DEFAMA Deutsche Fachmarkt : “No disposal of trophy asset; Revaluation of loan enables attractive FFOPS growth”

DEFAMA Deutsche Fachmarkt AG
(General Standard, Real Estate)
Buy	Value Indicators:	EUR	Share data:		Description:
NAV (WRe) 22e:	23.15	Bloomberg:	DEF GR	Commercial real estate company
EUR 22.90	FFO-Yield 22e:	22.64	Reuters:	DEF.MU	focused on retail parks in Northern
		ISIN:	DE000A13SUL5	and Eastern Germany

Market Snapshot:

Shareholders:

Risk Profile (WRe):

EUR m

2020e

Market cap:

84.86

Freefloat

65.0 %

LTV:

52.1 %

Price

EUR 19.20

No. of shares (m):

4.42

MSC Invest GmbH

29.0 %

Equity Ratio:

19.2 %

Upside

19.3 %

Freefloat MC:

55.16

Geminus GmbH

4.0 %

Ø Trad. Vol. (30d):

21.13 th

Supervisory board

2.0 %

No disposal of trophy asset; Revaluation of loan enables attractive FFOPS growth

• DEFAMA announced yesterday that it will not sell its trophy asset Silberberg Centre in Radeberg after the completion of the current redevelopment. Despite some good offers for the property, which would have led to a one-off gain of an upper single-digit million, management will keep this asset within its growing portfolio with an FFO contribution of EUR 800k p.a. in 2021. The mentioned gain would require an estimated multiple of ~18 on expected rental income and possible proceeds of ~EUR 23m of an offer which would be above our former estimate of a multiple of 16 and a gain of ~EUR 6m (proceeds ~EUR 21m) which we was included in our forecast till August.
• Instead of selling this property DEFAMA will now refinance this asset long term after expected completion in November. The company is expecting additional proceeds of more than EUR 3m (after construction costs) which will further support DEFAMA's growth. With existing liquidity and the expected proceeds from the refinancing, DEFAMA should be able to increase its annualised FFOPS of currently EUR 1.52 to above EUR 2. This would be in line with our forecast as we estimate an FFOPS of EUR 1.92 in 2022.
• Against this background, the need for possible capital increase should be low within the next 18 months given the existing portfolio growth which is determined by the profitability of acquisitions and not by volume growth. We confirm our Buy recommendation and expect further positive news-flow from the acquisition pipeline which will increase annualised FFO to a targeted EUR 7m from current EUR 6.7m.

							FY End: 31.12.		CAGR	2016	2017	2018	2019	2020e	2021e	2022e
							in EUR m		(19-22e)
							Rental income				5.83	9.09	11.21	13.85	16.67	19.13
									3.44
							Change yoy			240.6 %	69.5 %	55.9 %	23.3 %	23.5 %	20.4 %	14.8 %
							EBIT			1.67	2.67	3.59	4.50	5.48	6.80	7.73
							FFO I			1.59	2.58	3.65	4.62	5.86	7.29	8.50
							FFO I-margin			46.2 %	44.3 %	40.1 %	41.2 %	42.3 %	43.7 %	44.4 %
							EBT			1.11	1.77	2.25	2.78	3.38	4.18	4.71
							Net income			0.89	1.36	1.68	2.06	2.52	3.12	3.52
							EPS			0.25	0.38	0.46	0.51	0.57	0.71	0.80
							FFOPS I			0.54	0.73	1.01	1.14	1.32	1.65	1.92
							DPS			0.20	0.34	0.40	0.45	0.50	0.55	0.60
							Dividend Yield			3.8 %	3.8 %	3.4 %	2.9 %	2.6 %	2.9 %	3.1 %
							Book Value / Share			3.00	3.18	4.10	5.50	5.56	5.72	5.92
	Rel. Performance vs General
						P / E			20.9 x	23.2 x	25.0 x	30.1 x	33.7 x	27.2 x	24.1 x
	1 month:			4.8 %
	6 months:		2.0 %				Price / Book			1.4 x	2.8 x	2.6 x	2.5 x	3.5 x	3.4 x	3.2 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:		7.9 %
			FFO I-Yield			10.4 %	8.2 %	8.7 %	7.5 %	6.9 %	8.6 %	10.0 %
	Trailing 12 months:		5.4 %
					ROE			10.9 %	12.4 %	12.3 %	10.2 %	10.3 %	12.5 %	13.7 %
							LTV			38.9 %	55.7 %	59.9 %	50.7 %	52.1 %	54.9 %	56.5 %
	Company events:
					Guidance:		2020e: FFO of least EUR ~5.7m, Net profit (HGB) of EUR 2.5m
A n a l y s t
Andreas Pläsier					C O M M E N T		Published 10.09.2020 08:15			1
aplaesier@warburg -research.com
[phone]

