DEFAMA Deutsche Fachmarkt : “DEFAMA remains on the right path”

DEFAMA Deutsche Fachmarkt AG

DEFAMA remains on the right path

(DEF GY) | Real Estate

April 30, 2021

Publication of the FY 20 annual report: there are no deviations from prelims and the outlook. An update on Q1 performance will be pro­ vided by m´ment in May. One aspect worth mentioning: rent receiv­ able write-downs amounted to just EUR 0.2m in FY 20, which illus­ trates the high defensiveness of DEFAMA´s rental cashflows in our view. Looking at the present situation, we remain confident that DEFAMA has collected a majority of its rents in Q1 (M´e: 90%) de­ spite the current lockdown measures due to its high proportion of non-cyclical tenants. The company also remains on track to achieve its annual acquisition volume target of EUR 15m-20m: last week, DEFAMA announced the acquisition of a retail park center in Gardele­ gen near Magdeburg (lettable space: 16.000m²) for EUR 8m. Accord­ ing to DEFAMA, additional properties are already in the acquisition pipeline. We therefore expect further newsflow on the acquisition side in the coming months. The growth perspectives for FY 21e re­ main promising in our view: m´ment targets an FFO of EUR 7.1m for FY 21e, implying an FFO growth rate of 21% yoy. Our positive stance on the company's investment case remains unchanged and we stick to our Buy rating with a PT of EUR 23.

Buy	unchanged
Price*	EUR 19.50
Price target	EUR 23.00	(unchanged)

• XETRA trading price at the close of the previous day unless stated otherwise in the Disclosures

Market Cap (EUR m)	86
Enterprise Value (EUR m)	203
Free Float (%)	65.0

• Valuation: Our estimates and PT remain unchanged. DEFAMA trades at a P/FFO 22e multiple of 10.7x, its closest peer DKR (BUY/PT EUR 17.9) at 12.1x.

Fundamentals (in EUR m)	2018	2019	2020	2021e	2022e	2023e
Sales	9	11	15	17	19	20
EBITDA	6	7	9	14	12	13
EPS adj. (EUR)	0.46	0.51	0.57	1.18	0.81	0.89
FFO	3.6	4.6	5.9	7.3	8.1	8.8
DPS (EUR)	0.40	0.45	0.48	0.53	0.58	0.63
Operating Cash Flow (EUR)	3	4	5	6	7	8
Dividend paid (EUR)	1	2	2	2	2	3
Capital expenditures (EUR)	31	16	38	15	15	15

Ratios	2018	2019	2020	2021e	2022e	2023e
EV/EBITDA	19.6	19.4	21.5	15.0	17.7	17.2
PCFR	8.7	10.5	10.9	7.3	7.9	7.3
P/E adj.	25.9	32.5	34.8	16.5	24.2	22.0
Dividend yield (%)	3.3	2.7	2.4	2.7	3.0	3.2
EBIT margin (%)	39.5	40.1	38.6	56.2	41.0	41.3
Gearing (%)	396.8	281.7	420.5	401.2	390.4	385.7
ROE (%)	12.3	10.2	10.2	19.5	11.7	11.6
PBV	2.7	2.8	3.5	3.0	2.7	2.4

Sources: Refinitiv, Metzler Research

Performance (in %)	1m	3m	12m
Share	2.1	1.6	21.9
Rel. to Prime All Share	0.5	-8.7	-13.5
Sources: Refinitiv, Metzler Research
Changes in estimates (in %)	2021e	2022e	2023e
Sales	0.0	0.0	n.a.
EBIT	0.0	0.0	n.a.
EPS	0.0	0.0	n.a.

Sponsored Research

Author: Stephan Bonhage

Financial Analyst Equities

+49 - 69 21 04 - 525 [e-mail]

Information for professional clients and eligible counterparties - not to be passed on to private clients

1

The recent acquisition could become another lucky punch

Last week, DEFAMA announced its first property acquisition of this year. The company acquired a retail park center in Gardelegen near Magdeburg for EUR 8m. In terms of the lettable space (16.000m²), the new retail park center is one of the largest properties within DEFAMA´s portfolio. The anchor tenant of the property is Kaufland. Other relevant tenants are ACTION, Woolworth, AWG, Deichmann and Takko. Thus, the tenant structure is very comparable to other properties of the company.

