Accentro Real Estate AG - Impressive growth story continues
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April 2nd, 2019
Research report
Accentro Real Estate AG
Impressive growth story
continues
sc-consult GmbH
Equity-Research
Rating: Buy (unchanged) | Price: 8.35 Euro | Price target: 11.50 Euro
Alter Steinweg 46
48143 Münster
T +49(0)251 13476-93/-94
F +49(0)251 13476-92
E kontakt@sc-consult.com
Geschäftsführung
Dr. Adam Jakubowski &
Holger Steffen
Postbank
Kto-Nr. 847610463
BLZ 44010046
IBAN DE57440100460847610463
BIC PBNKDEFF
Analyst: Dipl.-Volksw. Dr. Adam Jakubowski Phone: +49Amtsgericht
(0) 251-13476-93
Münster
sc-consult GmbH, Alter Steinweg 46, 48143 Münster Telefax: +49HRB
(0) 251-13476-92
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UST-IdNr.
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Research report Accentro Real Estate AG April 2nd, 2019 Contents Contents................................................................................................................................................... 2 Snapshot................................................................................................................................................... 3 Executive Summary .................................................................................................................................. 4 SWOT Analysis ........................................................................................................................................ 5 Profile....................................................................................................................................................... 6 Portfolio ................................................................................................................................................... 9 Market Environment .............................................................................................................................. 11 Figures.................................................................................................................................................... 16 Equity Story ........................................................................................................................................... 19 DCF Valuation....................................................................................................................................... 21 Conclusion ............................................................................................................................................. 24 Annex I: Balance sheet and P&L estimation ........................................................................................... 25 Annex II: Cash flows estimation and key figures ..................................................................................... 26 Disclaimer .............................................................................................................................................. 27 Contents page 2
Research report Accentro Real Estate AG April 2nd, 2019
Snapshot
Short profile
As a specialist in the privatisation of apartments and
with a regional focus on Berlin, Accentro operates in
a very attractive market that is likely to show a notice-
able excess demand in the foreseeable future. With a
market presence of more than 20 years, in-depth
knowledge of the industry and a leading market posi-
tion, Accentro is set to continue to benefit from this
development in the future. In recent years, Accentro
has been able to translate this positioning into very
Basic data strong and highly profitable growth. Since 2015, rev-
Based in: Berlin enues have more than quadrupled to EUR 163.2 m,
Sector: Residential property and last year, taking into account the sale of the ma-
Headcount: 44 jority stake in the Gehrensee project – with next to no
Accounting: IFRS effect on earnings – revenues even exceeded EUR 205
ISIN: DE000A0KFKB3 m. Although last year's earnings development was be-
Ticker: A4Y:GR low the previous year's level and fell short of expecta-
Price: 8.35 Euro tions, the Accentro business is highly profitable and
Market segment: Prime Standard regularly generates double-digit net margins. To-
Number of shares: 32.4 m gether with the successful expansion of inventories -
Market-Cap: 270.9 m Euro the basis for future earnings - and the uninterrupted
Enterprise Value: 489.3 m Euro advantageous market environment, the growth story
Free Float: 12.1 % is likely to continue.
Price high/low (12M): 11.50 / 7.72 Euro
Ø turnover (Xetra, 12 M): 33,600 Euro / day
FY ends: 31.12. 2016 2017 2018 2019e 2020e 2021e
Sales (m Euro) 125.1 147.3 205.6 179.5 197.1 216.5
EBIT (m Euro) 33.9 36.4 32.9 38.9 41.4 43.6
Net profit 26.3 20.1 18.2 24.3 26.2 27.8
EpS 1.06 0.81 0.56 0.75 0.81 0.86
Dividend per share 0.15 0.17 0.16 0.18 0.20 0.21
Sales growth 216.7% 17.8% 39.5% -12.7% 9.8% 9.8%
Profit growth 16.1% -23.4% -9.7% 33.5% 7.9% 6.1%
PSR 2.17 1.84 1.32 1.51 1.37 1.25
PER 10.3 13.4 14.9 11.2 10.3 9.7
PCR 12.5 -10.7 -5.6 -157.2 75.7 32.8
EV / EBIT 14.4 13.4 14.9 12.6 11.8 11.2
Dividend yield 1.8% 2.0% 1.9% 2.2% 2.4% 2.5%
Snapshot page 3
Research report Accentro Real Estate AG April 2nd, 2019
Executive Summary
Market-leading privatisation specialist for residential properties: Accentro has specialised for
20 years in the sale of individual apartments to private investors or owner-occupiers and is one of the leading
providers in this field in Germany. In the field of housing privatisation as a service for third parties, the
Berlin-based company is even number one in Germany.
Attractive target market: By concentrating on residential properties, Accentro is addressing a market
that has been characterised for years by growing demand and correspondingly rising prices and rents. This
is especially true for the Berlin housing market, which is the focus of Accentro's activities. In view of the
existing demographic and economic trends, this situation is likely to continue for a long time despite the
intensification of construction activity. However, Berlin's policy of making it more difficult to convert
rented flats into condominiums poses a risk.
Strong growth: In recent years, Accentro has recorded rapid growth, and has almost quintupled revenues
from the sale of apartments to EUR 151.9 m (adjusted) within four years. Adding rental income and service
income from the sale of apartments for third parties, revenues have more than quadrupled since 2015 to
EUR 163.2 m.
High margins: Accentro has been able to combine the high growth in recent years with very comfortable
margins. On average over the last four years, the selling margin on book value was 33 percent, based on
which the company has continually generated an EBIT margin of more than 20 percent and a double-digit
net margin since 2016.
Expansion and diversification of privatisation portfolio progressing: At the same time, Ac-
centro is also very successful in purchasing and was able to continuously expand its portfolio of inventory
properties and thus the basis for future profits despite the strong sales growth. At the last balance sheet date,
inventories totalled EUR 345 m, almost double the value from the end of 2015. The focus of the portfolio
is still on Berlin, but Accentro has begun to systematically develop other metropolitan regions since 2017.
