(scale all share, real estate)

Noratis (Scale All Share, Real Estate)

A n a l y s t

Phi l ipp Kaiser [email protected]

+49 40 309537-260

A n a l y s t

Andreas Plä[email protected]

+49 40 309537-246

NO T E Published 11.06.2020 08:15 1

RESEARCH

Buy

EUR 27.50 (EUR 25.00)

Price EUR 21.70

Upside 26.7 %

Value Indicators: EUR Share data: Description:

DCF: 27.50

Bloomberg: NUVA GR

Reuters: NUVG.DE

ISIN: DE000A2E4MK4

Developer for existing residential property in German second/third tier locations

Market Snapshot: EUR m Shareholders: Risk Profile (WRe): 2020e

Market cap: 86.7

No. of shares (m): 4.0

EV: 348.7

Freefloat MC: 40.8

Ø Trad. Vol. (30d): 31.38 th

Freefloat 47.1 %

Terratis (O. C. Smits) 11.4 %

I. C. Bugarski (CEO) 7.5 %

Merz Real Estate GmbH 34.0 %

Beta: 1.4

Price / Book: 1.4 x

Equity Ratio: 18 %

Net Fin. Debt / EBITDA: 37.5 x

Net Debt / EBITDA: 37.5 x

Growth acceleration set to stabilise overall revenues in future; PT up

Stated Figures 2019: Comment on Figures: � Property sales (EUR 63.0m) mainly driven by the sale of the Frankfurt

portfolio in H1 and some smaller privatisations in H2

� Rental income (EUR 12.9m) increased by 63% mainly because the entire Ratzeburg portfolio (355 units) remained in the portfolio

� Noratis plans to pay a dividend of EUR 0.80 per share for 2019 resulting in a dividend yield of 3.6%

Noratis AG had an eventful start to the year 2020. Besides solid FY 2019 figures, the company has a new major shareholder which significantly

increases the company’s financial flexibility and thus enables high growth potential in a short time. Despite the current uncertainty, we see

good opportunity to significantly expand the size of the portfolio.

� FY 2019 figures: In 2019, Noratis acquired 955 units (WRe: 858 units) and sold 339 units (WRe: 369 units). The company also announced

the establishment of regional subsidiaries to secure further growth and strengthen its involvement in particularly attractive markets. EBT

declined only slightly, by 5%, mainly due to the expected margin normalisation which became visible in H1.

� New major shareholder: Merz Real Estate GmbH & Co. KG, an affiliated company of the Merz Group, reached an agreement with two major

shareholders of Noratis, including its CEO Igor Christian Bugarski. Merz acquired c. 1.1m shares at a price of EUR 21. Following the

completion of the acquisition, Merz Real Estate will initially hold approx. 29.4% of the shares in Noratis AG. In addition, the new shareholder

also committed itself to Noratis AG to invest a total of up to EUR 50m in the company by the end of 2024 via capital measures.

� Conclusion: We view the entry of the major shareholder as very positive for the future growth of Noratis. The long-term goal of making the

overall revenues less dependent on property sales and strengthening the recurring revenues from rental income can now be accelerated

significantly. To reflect these events, we have revised our model and adjusted our assumptions.

The eventful start to the year underpins our positive view. We stick to our Buy recommendation and raise our PT.

in EUR m H2/19 H2/19e H2/18 yoy 2019 2019e 2018 yoy

Sales 28.2 26.5 35.3 -20.2% 75.9 74.2 56.1 35.2%0.0

EBIT 7.0 7.7 10.8 -35.7% 15.8 15.4 15.6 1.0%

margin 24.7% 29.1% 30.7% 20.8% 20.7% 27.9%0.0

EBT 5.2 6.1 9.3 -43.8% 12.1 11.8 12.8 -5.3%

margin 18.5% 23.1% 26.2% 15.9% 16.0% 22.8%

Net income 3.7 4.6 6.7 -44.3% 8.7 8.4 9.3 -6.9%

Changes in Estimates: Comment on Changes:

FY End: 31.12. in EUR m

2020e (old)

+ / - 2021e (old)

+ / - 2022e (old)

+ / -

Sales 101.5 -72.8 % 106.8 -57.9 % n.a. n.m.

EBIT 16.7 -58.9 % 17.6 -42.0 % n.a. n.m.

EBT 12.1 -83.1 % 12.7 -68.9 % n.a. n.m.

EPS 2.39 -84.9 % 2.50 -74.4 % n.a. n.m.

DPS 1.20 -84.9 % 1.25 -74.4 % n.a. n.m.

� As we expect the company to focus heavily on portfolio growth over the next two years based on the new financial opportunities, we have significantly reduced our estimates for property sales

� Due to the combination of strong portfolio growth and a reduction in property sales, we expect an increase in liabilities and thus higher interest expenses

FY End: 31.12. in EUR m

CAGR (19-22e) 2016 2017 2018 2019 2020e 2021e 2022e

Sales 9.5 % 44.6 68.0 56.1 75.9 27.6 45.0 99.5

Change Sales yoy 87.1 % 52.6 % -17.5 % 35.2 % -63.7 % 63.0 % 121.3 %

Property Sales 37.8 61.9 48.2 63.0 12.0 22.8 73.8

Rental income 6.7 6.1 7.9 12.9 15.6 22.2 25.7

Gross profit 13.2 21.5 21.6 21.6 12.8 17.2 27.9

Gross profit margin 29.6 % 31.7 % 38.5 % 28.5 % 46.6 % 38.3 % 28.0 %

EBIT 9.6 % 9.9 15.2 15.5 15.8 6.9 10.2 20.7

Margin 22.2 % 22.4 % 27.7 % 20.8 % 24.9 % 22.7 % 20.8 %

EBT 3.7 % 6.0 12.2 12.8 12.1 2.1 3.9 13.5

Margin 13.5 % 18.0 % 22.8 % 15.9 % 7.4 % 8.8 % 13.5 %

Net income 3.3 % 4.2 8.7 9.2 8.7 1.5 2.8 9.6

EPS -3.3 % n.a. 2.99 2.57 2.41 0.36 0.64 2.18

EPS adj. -3.3 % n.a. 2.99 2.57 2.41 0.36 0.64 2.18

DPS -3.2 % 0.00 1.50 1.29 1.20 0.18 0.32 1.09

Dividend Yield n.a. 8.3 % 5.4 % 5.6 % 0.8 % 1.5 % 5.0 %

EV / Sales n.a. 1.7 x 4.1 x 3.3 x 12.9 x 9.9 x 4.6 x

EV / EBITDA n.a. 7.6 x 14.7 x 15.7 x 51.2 x 42.6 x 21.4 x

EV / EBIT n.a. 7.7 x 14.8 x 15.9 x 52.1 x 43.6 x 22.0 x

P / E n.a. 6.0 x 9.2 x 8.9 x 60.3 x 33.9 x 10.0 x

ROE 63.3 % 29.6 % 18.7 % 16.4 % 2.2 % 4.2 % 0.0 %

Net Debt 64.9 64.4 145.4 172.4 261.7 349.3 360.1 Guidance: n.a.