However, we believe that the vacancy rate should be significantly higher than at other acquired properties as only 13 of 18 rental spaces are currently leased to ten­ ants. M´ment noted that it is already in discussions with potential tenants for these vacant rental spaces and therefore remains optimistic to lower the vacancy rate meaningfully soon. Assuming a vacancy rate of 0%, the new property would gen­ erate annual rental cashflows of over EUR 1m, according to DEFAMA. On that ba­ sis, the acquisition price of EUR 8m would be even below the company's acquisi­ tion target multiple of 10x annual rent and could be then considered as another lucky punch by DEFAMA. Given the successful track record of the company in terms of vacancy reduction, we are optimistic that DEFAMA should be able to gradually reduce the vacancy rate of the property over the coming quarters.

Information for professional clients and eligible counterparties - not to be passed on to private clients

2

Key Data

Company profile
CEO: Matthias Schrade	CFO: -	Berlin, Germany

DEFAMA, headquartered in Berlin, is a large German real estate company that specializes in the acquisition and management of retail parks. Acquisition targets are retail parks in small and medium-sized German cities, preferably in Northern and Eastern Germany. The property portfolio currently comprises 44 properties.

Major shareholders

Matthias Schrade (29%), Geminus GmbH (4%), Other management (2%)

Key figures
P&L (in EUR m)	2018	%	2019	%	2020	%	2021e	%	2022e	%	2023e	%
Sales	9	55.9	11	23.3	15	30.1	17	17.6	19	10.8	20	7.9
EBITDA	6	42.3	7	27.3	9	27.6	14	50.3	12	-10.7	13	8.2
EBITDA margin (%)	60.9	-8.7	62.9	3.2	61.7	-1.9	78.8	27.7	63.5	-19.4	63.7	0.3
EBIT	4	34.5	4	25.3	6	25.1	10	71.2	8	-19.1	8	8.7
EBIT margin (%)	39.5	-13.8	40.1	1.6	38.6	-3.8	56.2	45.6	41.0	-27.0	41.3	0.7
Financial result	-1	-49.0	-2	-28.7	-2	-23.9	-3	-24.8	-3	-13.6	-3	-6.5
EBT	2	27.1	3	23.3	3	25.8	7	99.5	5	-31.6	5	10.0
Taxes	-1	-34.3	-1	-28.7	-1	-38.7	-2	-77.0	-1	31.6	-1	-10.0
Tax rate (%)	-24.5	n.a.	-25.6	n.a.	-28.2	n.a.	-25.0	n.a.	-25.0	n.a.	-25.0	n.a.
Net income	2	25.0	2	21.5	3	21.4	5	108.4	4	-31.6	4	10.0
Minority interests	0	n.m.	0	-48.8	0	-62.9	0	169.7	0	0.0	0	0.0
Net Income after minorities	2	23.4	2	22.5	3	21.9	5	108.3	4	-31.7	4	10.1
Number of shares outstanding (m)	4	2.1	4	11.9	4	9.1	4	0.0	4	0.0	4	0.0
EPS adj. (EUR)	0.46	20.7	0.51	9.5	0.57	11.7	1.18	108.3	0.81	-31.7	0.89	10.1
DPS (EUR)	0.40	17.6	0.45	12.5	0.48	6.7	0.53	10.4	0.58	9.4	0.63	8.6
Dividend yield (%)	3.3	n.a.	2.7	n.a.	2.4	n.a.	2.7	n.a.	3.0	n.a.	3.2	n.a.
Cash Flow (in EUR m)	2018	%	2019	%	2020	%	2021e	%	2022e	%	2023e	%
Operating Cash Flow	3	24.1	4	11.1	5	30.6	6	27.0	7	14.3	8	18.1
Increase in working capital	0	n.a.	0	n.a.	0	n.a.	0	n.a.	0	n.a.	0	n.a.
Capital expenditures	31	42.1	16	-48.4	38	135.7	15	-60.4	15	0.0	15	0.0
Dividend paid	1	70.0	2	29.4	2	27.5	2	6.7	2	10.4	3	9.4
Free cash flow (post dividend)	-29	-45.6	-14	52.2	-35	-152.3	-11	69.0	-10	6.3	-9	10.6
Balance sheet (in EUR m)	2018	%	2019	%	2020	%	2021e	%	2022e	%	2023e	%
Assets	86	54.8	104	21.6	137	31.1	155	13.6	174	12.2	190	8.8
Goodwill	0	n.a.	0	n.a.	0	n.a.	0	n.a.	0	n.a.	0	n.a.
Shareholders' equity	16	43.9	25	50.7	25	2.1	29	15.5	33	12.4	36	10.1
Net Debt incl. Provisions	65	60.2	70	7.0	106	52.4	117	10.2	128	9.3	139	8.8
Gearing (%)	396.8	n.a.	281.7	n.a.	420.5	n.a.	401.2	n.a.	390.4	n.a.	385.7	n.a.
Net debt/EBITDA	11.7	n.a.	9.9	n.a.	11.8	n.a.	8.6	n.a.	10.6	n.a.	10.6	n.a.

