DEFAMA Deutsche Fachmarkt : „Further acquisition of a retail park strengthens portfolio and FFO“

DEFAMA Deutsche Fachmarkt AG

(CDAX, Real Estate, DEF GR)

RESEARCH

Buy

Value Indicators:

EUR

Warburg ESG Risk Score:

2.3

Description:

ESG Score (MSCI based):

3.0

NAV (WRe) 23e:

28.45

Commercial real estate company

EUR 26.90

FFO-Yield 23e:

25.34

Balance Sheet Score:

3.8

focused on retail parks in Northern

Market Liquidity Score:

0.0

and Eastern Germany

Market Snapshot:

EUR m

Shareholders:

Key Figures (WRe):

2021e

Price

EUR 24.60

Market cap:

108.73

Freefloat

65.0 %

LTV:

58.1 %

No. of shares (m):

4.42

MSC Invest GmbH

29.0 %

Equity Ratio:

17.8 %

Upside

9.3 %

Freefloat MC:

70.68

Geminus GmbH

4.0 %

Supervisory board

2.0 %

Ø Trad. Vol. (30d):

21.64 th

Further acquisition of a retail park strengthens portfolio and FFO

• DEFAMA yesterday (30.09.21) announced its third investment of 2021 with the acquisition of a further retail park at an excellent location in Hof/Bavaria within a conglomerate of well-known retailers (e.g. Kaufland, Lidl, OBI etc). The company bought this retail park with a current lettable space of 6.7k sqm for EUR 6.7m or EUR 1000/sqm. Core tenants are Dänisches Bettenlager, Fressnapf, Detlev Louis Motorrad. With full occupancy, the net annualised rent would amount to EUR 570k. The vacancy rate is currently significant below 10% and there is strong tenant-interest in this free space. Full occupancy should therefore be likely.
• The paid multiple of 11.7 is slightly above an average paid multiple in recent transactions of 11.2 (WRe: w/o consideration of successful letting activities at Gardelegen). Nevertheless, the acquisition includes an additional site of 2k sqm which can be used for the development of a further building which would contribute to the top line. According to the management there is strong interest from potential tenants for additional space at this location. We assume, that a possible development could reduce the paid multiple and offer an attractive sustainable FFO.
• With this transaction, DEFAMA has already achieved an acquisition volume of EUR 18.3m and has fulfilled its targeted annual acquisition volume of EUR 15-20m and 2021 is not over yet.
• The annualised rent has now increased to EUR 15.6m for a property portfolio at 45 locations and an occupancy rate of currently 94%. The annualised FFO of the portfolio improved to EUR 7.8m. Given a target of EUR 8m at end of 2021, DEFAMA would need an additional acquisition volume of ~EUR 4.4m assuming an FFO margin of 45% and a rent multiple of 10 without considering successful letting activities. But we are optimistic that DEFAMA's letting activities will be supportive, especially in Gardelegen, and will make an additional FFO contribution to reach the target.
• The successful disposal of a sub-portfolio of its peer Deutsche Konsum REIT with a multiple of 18 to a long-term institutional asset manager could offer additional valuation potential for the portfolio and should lead to a further NAV-improvement.
• We confirm our Buy recommendation as valuation remains attractive with an expected FFO-yield of nearly 9% in 2023 and a proven business model with an excellent growth track record and successful redevelopments.

