DEFAMA Deutsche Fachmarkt : “FY20 guidance should be achieved; Strong growth to continue in 2021”

DEFAMA Deutsche Fachmarkt AG

(General Standard, Real Estate, DEF GR)

Buy

EUR 22.90

Market Liquidity Score: 0.0

Value Indicators:	EUR
NAV (WRe) 22e:	24.28
FFO-Yield 22e:	23.75

Description:

Commercial real estate company

focused on retail parks in Northern and Eastern Germany

Warburg ESG Risk Score: 2.3

ESG Score (MSCI based): 3.0

Balance Sheet Score: 3.8

Market Snapshot:	EUR mShareholders:	Key Figures (WRe):	2020e
85.75Freefloat	65.0 %LTV:	61.7 %
29.0 %Equity Ratio:	19.2 %

Market cap:

Price

EUR 19.40 MSC Invest GmbHNo. of shares (m):

4.42

Upside

18.0 %Freefloat MC:

Ø Trad. Vol. (30d):

55.74Geminus GmbH 32.63 thSupervisory board

4.0 %2.0 %

FY20 guidance should be achieved; Strong growth to continue in 2021

Expected Figures Q4/2020:

Comment on Figures:

•  DEFAMA will release its preliminary figures on February 25.

  2020e

  2019

  +/- in %

  Revenues 13,85 11,21 24%

•  The FY guidance should be achieved with an estimated FFO of EUR 5.86m and net profit (German GAAP) of EUR 2.52m.

  EBITDA EBIT EBT

  8,82 7,04 25%

  5,48 4,50 22%

  3,38 2,78 22%

  Net profit EPS (€)

  2,52 2,07 22%

•  Management already gave guidance for 2021 in December last year. It is expecting FFO of EUR 7.1m (WRe: 7.29m) and net profit growth of ~24% to EUR 3.1m (WRe: 3.12m). Both targets are conservative, in our view, as annualised FFO is already more than EUR 7m.

0,57 0,51 12%

FFO FFO-margin FFOPS (€)

5,86 4,62 27% 42% 41%

1,32 1,14 16%LTV (%) 61,5% 58,2% 6%

NAV/share (€) 16,51 13,46 23%DPS

0,50 0,45 11%

•  The impact of Covid-19 on DEFAMA's operating performance was relatively small and not really visible in 2020.The collection rate of 80% at the beginning of the first lockdown improved steadily to 99% in November. The rent outstanding was relatively small (WRe: ~EUR 100k) after continuous reduction over the course of the year 2020. In 2021, the lockdown should lead to deferred rent volume of EUR 120-160k (~1% of revenues) in our view which should decline after re-opening. As a consequence, DEFAMA's targets for 2021 are not at risk despite the extension of the lockdown at the beginning of this year.

•  DEFAMA's focus on several smaller redevelopments within its portfolio should pay off in additional net rental growth. Company will invest e.g. ~EUR 2.2m in its properties in Hamm, Löwenberg and Lübbenau. Including the latest small acquisition near Magdeburg, DEFAMA's rental income will grow by approx. EUR 250k, which is attractive in light of the the total investment of EUR 3.3m.

FY End: 31.12.

Rel. Performance vs General
1 month:	-6.0 %
6 months:	-28.0 %
Year to date:	-10.6 %
Trailing 12 months:	-22.0 %

Company events: 25.02.21

in EUR m

Rental income

Change yoy

EBIT

FFO I

FFO I-margin

EBT

Net income

EPS

FFOPS I

DPS

Dividend Yield

Book Value / Share

Guidance:

P / E

Price / BookP / NAVPS

FFO I-YieldROE

LTV

CAGR
(19-22e)	2016	2017	2018	2019	2020e	2021e	2022e
3.44	5.83	9.09	11.21	13.85	16.67	19.13
240.6 %	69.5 %	55.9 %	23.3 %	23.5 %	20.4 %	14.8 %
1.67	2.67	3.59	4.50	5.48	6.80	7.73
1.59	2.58	3.65	4.62	5.86	7.29	8.50
46.2 %	44.3 %	40.1 %	41.2 %	42.3 %	43.7 %	44.4 %
1.11	1.77	2.25	2.78	3.38	4.18	4.71
0.89	1.36	1.68	2.06	2.52	3.12	3.52
0.25	0.38	0.46	0.51	0.57	0.71	0.80
0.54	0.73	1.01	1.14	1.32	1.65	1.92
0.20	0.34	0.40	0.45	0.50	0.55	0.60
3.8 %	3.8 %	3.4 %	2.9 %	2.6 %	2.8 %	3.1 %
3.00	3.18	4.10	5.50	5.56	5.72	5.92
20.9 x	23.2 x	25.0 x	30.1 x	34.1 x	27.5 x	24.3 x
1.4 x	2.8 x	2.6 x	2.5 x	3.5 x	3.4 x	3.3 x
1.0 x	1.1 x	1.2 x	1.3 x	1.3 x	1.2 x	1.1 x
10.4 %	8.2 %	8.7 %	7.5 %	6.8 %	8.5 %	9.9 %
10.9 %	12.4 %	12.3 %	10.2 %	10.3 %	12.5 %	13.7 %
56.0 %	61.1 %	62.0 %	58.2 %	61.7 %	62.4 %	64.0 %

2020e: FFO of least EUR ~5.7m, Net profit (HGB) of EUR 2.5mPrel. FY 2020

Analyst

Andreas Pläsier

COMMENT

Published 18.02.2021 08:15

1

[e-mail][phone]

EPRA-NAV per share development in EUR

FFO per share development 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").