Structure

Tenant strucutre 2020

Sources: Refinitiv, Metzler Research

Information for professional clients and eligible counterparties - not to be passed on to private clients

3

Disclosures

Recommendation history	Recommendations for each financial instrument or issuer - mentioned in this docu­
		ment - published by Metzler in the past twelve months
Date of dissemi­	Metzler recommendation *	Current price **	Price target *	Author ***
nation	Previous	Current
Issuer/Financial Instrument (ISIN): DEFAMA Deutsche Fachmarkt AG (DE000A13SUL5)
01.03.2021	Buy	Buy	19.40 EUR	23.00 EUR	Bonhage, Stephan
22.02.2021	Buy	Buy	19.10 EUR	22.20 EUR	Bonhage, Stephan
30.10.2020	Buy	Buy	18.50 EUR	22.20 EUR	Bonhage, Stephan
11.09.2020	Buy	Buy	19.00 EUR	22.20 EUR	Bonhage, Stephan
07.08.2020	Buy	Buy	17.90 EUR	20.50 EUR	Bonhage, Stephan
30.07.2020	Buy	Buy	17.40 EUR	20.50 EUR	Bonhage, Stephan
28.07.2020	n.a.	Buy	17.50 EUR	20.50 EUR	Bonhage, Stephan
Issuer/Financial Instrument (ISIN): Deutsche Konsum REIT-AG (DE000A14KRD3)
19.03.2021	n.a.	Buy	15.55 EUR	17.90 EUR	Bonhage, Stephan

• Effective until the price target and/or investment recommendation is updated (FI/FX recommendations are valid solely at the time of publication)
• XETRA trading price at the close of the previous day unless stated otherwise herein
• All authors are financial analysts

DEFAMA Deutsche Fachmarkt AG

17 . Metzler and/or a company affiliated with Metzler had reached an agree­ ment on the compilation of the investment analysis with the analysed company. Prior to publication of the financial analysis, the provider gives the issuer a one-off opportunity to comment (comparison of facts in ac­ cordance with the DVFA Code) within the regulatory framework to avoid quality defects.

Compiled: April 30, 2021 08:47 AM CEST

Initial release: April 30, 2021 08:47 AM CEST

Information for professional clients and eligible counterparties - not to be passed on to private clients

4

Disclaimer

This document has been prepared by B. Metzler seel. Sohn & Co. KGaA (Metzler) and is addressed exclusively to eligible counterparties and professional clients. It is thus not suitable for retail clients.

This document is based on information which is generally available and which Metzler believes to be fundamentally reliable. Metzler has not verified the accuracy or com­ pleteness of the information, however, and thus provides no warranty or representation in respect of the accuracy or completeness of the information, opinions, estimates, recommendations and forecasts contained in this document. Neither Metzler nor any of its shareholders or employees are liable for damage or any other disadvantage suf­ fered due to inaccurate or incomplete information, opinions, estimates, recommendations or forecasts as a result of the distribution or use of or in connection to this docu­ ment.