Rel. Performance vs Scale All

1 month: 4.4 %

6 months: 0.6 %

Year to date: n/a

Trailing 12 months: -6.5 %

Company events: 18.06.20 RS-Call

25.06.20 AGM

30.09.20 Q2

Noratis

NO T E Publ ished 11 .06 .2020 2

RESEARCH

Sales development in EUR m

Source: Warburg Research

Rental income development in EUR m


EBIT development in EUR m


Company Background

� Developer of existing residential property portfolios in German second/third tier locations, listed in the Scale Segment of Frankfurt

Stock Exchange

� 80-90% of total revenues are generated from property sales in a small segment (100-800 units) with very stable transaction volumes

in the past

� Focus on renovation and restructuring measures with high value increase potential over a period of two to three years

� Covering the entire value chain from acquisition, asset management, (including the planning of value accretive modernisation) and

disposals by internal employees, who also manage external service providers

Competitive Quality

� Specialized in affordable basic and medium standard residential property development, a niche which is too big for private investors

and too small for larger institutional investors, which leads to lower competition

� Business model can be applied on broader scale to additional locations in Germany

� Project development is mainly carried out by internal employees (e.g. architects, draftsmen, business economists and engineers)

which reduces dependency on third parties and increases flexibility in processes

� In contrast to many smaller competitors Noratis is well capitalized and, as a listed company with a strong majority shareholder, has

better access to capital

� Noratis has a strong purchasing network with excellent access to big real estate holding companies as well as regional brokers,

involving them at very early stage of the portfolio bidding processes

EBT development in EUR m


Gross margin development in %


Net income development in EUR m


Noratis


RESEARCH

Summary of Investment Case 4

Company Overview 5

Competitive Quality 6

Attractive niche player 6

Combining advantages of both peers 6

Affordable housing in B-locations 6

Opportunity for economies of scale within the business model 7

Internal know-how leads to efficient processes 7

Track record and network 7

New Major Shareholder 8

Merz Real Estate GmbH & Co. KG – fresh money for further growth 8

New major shareholder 8

New financial firepower 9

Accelerated portfolio growth leads to short-term decline in earnings 9

Changes in Model Assumptions 10

Acquisitions 10

Property sales 12

Revenues 14

Accelerated Growth 15

Revenue split 15

Portfolio growth 15

Margin development 16

Valuation 17

Fundamental valuation 17

DCF (equity method) valuation 17

Relative valuation 19

NAV calculation supports investment case 19

Company Background 20

History 20

Managing Board 21

Owners 22

Noratis


RESEARCH

Summary of Investment Case

Investment triggers

� Entry of new major shareholder Merz accelerates growth potential

� Realisation of hidden values (at-cost HGB book keeping) by selling developed properties

� Strong focus on portfolio growth in the next two years will generate economies of scale and increase the share of the recurring rental

income which should stabilise the overall revenue stream and reduce dependence on property sales

� Margins expected to increase as the share of high-margin rental business increases and portfolios are sold on a more opportunistic

basis due to lower dependence on property sales, which should at least stabilise the margins on property sales

� As the proportion of revenue generated by recurring rental income increases, the business model will become more like that of a

residential holding company which should justify higher valuation (based on higher multiples)

Valuation

� The DCF approach (equity method) derives a price target of EUR 27.50 per share which implies upside of c. 24.00% based on the

current share price

� There should be significant acceleration towards the medium-term target to generate 60% of revenue from property sales and 40%

from rental income as a result of the financial commitments of the new major shareholder. This should stabilise total revenues in

future based on a higher share of recurring revenues that should reduce the beta (currently 1.4) and strengthen margins

� Targeted revenue split would shift the business model further towards a residential holding company, which is normally valued at

higher multiples and would justify a higher valuation for Noratis

� Constant transaction volume in the small-scale segment (100-800 units) increases predictability and likelihood of further deals

(according to research from BBSR)

Growth

� Approximately 70% of Germany’s residential supply stock falls into Noratis’ potential sourcing pipeline (constructed between the

1920s and 1980s)

� Retained earnings, recent capital increase and the financial commitments from the new major shareholder provide opportunities to

finance further growth

� Average internal firepower of c. EUR 100m per year for acquisitions (2020e – 22e) will boost growth also beyond 2022e

� Focusing particularly on acquisitions in 2020e and 2021e to increase portfolio size significantly in the short term

� Shrinking household size driving demand for living space in Germany

Competitive quality

� By combining the tasks of an operating portfolio holding company and a developer, Noratis occupies an attractive niche. As Noratis

invests in existing properties it does not carry the full risk of a pure property developer and, at the same time, generates higher returns

(based on sales of value developed properties) than pure portfolio holding companies.

� The targeted transaction size (20-1k units) also has a niche character as it is typically too large for private investors and too small for

institutional investors. This reduces competition. This segment is also characterised by a very stable transaction volume which

supports the predictability and likelihood of further deals.

� Project development is mainly carried out by internal employees (e.g. architects, draftsmen, business economists and engineers)

leading to lower costs, faster execution and independence from third parties as well as higher flexibility

� Noratis has a strong purchasing network with excellent access to big real estate holding companies and regional brokers

Noratis


RESEARCH

Company Overview


Noratis


RESEARCH

Competitive Quality

� Attractive niche player combining advantages of a residential holding company and a

developer

� With its focus on second and third-tier locations, there should continue to be ample

acquisition opportunities for Noratis

� Management has extensive expertise, a long track record and a strong network within

the real estate sector

Attractive niche player with an unique business model

Attractive niche player

Noratis is a developer of residential property portfolios and combines the strengths of an

operating portfolio holding company and a developer. As a consequence of occupying

this specific niche, there are no clear peers. The main competitors are therefore

residential holding companies for some parts of its business and real estate developers

for other parts of the business.

Combining advantages of both peers

As Noratis invests in existing properties, it does not bear the full risk of a pure property

developer. Furthermore, rental income covers the operating and financing costs in

almost all acquired portfolios, which stabilises cash flows in the development phase.

Both factors represent a competitive edge over pure real estate developers.

In comparison to pure portfolio holding companies, Noratis is able to generate higher

returns (based on sales of developed properties)

Attractive niche

Source: Noratis, Warburg Research

Affordable housing in B-locations

By focusing on second and third-tier locations or on the periphery of big cities, Noratis

benefits from two market conditions. Many of its competitors concentrate mainly on the

top seven locations. Firstly, there is a supply bottleneck in prime locations due to a lack

of new construction projects, which either makes new acquisitions very expensive or

offers little chance of acquiring new portfolios. Secondly, due to the supply bottleneck,

investors will begin switching from A to B locations, where prices will eventually increase.

Thus Noratis can achieve higher prices on property sales.

Noratis


RESEARCH

Opportunity for economies of scale within the business model

The Noratis business model includes activities such as acquisition, technical

development, asset management as well as property sales, all of which can be easily

extended with economies of scale.