						FY End: 31.12.		CAGR
						in EUR m		(20-23e)	2017	2018	2019	2020	2021e	2022e	2023e
						Rental income			5.10	7.61	9.53	12.19	14.93	16.89	18.95
						Change yoy			67.9 %	49.2 %	25.1 %	27.9 %	22.5 %	13.2 %	12.2 %
						EBIT			2.67	3.59	4.50	5.62	9.28	7.68	8.62
						FFO I			2.58	3.65	4.62	5.87	7.25	8.36	9.46
						FFO I-margin			50.6 %	47.9 %	48.4 %	48.2 %	48.6 %	49.5 %	49.9 %
						EBT			1.77	2.25	2.78	3.49	6.67	4.76	5.43
						Net income			1.36	1.68	2.06	2.51	5.13	3.53	4.05
						EPS				0.46	0.51	0.57	1.16	0.80	0.92
								0.38
						FFOPS I			0.73	1.01	1.14	1.33	1.64	1.89	2.14
						DPS			0.34	0.40	0.45	0.48	0.55	0.60	0.65
						Dividend Yield			3.8 %	3.4 %	2.9 %	2.7 %	2.2 %	2.4 %	2.6 %
						Book Value / Share			3.18	4.10	5.50	5.61	6.22	6.42	6.69
	Rel. Performance vs CDAX:
	1 month:		8.1 %			P / E			23.2 x	25.0 x	30.1 x	30.9 x	21.2 x	30.8 x	26.9 x
	6 months:		29.0 %			Price / Book			2.8 x	2.6 x	2.5 x	3.1 x	4.0 x	3.8 x	3.7 x
				P / NAVPS			1.1 x	1.2 x	1.3 x	1.2 x	1.4 x	1.3 x	1.3 x
	Year to date:		16.1 %
		FFO I-Yield			8.2 %	8.7 %	7.5 %	7.6 %	6.7 %	7.7 %	8.7 %
	Trailing 12 months:		4.5 %
				ROE			12.4 %	12.3 %	10.2 %	10.2 %	19.6 %	12.6 %	14.0 %
						LTV			61.1 %	62.0 %	58.2 %	60.2 %	58.1 %	59.1 %	59.5 %
	Company events:
				Guidance:		2021e: FFO of EUR ~7.1m, Net profit (HGB) of EUR >5.0m
Analyst
Andreas Pläsier				COM M ENT		Published 01.10.2021 08:15			1
[e-mail]
[phone]

DEFAMA Deutsche Fachmarkt AG

RESEARCH

EPRA-NAV per share development	FFO per share development
in EUR	in EUR

Source: Warburg Research	Source: Warburg Research

Company Background

• Founded in 2014 and headquartered in Berlin, DEFAMA focuses on the acquisition, ownership and management of retail parks in German small and medium-sized cities, predominantly in Northern and Eastern Germany.
• The investment strategy is to "buy and hold" assets with high occupancy and minor capex needs for a purchase price of ~10x annual rent.
• Investment volumes are EUR 1 - 5 million per asset. Anchor tenants are nationwide retailers.

Competitive Quality

• Real estate competence: founder, major shareholder and CEO Matthias Schrade, previously oversaw as a board member responsible for acquisitions for a non-listed real estate company based in Munich.
• Unique focus: the company competes for assets that are too large for individual investors and too small for institutional investors and can "buy low".
• Strong access to local public banks networks, for whom real estate financings for DEFAMA projects are large and important deals. They in turn know smaller tenants well.
• Focus on leading centers in smaller cities ("big fish in a small pond").

Geographical breakdown of rental	Rental income by sector
income	% of rental income
% of total rental income

Source: Warburg Research

COM M ENT	Published 01.10.2021	2

DEFAMA Deutsche Fachmarkt AG

RESEARCH

Valuation

	2017	2018	2019	2020	2021e	2022e	2023e
P / E	23.2 x	25.0 x	30.1 x	30.9 x	21.2 x	30.8 x	26.9 x
P / NAVPS	1.1 x	1.2 x	1.3 x	1.2 x	1.4 x	1.3 x	1.3 x
Price / Book	2.8 x	2.6 x	2.5 x	3.1 x	4.0 x	3.8 x	3.7 x
P / FFOPS I	12.2 x	11.5 x	13.4 x	13.2 x	15.0 x	13.0 x	11.5 x
FFO I-Yield	8.2 %	8.7 %	7.5 %	7.6 %	6.7 %	7.7 %	8.7 %
ROE	12.4 %	12.3 %	10.2 %	10.2 %	19.6 %	12.6 %	14.0 %
Equity Ratio	21 %	19 %	24 %	18 %	18 %	17 %	16 %

Company Specific Items

	2017	2018	2019	2020	2021e	2022e	2023e
NAV/Share	8.42	11.02	13.46	16.86	18.85	20.21	21.78
Vacancy Rate	2.7 %	4.3 %	4.0 %	3.7 %	3.7 %	4.0 %	4.0 %