Extending partnerships: The commission-based privatisation of apartments on behalf of third parties
represents a reasonable strategic supplement to proprietary trading and ensures additional capacity utilisa-
tion. In order to expand this potential, Accentro has entered into several joint ventures and cooperations
with portfolio owners and property developers, securing exclusive distribution rights for a further 3,000
residential units. In addition, Accentro has a 25 percent stake in a promising development project in Berlin-
Lichtenberg, which involves the construction of an entire new district.
High price potential: Based on the assumption that the expansion course can be continued with further
high margins, albeit declining over time, we currently see the fair value at EUR 11.50 and confirm the "buy"
rating on this basis.
Executive Summary page 4
Research report Accentro Real Estate AG April 2nd, 2019
SWOT Analysis
Strengths Weaknesses
With its focus on residential real estate, Accentro Due to the clear focus on Berlin, the business
addresses a very attractive market that is character- shows only a small geographical differentiation,
ised by a noticeable excess demand. This is espe- which is why the economic potentials depend to a
cially true for Berlin, Accentro's home market. high degree on the developments in the federal
Accentro has been active as a specialist in residen- capital.
tial privatisation for 20 years and has established The trading business with apartments is erratic,
itself in this market as a leading player with a leading to a limited predictability of sales and earn-
strong sales power. ings. This applies in particular to portfolio trading.
Accentro combines high growth rates with a solid After three strong years, earnings in 2018 fell short
balance sheet and debt structure. The pronounced of both the previous year and expectations.
continuity in leadership also has a confidence- More than 80 percent of the shares are held by one
building effect. financial investor whose decisions can influence
In recent years, Accentro has multiplied its sales Accentro's development and share price. The re-
and has continuously achieved double-digit net maining free float is also low.
margins.
Opportunities Threats
On the basis of past experience, the current privat- Demand for condominiums is highly sensitive to
isation portfolio contains hidden reserves of be- interest rates and is currently being fuelled by the
tween EUR 85 and 110 m (depending on the as- very low interest rate environment. A noticeable
sumed margin), which can be realised in the form rise in interest rates should have a significant
of earnings from disposals over the next few years. dampening effect on demand.
As inventories continue to increase, the basis for The interventionist housing policy in Berlin could
future revenues and earnings growth broadens fur- be further intensified and copied in other regions.
ther. The regional expansion further accelerates The strong recourse to short-term debts due to the
this process. business model could prove problematic in an
Cooperations and joint ventures with portfolio acute financial crisis, especially as apartment sales
owners and property developers offer great poten- are likely to collapse in such a situation as well.
tial for increasing service and investment income. A continued rush of investors on residential prop-
The minority stake in the Gehrensee development erties could make purchasing even more difficult.
project offers the chance of very high profits if the
planned new development of the area should be
successfully realised.
SWOT Analysis page 5
Research report Accentro Real Estate AG April 2nd, 2019
Profile
Specialist for residential privatisation
Accentro Real Estate AG is a leading specialist for the central pillar of the business activity. However, resi-
retail sale (privatisation) of residential real estate in dential portfolios are also traded when an opportunity
Germany. The nucleus of the group is the wholly arises. Accordingly, the income structure is dominated
owned subsidiary Accentro GmbH, which was by the proceeds from disposals, which accounted for
founded in 1999 by Jacopo Mingazzini, the current 93 percent of last year's consolidated sales of EUR
sole member of the Management Board, and which is 205.6 m. Accentro generates around 5.5 percent of its
still responsible for the operating privatisation busi- revenues from letting the apartments held in its port-
ness. The AG, on the other hand, acts as an operating folio and almost two percent from commissions for
holding company in which the central functions are the privatization of third-party apartments. In addi-
located. Since 2007 (then still under the name Estavis tion, the company holds minority interests in other
AG), the Berlin-based company has been listed on the residential portfolios and development projects, from
stock exchange in the Prime Standard of the Frankfurt which significant investment income is expected for
Stock Exchange. the future (see below).
Controlling major shareholder
Since the beginning of 2018, most of the shares (83.1
percent) have been held by Brookline Real Estate
S.a.r.l., a fund from Luxembourg. A further 4.8 per-
cent is held by the former majority shareholder AD-
LER Real Estate AG, while the free float amounts to
only 12.1 percent. The Management Board is only in-
volved to a limited extent by means of a stock option
program.
Source: Company; excluding Gehrensee sale
Value creation on several pillars
The privatisation business comprises the purchase of
real estate, the legal separation and subsequent sale of
individual apartments. In addition – and most re-
cently to an increasing extent – Accentro carries out
modernisation and upgrading measures after the pur-
chase, the spectrum of which ranges from improve-
ments in appearance to changes to the layout of the
Source: Company apartments, the subsequent installation of elevators
and balconies or even the construction of additional
Four sources of revenue floors. The operating value creation results thus on the
Following the decision in 2014 to focus exclusively on one hand from the legal and administrative separation
the privatisation business, and the subsequent sale of and the effortful marketing of individual apartments,
the existing portfolio, the sale of individual apart- and on the other hand from the increase in value as a
ments to owner-occupiers or private investors is the
Profile page 6
Research report Accentro Real Estate AG April 2nd, 2019
result of the construction measures. In addition, Ac- additionally want to capitalize on Accentro's estab-
centro is benefiting in the market from the price in- lished sales network. Over the last two years, the
crease during the holding period of the apartments, model has been considerably expanded. Among other
which currently averages 2 to 2.5 years. things, Accentro has now entered into cooperation
agreements with property developers under which the
Excellent track record company issues a purchase guarantee for new apart-
ments and sells the apartments at its own risk. This
With a market presence of more than 20 years, an ex-
enables Accentro to tap into the growing segment of
perienced team and an established sales network, con-
new residential construction without having to as-
sisting of - aside from its own marketing team - nu-
sume the development and construction risk. Last
merous sales representatives and cooperation partners
year Accentro also acquired minority stakes in two
and giving Accentro access to a broad customer base
large portfolios in Hamburg and Berlin, for which the
nationwide and abroad, the Berlin-based company is
company will be the exclusive sales partner. As a re-
a leading player in this field. At the same time, its size
sult, the portfolio of properties eligible for privatisa-
and reputation facilitate the purchase of residential
tion could be expanded far beyond what the company
portfolios suitable for privatisation - an increasingly
could have managed on its own. Such customers
important advantage in view of the shortage of supply.
and/or partners in the service business include compa-
Since 2015 alone, Accentro has been able to acquire
nies such as TAG Immobilien, Deutsche Wohnen or
4,701 residential units, at the same time selling 4,059
ADLER Real Estate. Accentro puts the figure for the
units for a total price of over EUR 480 m. At the end
total number of off-balance sheet apartments for
of last year, inventories amounted to 2,181 residential
which the company holds exclusive distribution rights
units with a purchase value of EUR 343.9 m (see Port-
at more than 3,000 units.
folio chapter).