Internal know-how leads to efficient processes

The entire value chain of Noratis is carried out by internal employees (e.g. architects,

draftsmen, business economists and engineers). Internal coordination means that:

� Projects can be prioritized accordingly to give Noratis certain flexibility in its processes

� Internal asset managers can maintain close contract with the local property

management, enabling Noratis to assert its interests in a targeted manner

These are important steps in the development process and these distinguish the

company, especially from large residential holding companies.

Furthermore, as renovation measures tend to be standard and repetitive, internal

employees have developed a certain level of expertise in these areas, resulting in faster

and more efficient processes.

Track record and network

Management and supervisory board members have extensive experience in developing

and selling properties. This results in:

� The creation of a valuable network of approx. 4k contacts with excellent access to big

real estate holding companies as well as regional brokers, allowing them to be involved

at a very early stage in portfolio bidding processes

� Development of expertise in recurring “problems” with preferred portfolios types,

leading to faster due diligence and therefore faster purchasing processing

� Specialization in certain recurring renovation measures in these buildings results in

efficient processes and lower costs

Noratis


RESEARCH

New Major Shareholder

� Merz Real Estate GmbH is part of the Merz Group. Among its key activities are the

globally oriented healthcare segment

� After the acquisition of c. 1.0m shares from existing shareholders, Merz’s stake

increased to 29.4%

� The capital increase should have increased the stake further to 34.0%

� Merz has committed to invest an additional EUR 50m in Noratis over the next five

years

Accelerated portfolio growth expected

Merz Real Estate GmbH & Co. KG – fresh money for further growth

At the end of March, Noratis announced a new major shareholder. Merz Real Estate

GmbH & Co. KG, headquartered in Frankfurt am Main, is part of the Merz Group, which

is family-owned. The key activities of the Merz Group include the globally oriented

Healthcare segment with the businesses Merz Aesthetics, Merz Therapeutics and Merz

Consumer Care with brands such as tetesept and Merz Spezial Dragées. The Merz

Group is active in other areas, including the real estate sector.

Merz Holding GmbH & Co. KG

Source: Merz, Warburg Research

New major shareholder

Merz Real Estate GmbH & Co. KG reached an agreement with two major shareholders

of Noratis, including its CEO Igor Christian Bugarski. In a first step, Merz acquired

1,057,650 shares at a price of EUR 21. Following the completion of the acquisition, Merz

Real Estate will initially hold approximately 29.4% of the shares in Noratis AG. A majority

shareholding is targeted in the medium term. However, Igor Christian Bugarski retains an

8.0% stake in the company.

Noratis


RESEARCH

Additionally a first minor capital increase took place in mid-May. In this context, the

company's share capital increased from EUR 3,601,897, divided into 3,601,897 no-par

bearer shares of common stock (no-par shares), by EUR 252,525 to EUR 3,854,422 by

issuing 252,525 new no-par shares, each with a notional interest in the share capital of

EUR 1 and entitlement to dividends from January 1, 2020. Only Merz Real Estate was

permitted to subscribe and it acquired all new shares. The new shares were issued at a

price of EUR 19.80 per new share. In contrast to the existing shares of the company,

they are not entitled to a share in profits for the past financial year 2019. A takeover offer

from Merz Real Estate is not necessary.

Merz Holding GmbH & Co. KG


New financial firepower

Merz Real Estate has made a commitment to Noratis AG within the framework of an

investor and fixed subscription agreement to invest a total of up to EUR 50m in the

company by the end of the 2024 via capital measures. It is planned to spread these

investments in a similar order of magnitude over time. However, this also depends on the

opportunities arising on the market for portfolio purchases. Thus there will be certain

flexibility in the investments.

The financial commitment by Merz promoted us to revise our model assumptions and

take one additional capital increase for 2020 into account. In our view, this is the only

way to map Noratis’ growth potential in the coming years.

Accelerated portfolio growth leads to short-term decline in earnings

The financial obligations of Merz Real Estate and the proceeds from the capital increase

are to be used exclusively for the further growth of the portfolio. We view the entry of the

major shareholder as very positive for the further growth of Noratis. The long-term goal

of making the overall revenues less dependent on property sales and strengthening the

recurring revenues from rental income can now be accelerated significantly. This will

make it possible to significantly stabilise revenues earlier than planned by generating a

higher proportion of recurring and predictable rental income. However, the sale of

properties optimised by Noratis will remain the most important source of earnings. The

entry of Merz Real Estate and the associated financial resources enable the company to

sell off portfolios more selectively and put Noratis in a better position to take advantage

of market opportunities as they arise. For 2020, as a short-term effect, the company

expects its net income (HGB) to be significantly lower than in previous years as a result

of lower portfolio sales than planned.

50.5% 47.1%

18.5%

7.5%

12.2%

11.4%

34.0%

Q4 2019 H1 2020e

Free float Igor Bugarski (Current CEO)

Hansaco AS (E. Pigoznis) Terratis GmbH (O. Smits)

Merz Real Estate

Noratis

NO T E Publ ished 11 .06 .2020 10

RESEARCH

Changes in Model Assumptions

� Further capital increase is taken into account

� Investment volume limited to the financial commitment of the new major shareholder

� Expected reduction in property sales for the next two years as the company plans to

focus strongly on portfolio expansion

Use of one further capital increase taken into account

Acquisitions

To secure further growth, the acquisition activities are an important step in the Noratis

value chain. Supported by the company’s own specialised software, potential targets

worth EUR 22.7bn with 222,200 units were reviewed in 2019.

Thanks to the financial flexibility gained, the focus this year is particularly on portfolio

growth and thus also on strong acquisition activities. The company has so far made

three acquisitions in Emden, Leipzig/Halle and Rüsselsheim with an estimated total

investment volume of EUR 30.0m.

Acquisitions in 2020


As a result of the entry of the new shareholder and the associated investment, we have

decided to take a future capital increase into account to reflect the growth potential of the

company. As Merz Real Estate has committed to invest a total of up to EUR 50m in the

company by the end of the 2024 via capital measures, we envisage a similar investment

volume spilt over the next five years, resulting in an investment volume of EUR 10m p.a.

Further assumptions can be summarised as follows:

� Share price: EUR 19.95

� Discount 5%

� The resulting cap. raise share price: EUR 18.67

Envisaged future capital increase


The first capital increase shown in the overview above (I) refers to the capital increase

carried out in mid-May and as described on page 9. The 0.253m new no-par shares

were issued at a price of EUR 19.80 per new share.

Location Purchase date Units sqm Ø Rent EUR/sqm Estimated Purchase Price Price

Emden (Herrentor) Feb-20 79 3,777 6.2 1,100 4,154,700

Leipzig Apr-20 32 1,792 6.9 1,900 3,404,800

Halle Apr-20 19 1,064 6.2 1,350 1,436,400

Rüsselsheim May-20 83 8,300 9.3 2,200 18,260,000

213 14,933 27,255,900

ancillary costs EUR 126.3 per sqm 1,885,291

capex EUR 63.2 per sqm 942,646

Total 30,083,837

I II I+II

2019 2020 2020 2020e

New no-par bearer shares 0.3 0.5 0.8

Subscribed capital 3.6 3.9 4.1 4.4

Additional paid-in capital 4.7 9.5 14.2

Gross issue proceeds 5.0 10.0 15.0

Noratis

NO T E Publ ished 11 .06 .2020 11

RESEARCH

Outlook: To estimate the future investment volume for acquisitions, we assume a

maximum expansion of the balance sheet (through leverage) for a given equity ratio for

individual years. Given the expected capital measures, this means that growth in the

coming years will result from the leverage of the net income after dividend payments.

