DEFAMA Deutsche Fachmarkt : „FY acquisition target already exceeded“

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:

28.45

Commercial real estate company

EUR 26.90

FFO-Yield 23e:

25.34

Balance Sheet Score:

3.8

focused on retail parks in Northern

Market Liquidity Score:

0.0

and Eastern Germany

Market Snapshot:

EUR m

Shareholders:

Key Figures (WRe):

2021e

Price

EUR 24.40

Market cap:

107.85

Freefloat

65.0 %

LTV:

58.1 %

No. of shares (m):

4.42

MSC Invest GmbH

29.0 %

Equity Ratio:

17.8 %

Upside

10.2 %

Freefloat MC:

70.10

Geminus GmbH

4.0 %

Supervisory board

2.0 %

Ø Trad. Vol. (30d):

23.63 th

FY acquisition target already exceeded

• DEFAMA has recently announced two acquisitions with an investment volume of EUR 5.9m, thus already significantly exceeding its targeted annual acquisition volume of EUR 15-20m (ytd 24.2m) in 2021. The company bought a retail park near Kassel with a lettable space of 8.3k sqm for EUR 4.5m. This is an attractive rent multiple of ~10 (rent of EUR 450k) and leads to a price per sqm of EUR 543. Core tenants are a DIY store (Hercules) of the Edeka Group and a furniture store. The property has a good location and there is no space in the area for a new construction that could replace this property. We believe there may be some rental potential for the property in the medium term. The second property acquired is a property in Barsinghausen with a lettable space of 900 sqm and the tenants Rossmann and a driving school. The property is located in the immediate vicinity of the pedestrian zone. DEFAMA paid a purchase price of EUR 1.4m (900 sqm), which corresponds to a multiple of 11 on the net annual rent.
• Furthermore, DEFAMA has made progress in reducing vacancies in several properties already owned, e.g. in Sonnefeld, Albstadt and Staßfurt, and should also be successful with an expected contract with a new well-known retailer of pet supplies in Gardelegen (acquired in 2021 in a foreclosure sale), which reduces the vacancy in this property to approx. 33%. In addition, DEFAMA was able to achieve lease extensions at several properties without additional investments.
• Against this background, DEFAMA has already exceeded its annualised FFO target for the end of 2021 of EUR 8m with EUR 8.2m. As the latest three deals already fully support 2022, our current FFO estimate for 2022 of EUR 8.36m looks conservative and offers some upside given that 2021 has almost three months left and the deal pipeline remains attractive.
• We stick to Buy with a price target of EUR 26.90.

						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	16.89	18.95
						Change yoy			67.9 %	49.2 %	25.1 %	27.9 %	22.5 %	13.2 %	12.2 %
						EBIT			2.67	3.59	4.50	5.62	9.28	7.68	8.62
						FFO I			2.58	3.65	4.62	5.87	7.25	8.36	9.46
						FFO I-margin			50.6 %	47.9 %	48.4 %	48.2 %	48.6 %	49.5 %	49.9 %
						EBT			1.77	2.25	2.78	3.49	6.67	4.76	5.43
						Net income			1.36	1.68	2.06	2.51	5.13	3.53	4.05
						EPS				0.46	0.51	0.57	1.16	0.80	0.92
								0.38
						FFOPS I			0.73	1.01	1.14	1.33	1.64	1.89	2.14
						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 %	2.3 %	2.5 %	2.7 %
						Book Value / Share			3.18	4.10	5.50	5.61	6.22	6.42	6.69
	Rel. Performance vs CDAX:
	1 month:		4.1 %			P / E			23.2 x	25.0 x	30.1 x	30.9 x	21.0 x	30.6 x	26.7 x
	6 months:		29.1 %			Price / Book			2.8 x	2.6 x	2.5 x	3.1 x	3.9 x	3.8 x	3.6 x
				P / NAVPS			1.1 x	1.2 x	1.3 x	1.2 x	1.4 x	1.3 x	1.2 x
	Year to date:		15.7 %
		FFO I-Yield			8.2 %	8.7 %	7.5 %	7.6 %	6.7 %	7.7 %	8.8 %
	Trailing 12 months:		6.7 %
				ROE			12.4 %	12.3 %	10.2 %	10.2 %	19.6 %	12.6 %	14.0 %
						LTV			61.1 %	62.0 %	58.2 %	60.2 %	58.1 %	59.1 %	59.5 %
	Company events:
				Guidance:		2021e: FFO of EUR ~7.1m, Net profit (HGB) of EUR >5.0m
Analyst
Andreas Pläsier				COM M ENT		Published 08.10.2021 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 08.10.2021	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	21.0 x	30.6 x	26.7 x
P / NAVPS	1.1 x	1.2 x	1.3 x	1.2 x	1.4 x	1.3 x	1.2 x
Price / Book	2.8 x	2.6 x	2.5 x	3.1 x	3.9 x	3.8 x	3.6 x
P / FFOPS I	12.2 x	11.5 x	13.4 x	13.2 x	14.9 x	12.9 x	11.4 x
FFO I-Yield	8.2 %	8.7 %	7.5 %	7.6 %	6.7 %	7.7 %	8.8 %
ROE	12.4 %	12.3 %	10.2 %	10.2 %	19.6 %	12.6 %	14.0 %
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	20.21	21.78
Vacancy Rate	2.7 %	4.3 %	4.0 %	3.7 %	3.7 %	4.0 %	4.0 %