DEFAMA Deutsche Fachmarkt AG

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 responsilble 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

C O M M E N T	P u b l i s h e d 1 0 . 09 . 2 0 20	2

DEFAMA Deutsche Fachmarkt AG

Valuation

	2016	2017	2018	2019	2020e	2021e	2022e
P / E	20.9 x	23.2 x	25.0 x	30.1 x	33.7 x	27.2 x	24.1 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	3.4 x	3.2 x
P / FFOPS I	9.6 x	12.2 x	11.5 x	13.4 x	14.5 x	11.6 x	10.0 x
FFO I-Yield	10.4 %	8.2 %	8.7 %	7.5 %	6.9 %	8.6 %	10.0 %
ROE	10.9 %	12.4 %	12.3 %	10.2 %	10.3 %	12.5 %	13.7 %
Equity Ratio	32 %	21 %	19 %	24 %	19 %	17 %	16 %

Company Specific Items

	2016	2017	2018	2019	2020e	2021e	2022e
EPRA-NAV/Share since 2017	5.14	8.42	11.02	13.46	16.51	17.63	18.97
Vacancy Rate	2.7 %	2.7 %	4.3 %	4.0 %	4.0 %	4.0 %	4.0 %

C O M M E N T	P u b l i s h e d 1 0 . 09 . 2 0 20	3

DEFAMA Deutsche Fachmarkt AG

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	16.67	19.13
Rental income	3.44	5.83	9.09	11.21	13.85	16.67	19.13
Change yoy	240.6 %	69.5 %	55.9 %	23.3 %	23.5 %	20.4 %	14.8 %
Property operating costs	0.60	1.24	2.21	2.63	3.05	3.42	3.83
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	13.25	15.31
Income from property sales	0.00	0.00	0.00	0.00	0.00	0.00	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	13.39	15.46
Administration expenses	0.38	0.35	0.70	0.70	0.69	0.83	0.96
Personnel expenses	0.20	0.47	0.72	1.04	1.40	1.58	1.80
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	10.97	12.70
Valuation result	0.00	0.00	0.00	0.00	0.00	0.00	0.00
Depreciation of fixed assets	0.69	1.22	1.95	2.55	3.34	4.17	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	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	2.62	3.02
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	-2.62	-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	-0.22	-0.41	-0.55	-0.71	-0.71	-0.71	-1.18
thereof cash taxes	-0.22	-0.41	-0.55	-0.71	-0.85	-1.04	-1.18
Net income from continuing operations	0.89	1.36	1.70	2.07	2.53	3.13	3.53
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	3.13	3.53
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	3.12	3.52
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	7.29	8.50
FFO I-margin	46.2 %	44.3 %	40.1 %	41.2 %	42.3 %	43.7 %	44.4 %
FFOPS I	0.54	0.73	1.01	1.14	1.32	1.65	1.92
EPS	0.25	0.38	0.46	0.51	0.57	0.71	0.80
EPS adj.	0.25	0.38	0.43	0.47	0.57	0.71	0.80
*Adjustments made for:
Guidance: 2020e: FFO of least EUR ~5.7m, Net profit (HGB) of EUR 2.5m

Financial Ratios

	2016	2017	2018	2019	2020e	2021e	2022e
Property operating costs / Rental Income	17.3 %	21.4 %	24.4 %	23.5 %	22.0 %	20.5 %	20.0 %
Operating Leverage (Real Estate)	1.3 x	2.3 x	2.5 x	5.4 x	5.4 x	6.1 x	7.9 x
Rental profit / interest expenses	5.1 x	5.1 x	5.1 x	5.0 x	5.1 x	5.1 x	5.1 x

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

Source: Warburg Research	Source:			Source: Warburg Research
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DEFAMA Deutsche Fachmarkt AG

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	120.13	135.16
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	121.98	137.01
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	27.61	27.68
Other short-term assets	1.97	0.83	0.59	-2.56	-18.80	-23.63	-23.70
Current assets	1.75	3.17	4.34	9.29	24.14	28.97	29.03
Total Assets	33.25	55.41	85.79	104.28	130.28	150.95	166.04
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	2.86	3.55	4.43
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	24.60	25.29	26.16
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	101.92	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	105.69	125.66	139.88
Total liabilities and shareholders' equity	33.25	55.41	85.79	104.28	130.28	150.95	166.04

Financial Ratios

	2016	2017	2018	2019	2020e	2021e	2022e
Return on Capital
ROA	3.5 %	3.1 %	2.4 %	2.2 %	2.1 %	2.2 %	2.2 %
ROE	10.9 %	12.4 %	12.3 %	10.2 %	10.3 %	12.5 %	13.7 %
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	79.35	94.43	108.52
Net Financial Debt	19.37	40.58	64.99	69.54	79.14	94.22	108.30
Net Fin. Debt / EBITDA	8.2 x	10.4 x	11.7 x	9.9 x	9.0 x	8.6 x	8.5 x
LTV	38.9 %	55.7 %	59.9 %	50.7 %	52.1 %	54.9 %	56.5 %
Equity Ratio	32.0 %	20.5 %	19.1 %	23.7 %	19.2 %	17.0 %	16.0 %