This depends on the absolute net income as well as on the divided policy. We also apply

the following assumptions to derive the investment volume:

� An average purchase price of EUR 1,500 per sqm

� A slight purchase price increase of 1.0% per year

� Average ancillary acquisition costs of 10% of the purchase price

� An average capex of 15% of the purchase price spread over two to three years

� An equity ratio of 17.5%

Based on these assumptions, we expect the following development of the investment

volume over the next years

Development of the total investment volume


To derive the firepower of the individual years, we leverage the given equity with debt

under the limitation of a book equity ratio of 17.5% (German GAAP). This results in a

theoretical maximum balance sheet total. From this, we deduct capital tied up elsewhere

and derive a theoretical maximum balance sheet item for properties held for sale in

current assets (referred to in the table above as “Max. properties for sales (BS)”). We

deduct from this the properties already held for sale in the balance sheet from the

previous year. In addition we take into account the disposals of properties this year and

derive the maximal firepower.

EUR m 2020e 2021e 2022e 2023e 2024e 2025e 2026e 2027e 2028e 2029e 2030e 2031e

Shareholders equity 57.2 78.0 78.7 80.1 84.9 90.3 95.8 101.4 107.2 113.0 118.9 124.9

+ Net income year -1 8.7 1.5 2.8 9.6 10.8 11.1 11.3 11.5 11.7 11.8 12.0 12.2

- Dividend year -1 2.9 0.7 1.4 4.8 5.4 5.5 5.6 5.7 5.8 5.9 6.0 6.1

+ assumed capital increase 1)

15.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

= Equity 78.0 78.7 80.1 84.9 90.3 95.8 101.4 107.2 113.0 118.9 124.9 131.0

Maximum total assets 445.4 449.6 457.6 484.9 515.9 547.5 579.7 612.5 645.8 679.6 713.9 748.7

- PPE + other 2)

7.1 6.0 6.0 6.0 6.0 6.0 6.0 6.0 6.0 6.0 6.0 6.0

= Max. Properties for Sales (BS*) 438.4 443.6 451.6 478.9 509.9 541.5 573.7 606.5 639.8 673.6 707.9 742.7

- Properties for sales (BS) 31.12. year -1 238.8 332.0 421.4 438.8 478.9 509.9 541.6 573.7 606.5 639.8 673.6 707.8

+ Disposals of properties year 11.4 19.7 96.2 72.5 93.2 92.6 91.7 90.2 88.0 85.2 81.8 77.5

= Firepower 210.9 131.4 126.4 112.6 124.2 124.3 123.8 123.0 121.3 119.1 116.1 112.4

- Investment volume 100.0 100.0 100.0 99.0 110.1 109.8 108.9 108.1 106.6 104.5 101.8 98.5

- capitalized refurbishment CAPEX 4.5 9.1 13.6 13.6 14.1 14.5 14.9 14.9 14.7 14.5 14.2 13.9

= Firepower left 106.4 22.2 12.8 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.1 0.0

Changes in Working Capital 93.1 89.4 17.4 40.1 31.0 31.7 32.1 32.8 33.3 33.8 34.2 34.9

Properties for sales (BS) 31.12. year 332.0 421.4 438.8 478.9 509.9 541.6 573.7 606.5 639.8 673.6 707.8 742.7

1) For calculation please see page 10

2) Capital tied up elsewhere (e.g. Property, Plant & Equipment)

* BS = Balance Sheet

Noratis

NO T E Publ ished 11 .06 .2020 12

RESEARCH

Property sales

Since Noratis is now financially backed by the new major shareholder, the focus,

particular this year, is on accelerated portfolio growth which leads to major changes in

the property sales strategy.

At the beginning of the year, we calculated with 463 units sold in 2020 resulting in

revenues from property sales of EUR 84.6m. Now we expect 2020 and 2021 to be years

of transition, in which the company will focus on portfolio growth and therefore reduce

portfolio sales to a minimum. This is particularly evident in 2020.

In general, our estimates are based on the following assumptions:

� An average holding period of 25 months

� Longer holding period in individual cases

� Average sales rent multiple of 18x

� For retail sales: individual purchase price of units in the specific region

Property sales 2020e

Source: homeday.de, Warburg Research

Privatisations in Zweibrücken, Riedstadt and Erlensee began in 2019 and the majority of

the apartments have already been sold. In 2020, we expect the remainder of the

portfolios to be sold off.

For Ratzeburg/Mölln we assume a minor partial sale in 2020, as the main focus is on

portfolio growth. The retention of large portfolios like Ratzeburg in its investment portfolio

for as long as possible should be in the interest of the company as high stable cash flows

are generated by rental income.



We expect property sales to increase again in 2021. Even though we expect sales

revenues to double compared to the previous year, they will still be well below the

revenues of 2017 to 2019 (run rate between EUR 40m to 65m).

We therefore still see 2021 as a transitional year as we envisage that portfolio growth will

remain the key focus of the company.

Location Purchase date Units sqm Ø Price EUR/sqm Revenues

Zweibrücken Sep-13 1 100 1,200 120,000

Riedstadt Sep-15 13 1,200 2,500 3,000,000

Erlensee Sep-16 36 2,700 2,300 6,210,000

Location Purchase date Units sqm Ø Rent EUR/sqm Revenues

Total 86 6,089 12,017,308

Retail sale

Block sale Ratzeburg/Mölln I Nov-17 36 2,089 2,687,3087


Frankfurt Jun-19 25 2,030 15 9,195,900

Krefeld Nov-19 48 3,100 7 4,687,200

Kassel Mar-19 36 2,400 8 3,991,680

Neu-Isenburg I Apr-19 35 3,000 8 4,924,800

Total 144 10,530 22,799,580

Block sale

Noratis

NO T E Publ ished 11 .06 .2020 13

RESEARCH



In 2022e, we expect property sales to be slightly higher than the 2019 level again and

therefore back on track. We also envisage that at least one larger portfolio with cash

flows similar to Ratzeburg in size and stability will have been acquired by then. We

therefore assume that 2022, among other sales, this portfolio will be sold in order to

realise the hidden reserves.



In addition to the sales listed in the table above, we expect the company to sell a minor

part (only 4%) of the purchases made in 2020. To estimate the income from these sales,

we apply the following assumptions:

� Average rent per sqm of EUR 6.5

� An average rent multiple of 18x

� Rent increase of 6.5% p.a. from 2018 onwards (thereof 1.0% p.a. general rent increase

and 5.5% rent increase based on vacancy reduction and improvement measures)

From 2024 onwards, the company will continue to focus on steady growth as well as on

strengthening the share of the recurring rental income from the overall revenues.