Source: Company
Source: Company
Privatization for third parties New residential area in Berlin planned
Not included in this figure is a major development
In addition to trading in its own properties, Accentro
project in Berlin-Lichtenberg, in the context of which
also offers apartment privatisation for third parties as
a 41,500 sqm plot of land, currently containing 675
a service against commission. As the Group's own
prefabricated apartments, is to be redesigned and de-
sales structures can be used synergistically, the busi-
veloped. Accentro acquired these apartments in 2016.
ness is highly profitable and makes a disproportion-
However, in order not to dilute its own profile with
ately large contribution to the Group's gross profit in
such a large development project, the property was
relation to sales. Demand for this service, in which Ac-
contributed to a joint venture (Belle Epoche Quartier
centro is the leader throughout Germany, comes for
Gehrensee GmbH) with a project developer for EUR
example from housing companies or project develop-
42.3 m at the beginning of 2018, in which Accentro
ers, who do not have the specialist capacity or who
Profile page 7
Research report Accentro Real Estate AG April 2nd, 2019 now holds a 25 percent stake and a mezzanine financ- cantly increase the number of apartments and the liv- ing of EUR 10.2 m. Since a new development plan is ing space on the site, returns from the project can only required for this redevelopment, which could signifi- be expected in a few years' time. Profile page 8
Research report Accentro Real Estate AG April 2nd, 2019
Portfolio
High hidden reserves
At the end of last year, inventories comprised 2,181 Growing rental income
residential units with a purchase value of EUR 343.9
Since unrented flats earn a better price in the retail
m. In 2018 alone, 866 units were acquired for EUR
sale, Accentro does not attach the highest priority to
163.3 m. The purchase agreements for a further 177
the improvement of the letting situation. Neverthe-
apartments worth EUR 32.7 m have already been
less, rental income has increased significantly in recent
signed, but since the transfer of possession, rights and
years as a result of portfolio growth, most recently to
obligations did not take place until the new year, these
EUR 8.8 m. Compared with the figure for 2015, this
transactions have not yet been included in the 2018
represents an increase of more than 50 percent.
balance sheet. Compared to the previous year, the
portfolio has thus shrunk somewhat in terms of num-
bers, but this is mainly due to the disposal of the Geh-
rensee project. In terms of value, however, inventories
increased by EUR 41.7 m last year. In addition to the
balance of acquisitions and disposals, this also includes
value-increasing restructuring investments, but not
any adjustments to the market value. As a result of this
accounting at amortised cost, the balance sheet inven-
tories contain high hidden reserves. Assuming the av-
erage sales margin of the last five years (33.1 percent),
this would result in hidden reserves of EUR 115 m;
Source: Company
assuming a cautious margin of 25 percent, they would
still amount to EUR 86 m.
Focus on Berlin
Portfolio value doubled since 2015 Accentro's home market is Berlin and the surrounding
area (greater Berlin), where the company's activities
The average value of a residential unit in the portfolio
were concentrated in the past and where a large part
almost doubled between 2015 and 2018 from around
of the privatisation portfolio is still located. At the end
EUR 80,000 to almost EUR 160,000 as a result of the
of 2018, 1,197 or almost 55 percent of the 2,181 res-
price increase (mainly) in Berlin, but also due to a shift
idential units in the overall portfolio were located in
in the portfolio structure towards higher-quality
Berlin, and a further 187 units (9 percent) were lo-
apartments. This was also the biggest driver behind
cated in the surrounding area. In terms of book value,
the growth in balance sheet inventories, which in-
Berlin and greater Berlin even accounted for almost
creased by more than 120 percent in these three years.
85 percent of the portfolio value.
The number of apartments in inventories, on the
other hand, rose only slightly, by around 14 percent.
Privatisation portfolio between 2015 and 2018
Measuring unit 2015 2016 2017 2018
Residential portfolio Number 1,919 2,422 2,885 2,181
Book value million Euro 155.2 216.1 302.2 343.9
Book value/ residential unit thousand Euro 80.9 89.2 104.7 157.7
sqm / residential unit sqm 62* 62 63* 70
Source: Company, at the end of each year (* different date)
Portfolio page 9
Research report Accentro Real Estate AG April 2nd, 2019
Regional expansion supply and an ever stronger political intervention. Ac-
centro is now active in the metropolitan regions of
However, Berlin's weight in the portfolio has declined
Hamburg, Rhine-Ruhr, Rhine-Main and Leipzig,
over the past two years, as Accentro has been striving
where it maintains either its own branches or joint
to expand its own activities to other regions in Ger-
ventures. Leipzig, Rostock and Cologne-Bonn have
many since 2017. Accentro intends, on the one hand,
recently emerged as new focal points.
to take advantage of the opportunities offered by other
regional markets and, on the other hand, to reduce its
one-sided dependence on the Berlin housing market,
which is characterised by an increasing shortage of
Portfolio page 10Research report Accentro Real Estate AG April 2nd, 2019
Market Environment
Attractive general conditions
The German real estate market has been in a boom since 2009, from EUR 3.3 billion to EUR 17.6 bil-
phase for a decade. It benefits from the attractive en- lion. In 2015, the transaction volume with German
vironment: the combination of solid economic residential property even reached the record level of
growth with a high level of employment and histori- almost EUR 24 billion, which was attributable to
cally low interest rates. According to mortgage broker some large transactions far above the billion mark.