This document does not constitute or form part of any offer to buy or solicitation of any offer to buy securities, other financial instruments or other investment instruments. Neither does it take account of the particular investment objectives, financial situation or needs of individual recipients nor does it constitute personal investment advice. Metzler does not act as investment advisor or portfolio manager in preparing and publishing this document. Recipients must make their own investment decisions in accor­ dance with their specific financial situation and investment objectives, based on independent processes and analyses, taking sales or other prospectuses, information memo­ randa and other investor information into account, and consult with an independent financial advisor where necessary. Recipients should note that any information regarding past performance should not be relied upon as an indication of future performance and should therefore not form the basis of any decision whether or not to invest in any fi­ nancial instruments.

The information, opinions, estimates, recommendations and forecasts contained in this document reflect the personal views of the author at the time of publication on the fi­ nancial instruments or issuers that form the subject of this document and do not necessarily reflect the opinions of Metzler, the issuer or third parties. They may also be sub­ ject to change on account of future events and developments. Metzler has no obligation to amend, supplement or update this document or to otherwise notify recipients in the event that any information, opinions, estimates, recommendations or forecasts stated herein should change or subsequently become inaccurate, incomplete or mislead­ ing. The model calculations contained in this document, if any, are examples showing the possible performance and are based on various assumptions (e.g. regarding earn­ ings and volatility). The actual performance may be higher or lower, depending on market trends and on the correctness of assumptions underlying the model calculations. Accordingly, actual performance cannot be guaranteed, warranted or assured.

Recipients should assume that (a) Metzler is entitled to acquire orders for investment banking, securities or other services from or with companies which form the subject of research publications and that (b) analysts who were involved in preparing research publications may, within the scope of regulatory laws, be indirectly involved in the acqui­ sition of such orders.

Metzler and its employees may hold positions in securities of the companies analysed or in other investment objects or may conduct transactions with such securities or in­ vestment objects.

This document is provided for information purposes only and may not be copied, duplicated, forwarded to third parties or otherwise published, in whole or in part, without Metzler's written consent. Metzler reserves all copyrights and rights of use, including those relating to electronic media. Insofar as Metzler provides hyperlinks to websites of the companies cited in research publications, this does not mean that Metzler confirms, recommends or warrants any data contained on the linked sites or data which can be accessed from such sites. Metzler accepts no liability for links or data, nor for any consequences which may arise as a result of following the links and/or using the data.

This document is subject to the laws of the Federal Republic of Germany. Venue of jurisdiction for any disputes shall be Frankfurt am Main, Germany.

By accepting this document the recipient declares his/her agreement with the above provisions.

Information in accordance with Regulation (EU) No. 596/2014, Delegated Regulation (EU) No. 2016/958 and section 85 (1) of the German Securities Trading Act (Wertpapier­ handelsgesetz)

Persons responsible for this document

The company responsible for preparing this document is B. Metzler seel. Sohn & Co. KGaA, Untermainanlage 1, 60329 Frankfurt am Main, Germany, which is subject to super­ vision by the German Federal Financial Supervisory Authority (Bundesanstalt für Finanzdienstleistungsaufsicht; BaFin), Marie-Curie-Straße24-28, 60439 Frankfurt/Main, Ger­ many, and by the European Central Bank (ECB), Sonnemannstraße 20, 60314 Frankfurt/Main, Germany.

Key information sources

The sources of information referred to when preparing research publications include publications by national and international media, the European Central Bank and other public authorities, information services (such as Reuters and Bloomberg), the financial press, published statistics, information published by rating agencies, annual reports and other information provided by the issuers.

Valuation criteria and methods

Valuations are based on standard and acknowledged methods of fundamental and technical analysis (e.g. DCF model, peer-group analysis, sum-of-the-parts model, relative- value analysis). The valuation models are affected by macro-economic values such as interest rates, exchange rates, commodities prices and economic performance, as well as by market sentiments. Detailed information on the valuation principles and methods used by Metzler and the assumptions on which they are based is available at: www.metzler.com/disclaimer-capital-markets-en.

Sensitivity of valuation parameters; risks

The figures on which the company valuations are based are date-specific estimates and thus carry inherent risks. They may be adjusted at any time without prior notice.

Information for professional clients and eligible counterparties - not to be passed on to private clients

5