DEFAMA Deutsche Fachmarkt : „Good start to 2022 with attractive acquisitions“

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:

34.34

Commercial real estate company

EUR 31.90

FFO-Yield 23e:

29.36

Balance Sheet Score:

3.8

focused on retail parks in Northern

(EUR 28.60)

Market Liquidity Score:

0.0

and Eastern Germany

Market Snapshot:

EUR m

Shareholders:

Key Figures (WRe):

2021e

Price

EUR 28.20

Market cap:

124.64

Freefloat

65.0 %

LTV:

58.1 %

No. of shares (m):

4.42

MSC Invest GmbH

29.0 %

Equity Ratio:

17.8 %

Upside

13.1 %

Freefloat MC:

81.02

Geminus GmbH

4.0 %

Supervisory board

2.0 %

Ø Trad. Vol. (30d):

35.73 th

Good start to 2022 with attractive acquisitions

• DEFAMA has had a good start to 2022 as it announced the acquisition of two properties, one in Wolfsburg/Lower Saxony and another in Schneeberg/Saxony. These acquisitions with a lettable space of 8.7k sqm would contribute a rental income of EUR 700k in the case of a full letting. We assume that the company will stick to its target acquisition multiple of ~10-12 depending on the quality and the upside potential of the property.
• The acquisition in Schneeberg with Aldi as the main tenant is rather small with net rental income of EUR 110k and a published purchase of EUR 1.1m (multiple of 10). The significantly larger retail park in Nordsteimke/Wolfsburg has a very favourable tenant mix (Aldi, Rossmann, KiK, ABC Schuhe, Fressnapf). Furthermore, DEFAMA's property in Wolfsburg should benefit from rising customer footfall due to a) possible plans by EDEKA to build its new centre opposite and b) the planned construction of ~3000 residential properties/units nearby. This offers potential for higher turnover for DEFAMA's tenants and enables some upside for the rents, in our view.
• DEFAMA's annualised FFO increased to EUR 8.5m from EUR 8.3m which leads to a current FFO yield of 6.8%. The guidance for the annualised FFO at the end of 2021 was EUR 8m but this target has already been exceeded due to higher growth momentum in 2021.
• We stick to our Buy recommendation and increase our price target to EUR 31.90. This is driven by a higher rent multiple for the portfolio (15 from 14) due to ongoing investment plans (~>EUR 8m) within the existing portfolio (e.g. Löwenberg, Büdelsdorf, Hamm, Lübbenau, Gardelegen, Rendsberg, Sonnefeld) which will lead to a quality improvement and increase the attractiveness of properties in terms of rent and WALT. As a consequence, DEFAMA might use more opportunistic disposals to strengthen the balance sheet and support the target of modestly higher acquisition volume annually.

						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	16.98	19.52
						Change yoy			67.9 %	49.2 %	25.1 %	27.9 %	22.5 %	13.7 %	15.0 %
						EBIT			2.67	3.59	4.50	5.62	9.28	7.72	8.88
						FFO I			2.58	3.65	4.62	5.87	7.25	8.41	9.84
						FFO I-margin			50.6 %	47.9 %	48.4 %	48.2 %	48.6 %	49.5 %	50.4 %
						EBT			1.77	2.25	2.78	3.49	6.67	4.79	5.69
						Net income			1.36	1.68	2.06	2.51	5.13	3.56	4.26
						EPS				0.46	0.51	0.57	1.16	0.81	0.96
								0.38
						FFOPS I			0.73	1.01	1.14	1.33	1.64	1.90	2.23
						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 %	2.0 %	2.1 %	2.3 %
						Book Value / Share			3.18	4.10	5.50	5.61	6.22	6.43	6.74
	Rel. Performance vs CDAX:
	1 month:		3.2 %			P / E			23.2 x	25.0 x	30.1 x	30.9 x	24.3 x	35.0 x	29.3 x
	6 months:		22.1 %			Price / Book			2.8 x	2.6 x	2.5 x	3.1 x	4.5 x	4.4 x	4.2 x
				P / NAVPS			1.1 x	1.2 x	1.3 x	1.2 x	1.7 x	1.5 x	1.4 x
	Year to date:		3.2 %
		FFO I-Yield			8.2 %	8.7 %	7.5 %	7.6 %	5.8 %	6.7 %	7.9 %
	Trailing 12 months:		38.1 %
				ROE			12.4 %	12.3 %	10.2 %	10.2 %	19.6 %	12.7 %	14.6 %
						LTV			61.1 %	62.0 %	58.2 %	60.2 %	58.1 %	59.0 %	59.4 %
	Company events:
				Guidance:		2021e: FFO of EUR ~7.1m, Net profit (HGB) of EUR >5.0m
Analyst
Andreas Pläsier				COM M ENT		Published 02.02.2022 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 02.02.2022	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	24.3 x	35.0 x	29.3 x
P / NAVPS	1.1 x	1.2 x	1.3 x	1.2 x	1.7 x	1.5 x	1.4 x
Price / Book	2.8 x	2.6 x	2.5 x	3.1 x	4.5 x	4.4 x	4.2 x
P / FFOPS I	12.2 x	11.5 x	13.4 x	13.2 x	17.2 x	14.8 x	12.7 x
FFO I-Yield	8.2 %	8.7 %	7.5 %	7.6 %	5.8 %	6.7 %	7.9 %
ROE	12.4 %	12.3 %	10.2 %	10.2 %	19.6 %	12.7 %	14.6 %
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	20.22	21.88
Vacancy Rate	2.7 %	4.3 %	4.0 %	3.7 %	3.7 %	4.0 %	4.0 %