Interhyp, the interest rates currently offered for five- Last year, Vonovia's purchase of BUWOG (27,000
year mortgages are around 1.0 percent and thus still at residential units for EUR 2.9 billion) was only one
the historic record low. This is due to the low key in- transaction of this size, but in conjunction with nu-
terest rates. Notwithstanding the steady interest rate merous smaller and medium-sized deals, the second-
hikes by the US Federal Reserve (FED), which has highest transaction volume in history was achieved.
raised the key interest rate from between 0.0 and 0.25 And interest remains high. According to a survey con-
percent since December 2015 to a range of 2.25 to ducted by Ernst & Young among 300 investors who
2.50 percent, the refinancing rate of the European have been active on the German real estate market in
Central Bank (ECB) has been at 0 percent since recent years, 97 percent of the investors surveyed re-
March 2016. However, the ECB has allowed bond gard Germany as an attractive or even very attractive
purchases to expire at the end of 2018, which means location for real estate investments. The German real
that future interest rate hikes cannot be ruled out. estate market also remains very popular in a European
However, the interest rate environment for the real es- comparison and is described as attractive or even very
tate sector is still extremely friendly and the current attractive by 95 percent of the respondents.
economic slowdown speaks against a rapid turna-
round in interest rates.
Interest rate for five-year mortgage loans; source: Interhyp
Source: Ernst & Young
German properties sought after
In contrast to the bonds issued by debtors with an ex- Residential properties in demand
cellent credit rating, real estate still promises respecta- According to Ernst & Young, residential real estate is
ble returns. For this reason, properties in Germany very popular among investors. When asked about
have increasingly moved into the focus of investors in their preferred type of use, 52 percent of those sur-
recent years. One indicator of increasing investor in- veyed showed a strong and a further 19 percent a
terest is the volume of real estate transactions. Accord- moderate focus on residential property, a figure that
ing to Ernst & Young (Trendbarometer Immobilien- was only exceeded by office real estate. Accordingly,
Investmentmarkt Deutschland 2019), this volume has most investors expect prices for residential real estate
more than quintupled in the residential property field to continue to rise, and 98 percent of those surveyed
Market Environment page 11Research report Accentro Real Estate AG April 2nd, 2019
see prices for even peripheral locations stable (35 per-
cent) or even rising (63 percent). This means that
price expectations for the periphery are now on a par
with those for the top locations; the investors tend to
expect stable prices only for the mid-range locations.
Virtually no one in the market – only between 2 and
3 percent of respondents – assumes falling prices, re-
gardless of the location. Price expectations have thus
shifted even further in the direction of "increase" or
"stability" in the last two years (source: Ernst & Young
- Trendbarometer Immobilien-Investmentmarkt
Deutschland 2019).
Source: destatis
Development of residential rents and prices
Insufficient construction activity
Index points (2004=100)
160
145
In response to the continuing excess demand and
130 price development, construction activity in Germany
115 has picked up noticeably in recent years, with the
100 number of building permits for apartments increasing
85
70
by more than 85 percent to almost 350,000 between
2004 2006 2008 2010 2012 2014 2016 2018 2010 and 2017. Construction completions are also
showing a clear upward trend, with 285,000 apart-
Rents Apartment prices ments completed in 2017, 78 percent more than in
2010. However, in recent years this growth has not
Source: Empirica, (Germany, all years of construction) been sufficient to meet rising demand. According to
empirica calculations, this would have required
Dynamic rent and price increase around 350,000 completions per year between 2015
This lively investor demand, combined with a grow- and 2018. Although the demand for new construction
ing demand for housing, has led to a dynamic upward is likely to slow in the coming years, construction out-
trend in prices and rents in recent years, particularly put will have to remain at the most recent level if the
in the major cities. In Germany, the rents have risen market is slowly to ease. Even then - depending on the
on average by 30.3 percent since the beginning of immigration scenario - demand growth would not slip
2010 to EUR 7.83 per square meter, and the increase below the increase in the housing stock until the mid-
was even higher for new buildings. The upward trend dle of the next decade (see figure below). And even
is even more pronounced in the prices of condomini- that applies only to the German average. For the met-
ums, which have risen by 80.4 percent to EUR 2,394 ropolitan regions particularly hard hit by the housing
per square meter across Germany since the beginning shortage, it will probably take even longer for the sit-
of 2010 (source: empirica Real Estate Price Index uation to ease.
IV/2018). However, in the crisis year of 2009 there
was also a significant decline here, which is why the
lead over the development of rents is somewhat more
moderate from a longer-term perspective.
Market Environment page 12Research report Accentro Real Estate AG April 2nd, 2019
Existing properties become more attrac-
tive
In view of this development, it is virtually impossible
to realize inexpensive rental apartments in new build-
ings. The average rent for new buildings in Germany
at the end of 2018 was EUR 9.39 per square metre
(source: empirica). Rents can be much higher in loca-
tions with higher demand; the Federal Institute for
Research on Building, Urban Affairs and Spatial De-
velopment (BBSR) sees new building rents of EUR 14
Source: empirica; Title: Average yearly demand for new build- to 16 per square metre there. This increases the attrac-
ings; strong influx; mitigated influx; echo effect; without refu- tiveness of existing properties, whose rent increase is
gees; permits; completions somewhat more restrained. According to empirica fig-
ures, the rent gap between new buildings and the en-
Construction industry at capacity limit tirety of all apartments increased from EUR 1.17 per
square metre at the beginning of 2010 to EUR 1.56
Furthermore, it remains questionable whether and to
per square metre at the end of 2018.
what extent strong construction activity can contrib-
ute to a slowdown in price increases. The construction
industry, for its part, is working at capacity limits, Berlin: Above-average momentum
which is reflected in high cost increases. The lack of In Berlin, by far the most important market for Ac-
free building land in the cities is cited as an important centro, the trends presented were recently even more
reason, but the costs for building materials and per- pronounced than in the rest of the republic. Accord-
sonnel are also showing clear upward trends. The con- ing to Jones Lang Lasalle (JLL), the rents quoted in
struction cost index for residential buildings calcu- Berlin in the second half of 2018 rose by 9.0 percent
lated by the Federal Statistical Office at the end of year-on-year, which boosted the momentum even fur-
2018 was 8.5 percent higher than at the beginning of ther. For the five-year period 2013 to 2018, the aver-
2015, while the sub-indices for material and labour age increase is estimated at 8.1 percent. There has
costs increased by 7.3 and 10.9 percent respectively been an even stronger increase in rents quoted for new
during this period. apartments, which, according to JLL, rose by 13.8
percent last year. In the eight largest cities surveyed by
JLL, the average increase in rents quoted was 6.5 per-
cent. The strong dynamics of the Berlin housing mar-
ket is also reflected in the prices for condominiums,
which, according to JLL, showed higher growth in
Berlin in the second half of 2018 (+16.1 percent to an
average of EUR 4,460 / sqm) than the average of the
top 8 cities (9.6 percent). Only Leipzig, Accentro's
second main market, recorded higher price increases
than Berlin (19.9 percent).
