DEFAMA Deutsche Fachmarkt : “Noticeable recovery of the rent collection rate”

DEFAMA Deutsche Fachmarkt AG (DEF GY) | Real EstateJuly 29, 2021

Noticeable recovery of the rent collection rate

We confirm our Buy recommendation and increase our PT to EUR 25.50 (23). In our view, DEFAMA remains on track to reach its FY 21e guidance after solid H1 results, which top our sales and FFO esti­ mates. H1 sales increased by 28% yoy to EUR 8.5m (M´e: EUR 8.3m) and the FFO grew by 26% yoy to EUR 3.5m (M´e: EUR 3.4m). The FFOPS in H1 21 amounted to EUR 0.79c (H1 20: EUR 0.63c). DEFAMA´s rent collection rate recovered to 99% in Q2 (Q1: 92%), thus almost returned to pre-crisis levels. Therefore, we are confident that the Covid-19 pandemic should not materially impact DEFAMA´s FY 21e financial figures negatively and the guidance still remains well achievable in our view. With regard to property purchases, the com­ pany already announced two acquisitions for in total EUR 11.6m this year. Considering DEFAMA´s annual acquisition target of EUR

15m-20m, we are confident that DEFAMA should announce addition­ al property purchases in H2. Our positive stance on DEFAMA´s in­ vestment case remains unchanged following the H1 results and we forecast annual double-digit percentage sales growth in the coming years (12.0% sales CAGR 20-23e).

Buy	unchanged
Price*	EUR 22.40
Price target	EUR 25.50	(23)

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

Market Cap (EUR m)	99
Enterprise Value (EUR m)	216
Free Float (%)	65.0

• Valuation: We derive a new PT of EUR 25.50 (EUR 23) from our updated peer group valuation, which is based on a P/FFO 22e multiple. DEFAMA currently trades with a steep discount of 15% to its closest peers, which we reflect with our new PT.

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	16.0	18.8	18.2
PCFR	8.7	10.5	10.9	8.4	9.1	8.4
P/E adj.	25.9	32.5	34.8	19.0	27.8	25.2
Dividend yield (%)	3.3	2.7	2.4	2.4	2.6	2.8
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	3.4	3.1	2.8

Sources: Refinitiv, Metzler Research

Performance (in %)	1m	3m	12m
Share	1.8	14.9	28.7
Rel. to Prime All Share	1.6	10.7	3.6
Sources: Refinitiv, Metzler Research
Changes in estimates (in %)	2021e	2022e	2023e
Sales	0.0	0.0	0.0
EBIT	0.0	0.0	0.0
EPS	0.0	0.0	0.0

Sponsored Research

Author: Stephan Bonhage

Financial Analyst Equities

+49 69 [e-mail]

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

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DEFAMA will provide more details on its H1 results with the release of the half- year report in August. Besides the solid sales and FFO development, also certain other already published key figures were able to convince. As of 30.06.21, the WALT remains almost unchanged at 4.7 years, while the occupancy rate de­ creased slightly to approx. 94%. We contribute the decline of the occupancy rate to the recent acquisition in Gardelegen. This retail park center is one of the larger properties in DEFAMA´s portfolio (lettable space: 15.850m²) and currently has an occupancy rate of solely 62%. However, m´ment is confident to meaningfully in­ crease the occupancy rate of the property over the coming quarters, thus we be­ lieve that the decline of the portfolio occupancy rate should be just a temporary topic. DEFAMA´s H1 21 net income increased significantly to EUR 3.6m (H1 20: EUR 1.2m), which however can be mainly contributed to a positive one-time effect from the sale of the retail park center in Bleicherode, which amounts to EUR 2.6m before taxes. Excluding this positive one-time effect, DEFAMA achieved a net in­ come of EUR 1.4m in the first six months of this year.

Our investment case in a nutshell

• Focus on a retail property market niche: DEFAMA has become what we would call a relevant player in a niche of the German retail property market. Its prop­ erty portfolio consists of mainly retail parks, usually located in small and medi­ um-sizedcities of Northern and Eastern Germany. New acquisition objects within this fragmented market niche (purchase price per property usually be­ tween EUR 1m to EUR 5m) are too large for private buyers, but at the same time, too small for institutional investors. This allows DEFAMA to purchase at low market prices (~9x annual rental income in the past) and thus achieve double-digitrental yields.
• Growth momentum driven by property acquisitions: The company has the long-termtarget to become one of the largest owners of retail parks in Ger­ many and pursues a "Buy and Hold" approach for its property portfolio. We believe retail park acquisitions should mainly drive sales and FFO growth in the coming years as DEFAMA intends to purchase new properties for EUR 15m to EUR 20m each year.
• Anchor tenants with non-cyclical business models: Anchor tenants of DEFAMA´s retail parks are leading German food retailers, which account for approx. 50% of the rental income. Their non-cyclical business models should lower the risk of tenant losses and secure stable income generation for
  DEFAMA, in our opinion. Moreover, food retailers profit from a low online pen­ etration in their sector.

Peer group valuation

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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. As of the 30.06.2021, DEFAMA´s property portfolio com­ prised 45 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.	2.4	n.a.	2.6	n.a.	2.8	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

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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)
19.05.2021	Buy	Buy	20.00 EUR	23.00 EUR	Bonhage, Stephan
30.04.2021	Buy	Buy	19.50 EUR	23.00 EUR	Bonhage, Stephan
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
Issuer/Financial Instrument (ISIN): Deutsche Konsum REIT-AG (DE000A14KRD3)
18.06.2021	Buy	Buy	15.15 EUR	17.90 EUR	Bonhage, Stephan
17.05.2021	Buy	Buy	15.20 EUR	17.90 EUR	Bonhage, Stephan
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: July 29, 2021 07:56 AM CEST

Initial release: July 29, 2021 07:56 AM CEST

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