Although the sale of value enhanced properties will remain the most important source of

income, the company intends to shift the revenue split towards its mid-term target split of

60% property sales and 40% rental income

The company is pursuing the actively managed sale of acquired portfolios, with portfolios

generally sold after a holding period of 2-3 years. However, in order to gradually increase

the share of rental income over time, more acquisitions than sales are targeted. This also

aims to secure more steady growth of total revenues as the size of the portfolio

increases.


Ratzeburg/Mölln II Nov-17 319 18,511 7 22,324,249

Celle/Königslutter Jun-18 345 24,200 6 31,595,520

Neu-Isenburg Sep-19 150 8,600 11 19,876,320

Total 814 51,311 73,796,089

Block sale

Location Purchase date Units sqm Ø Price EUR/sqm Revenues

Retail sale Frankfurt Ginnheim I Sep-18 100 6,667 4,700 31,333,333


Rügen Mar-17 142 8,900 7 12,976,200

Ratingen Dec-18 156 11,000 9 21,146,400

Freital near Dresden Nov-18 93 8,900 6 11,534,400

Frankfurt (Höchst) Sep-19 18 770 11 1,879,416

47.02 3,056 8 4,372,635

Total 556 39,293 83,242,384

Block sale

Additional property sales

Noratis

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RESEARCH

Revenues

As Noratis revenues can be divided into property sales (i.e. received after finishing the

development project) and rental income (i.e. received during the development process),

major changes, particularly in property sales, are envisaged for 2020 and 2021 as

depicted above. Overall, we now expect the total revenues and the revenue split to

develop as follows:

Revenue share of property sales and rental income (in EUR m)


The shift in the income split in 2023 back to levels prior to the entry of the new major

shareholder has two major reasons:

� We expect that the property sales to increase further in 2023

� We also expect that this year, in relative terms, more properties will be sold than

bought, which will reduce rental income

With further capital increases beyond 2020e, continuous rental growth would be

possible. The opportunity is not taken into account.

Revenues (in EUR m)


2015 2016 2017 2018 2019 2020e 2021e 2022e 2023e 2024e 2025e 2026e 2027e 2028e 2029e 2030e 2031e

Total revenues 23.8 44.6 68.0 56.1 75.9 27.6 45.0 99.5 103.3 105.4 107.3 109.2 111.0 112.7 114.4 116.1 117.6

Total property sales 19.0 37.8 61.9 48.2 63.0 12.0 22.8 73.8 82.9 82.7 81.3 79.7 77.6 75.0 71.9 68.4 64.1

Total rental income 4.8 6.7 6.1 7.9 12.9 15.6 22.2 25.7 20.4 22.8 26.0 29.5 33.4 37.7 42.5 47.7 53.5

% of property sales 80% 85% 91% 86% 83% 44% 51% 74% 80% 78% 76% 73% 70% 67% 63% 59% 54%

% of rental income 20% 15% 9% 14% 17% 56% 49% 26% 20% 22% 24% 27% 30% 33% 37% 41% 46%

61.9

48.2

63.0

12.022.8

73.8

6.1

7.9

12.9

15.6

22.2

25.7

68.0

56.1

75.9

27.6

45.0

99.5

00

10

20

30

40

50

60

70

80

90

100

2017 2018 2019 2020e 2021e 2022e

Total property sales Total rental income

Noratis

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RESEARCH

Accelerated Growth

Revenue split

As already mentioned, the entry of the new major shareholder should accelerate the

increase in the share of recurring rental income. To this end, we have compared our last

estimates before the entry with the new estimates after the entry.

As shown below, the entry of the new major shareholder results in the earlier

achievement of a higher proportion of rental income. Should the company be able to

increase the equity base in 2021e by making further or larger capital measures than

envisaged, even faster development would be possible. As shown below, the split

reaches 75% property sales and 25% rental income as early as in 2020e before shifting

towards property sales in 2023e, for the reasons discussed above under the heading

“Revenues” on page 14.

The lower top line than in our previous estimates is explained by the lower dependency

on portfolio sales for further growth and the higher rental income (which should

significantly stabilise total revenues). The company should therefore be able to take a

more opportunistic approach to availing of market opportunities, which in turn should

have a positive impact on the property sales margin.

Expected development of revenue split


Portfolio growth

Portfolio growth should also accelerate significantly as a result of the entry. The new

major shareholder will enable Noratis to focus particularly on acquisitions in 2020e and

even in 2021e and to reduce portfolio sales to a minimum, especially in 2020e.

As a result, the portfolio should grow much faster than previously assumed, as depicted

below.

Expected development of portfolio


2015 2016 2017 2018 2019 2020e 2021e 2022e 2023e 2024e 2025e 2026e 2027e 2028e 2029e 2030e

Total revenues 23.8 44.6 68.0 56.1 75.9 101.5 106.8 114.3 121.1 128.2 135.5 142.5 149.1 154.3 157.0 158.5

% of property sales 80% 85% 91% 86% 83% 83% 84% 86% 85% 83% 81% 80% 78% 75% 72% 68%

% of rental income 20% 15% 9% 14% 17% 17% 16% 14% 15% 17% 19% 20% 22% 25% 28% 32%

Latest estimates of revenue split before the new major shareholder

Actual estimates of revenue split considering the investments of the new major shareholder

2015 2016 2017 2018 2019 2020e 2021e 2022e 2023e 2024e 2025e 2026e 2027e 2028e 2029e 2030e

Total revenues 23.8 44.6 68.0 56.1 75.9 27.6 45.0 99.5 103.3 105.4 107.3 109.2 111.0 112.7 114.4 116.1

% of property sales 80% 85% 91% 86% 83% 44% 51% 74% 80% 78% 76% 73% 70% 67% 63% 59%

% of rental income 20% 15% 9% 14% 17% 56% 49% 26% 20% 22% 24% 27% 30% 33% 37% 41%

2019 2020e 2021e 2022e 2023e 2024e 2025e 2026e 2027e 2028e 2029e 2030e

Portfolio size (in units) 2,407 3,244 4,015 4,256 5,106 5,333 5,560 5,784 6,011 6,239 6,469 6,700

2019 2020e 2021e 2022e 2023e 2024e 2025e 2026e 2027e 2028e 2029e 2030e

Portfolio size (in units) 2,407 2,895 3,384 3,739 4,074 4,337 4,606 4,888 5,172 5,480 5,775 6,075

Expected portfolio development before the new major shareholder

Expected portfolio development now

Noratis

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RESEARCH

Margin development

The accelerated shift of the revenue split towards a higher share of rental income as

shown above also has a positive effect on the EBT margin as:

� The rental business itself is higher-margin

� Due to the lower dependence on property sales, portfolio sales can be carried out on a

more opportunistic basis, which has a positive effect on the sales margin

Expected development EBT margin


EBT margin development before the new major shareholder

EBT margin development now

2017 2018 2019 2020e 2021e 2022e 2023e 2024e 2025e 2026e 2027e 2028e 2029e 2030e

EBT Margin 18.0% 22.8% 15.9% 7.4% 8.8% 13.5% 11.4% 12.0% 12.6% 13.3% 14.1% 15.0% 16.0% 17.2%