LTV	ROE	Book Value per Share
	in %	in EUR

Source: Warburg Research	Source: Warburg Research	Source: Warburg Research
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DEFAMA Deutsche Fachmarkt AG

Consolidated cash flow statement

In EUR m	2016	2017	2018	2019	2020e	2021e	2022e
Net cash provided by operating activities [1]	1.65	2.76	3.42	3.80	5.90	7.35	8.57
Net cash provided by investing activities [2]	-17.92	-21.95	-31.12	-16.09	-9.00	-20.00	-20.00
Net cash provided by financing activities [3]	14.02	20.23	28.01	16.47	18.90	17.48	11.50
Change in liquid funds [1]+[2]+[3]	-2.25	1.03	0.31	4.18	15.80	4.83	0.07
Effects of exchange-rate changes on cash	0.00	0.00	0.00	0.00	0.00	0.00	0.00
Cash and cash equivalent at end of period	1.46	2.49	2.80	6.98	22.78	27.61	27.68

Financial Ratios

	2016	2017	2018	2019	2020e	2021e	2022e
Cash Flow
FFO (II)	1.59	2.58	3.65	4.62	5.86	7.29	8.50
FFOPS I	0.54	0.73	1.01	1.14	1.32	1.65	1.92
FFOPS I diluted	0.45	0.73	0.94	1.04	1.32	1.65	1.92
FFO I-Yield	10.4 %	8.2 %	8.7 %	7.5 %	6.9 %	8.6 %	10.0 %
FFO I-margin	46.2 %	44.3 %	40.1 %	41.2 %	42.3 %	43.7 %	44.4 %
Interest Paid / Avg. Debt	3.4 %	2.8 %	2.4 %	2.4 %	2.4 %	2.3 %	2.3 %
Management of Funds
Capex/Investment Properties	-57.0 %	-42.3 %	-38.4 %	-17.3 %	-8.6 %	-16.6 %	-14.8 %
Avg. Working Capital / Sales	0.9 %	0.7 %	1.4 %	-1.3 %	-2.1 %	-0.4 %	-0.4 %
Dividend Payout Ratio	65.7 %	88.6 %	85.1 %	88.2 %	87.5 %	77.5 %	75.0 %

FFO

Source: Warburg Research

C O M M E N T	P u b l i s h e d 1 0 . 09 . 2 0 20	6

DEFAMA Deutsche Fachmarkt AG

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SOURCES

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C O M M E N T	P u b l i s h e d 1 0 . 09 . 2 0 20	7

DEFAMA Deutsche Fachmarkt AG

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Warburg Research, or an affiliated company, within the last twelve months participated in the management of a consortium for an issue in the course of a public offering of such financial instruments, which are, or the issuer of which is, the subject of the investment recommendation.

Companies affiliated with Warburg Research manage financial instruments, which are, or the issuers of which are, subject of the investment recommendation, in a market based on the provision of buy or sell contracts.

MMWB, Warburg Research, or an affiliated company, reached an agreement with the issuer to provide investment banking and/or investment services and the relevant agreement was in force in the last 12 months or there arose for this period, based on the relevant agreement, the obligation to provide or to receive a service or compensation - provided that this disclosure does not result in the disclosure of confidential business information.

The company compiling the analysis or an affiliated company had reached an agreement on the compilation of the investment recommendation with the analysed company.

Warburg Research, or an affiliated company, holds a net long position of more than 0.5% of the total issued share capital of the analysed company.

Warburg Research, or an affiliated company, holds a net short position of more than 0.5% of the total issued share capital of the analysed company.

The issuer holds shares of more than 5% of the total issued capital of Warburg Research or an affiliated company.

The company preparing the analysis as well as its affiliated companies and employees have other important interests in relation to the analysed company, such as, for example, the exercising of mandates at analysed companies.

Company	Disclosure	Link to the historical price targets and rating changes (last 12 months)
DEFAMA Deutsche Fachmarkt AG	5	http://www.mmwarburg.com/disclaimer/disclaimer_en/DE000A13SUL5.htm

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DEFAMA Deutsche Fachmarkt AG

INVESTMENT RECOMMENDATION

Investment recommendation: expected direction of the share price development of the financial instrument up to the given price targetin the opinion of the analyst who covers this financial instrument.

-B-	Buy:	The price of the analysed financial instrument is expected to rise over the next 12 months.
-H-	Hold:	The price of the analysed financial instrument is expected to remain mostly flat over the next 12
months.
-S-	Sell:	The price of the analysed financial instrument is expected to fall over the next 12 months.
"-"	Rating suspended:	The available information currently does not permit an evaluation of the company.