Source: destatis
Market Environment page 13Research report Accentro Real Estate AG April 2nd, 2019
economic power and the improved employment situ-
ation on the Berlin labour market are also of im-
portance for the housing demand. Between 2008 and
2017, the number of employed persons rose by 18.6
percent (Germany: 5.1 percent), and GDP growth in
Berlin in recent years has been above the national av-
erage as well. Between 2007 and 2017, the capital's
gross domestic product rose by an annual average of
2.1 percent, compared with 1.2 percent nationwide
(source for this section: Federal Statistical Office).
Insufficient construction activity
In response to the continuing excess demand and
price development, construction activity in Berlin has
Development of quoted rents; quoted rent in €/sqm/month; me-
picked up noticeably in recent years, with the number
dian rent; top rent (90% percentile of all quoted rents)
of building permits for apartments nearly doubling to
almost 25,000 between 2013 and 2017. Construction
completions are also showing a clear upward trend: in
2017, 15,700 apartments were completed in Berlin,
nearly 50 percent more than in 2015. However, this
growth is not sufficient to meet rising demand. Ac-
cording to calculations by the Senate Department of
the capital, almost 200,000 new apartments will be
needed by 2030.
Further increases in prices and rents
likely
In view of this supply gap and the continuing immi-
gration to Berlin, demand for housing is expected to
Source: JLL, Residential City Profile, Berlin, 2nd HY 18; De- remain buoyant in the coming years, with upward
velopment of quoted prices for condominiums; quoted price in pressure on housing prices and rents. With regard to
€/sqm; median price; top price (90% percentile of all quoted house prices, there is also the fact that, given the per-
prices) sistently low interest rates, many investors see in resi-
dential real estate one of the remaining profitable in-
High population growth vestment alternatives that allow regular returns. This
aspect plays an important role, particularly regarding
There are diverse reasons for the high attractiveness of
retirement provision, and drives demand and prices
the Berlin housing market, but they can essentially be
for condominiums (owner-occupied or as a capital in-
traced back to the fact that the federal capital shows
vestment) into the focus of investors.
above-average figures both in terms of population de-
velopment and – by now – economic dynamics. Ber-
lin's population grew by a total of 5.3 percent in the Political interference
ten years until 2017, while the national average was However, the generally very favourable market envi-
only 1.0 percent. In absolute terms, this means that ronment has been disrupted in recent years by politi-
Berlin has gained between 40 and 50 thousand new cal intervention in an attempt to respond to the hous-
inhabitants in recent years – per year. The growing ing shortage and rising rents, which are particularly
Market Environment page 14Research report Accentro Real Estate AG April 2nd, 2019 evident in metropolitan areas. The most prominent areas in which the conversion was subject to approval instrument is the rent brake, which limits the increase and thus effectively prohibited. A sale is now only per- in rent to a maximum of 10 percent above the local mitted to tenants; moreover, the administrations are level in the event of re-letting. In addition, attempts now exercising their pre-emptive rights much more were made locally (especially in Berlin) to prevent the aggressively. As counterproductive as such interven- conversion of rented flats into condominiums. On the tions may be in terms of attracting additional housing grounds that it wanted to protect long-established investment, they are enjoying great political popular- tenants and the social structure of the city districts ity. In the heated political environment, even expro- against being squeezed out by more affluent custom- priations are no longer taboo. ers, Berlin has designated so-called milieu protection Market Environment page 15
Research report Accentro Real Estate AG April 2nd, 2019
Figures
Rapid growth since 2015
Since the exclusive focus on the current business volved, how long they have been in the portfolio be-
model and the exit from the portfolio management of fore and what measures they have undergone. But the
residential properties, revenues from sale of inventory relationship between the apartments actually privat-
properties have developed rapidly: From EUR 31.4 m ised in individual sales and those passed on in pack-
in 2015 to EUR 194.0 m last year. Even adjusted for ages is clearly reflected in the margin as well, as pack-
the sale of the Gehrensee project, last year residential age sales are generally made at a discount. Overall,
property sales generated EUR 151.6 m, almost five however, Accentro reports very robust sales margins.
times the 2015 figure. Due to the simultaneous build- This is reflected not least in the average value of 33.4
up of inventories, rental income also increased signif- percent for the years 2015 to 2018. In relation to rev-
icantly, even though the increase of slightly more than enues, the gross margin averaged 25.1 percent over the
50 percent, to most recently EUR 8.8 million, was last four years. Together with rental income and ser-
considerably weaker than the increase in proceeds vice revenues, a gross margin of 30.0 percent was gen-
from disposals. On the other hand, there has been no erated on average over the last four years.
clear upward trend in service revenues in recent years.
In this respect, growth has only been discernible since Gross margin 2015 - 2018
2017 due to the intensified cooperations with prop- 40%
erty developers. 30%
20%
Revenues development 2015 - 2018 10%
200 0%
160 2015 2016 2017 2018 Ø
m Euro
120 Gross margin on proceeds from disposals
80
40 Gross margin across the Group
0 Source: Company; without proceeds from Gehrensee sale
2015 2016 2017 2018
Double-digit net margin
disposals lettings services
Although Accentro has invested heavily in the expan-
Source: Company; 2018 without proceeds from Gehrensee sale
sion of its personnel and organisational resources, in-
creased its workforce by 50 percent to 45 employees
High margins on disposals and opened new offices outside Berlin in recent years,
In recent years, the privatization business has not only the growth in revenues has been reflected in a corre-
experienced extremely strong growth but has also been spondingly high increase in earnings. Despite a de-
very profitable. In the last four years (2018 without cline last year (see below), EBIT more than quintu-
the Gehrensee project), the sales margin (based on the pled between 2015 and 2018 to most recently EUR
book value) was between 21.5 and 45.2 percent, with 32.9 m. Since the negative financial result increased
the high degree of fluctuation reflecting its depend- by only 50 percent in the same period despite the
ence on the composition of the apartments sold in a greater recourse to borrowed capital, this resulted in a
fiscal year. The sales margin can vary considerably de- multiple increase in the pre-tax result from EUR 0.8
pending on the city, district and microlocation in m to EUR 24.0 m. After taxes and minorities, a dou-
which the apartments are located, the properties in- ble-digit margin has been reported continuously since
2016, most recently amounting to 11.2 percent.