Source: Warburg Research

Geographical breakdown of rental income % of total rental income

Rental income by sector % of rental income

Source: Warburg Research

Valuation

2016

2017

2018

2019

2020e

2021e

2022e

P /E

P / NAVPS Price / Book P / FFOPS I FFO I-Yield ROE Equity Ratio

20.9 x

23.2 x

25.0 x

30.1 x

34.1 x

27.5 x

24.3 x

1.0 x

1.1 x

1.2 x

1.3 x

1.3 x

1.2 x

1.1 x

1.4 x

2.8 x

2.6 x

2.5 x

3.5 x

3.4 x

3.3 x

9.6 x

12.2 x

11.5 x

13.4 x

14.6 x

11.8 x

10.1 x

10.4 %

8.2 %

8.7 %

7.5 %

6.8 %

8.5 %

9.9 %

10.9 %

12.4 %

12.3 %

10.2 %

10.3 %

12.5 %

13.7 %

32 %

21 %

19 %

24 %

19 %

17 %

16 %

Company Specific Items

EPRA-NAV/Share since 2017 Vacancy Rate

2016

2017

2018

5.14 2.7 %

8.42 2.7 %

11.02 4.3 %

2019

2020e

2021e

2022e

13.46 4.0 %

16.51 4.0 %

17.63 4.0 %

18.97 4.0 %

Consolidated profit and loss

In EUR m	2018	2019	2020e	2021e	2022e
*Adjustments made for:
2018	2019	2020e	2021e	2022e

2016

2017

Total Sales	3.44	5.83	9.09	11.21	13.85	16.67	19.13
Rental income Change yoy	3.44 240.6 %	5.83 69.5 %	9.09 55.9 %	11.21 23.3 %	13.85 23.5 %	16.67 20.4 %	19.13 14.8 %
Property operating costs Property management costs Rental profit Income from property sales Other revenues	0.60 0.00 2.84 0.00 0.11	1.24 0.00 4.58 0.00 0.12	2.21 0.00 6.87 0.00 0.08	2.63 0.00 8.57 0.00 0.07	3.05 0.00 10.80 0.00 0.11	3.42 0.00 13.25 0.00 0.13	3.83 0.00 15.31 0.00 0.15
Gross profit	2.95	4.70	6.95	8.64	10.91	13.39	15.46
Administration expenses Personnel expenses Other operating income/expenses Unfrequent items	0.38 0.20 0.00 n.a.	0.35 0.47 0.00 n.a.	0.70 0.72 0.00 n.a.	0.70 1.04 0.00 n.a.	0.69 1.40 0.00 n.a.	0.83 1.58 0.00 n.a.	0.96 1.80 0.00 n.a.
EBITDA	2.36	3.89	5.53	7.04	8.82	10.97	12.70
Valuation result Depreciation of fixed assets	0.00 0.69	0.00 1.22	0.00 1.95	0.00 2.55	0.00 3.34	0.00 4.17	0.00 4.97
EBITA	1.67	2.67	3.59	4.50	5.48	6.80	7.73
Amortisation of intangible assets/Goodwill	0.00	0.00	0.00	0.00	0.00	0.00	0.00
EBIT	1.67	2.67	3.59	4.50	5.48	6.80	7.73
Interest income Interest expenses Other financial income (loss) Financial result	0.00 0.56 0.00 -0.56	0.00 0.90 0.00 -0.90	0.00 1.34 0.00 -1.34	0.01 1.73 0.00 -1.72	0.00 2.10 0.00 -2.10	0.00 2.62 0.00 -2.62	0.00 3.02 0.00 -3.02
EBT	1.11	1.77	2.25	2.78	3.38	4.18	4.71
Margin	32.2 %	30.4 %	24.8 %	24.8 %	24.4 %	25.1 %	24.6 %
Total taxes thereof cash taxes	-0.22 -0.22	-0.41 -0.41	-0.55 -0.55	-0.71 -0.71	-0.71 -0.85	-0.71 -1.04	-1.18 -1.18
Net income from continuing operations Income from discontinued operations (net of tax) Net income before minorities Minority interest	0.89 0.00 0.89 0.00	1.36 0.00 1.36 0.00	1.70 0.00 1.70 0.02	2.07 0.00 2.07 0.01	2.53 0.00 2.53 0.01	3.13 0.00 3.13 0.01	3.53 0.00 3.53 0.01
Net income	0.89	1.36	1.68	2.06	2.52	3.12	3.52
Number of shares, average FFO (II) FFO I-margin FFOPS I EPS EPS adj.	2.92 1.59 46.2 % 0.54 0.25 0.25	3.55 2.58 44.3 % 0.73 0.38 0.38	3.62 3.65 40.1 % 1.01 0.46 0.43	4.05 4.62 41.2 % 1.14 0.51 0.47	4.42 5.86 42.3 % 1.32 0.57 0.57	4.42 7.29 43.7 % 1.65 0.71 0.71	4.42 8.50 44.4 % 1.92 0.80 0.80

Guidance: 2020e: FFO of least EUR ~5.7m, Net profit (HGB) of EUR 2.5m

Financial Ratios

2016

2017

Property operating costs / Rental Income Operating Leverage (Real Estate) Rental profit / interest expenses

17.3 % 1.3 x 5.1 x

21.4 % 2.3 x 5.1 x

24.4 % 2.5 x 5.1 x

23.5 % 5.4 x 5.0 x

22.0 % 5.4 x 5.1 x

20.5 % 6.1 x 5.1 x

20.0 % 7.9 x 5.1 x