DEFAMA Deutsche Fachmarkt : “Growth well on track in 2021”

DEFAMA Deutsche Fachmarkt AG

(General Standard, Real Estate, DEF GR)

RESEARCH

Buy

Value Indicators:

EUR

Warburg ESG Risk Score:

2.3

Description:

ESG Score (MSCI based):

3.0

NAV (WRe) 22e:

24.86

Commercial real estate company

Balance Sheet Score:

3.8

focused on retail parks in Northern

EUR 24.00

FFO-Yield 22e:

23.97

Market Liquidity Score:

0.0

and Eastern Germany

Market Snapshot:

EUR m

Shareholders:

Key Figures (WRe):

2020e

Price	EUR 19.40	Market cap:	85.75	Freefloat	65.0 %	LTV:	61.6 %
No. of shares (m):	4.42	MSC Invest GmbH	29.0 %	Equity Ratio:	19.2 %

	Upside		23.7 %			Freefloat MC:	55.74			Geminus GmbH	4.0 %
						Ø Trad. Vol. (30d):	19.77 th			Supervisory board	2.0 %

Growth well on track in 2021

• DEFAMA announced the acquisition of the HanseCenter in Gardelegen (Saxony-Anhalt) via a foreclosure sale. Gardelegen is 70km north of Magdeburg and has nearly 15k inhabitants.
• DEFAMA paid EUR 8m for a lettable space of 16k sqm (EUR 500/sqm). The anchor tenant is Kaufland. Other tenants include ACTION (non- food discounter), Woolworth, AWG, Deichmann and Takko. This tenant group is supplemented by smaller tenants like pharmacies and smaller retailers.
• Even before the foreclosure, management was in intensive negotiations with potential tenants as the property includes five unrented spaces (of a total of 18). As a consequence, the company is expecting to reduce the vacancy within the next 6 to 12 months which would be positive for this location. In the case of full occupancy, the expected net rent should sum up to more than EUR 1m which would lead to a very attractive acquisition multiple of 8.
• The annualised rent increased from EUR 14m to ~EUR 15m. The annualised FFO improved to EUR 7.4m or EUR 1.67 (FFO-yield of ~8.6%).
• We confirm our Buy recommendation with an upside of 24% to our price target of EUR 24 (based on 2022 estimates).

						FY End: 31.12.		CAGR
						in EUR m		(19-22e)	2016	2017	2018	2019	2020e	2021e	2022e
						Rental income				5.83	9.09	11.21	13.85	16.49	18.81
								3.44
						Change yoy			240.6 %	69.5 %	55.9 %	23.3 %	23.5 %	19.1 %	14.0 %
						EBIT			1.67	2.67	3.59	4.50	5.48	9.39	7.60
						FFO I			1.59	2.58	3.65	4.62	5.86	7.39	8.56
						FFO I-margin			46.2 %	44.3 %	40.1 %	41.2 %	42.3 %	44.8 %	45.5 %
						EBT			1.11	1.77	2.25	2.78	3.38	7.05	4.90
						Net income			0.89	1.36	1.68	2.06	2.52	5.51	3.67
						EPS				0.38	0.46	0.51	0.57	1.25	0.83
								0.25
						FFOPS I			0.54	0.73	1.01	1.14	1.32	1.67	1.94
						DPS			0.20	0.34	0.40	0.45	0.48	0.55	0.60
						Dividend Yield			3.8 %	3.8 %	3.4 %	2.9 %	2.5 %	2.8 %	3.1 %
						Book Value / Share			3.00	3.18	4.10	5.50	5.58	6.28	6.51
	Rel. Performance vs General
	1 month:		-2.5 %			P / E			20.9 x	23.2 x	25.0 x	30.1 x	34.1 x	15.6 x	23.4 x
	6 months:		-40.3 %			Price / Book			1.4 x	2.8 x	2.6 x	2.5 x	3.5 x	3.1 x	3.0 x
				P / NAVPS			1.0 x	1.1 x	1.2 x	1.3 x	1.3 x	1.2 x	1.1 x
	Year to date:		-14.3 %
		FFO I-Yield			10.4 %	8.2 %	8.7 %	7.5 %	6.8 %	8.6 %	10.0 %
	Trailing 12 months:		-39.9 %
				ROE			10.9 %	12.4 %	12.3 %	10.2 %	10.3 %	21.0 %	13.0 %
						LTV			56.0 %	61.1 %	62.0 %	58.2 %	61.6 %	61.0 %	62.7 %
	Company events:
				Guidance:		2021e: FFO of EUR ~7.1m, Net profit (HGB) of EUR 3.1m
Analyst
Andreas Pläsier				COM M ENT		Published 23.04.2021 08:15			1
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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