Figures page 16Research report Accentro Real Estate AG April 2nd, 2019
Margin development other by higher interest income from the new loans
30% granted to the joint ventures in the 2018 financial
23% year. Since at the same time the calculated tax rate fell
15% by around 3 percentage points to 23.7 percent, not
8% least as a result of the share deal mentioned above, it
0% was also possible to limit the decline in net income to
-8%
below 10 percent.
2015 2016 2017 2018
EBIT margin net margin
Business figures FY 17 FY 18 Change
Source: Company; without proceeds from Gehrensee sale Revenues * 147.34 205.61 +39.5%
Revenues (relevant) 147.34 163.19 +10.8%
EBIT in 2018 below plan Of which sales 137.86 151.59 +10.0%
In the last financial year, sales (adjusted for the Geh-
Of which lettings 7.77 8.81 +13.3%
rensee project) increased by almost 11 percent to EUR
163.2 m. Due to the lower gross margin from the sale Of which brokerage 1.71 2.79 +63.0%
of apartments, however, gross profit was slightly lower Gross profit 44.33 43.16 -2.6%
than in the previous year, which in conjunction with Gross margin 30.1% 26.4% -
the expansion-related increase in overhead costs (per- 36.42 32.86 -9.8%
EBIT
sonnel expenses: +38.2 percent, other operating ex-
EBIT margin 24.7% 20.1% -
penses: +14.9 percent) resulted in an EBIT of EUR
32.9 m, which was almost 10 percent lower than EBT 27.63 23.98 -13.2%
2017. Accentro has thus remained well below its own EBT margin 18.8% 14.7% -
target range of EUR 36 to 40 m, which the company Net profit 20.14 18.20 -9.7%
explains with two aspects. On the one hand, the sale 13.7% 11.2% -
Net margin
of six older buildings in Berlin for a total of EUR 32
Free cash flow -2.52 -99.64 -
m was completed as a share deal, which had a very
positive effect on the tax burden but required corre- Source: Company; * incl. Gehrensee sale; all margin figures re-
sponding price concessions of the seller. In addition, fer to relevant revenues
Accentro points to delays in the realisation of income
from reconstruction projects. This involves primarily Increase in inventories continues
the construction of additional storeys for a Berlin Despite the increase in revenues and despite the dis-
property that, contrary to original expectations, will posal of the Gehrensee project, Accentro was again
not be reflected in revenues until 2019. Since the wait- able to significantly increase inventories in the last fis-
ing periods for the entry of transactions in the land cal year. They increased by around 14 percent to EUR
registers have also been considerably extended in some 345 m. This includes the purchase of 866 residential
cases, Accentro puts the figure for the volume of trans- units worth EUR 163.3 m, while 1.615 units with a
actions notarised but not yet recognised in revenues at book value of EUR 156.6 m were sold. In addition,
around EUR 20 m at the end of the year. investments were made in existing properties (e.g. the
construction of additional floors). At the balance sheet
Financial result stable date, the company had already signed contracts for
Although Accentro issued a EUR 100 m bond at the further 177 properties (especially in Berlin) worth
beginning of 2018 to finance the further build-up of EUR 32.7 m.
inventories, the financial result remained virtually sta-
ble at EUR -8.9 m. This was made possible on the one
hand by the repayment of more expensive debt instru-
ments (including a convertible bond), and on the
Figures page 17Research report Accentro Real Estate AG April 2nd, 2019
Cash flows clearly negative
As in the previous year, cash flow from operating ac-
tivities was clearly negative in 2018 due to inventory
buildup. In total, it amounted to EUR -48.4 m (after
EUR -25.2 m in the previous year). In addition to the
increase in inventories, this also reflects a deterioration
in operating cash flow (apart from changes in inven-
tories), which fell from EUR +46.6 m to EUR -0.7 m.
This is attributable to increased tax payments, reduced
liabilities and a later maturity of the price for a dis- Source: Company
posal. For example, the development of liabilities (es-
pecially advance payments received) burdened cash Solid balance sheet ratios
flow by EUR 9.6 m, whereas the previous year had a As a result of the capital increase and the net profit for
positive effect on cash flow of EUR 24.3 m. In con- the year, equity increased by almost 30 percent to
trast to the previous year, in which disposals of the last EUR 199.1 m last year. Compared to the end of 2015,
properties held for investment in the former portfolio the increase amounts to more than 80 percent. How-
segment had generated a positive investment cash flow ever, the issue of the bond increased the balance sheet
of EUR 22.5 m, it remained negative in 2018 as well. total even more, so that the equity ratio was slightly
Cash outflows from investing activities amounted to lower than in 2017. At 42.0 percent, however, it is still
EUR -51.2 m as a result of the payments to the joint at a comfortable level. The same applies to the debt
ventures (for the acquisition of equity and for loans) ratio. Accentro estimates the loan-to-value (LTV) at
and the acquisition of an office building that Accentro the end of 2018 at 50.6 percent. It should be noted
intends to use in future as its new corporate headquar- here, as well as for the equity ratio, that in both ratios
ters, so that a negative balance of EUR -99.6 m was property assets are only carried at amortised cost. Even
reported for free cash flow (previous year: EUR -2.5 assuming an average sales margin of 25 percent (con-
m). servative given the figures achieved in the past), the
LTV would thus decline to below 45 percent and the
Bond and capital increase placed equity ratio increase to over 50 percent.
