structure individual financing solutions for each transaction
- Experience with promissory notes,
bonds, bank loans and private debt | ▪ Guide financing parties through | ||||||
▪ Ability to combine senior loans, | entire financing process | ||||||
mezzanine financing and (preferred) | ▪ Legal expertise to ensure regulatory | ||||||
equity | Structuring- | Experience | compliance | ||||
expertise | |||||||
▪ Banking license enabling to | |||||||
provide a wide range of | |||||||
Direct | Resources | offering | |||||
▪ Provision of expertise and | |||||||
Access to | and | resources to clients | |||||
▪ | Investors | Aggregate Financial | Network | ||||
Direct access to diverse | Services | ▪ Management of entire | |||||
investor community | financing process |
Real
Independence Estate
- AFS acts independently
- Specialist experience in financing project acquisitions, real estate developments and existing portfolios
- Design financing solutions for entire life cycle
16
IR Contact and Financial Calendar 2021
Investor Contact
Financial Calendar 2021
Dr. Kai G. Klinger
Chief Markets Officer
Phone: +49 69 3535630-106ir@corestate-capital.com
24 February
24 March
28 April
19 May
11 August 10 November
Publication preliminary results for FY 2020
Annual financial report 2020
Annual General Meeting
Publication results for Q1
Publication results for H1
Publication results for first nine months
Please note that these dates may be subject to change
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Corestate Capital Holding SA published this content on 15 January 2021 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 15 January 2021 09:21:00 UTC