COM M ENT	Published 01.10.2021	3

DEFAMA Deutsche Fachmarkt AG

RESEARCH

Consolidated profit and loss

In EUR m	2017	2018	2019	2020	2021e	2022e	2023e
Total revenues	5.83	9.09	11.21	14.58	17.77	20.11	22.56
Rental income	5.10	7.61	9.53	12.19	14.93	16.89	18.95
Change yoy	67.9 %	49.2 %	25.1 %	27.9 %	22.5 %	13.2 %	12.2 %
Property operating costs	1.24	2.21	2.63	3.40	4.21	4.67	5.23
Property management costs	0.00	0.00	0.00	0.00	0.00	0.00	0.00
Rental profit	4.58	6.87	8.57	11.18	13.56	15.45	17.32
Income from property sales	0.00	0.00	0.00	0.00	2.60	0.00	0.00
Other revenues	0.12	0.08	0.07	0.12	0.25	0.24	0.27
Gross profit	4.70	6.95	8.64	11.30	16.41	15.69	17.59
Administration expenses	0.35	0.70	0.70	0.81	1.00	1.13	1.26
Personnel expenses	0.47	0.72	1.04	1.50	1.83	2.05	2.30
Other operating income/expenses	0.00	0.00	0.00	0.00	0.00	0.00	0.00
Unfrequent items	n.a.	n.a.	n.a.	n.a.	n.a.	n.a.	n.a.
EBITDA	3.89	5.53	7.04	8.99	13.58	12.51	14.03
Valuation result	0.00	0.00	0.00	0.00	2.60	0.00	0.00
Depreciation of fixed assets	1.22	1.95	2.55	3.36	4.30	4.83	5.41
EBITA	2.67	3.59	4.50	5.62	9.28	7.68	8.62
Amortisation of intangible assets/Goodwill	0.00	0.00	0.00	0.00	0.00	0.00	0.00
EBIT	2.67	3.59	4.50	5.62	9.28	7.68	8.62
Interest income	0.00	0.00	0.01	0.01	0.00	0.00	0.00
Interest expenses	0.90	1.34	1.73	2.14	2.62	2.93	3.19
Other financial income (loss)	0.00	0.00	0.00	0.00	0.00	0.00	0.00
Financial result	-0.90	-1.34	-1.72	-2.13	-2.62	-2.93	-3.19
EBT	1.77	2.25	2.78	3.49	6.67	4.76	5.43
Margin	30.4 %	24.8 %	24.8 %	24.0 %	37.5 %	23.6 %	24.1 %
Total taxes	-0.41	-0.55	-0.71	-0.71	-0.71	-1.22	-1.38
thereof cash taxes	-0.28	-0.36	-0.42	-0.42	-0.42	-0.72	-0.83
Net income from continuing operations	1.36	1.70	2.07	2.51	5.14	3.53	4.05
Income from discontinued operations (net of tax)	0.00	0.00	0.00	0.00	0.00	0.00	0.00
Net income before minorities	1.36	1.70	2.07	2.51	5.14	3.53	4.05
Minority interest	0.00	0.02	0.01	0.00	0.00	0.00	0.00
Net income	1.36	1.68	2.06	2.51	5.13	3.53	4.05
Number of shares, average	3.55	3.62	4.05	4.42	4.42	4.42	4.42
FFO (II)	2.58	3.65	4.62	5.87	7.25	8.36	9.46
FFO I-margin	50.6 %	47.9 %	48.4 %	48.2 %	48.6 %	49.5 %	49.9 %
FFOPS I	0.73	1.01	1.14	1.33	1.64	1.89	2.14
EPS	0.38	0.46	0.51	0.57	1.16	0.80	0.92
EPS adj.	0.38	0.43	0.47	0.57	1.16	0.80	0.92
*Adjustments made for:
Guidance: 2021e: FFO of EUR ~7.1m, Net profit (HGB) of EUR >5.0m

Financial Ratios

	2017	2018	2019	2020	2021e	2022e	2023e
Property operating costs / Rental Income	24.4 %	29.1 %	27.6 %	27.9 %	28.2 %	27.6 %	27.6 %
Operating Leverage (Real Estate)	2.4 x	2.9 x	5.0 x	4.6 x	5.5 x	8.8 x	9.3 x
Rental profit / interest expenses	5.1 x	5.1 x	5.0 x	5.2 x	5.2 x	5.3 x	5.4 x