2017 2018 2019 2020e 2021e 2022e 2023e 2024e 2025e 2026e 2027e 2028e 2029e 2030e

EBT Margin 18.0% 22.8% 15.9% 11.9% 11.9% 10.5% 10.7% 11.2% 11.4% 12.0% 12.6% 13.3% 14.1% 15.0%

Noratis

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RESEARCH

Valuation

� The DCF approach (equity method) derives a price target of EUR 27 per share and

applies a WACC of 9.09% (equals cost of equity)

� As the company approaches its medium-term revenue split (60% property sales and

40% rental income), this should increase the comparability with pure property holding

companies which are normally valued at higher multiples, justifying a higher valuation

for Noratis

� NAV calculation underpins upside potential

Fundamental valuation

For fundamental valuation purposes, we use our DCF model on an equity basis. For this

reason, our calculation is based on the EBT margin rather than the EBIT margin. We

assume a maximum expansion of the balance sheet (through leverage) for a given

equity ratio for the individual years. We envisage that further growth in the coming years

will result from the leverage of net income (after dividend payments) as well as the

capital increase financed by the investment commitment of the new major shareholder.

We also assume that the entire firepower will be fully invested from 2023e onwards.

According the target debt ratio, it is assumed that 82.5% of the new investments

(increase in working capital) are covered by new debt.

The discount factor is the cost of equity.

DCF (equity method) valuation

Our DCF model (equity method) assumptions can be summarised as follows:

� Sales in 2020e to decline as focus turns to portfolio expansion and reduction of

property sales to a minimum

� Further increase in sales growth until 2023e due to strong internal firepower for

acquisitions as well as sales of properties from the existing portfolio until 2022e

� Growth rate as of 2024e is set at 2.1% (decreasing gradually from year to year to 1.5%

for terminal value) as the revenue split continues to shift and the share of recurring

rental income increases

� Decline in EBT margin in 2023e due to envisaged low net income in 2020 resulting in

minor leverage on equity in 2021e which limits the expansion of the balance sheet

Revenue share of property sales and rental income (in EUR m)


2020e 2021e 2022e 2023e 2024e 2025e 2026e 2027e 2028e 2029e 2030e 2031e

Total revenues 27.6 45.0 99.5 103.3 105.4 107.3 109.2 111.0 112.7 114.4 116.1 117.6

Total property sales 12.0 22.8 73.8 82.9 82.7 81.3 79.7 77.6 75.0 71.9 68.4 64.1

Total rental income 15.6 22.2 25.7 20.4 22.8 26.0 29.5 33.4 37.7 42.5 47.7 53.5

EBIT margin Property Sales 10% 10% 11% 13% 13% 13% 13% 13% 13% 13% 13% 13%

EBIT Property sales 1.2 2.3 8.1 10.8 10.7 10.6 10.4 10.1 9.7 9.3 8.9 8.3

EBIT margin Rental Income 36% 36% 49% 52% 53% 53% 53% 53% 53% 53% 53% 53%

EBIT Rental income 5.7 7.9 12.7 10.6 12.1 13.8 15.6 17.7 20.0 22.5 25.3 28.4

Total EBIT 6.9 10.2 20.7 21.4 22.8 24.3 26.0 27.8 29.7 31.9 34.2 36.7

Total EBIT margin 24.9% 22.7% 20.8% 20.7% 21.6% 22.7% 23.8% 25.0% 26.4% 27.8% 29.4% 31.2%

Interest expenses 4.9 6.4 7.3 9.6 10.2 10.8 11.5 12.2 12.9 13.5 14.2 15.0

% of total revenues 17.7% 14.3% 7.3% 9.3% 9.7% 10.1% 10.5% 11.0% 11.4% 11.8% 12.3% 12.7%

Total EBT margin 7.4% 8.8% 13.5% 11.4% 12.0% 12.6% 13.3% 14.1% 15.0% 16.0% 17.2% 18.5%

Noratis

NO T E Publ ished 11 .06 .2020 18

RESEARCH

� From 2023e onwards, a slight increase in the EBT margin is forecast again as a result

of the increasing shift towards higher-margin rental income

� A beta of 1.4 is based on the continued high level of dependency on property sales and

the associated uncertainty. A shift in the revenue split towards a higher share of rental

income would reduce the uncertainty, lower the beta and thus increase the value.

� A WACC of 9.09% which is equal to the cost of equity

Our DCF analysis (equity method) yields a fair value of EUR 27 per share.

DCF model

Detailed forecast period Transitional period Term. Value

Figures in EUR m 2020e 2021e 2022e 2023e 2024e 2025e 2026e 2027e 2028e 2029e 2030e 2031e 2032e

Sales 27.6 45.0 99.5 103.3 105.4 107.3 109.2 111.0 112.7 114.4 116.1 117.6 119.4

Sales change -63.7 % 63.0 % 121.3 % 3.8 % 2.1 % 1.8 % 1.8 % 1.7 % 1.5 % 1.5 % 1.5 % 1.4 % 1.5 % 1.5 %

EBIT 2.1 3.9 13.5 11.8 12.6 13.5 14.5 15.6 16.9 18.3 19.9 21.7 22.3

EBIT-margin 7.4 % 8.8 % 13.5 % 11.4 % 12.0 % 12.6 % 13.3 % 14.1 % 15.0 % 16.0 % 17.2 % 18.5 % 18.6 %

Tax rate (EBT) 29.1 % 29.1 % 29.0 % 30.0 % 30.0 % 30.0 % 30.0 % 30.0 % 30.0 % 30.0 % 30.0 % 30.0 % 30.0 %

NOPAT 1.5 2.8 9.6 8.2 8.8 9.4 10.1 10.9 11.8 12.8 14.0 15.2 15.6

Depreciation 0.1 0.2 0.5 0.4 0.4 0.3 0.3 0.3 0.2 0.1 0.1 0.1 0.1

in % of Sales 0.4 % 0.5 % 0.5 % 0.4 % 0.4 % 0.3 % 0.3 % 0.3 % 0.2 % 0.1 % 0.1 % 0.1 % 0.1 %

Changes in provisions 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Change in Liquidity from

- Working Capital 93.1 89.4 17.4 40.1 31.0 31.7 32.1 32.8 33.3 33.8 34.2 34.9 -32.2

- Capex 0.2 0.2 0.3 0.2 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1

Capex in % of Sales 0.6 % 0.5 % 0.3 % 0.2 % 0.1 % 0.1 % 0.1 % 0.1 % 0.1 % 0.1 % 0.1 % 0.1 % 0.1 %

Other -103.7 -73.7 -14.4 -22.3 -25.5 -26.2 -26.5 -27.0 -27.5 -27.9 -28.2 -28.8 26.6

Free Cash Flow (WACC Model)

12.0 -12.8 6.7 -9.4 3.7 4.1 4.7 5.4 6.1 6.9 8.0 9.1 21.2 19

PV of FCF 11.5 -11.3 5.4 -6.9 2.5 2.5 2.7 2.8 2.9 3.0 3.2 3.4 7.2 84 share of PVs 5.00 % 20.71 % 74.29 %