These outflows were financed by funds from the EUR
100 m bond issued in January 2018, which, according Further growth announced
to the company, was placed in only a few hours, has a Based on the final figures, Accentro intends to distrib-
coupon of 3.75 percent and a three-year term. In ad- ute a dividend of 16 cents per share for last year. Com-
dition, Accentro issued 2.12 million new shares with pared to the previous year (17 cents), this corresponds
a total value of EUR 20.14 m last October. The capi- to a slight decrease, but in relation to the current share
tal increase, which had originally been planned with a price the announced dividend offers an attractive yield
volume of 1.6 million shares, also met with strong de- of 1.9 percent. In addition, Accentro is striving to
mand and was therefore extended by more than 0.5 continue the growth course. Accordingly, inventories
million shares. In combination with the payments for are to increase further in 2019, which is why Accentro
dividends, interest and repayments, this resulted in a expects further net cash outflows from operating ac-
financing cash flow of EUR +111.4 m in 2018, so that tivities. Regarding revenues, a slight increase over the
liquidity including the adjustments resulting from previous year's figure adjusted for the Gehrensee
changes in the consolidated group increased from just transaction (EUR 163.2 m) is to be achieved in the
under EUR 9 m to EUR 15.5 m. current year, based on which EBIT is to improve in
the low double-digit range.
Figures page 18Research report Accentro Real Estate AG April 2nd, 2019
Equity Story
Booming target market Attractive margins
Within the German real estate market, which has been Accentro can sell its apartments with a high margin,
booming for years thanks to extremely low interest which has averaged 33 percent over the last four years.
rates and solid economic growth, Accentro's primarily The margin is fed by the upward trend in market
addressed residential market in Berlin is one of the prices as well as by legal separation and structural and
most attractive segments. Given the economic and es- technical upgrading of the properties. Overall, Accen-
pecially demographic trends, the price- and rent-driv- tro has reported double-digit net margins over the last
ing excess demand for apartments in Berlin is likely to three years.
continue in the coming years.
Regional expansion
Reliable business model Building on its strong market position in its home
Accentro has been operating its core business, the pri- market of Berlin, Accentro has been systematically ex-
vatisation of apartments either on its own account or panding its own activities in other metropolitan re-
on behalf of third parties, for 20 years. This makes the gions since 2017. By now, there are branches and res-
company one of Germany's leading players in this idential portfolios in Leipzig, Rhine-Ruhr, Rostock
field. With its large and experienced sales team, the and Hamburg, and the Rhine-Main, Rhine-Neckar
company has already proven that it can operate highly and Hanover regions are to be more strongly ad-
profitably, and its focus on Berlin also secures a pro- dressed as well. On the one hand, this regional expan-
found knowledge of the real estate market there. sion can reduce dependence on the Berlin housing
market and the growing political imponderables
Proven leadership there. Above all, however, Accentro is opening up fur-
ther great growth potential. As the sales teams has al-
Accentro GmbH, the nucleus of the group, was
ready been active not only in Germany but also inter-
founded in 1999 and led ever since by Jacopo
nationally, this additional potential can be exploited
Mingazzini, the current sole member of the Manage-
with high synergies in terms of marketing.
ment Board. Jacopo Mingazzini has also been a mem-
ber of the Management Board of the parent company
for six years, during which time he has refocused on Attractive privatisation portfolio
the core business of residential privatisations. Inventory property has grown even faster than reve-
nues in recent years. This forms the basis for future
High growth sales and at the end of 2018 amounted to 2,811 resi-
dential units with a purchase value of EUR 343.9 m,
In recent years, Accentro has recorded very high
of which almost 85 percent are located in Berlin and
growth, with revenues quintupling to EUR 205.6 m
Greater Berlin. The book value of inventories has thus
between 2015 and 2018. The most important drivers
more than doubled since the end of 2015. In addition,
were the growing number of apartment sales and ris-
Accentro reports 177 further residential units worth
ing prices in the housing market. However, the grow-
EUR 32.7 m, the purchase of which has already been
ing stock of inventory properties for privatisation is
notarised in 2018 but not yet completed.
also generating growing rental income.
Equity Story page 19Research report Accentro Real Estate AG April 2nd, 2019 Sourcing options extended Solid balance sheet with high hidden re- In addition to its own privatisation portfolio, Accen- serves tro has exclusive rights for sale for more than 3,000 Accentro combines high growth dynamics with a residential units. These are the result of several joint healthy balance sheet structure. Both the equity ratio ventures in which Accentro holds minority interests, of over 40 percent and the LTV of just over 50 percent as well as cooperations with property developers to are solid, and the balance sheet also contains substan- whom Accentro gives a purchase guarantee for the tial hidden reserves, as inventories are carried at amor- new apartments. The first projects of this kind have tized cost. Assuming a margin of 25 percent, the re- been completed with great success. serves at the end of 2018 amount to EUR 86 m. Development project with potential A development project in Berlin, in which Accentro holds a 25-percent stake, offers further potential. Here, a significantly larger number of modern apart- ments are to be built instead of the current 675 pre- fabricated apartments. Equity Story page 20
Research report Accentro Real Estate AG April 2nd, 2019
DCF Valuation
Growth course continues update in response to the disappointing EBIT devel-
opment in 2018. Accordingly, we are now calculating
As in the past, our valuation model is based on the
with a gross margin of 26.1 percent for 2019, which
assumption that Accentro will continue to expand its
we are - as before - cautiously reducing to 20.9 percent
business and increase both sales and profits. In view of
by 2026. The slight change compared to our last up-
the continuing success in purchasing, the resulting in-
date is due to the change in the revenue composition.
crease in inventories, and the promising expansion in-
itiatives, both in geographical terms and in terms of
cooperation with other real estate companies and Inventory growth
property developers, we see good opportunities for Further minor adjustments result from the integration
growth and think that our assumption is therefore of the actual figures from 2018 with regard to cost
well founded. Accordingly, we have left the basic structures and some balance sheet items. More im-
structure of our model unchanged and only made mi- portant in this context is the reduction in the pace of
nor adjustments in response to the 2018 Annual Re- growth in inventories, for which we nevertheless as-
port and the 2019 forecast. sume a further increase to almost EUR 500 m at the
end of the detailed forecast period. Finally, in the
Revenue projection reduced P&L estimate, we have reduced the tax rate estimate,
which recently proved to be too high, to the average
We have lowered our revenues expectation for 2019,
figure for the last three years.
which had previously been just under EUR 200 m.