Revenues, EBITDA	Operating Performance	Performance per Share
in EUR m	in %

Source: Warburg Research	Source:			Source: Warburg Research
	COM M ENT		Published 01.10.2021		4

DEFAMA Deutsche Fachmarkt AG

RESEARCH

Consolidated balance sheet

In EUR m	2017	2018	2019	2020	2021e	2022e	2023e
Assets
Goodwill and other intangible assets	0.01	0.01	0.03	0.02	0.02	0.02	0.02
thereof other intangible assets	0.00	0.00	0.00	0.00	0.00	0.00	0.00
thereof Goodwill	0.01	0.01	0.03	0.02	0.02	0.02	0.02
Property, plant and equipment	0.03	0.08	0.11	1.39	1.41	1.42	1.43
Investment properties	51.96	81.10	93.14	127.79	141.76	156.61	170.85
Financial assets	0.24	0.26	1.70	0.12	0.45	0.45	0.45
Other long-term assets	0.00	0.00	0.00	0.00	0.00	0.00	0.00
Fixed assets	52.24	81.44	94.98	129.33	143.64	158.50	172.75
Inventories	0.00	0.00	0.00	0.00	0.00	0.00	0.00
Accounts receivable	0.22	0.51	0.00	0.80	0.91	0.93	0.95
Liquid assets	2.49	2.80	6.98	4.28	11.46	8.07	8.03
Other short-term assets	0.83	0.59	-2.56	-0.66	-7.95	-4.58	-4.56
Current assets	3.17	4.34	9.29	7.38	13.39	10.01	10.01
Total Assets	55.41	85.79	104.28	136.71	157.02	168.51	182.76
Liabilities and shareholders' equity
Subscribed capital	3.55	3.90	4.42	4.42	4.42	4.42	4.42
Capital reserve	6.15	10.03	17.31	17.31	17.31	17.31	17.31
Retained earnings	1.59	2.06	2.56	3.07	5.78	6.65	7.83
Other equity components	0.00	0.00	0.00	0.00	0.00	0.00	0.00
Shareholders' equity	11.29	15.99	24.29	24.81	27.51	28.39	29.56
Minority interest	0.10	0.38	0.39	0.40	0.40	0.40	0.40
Provisions	0.36	1.01	0.43	0.51	0.51	0.51	0.51
thereof provisions for pensions and similar obligations	0.18	0.21	0.21	0.25	0.25	0.25	0.25
Financial liabilities (total)	43.07	67.79	76.52	110.25	127.74	138.35	151.43
Short-term financial liabilities	0.00	0.00	0.00	0.00	0.00	0.00	0.00
Accounts payable	0.19	0.30	0.51	0.29	0.42	0.42	0.42
Other liabilities	0.51	0.70	2.54	0.86	0.84	0.84	0.84
Liabilities	44.13	69.79	79.99	111.91	129.51	140.12	153.20
Total liabilities and shareholders' equity	55.41	85.79	104.28	136.71	157.02	168.51	182.76

Financial Ratios

	2017	2018	2019	2020	2021e	2022e	2023e
Return on Capital
ROA	3.1 %	2.4 %	2.2 %	2.1 %	3.5 %	2.2 %	2.3 %
ROE	12.4 %	12.3 %	10.2 %	10.2 %	19.6 %	12.6 %	14.0 %
FFO I / Equity	0.2 x	0.3 x	0.2 x	0.2 x	0.3 x	0.3 x	0.3 x
Solvency
Net Debt	40.76	65.20	69.75	106.23	116.53	130.54	143.66
Net Financial Debt	40.58	64.99	69.54	105.98	116.28	130.28	143.41
Net Fin. Debt / EBITDA	10.4 x	11.7 x	9.9 x	11.8 x	8.6 x	10.4 x	10.2 x
LTV	61.1 %	62.0 %	58.2 %	60.2 %	58.1 %	59.1 %	59.5 %
Equity Ratio	20.5 %	19.1 %	23.7 %	18.4 %	17.8 %	17.1 %	16.4 %

LTV	ROE	Book Value per Share
	in %	in EUR

Source: Warburg Research	Source: Warburg Research	Source: Warburg Research
	COM M ENT		Published 01.10.2021		5