Model parameter Valuation (m)

Derivation of WACC: Derivation of Beta: Present values 2032e 29

Terminal Value 84

Debt ratio 0.00 % Financial Strength 1.20 Financial liabilities 86

Cost of debt (after tax) 1.7 % Liquidity (share) 2.00 Pension liabilities 0

Market return 7.00 % Cyclicality 1.30 Hybrid capital 0

Risk free rate 1.50 % Transparency 1.20 Minority interest 0

Others 1.20 Market val. of investments 0

Liquidity 9 No. of shares (m) 4.4

WACC 9.09 % Beta 1.38 Equity Value 121 Value per share (EUR) 27.52

Sensitivity Value per Share (EUR)

Terminal Growth Delta EBIT-margin

Beta WACC 0.75 % 1.00 % 1.25 % 1.50 % 1.75 % 2.00 % 2.25 % Beta WACC -1.5 pp -1.0 pp -0.5 pp +0.0 pp +0.5 pp +1.0 pp +1.5 pp

1.56 10.1 % 21.78 22.16 22.56 22.99 23.44 23.91 24.42 1.56 10.1 % 20.35 21.23 22.11 22.99 23.86 24.74 25.62

1.47 9.6 % 23.66 24.11 24.59 25.09 25.63 26.20 26.82 1.47 9.6 % 22.29 23.22 24.16 25.09 26.03 26.96 27.90

1.43 9.3 % 24.70 25.19 25.71 26.26 26.85 27.48 28.16 1.43 9.3 % 23.37 24.33 25.30 26.26 27.23 28.20 29.16

1.38 9.1 % 25.81 26.35 26.92 27.52 28.17 28.86 29.61 1.38 9.1 % 24.52 25.52 26.52 27.52 28.52 29.52 30.52

1.33 8.8 % 27.00 27.59 28.21 28.88 29.59 30.36 31.18 1.33 8.8 % 25.77 26.81 27.84 28.88 29.91 30.95 31.98

1.29 8.6 % 28.28 28.92 29.61 30.34 31.13 31.98 32.89 1.29 8.6 % 27.12 28.20 29.27 30.34 31.42 32.49 33.56

1.20 8.1 % 31.14 31.91 32.75 33.65 34.62 35.67 36.81 1.20 8.1 % 30.17 31.33 32.49 33.65 34.81 35.97 37.13

� DCF equity method

� Decline in EBT margin in 2023e due to declining rents as a result of a relatively higher volume of disposals in 2023

� The position "working capital" includes properties held for sale as current assets

� "Others" contains the part of the WC that is financed by debt and must therefore be deducted from the WC build-up

� From 2023e onwards a slight increase in the margin again as a result of the shift towards higher-margin rental income

Noratis

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RESEARCH

Relative valuation

NAV calculation supports investment case

With an average holding period of two to three years, Noratis’ existing portfolio is

intended for sales in a relatively short period of time. As a result, NAV is not a relevant

method to value Noratis.

However, firstly based on the expected shift in the revenue split towards recurring rental

income, a higher percentage of acquired properties will remain in the company’s portfolio

for longer than two to three years. Secondly, despite the relatively short holding period, it

does reflect the premium/discount that is being paid by the market compared to its NAV.

Assuming a conservative gross margin between 15% to 20% (for historical development,

please see page 24), we envisage a fair value of the trading portfolio between EUR

371.9m and EUR 388.0m. Based on these assumptions, the share is currently trading at

a discount of 34% to 52% to NAV.

Revenues (in EUR m)


That said one should bear in mind that Noratis will predominantly focus on portfolio

expansion in 2020e and 2021e thus we calculate with strong acquisition activities on the

one hand and with minor property sales on the other hand, resulting in extraordinarily

strong growth in book value of properties for sales in these years compared to the

previous years.

Nevertheless we regard Noratis as an attractive investment.

EUR m (2020e figures) 20% gross margin 15% gross margin

Book value of properties for sale 332.0 332.0

+ Potential margin on portfolio 66.4 49.8

= Estimated fair value of properties for sale 398.4 381.8

+ Tangible fixed assets 0.5 0.5

+ Other assets 0.0 0.0

= Gross asset value 398.9 382.3

- Net debt 261.7 261.7

- Minorities 0.0 0.0

= NAV 137.2 120.6

/ # of shares 4.4 4.4

= NAV/share 31.2 27.5

Current share price 22.2 22.2

Discount 41% 24%

Noratis

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RESEARCH

Company Background

Business model overview

Sources: Noratis, Warburg Research

History

2002: Noratis GmbH is founded by Oliver C. Smits, major shareholder

2011: New shareholder Igor Christian Burgarski

2012: Igor Christian Burgarski joins management board

2016: André Speth becomes CFO

06/2017: IPO with issuance of 0.92 m shares (EUR 18.75 per share)

05/2018: Placement of 681.897 shares, gross proceeds of EUR 15.3m (EUR 22.50 per

share)

10/2018: Dr. Florian Stetter proposed to replace Oliver C. Smits, who keeps his shares in

the company, as chairman of the supervisory board.

03/2020: Merz Real Estate GmbH entered as new major shareholder

Entity structure update


Noratis AGHolding company directly owns properties

(several projects) and provides servicesto subsidiaries (project companies)

Noratis Wohnen GmbH

• Project in Neu-Isenburg

• Merged with 2. HeBa Immobilien UG

and Noratis Residential GmbH

Noratis Living GmbH

• Currently no projects

• Sales completed

Noratis Habitat GmbH

• Project in Frankfurt

100%

94%

100%

Noratis West GmbH

• to acquire smaller regional portfolios

65%

Noratis

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RESEARCH

Managing Board

Igor Christian Bugarski (CEO), civil engineer, joined Noratis in 2011 and became

member of the management board in 2012. Before the entry of the new main

shareholder, he was the largest shareholder and responsible for acquisition,

development, sales and legal. He gained experience in real estate / corporate

development at CBRE and Strabag.

André Speth (CFO), holds a masters degree in business administration, joined Noratis

in 2015 and became CFO in 2016. He is responsible for financing, controlling, investor

relations and IT. He gained experience in real estate investment banking at Morgan

Stanley and Deutsche Bank.

Supervisory Board

Dr. Florian Stetter replaced the retired founder Oliver C. Smits as the Chairman of the

Supervisory Board at the end of October 2018.

He is also chairman of managing board of Rockhedge Asset Management AG as well as

a supervisory board member of Deutsche Wohnen. Furthermore, he is managing partner

in ENOVO s.r.o., Bratislava. He was previously the managing director of Strabag

Property and Facility Services GmbH. He studied business administration at the Vienna

University of Economics and Business where he was conferred with a PhD.