Since Accentro is now talking about a moderate in-
crease in revenues compared to the previous year's fig- Considerable profit increase expected
ure (EUR 163.2 m, adjusted for Gehrensee), this ap- Based on the changed assumptions, we expect the
proach now appears too optimistic. Instead, we now EBIT for the current year to rise by 18 percent to
anticipate EUR 180 m, which would correspond to EUR 38.9 m, with earnings per share of EUR 0.75.
10 percent growth. This means a proportional in- While the EBIT estimate is thus below our last assess-
crease in revenues from the sale of inventory proper- ment, the expectation for net profit has even increased
ties and even a slightly stronger increase in rental in- slightly. This also reflects the expected improvement
come, while we assume that revenues from services, in the financial result, which was burdened last year
which also benefited from the opportunistic place- by the costs of redeeming the convertible bond. On
ment of a portfolio in 2018, will remain constant. For this basis, we maintain our expectation of a dividend
the coming years, however, we have raised the growth increase to 18 cents per share.
assumptions for service revenues in order to reflect the
broad basis of marketing cooperations and joint ven- Discount rate 6.5 percent
tures created last year. All in all, we anticipate revenue
A summary of the model business performance we
growth of just under 10 percent p.a. over the next few
have assumed for the next eight years can be found in
years, resulting in a revenue forecast of EUR 345 mil-
the table on next page; further detailed overviews can
lion at the end of the detailed forecast period.
also be found in the Annex. Subsequent to the detailed
forecast period, we anticipate an EBIT margin of 17.4
Margins largely unchanged percent and perpetual cash flow growth of 1 percent
By contrast, we left margin expectations largely un- p.a. We discount the free cash flows resulting from
changed as we had already lowered them in our last these assumptions with WACC (Weighted Average
Cost of Capital) at an interest rate on borrowed capital
DCF Valuation page 21Research report Accentro Real Estate AG April 2nd, 2019
m Euro 12 2019 12 2020 12 2021 12 2022 12 2023 12 2024 12 2025 12 2026
Sales 179.5 197.1 216.5 237.8 261.1 286.6 314.7 345.5
Sales growth 9.8% 9.8% 9.8% 9.8% 9.8% 9.8% 9.8%
EBIT margin 21.6% 21.0% 20.1% 19.2% 18.3% 17.4% 17.4% 17.4%
EBIT 38.9 41.4 43.6 45.8 47.9 49.9 54.9 60.0
Tax rate 25.0% 25.0% 25.0% 25.0% 25.0% 25.0% 25.0% 25.0%
Adjusted tax payments 9.7 10.4 10.9 11.4 12.0 12.5 13.7 15.0
NOPAT 29.2 31.1 32.7 34.3 35.9 37.4 41.2 45.0
+ Depreciation & Amortisation 0.1 0.1 0.2 0.2 0.2 0.2 0.2 0.2
+ Increase long-term accruals 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
+ Others 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Gross operating cash flows 29.3 31.2 32.9 34.5 36.1 37.6 41.4 45.2
- Increase Net Working Capital -26.2 -22.8 -19.8 -15.9 -11.1 -12.3 -13.6 -15.0
- Investments in fixed assets -0.5 -0.5 -0.5 -0.6 -0.6 -0.6 -0.7 -0.7
Free cash flows 2.6 7.9 12.5 18.0 24.4 24.8 27.1 29.5
of 4.0 percent. Since the rate is not only relevant for Based on our valuation model, we see therefore fur-
the next eight years, but also for determining the ter- ther potential of more than one third for the Accentro
minal value, we have deliberately applied a figure share.
above the current interest rate level. The cost of equity
is determined using the Capital Asset Pricing Model Slightly above-average forecast risk
(CAPM). Our risk-free interest rate is – at 2.5 percent
In addition to the fundamental fair value calculation,
– the average value of German current yield, the mar-
we assess the estimation risk on a scale from 1 point
ket risk premium of 5.4 percent is set to an average
(very low) to 6 points (very high). Previously, we had
value adequate for Germany (source: Pablo Fernan-
applied three points here and thus classified the esti-
dez, Javier Aguirreamalloa and Luis Corres: Market
mation risk as slightly below average. Even though
risk premium used in 82 countries in 2012: a survey
trading in real estate is generally subject to greater
with 7,192 answers). In combination with a beta fac-
fluctuations, we considered this classification to be
tor of 1.4 (small caps with a focus on property trad-
well justified by the concentration on individual sales
ing), this results in a cost of equity of 10.1 percent. At
and the resulting atomistic revenue structure. How-
a target debt ratio of 50 percent, this leads to a WACC
ever, contrary to our expectations, portfolio sales con-
rate of 6.5 percent.
tinue to play a major role in Accentro's sales figures.
The spreads between notarisation and actual execu-
New target price: EUR 11.50 per share tion have also become considerably longer and make
In our favourite scenario (perpetual growth 1.0 per- forecasts more difficult. The increasing scope of con-
cent, WACC 6.5 percent), these assumptions add up struction measures in the run-up to marketing has a
to a market value of equity of EUR 372.4 m. This similar effect and brings an additional uncertainty in
corresponds to EUR 11.48 per share, from which we terms of time (and finances). Against this background,
derive a very slightly raised price target of EUR 15.10. we now think it appropriate to rate the forecast risk as
While the changes in estimates had an overall damp- slightly above average and award Accentro 4 out of 6
ening effect on the fair value, the rollover of the model points.
to the new base year 2019 had the opposite impact
and slightly overcompensated for the first effect.
DCF Valuation page 22Research report Accentro Real Estate AG April 2nd, 2019
Sensitivity analysis Sensitivity analysis Perpetual cash flows growth
For our sensitivity analysis, we have varied the input WACC 2.0% 1.5% 1.0% 0.5% 0.0%
parameters WACC (between 5.5 and 7.5 percent) and 5.5% 22.17 18.96 16.46 14.45 12.81
perpetual growth (between 0.0 and 2.0 percent). The 6.0% 18.06 15.65 13.72 12.13 10.81
calculated fair value lies between EUR 6.46 per share
6.5% 14.87 13.01 11.48 10.21 9.13
in the most restrictive case and EUR 22.17 in the most
optimistic case. 7.0% 12.33 10.86 9.63 8.59 7.70
7.5% 10.26 9.07 8.07 7.21 6.46
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