Source: Warburg Research

COM M ENT	Published 23.04.2021	2

DEFAMA Deutsche Fachmarkt AG

RESEARCH

Valuation

	2016	2017	2018	2019	2020e	2021e	2022e
P / E	20.9 x	23.2 x	25.0 x	30.1 x	34.1 x	15.6 x	23.4 x
P / NAVPS	1.0 x	1.1 x	1.2 x	1.3 x	1.3 x	1.2 x	1.1 x
Price / Book	1.4 x	2.8 x	2.6 x	2.5 x	3.5 x	3.1 x	3.0 x
P / FFOPS I	9.6 x	12.2 x	11.5 x	13.4 x	14.6 x	11.6 x	10.0 x
FFO I-Yield	10.4 %	8.2 %	8.7 %	7.5 %	6.8 %	8.6 %	10.0 %
ROE	10.9 %	12.4 %	12.3 %	10.2 %	10.3 %	21.0 %	13.0 %
Equity Ratio	32 %	21 %	19 %	24 %	19 %	18 %	17 %

Company Specific Items

	2016	2017	2018	2019	2020e	2021e	2022e
EPRA-NAV/Share since 2017	5.14	8.42	11.02	13.46	16.53	18.18	19.53
Vacancy Rate	2.7 %	2.7 %	4.3 %	4.0 %	4.0 %	4.0 %	4.0 %

COM M ENT	Published 23.04.2021	3

DEFAMA Deutsche Fachmarkt AG

RESEARCH

Consolidated profit and loss

In EUR m	2016	2017	2018	2019	2020e	2021e	2022e
Total Sales	3.44	5.83	9.09	11.21	13.85	16.49	18.81
Rental income	3.44	5.83	9.09	11.21	13.85	16.49	18.81
Change yoy	240.6 %	69.5 %	55.9 %	23.3 %	23.5 %	19.1 %	14.0 %
Property operating costs	0.60	1.24	2.21	2.63	3.05	3.32	3.76
Property management costs	0.00	0.00	0.00	0.00	0.00	0.00	0.00
Rental profit	2.84	4.58	6.87	8.57	10.80	13.17	15.05
Income from property sales	0.00	0.00	0.00	0.00	0.00	2.60	0.00
Other revenues	0.11	0.12	0.08	0.07	0.11	0.13	0.15
Gross profit	2.95	4.70	6.95	8.64	10.91	15.90	15.20
Administration expenses	0.38	0.35	0.70	0.70	0.69	0.82	0.94
Personnel expenses	0.20	0.47	0.72	1.04	1.40	1.57	1.77
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	2.36	3.89	5.53	7.04	8.82	13.51	12.49
Valuation result	0.00	0.00	0.00	0.00	0.00	2.60	0.00
Depreciation of fixed assets	0.69	1.22	1.95	2.55	3.34	4.12	4.89
EBITA	1.67	2.67	3.59	4.50	5.48	9.39	7.60
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	9.39	7.60
Interest income	0.00	0.00	0.00	0.01	0.00	0.00	0.00
Interest expenses	0.56	0.90	1.34	1.73	2.10	2.34	2.70
Other financial income (loss)	0.00	0.00	0.00	0.00	0.00	0.00	0.00
Financial result	-0.56	-0.90	-1.34	-1.72	-2.10	-2.34	-2.70
EBT	1.11	1.77	2.25	2.78	3.38	7.05	4.90
Margin	32.2 %	30.4 %	24.8 %	24.8 %	24.4 %	42.7 %	26.1 %
Total taxes	-0.22	-0.41	-0.55	-0.71	-0.71	-0.71	-1.23
thereof cash taxes	-0.22	-0.41	-0.55	-0.71	-0.85	-1.53	-1.23
Net income from continuing operations	0.89	1.36	1.70	2.07	2.53	5.52	3.68
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	0.89	1.36	1.70	2.07	2.53	5.52	3.68
Minority interest	0.00	0.00	0.02	0.01	0.01	0.01	0.01
Net income	0.89	1.36	1.68	2.06	2.52	5.51	3.67
Number of shares, average	2.92	3.55	3.62	4.05	4.42	4.42	4.42
FFO (II)	1.59	2.58	3.65	4.62	5.86	7.39	8.56
FFO I-margin	46.2 %	44.3 %	40.1 %	41.2 %	42.3 %	44.8 %	45.5 %
FFOPS I	0.54	0.73	1.01	1.14	1.32	1.67	1.94
EPS	0.25	0.38	0.46	0.51	0.57	1.25	0.83
EPS adj.	0.25	0.38	0.43	0.47	0.57	1.25	0.83
*Adjustments made for:
Guidance: 2021e: FFO of EUR ~7.1m, Net profit (HGB) of EUR 3.1m