WARBURG RESEARCH GMBH - ANALYSED RESEARCH UNIVERSE BY RATING
Rating	Number of stocks	% of Universe
Buy	132	64
Hold	55	27
Sell	13	6
Rating suspended	5	2
Total	205	100

WARBURG RESEARCH GMBH - ANALYSED RESEARCH UNIVERSE BY RATING …

• taking into account only those companies which were provided with major investment services in the last twelve months.

Rating	Number of stocks	% of Universe
Buy	34	87
Hold	3	8
Sell	0	0
Rating suspended	2	5
Total	39	100

PRICE AND RATING HISTORY DEFAMA DEUTSCHE FACHMARKT AG AS OF 10.09.2020

Markings in the chart show rating changes by Warburg Research GmbH in the last 12 months. Every marking details the date and closing price on the day of the rating change.

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DEFAMA Deutsche Fachmarkt AG

EQUITIES

Matthias Rode	[phone]
Head of Equities	[e-mail]

RESEARCH

Michael Heider	[phone]	Thilo Kleibauer	[phone]
Head of Research	[e-mail]	Retail, Consumer Goods	[e-mail]
Henner Rüschmeier	[phone]	Eggert Kuls	[phone]
Head of Research	[e-mail]	Engineering	[e-mail]
Stefan Augustin	[phone]	Andreas Pläsier	[phone]
Cap. Goods, Engineering	[e-mail]	Banks, Financial Services	[e-mail]
Jan Bauer	[phone]	Malte Schaumann	[phone]
Renewables	[e-mail]	Technology	[e-mail]
Jonas Blum	[phone]	Oliver Schwarz	[phone]
Telco, Media, Construction	[e-mail]	Chemicals, Agriculture	[e-mail]
Christian Cohrs	[phone]	Simon Stippig	[phone]
Industrials & Transportation	[e-mail]	Real Estate	[e-mail]
Felix Ellmann	[phone]	Cansu Tatar	[phone]
Software, IT	[e-mail]	Cap. Goods, Engineering	[e-mail]
Jörg Philipp Frey	[phone]	Marc-René Tonn	[phone]
Retail, Consumer Goods	[e-mail]	Automobiles, Car Suppliers	[e-mail]
Marius Fuhrberg	[phone]	Robert-Jan van der Horst	[phone]
Financial Services	[e-mail]	Technology	[e-mail]
Mustafa Hidir	[phone]	Andreas Wolf	[phone]
Automobiles, Car Suppliers	[e-mail]	Software, IT	[e-mail]
Ulrich Huwald	[phone]
Health Care, Pharma	[e-mail]
Philipp Kaiser	[phone]
Real Estate	[e-mail]

INSTITUTIONAL EQUITY SALES

Marc Niemann	[phone]	Maximilian Martin	[phone]
Head of Equity Sales, Germany	[e-mail]	Austria, Poland	[e-mail]
Klaus Schilling	[phone]	Christopher Seedorf	[phone]
Head of Equity Sales, Germany	[e-mail]	Switzerland	[e-mail]
Tim Beckmann	[phone]
United Kingdom	[e-mail]
Lyubka Bogdanova	[phone]
Ireland, Poland, Australia	[e-mail]
Jens Buchmüller	[phone]
Scandinavia, Austria	[e-mail]
Alexander Eschweiler	[phone]	Sophie Hauer	[phone]
Germany, Luxembourg	[e-mail]	Roadshow/Marketing	[e-mail]
Matthias Fritsch	[phone]	Juliane Niemann	[phone]
United Kingdom	[e-mail]	Roadshow/Marketing	[e-mail]

SALES TRADING

Oliver Merckel	[phone]	Marcel Magiera	[phone]
Head of Sales Trading	[e-mail]	Sales Trading	[e-mail]
Elyaz Dust	[phone]	Bastian Quast	[phone]
Sales Trading	[e-mail]	Sales Trading	[e-mail]
Michael Ilgenstein	[phone]	Jörg Treptow	[phone]
Sales Trading	[e-mail]	Sales Trading	[e-mail]

MACRO RESEARCH

Carsten Klude	[phone]	Dr. Christian Jasperneite	[phone]
Macro Research	[e-mail]	Investment Strategy	[e-mail]

Our research can be found under:

Warburg Research	http://research.mmwarburg.com/en/index.html	Thomson Reuters	www.thomsonreuters.com
Bloomberg	MMWA GO	Capital IQ	www.capitaliq.com
FactSet	www.factset.com

For access please contact:

Andrea Schaper	[phone]	Kerstin Muthig	[phone]
Sales Assistance	[e-mail]	Sales Assistance	[e-mail]

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