COM M ENT	Published 02.02.2022	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	20.21	23.24
Rental income	5.10	7.61	9.53	12.19	14.93	16.98	19.52
Change yoy	67.9 %	49.2 %	25.1 %	27.9 %	22.5 %	13.7 %	15.0 %
Property operating costs	1.24	2.21	2.63	3.40	4.21	4.69	5.39
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	15.52	17.84
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	0.28
Gross profit	4.70	6.95	8.64	11.30	16.41	15.76	18.12
Administration expenses	0.35	0.70	0.70	0.81	1.00	1.13	1.30
Personnel expenses	0.47	0.72	1.04	1.50	1.83	2.06	2.37
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	12.57	14.45
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	4.85	5.58
EBITA	2.67	3.59	4.50	5.62	9.28	7.72	8.88
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	7.72	8.88
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	4.79	5.69
Margin	30.4 %	24.8 %	24.8 %	24.0 %	37.5 %	23.7 %	24.5 %
Total taxes	-0.41	-0.55	-0.71	-0.71	-0.71	-1.23	-1.42
thereof cash taxes	-0.28	-0.36	-0.42	-0.42	-0.42	-0.73	-0.87
Net income from continuing operations	1.36	1.70	2.07	2.51	5.14	3.56	4.27
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	3.56	4.27
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	3.56	4.26
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	8.41	9.84
FFO I-margin	50.6 %	47.9 %	48.4 %	48.2 %	48.6 %	49.5 %	50.4 %
FFOPS I	0.73	1.01	1.14	1.33	1.64	1.90	2.23
EPS	0.38	0.46	0.51	0.57	1.16	0.81	0.96
EPS adj.	0.38	0.43	0.47	0.57	1.16	0.81	0.96
*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	8.5 x	7.8 x
Rental profit / interest expenses	5.1 x	5.1 x	5.0 x	5.2 x	5.2 x	5.3 x	5.6 x

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

Source: Warburg Research	Source:			Source: Warburg Research
	COM M ENT		Published 02.02.2022		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	141.83	156.75	170.94
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	143.71	158.64	172.84
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	8.12	8.46
Other short-term assets	0.83	0.59	-2.56	-0.66	-7.95	-4.63	-4.99
Current assets	3.17	4.34	9.29	7.38	13.39	10.07	10.44
Total Assets	55.41	85.79	104.28	136.71	157.10	168.70	183.28
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	6.68	8.07
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	28.42	29.80
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	0.92	1.01	1.12
Liabilities	44.13	69.79	79.99	111.91	129.59	140.29	153.48
Total liabilities and shareholders' equity	55.41	85.79	104.28	136.71	157.10	168.70	183.28

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 %	2.4 %
ROE	12.4 %	12.3 %	10.2 %	10.2 %	19.6 %	12.7 %	14.6 %
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	130.48	143.23
Net Financial Debt	40.58	64.99	69.54	105.98	116.28	130.23	142.97
Net Fin. Debt / EBITDA	10.4 x	11.7 x	9.9 x	11.8 x	8.6 x	10.4 x	9.9 x
LTV	61.1 %	62.0 %	58.2 %	60.2 %	58.1 %	59.0 %	59.4 %
Equity Ratio	20.5 %	19.1 %	23.7 %	18.4 %	17.8 %	17.1 %	16.5 %

LTV	ROE	Book Value per Share
	in %	in EUR

Source: Warburg Research	Source: Warburg Research	Source: Warburg Research
	COM M ENT		Published 02.02.2022		5