Financial Ratios

	2016	2017	2018	2019	2020e	2021e	2022e
Property operating costs / Rental Income	17.3 %	21.4 %	24.4 %	23.5 %	22.0 %	20.1 %	20.0 %
Operating Leverage (Real Estate)	1.3 x	2.3 x	2.5 x	5.4 x	5.4 x	6.6 x	8.3 x
Rental profit / interest expenses	5.1 x	5.1 x	5.1 x	5.0 x	5.1 x	5.6 x	5.6 x

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

Source: Warburg Research	Source:			Source: Warburg Research
	COM M ENT		Published 23.04.2021		4

DEFAMA Deutsche Fachmarkt AG

RESEARCH

Consolidated balance sheet

In EUR m	2016	2017	2018	2019	2020e	2021e	2022e
Assets
Goodwill and other intangible assets	0.01	0.01	0.01	0.03	0.03	0.03	0.03
thereof other intangible assets	0.00	0.00	0.00	0.00	0.00	0.00	0.00
thereof Goodwill	0.01	0.01	0.01	0.03	0.03	0.03	0.03
Property, plant and equipment	0.03	0.03	0.08	0.11	0.11	0.11	0.11
Investment properties	31.41	51.96	81.10	93.14	104.30	120.18	135.29
Financial assets	0.05	0.24	0.26	1.70	1.70	1.70	1.70
Other long-term assets	0.00	0.00	0.00	0.00	0.00	0.00	0.00
Fixed assets	31.50	52.24	81.44	94.98	106.14	122.02	137.13
Inventories	0.00	0.00	0.00	0.00	0.00	0.00	0.00
Accounts receivable	0.12	0.22	0.51	0.00	0.44	0.44	0.44
Liquid assets	1.46	2.49	2.80	6.98	22.78	30.04	30.17
Other short-term assets	1.97	0.83	0.59	-2.56	-18.80	-26.06	-26.18
Current assets	1.75	3.17	4.34	9.29	24.14	31.40	31.52
Total Assets	33.25	55.41	85.79	104.28	130.28	153.42	168.66
Liabilities and shareholders' equity
Subscribed capital	3.55	3.55	3.90	4.42	4.42	4.42	4.42
Capital reserve	6.15	6.15	10.03	17.31	17.31	17.31	17.31
Retained earnings	0.94	1.59	2.06	2.56	2.95	6.03	7.04
Other equity components	0.00	0.00	0.00	0.00	0.00	0.00	0.00
Shareholders' equity	10.64	11.29	15.99	24.29	24.68	27.76	28.77
Minority interest	0.00	0.10	0.38	0.39	0.39	0.39	0.39
Provisions	0.20	0.36	1.01	0.43	0.43	0.43	0.43
thereof provisions for pensions and similar obligations	0.10	0.18	0.21	0.21	0.21	0.21	0.21
Financial liabilities (total)	20.83	43.07	67.79	76.52	101.83	121.83	135.98
thereof short-term financial liabilities	0.00	0.00	0.00	0.00	0.00	0.00	0.00
Accounts payable	0.08	0.19	0.30	0.51	0.51	0.51	0.51
Other liabilities	1.51	0.51	0.70	2.54	2.83	2.89	2.97
Liabilities	22.61	44.13	69.79	79.99	105.60	125.66	139.88
Total liabilities and shareholders' equity	33.25	55.41	85.79	104.28	130.28	153.42	168.66

Financial Ratios

	2016	2017	2018	2019	2020e	2021e	2022e
Return on Capital
ROA	3.5 %	3.1 %	2.4 %	2.2 %	2.1 %	3.9 %	2.3 %
ROE	10.9 %	12.4 %	12.3 %	10.2 %	10.3 %	21.0 %	13.0 %
FFO I / Equity	0.2 x	0.2 x	0.3 x	0.2 x	0.2 x	0.3 x	0.3 x
Solvency
Net Debt	19.46	40.76	65.20	69.75	79.26	92.00	106.03
Net Financial Debt	19.37	40.58	64.99	69.54	79.05	91.79	105.81
Net Fin. Debt / EBITDA	8.2 x	10.4 x	11.7 x	9.9 x	9.0 x	6.8 x	8.5 x
LTV	56.0 %	61.1 %	62.0 %	58.2 %	61.6 %	61.0 %	62.7 %
Equity Ratio	32.0 %	20.5 %	19.1 %	23.7 %	19.2 %	18.4 %	17.3 %

LTV	ROE	Book Value per Share
	in %	in EUR

Source: Warburg Research	Source: Warburg Research	Source: Warburg Research
	COM M ENT		Published 23.04.2021		5