COM M ENT	Published 08.10.2021	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	20.11	22.56
Rental income	5.10	7.61	9.53	12.19	14.93	16.89	18.95
Change yoy	67.9 %	49.2 %	25.1 %	27.9 %	22.5 %	13.2 %	12.2 %
Property operating costs	1.24	2.21	2.63	3.40	4.21	4.67	5.23
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	15.45	17.32
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	0.27
Gross profit	4.70	6.95	8.64	11.30	16.41	15.69	17.59
Administration expenses	0.35	0.70	0.70	0.81	1.00	1.13	1.26
Personnel expenses	0.47	0.72	1.04	1.50	1.83	2.05	2.30
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	12.51	14.03
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	4.83	5.41
EBITA	2.67	3.59	4.50	5.62	9.28	7.68	8.62
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	7.68	8.62
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	4.76	5.43
Margin	30.4 %	24.8 %	24.8 %	24.0 %	37.5 %	23.6 %	24.1 %
Total taxes	-0.41	-0.55	-0.71	-0.71	-0.71	-1.22	-1.38
thereof cash taxes	-0.28	-0.36	-0.42	-0.42	-0.42	-0.72	-0.83
Net income from continuing operations	1.36	1.70	2.07	2.51	5.14	3.53	4.05
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	3.53	4.05
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	3.53	4.05
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	8.36	9.46
FFO I-margin	50.6 %	47.9 %	48.4 %	48.2 %	48.6 %	49.5 %	49.9 %
FFOPS I	0.73	1.01	1.14	1.33	1.64	1.89	2.14
EPS	0.38	0.46	0.51	0.57	1.16	0.80	0.92
EPS adj.	0.38	0.43	0.47	0.57	1.16	0.80	0.92
*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	8.8 x	9.3 x
Rental profit / interest expenses	5.1 x	5.1 x	5.0 x	5.2 x	5.2 x	5.3 x	5.4 x

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

Source: Warburg Research	Source:			Source: Warburg Research
	COM M ENT		Published 08.10.2021		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	141.76	156.61	170.85
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	143.64	158.50	172.75
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	8.07	8.03
Other short-term assets	0.83	0.59	-2.56	-0.66	-7.95	-4.58	-4.56
Current assets	3.17	4.34	9.29	7.38	13.39	10.01	10.01
Total Assets	55.41	85.79	104.28	136.71	157.02	168.51	182.76
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	6.65	7.83
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	28.39	29.56
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	0.84	0.84	0.84
Liabilities	44.13	69.79	79.99	111.91	129.51	140.12	153.20
Total liabilities and shareholders' equity	55.41	85.79	104.28	136.71	157.02	168.51	182.76

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 %	2.3 %
ROE	12.4 %	12.3 %	10.2 %	10.2 %	19.6 %	12.6 %	14.0 %
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	130.54	143.66
Net Financial Debt	40.58	64.99	69.54	105.98	116.28	130.28	143.41
Net Fin. Debt / EBITDA	10.4 x	11.7 x	9.9 x	11.8 x	8.6 x	10.4 x	10.2 x
LTV	61.1 %	62.0 %	58.2 %	60.2 %	58.1 %	59.1 %	59.5 %
Equity Ratio	20.5 %	19.1 %	23.7 %	18.4 %	17.8 %	17.1 %	16.4 %

LTV	ROE	Book Value per Share
	in %	in EUR

Source: Warburg Research	Source: Warburg Research	Source: Warburg Research
	COM M ENT		Published 08.10.2021		5