Hendrik von Paepcke is the Vice Chairman of the supervisory board and also

managing director and co-founder of APOprojekt GmbH. He gained many years of

experience at Deutsche Telekom Immobilien und Service GmbH (Head of Marketing of

Sales). He studied Business Administration at the University of Hamburg

Christof Scholl has been a Member of the Supervisory board since the end of

October 2018. He is Partner at NAI apollo and advices national and international

investors regarding investments in Germany. Before that, he was with Dr. Lübke (Head

of Research & Consulting) and Deutsche Bank (private and commercial real estate

financing). He studied Real Estate and Economics at the European Business School

Noratis

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RESEARCH

Owners

There are three main shareholders (FY 2019), who own 1.78m of the total 3.60m

outstanding shares:

� Igor Christian Bugarski (CEO) with 18.5%

� Hansa Consulting (Edgars Pigoznis, Latvia) with 18.8%

� Terratis GmbH (Oliver C. Smits and his wife) with 12.2%

During the IPO in June 2017, an additional 0.92m free float shares were issued. In the

course of the IPO, Terratis GmbH and Hansa Consulting sold 5k shares each. During the

capital increase in May 2018, 0.68m shares were issued which increased the free float to

45.5 %.

As Merz Real Estate successfully reached an agreement with two major shareholders,

we expect its stake to increase from 0.0% to 29.4%. Following the completion of the

acquisition, Igor Christian Bugarskis’s stake will remain 8.0% and it is expected that

Hansa Consulting reduced its position to 0.0%.

Including the announced capital increase, Merz Real Estate should increase from 29.4%

to 34.0%. The envisaged development of the shareholder structure is depicted below:

Shareholder structure


)

50.5% 50.4% 47.1%

18.5%8.0%

7.5%

18.8%

12.2%

12.2%11.4%

29.4% 34.0%

Q4 2019 Q1 2020 Q2 2020e

Free float Igor Bugarski (Current CEO)

Hansaco AS (E. Pigoznis) Terratis GmbH (O. Smits)

Merz Real Estate

Noratis

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RESEARCH

DCF model

Detailed forecast period Transitional period Term. Value

Figures in EUR m 2020e 2021e 2022e 2023e 2024e 2025e 2026e 2027e 2028e 2029e 2030e 2031e 2032e

Sales 27.6 45.0 99.5 103.3 105.4 107.3 109.2 111.0 112.7 114.4 116.1 117.6 119.4

Sales change -63.7 % 63.0 % 121.3 % 3.8 % 2.1 % 1.8 % 1.8 % 1.7 % 1.5 % 1.5 % 1.5 % 1.4 % 1.5 % 1.5 %

EBIT 2.1 3.9 13.5 11.8 12.6 13.5 14.5 15.6 16.9 18.3 19.9 21.7 22.3

EBIT-margin 7.4 % 8.8 % 13.5 % 11.4 % 12.0 % 12.6 % 13.3 % 14.1 % 15.0 % 16.0 % 17.2 % 18.5 % 18.6 %

Tax rate (EBT) 29.1 % 29.1 % 29.0 % 30.0 % 30.0 % 30.0 % 30.0 % 30.0 % 30.0 % 30.0 % 30.0 % 30.0 % 30.0 %

NOPAT 1.5 2.8 9.6 8.2 8.8 9.4 10.1 10.9 11.8 12.8 14.0 15.2 15.6

Depreciation 0.1 0.2 0.5 0.4 0.4 0.3 0.3 0.3 0.2 0.1 0.1 0.1 0.1

in % of Sales 0.4 % 0.5 % 0.5 % 0.4 % 0.4 % 0.3 % 0.3 % 0.3 % 0.2 % 0.1 % 0.1 % 0.1 % 0.1 %

Changes in provisions 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Change in Liquidity from

- Working Capital 93.1 89.4 17.4 40.1 31.0 31.7 32.1 32.8 33.3 33.8 34.2 34.9 -32.2

- Capex 0.2 0.2 0.3 0.2 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1

Capex in % of Sales 0.6 % 0.5 % 0.3 % 0.2 % 0.1 % 0.1 % 0.1 % 0.1 % 0.1 % 0.1 % 0.1 % 0.1 % 0.1 %

Other -103.7 -73.7 -14.4 -22.3 -25.5 -26.2 -26.5 -27.0 -27.5 -27.9 -28.2 -28.8 26.6

Free Cash Flow (WACC Model)

12.0 -12.8 6.7 -9.4 3.7 4.1 4.7 5.4 6.1 6.9 8.0 9.1 21.2 19

PV of FCF 11.5 -11.3 5.4 -6.9 2.5 2.5 2.7 2.8 2.9 3.0 3.2 3.4 7.2 84 share of PVs 5.00 % 20.71 % 74.29 %

Model parameter Valuation (m)

Derivation of WACC: Derivation of Beta: Present values 2032e 29

Terminal Value 84

Debt ratio 0.00 % Financial Strength 1.20 Financial liabilities 86

Cost of debt (after tax) 1.7 % Liquidity (share) 2.00 Pension liabilities 0

Market return 7.00 % Cyclicality 1.30 Hybrid capital 0

Risk free rate 1.50 % Transparency 1.20 Minority interest 0

Others 1.20 Market val. of investments 0

Liquidity 9 No. of shares (m) 4.4

WACC 9.09 % Beta 1.38 Equity Value 121 Value per share (EUR) 27.52

Sensitivity Value per Share (EUR)

Terminal Growth Delta EBIT-margin

Beta WACC 0.75 % 1.00 % 1.25 % 1.50 % 1.75 % 2.00 % 2.25 % Beta WACC -1.5 pp -1.0 pp -0.5 pp +0.0 pp +0.5 pp +1.0 pp +1.5 pp

1.56 10.1 % 21.78 22.16 22.56 22.99 23.44 23.91 24.42 1.56 10.1 % 20.35 21.23 22.11 22.99 23.86 24.74 25.62

1.47 9.6 % 23.66 24.11 24.59 25.09 25.63 26.20 26.82 1.47 9.6 % 22.29 23.22 24.16 25.09 26.03 26.96 27.90

1.43 9.3 % 24.70 25.19 25.71 26.26 26.85 27.48 28.16 1.43 9.3 % 23.37 24.33 25.30 26.26 27.23 28.20 29.16

1.38 9.1 % 25.81 26.35 26.92 27.52 28.17 28.86 29.61 1.38 9.1 % 24.52 25.52 26.52 27.52 28.52 29.52 30.52

1.33 8.8 % 27.00 27.59 28.21 28.88 29.59 30.36 31.18 1.33 8.8 % 25.77 26.81 27.84 28.88 29.91 30.95 31.98

1.29 8.6 % 28.28 28.92 29.61 30.34 31.13 31.98 32.89 1.29 8.6 % 27.12 28.20 29.27 30.34 31.42 32.49 33.56

1.20 8.1 % 31.14 31.91 32.75 33.65 34.62 35.67 36.81 1.20 8.1 % 30.17 31.33 32.49 33.65 34.81 35.97 37.13

� DCF equity method

� Decline in EBT margin in 2023e due to declining rents as a result of a relatively higher volume of disposals in 2023

� The position "working capital" includes properties held for sale as current assets

� "Others" contains the part of the WC that is financed by debt and must therefore be deducted from the WC build-up

� From 2023e onwards a slight increase in the margin again as a result of the shift towards higher-margin rental income

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Valuation

2016 2017 2018 2019 2020e 2021e 2022e Price / Book n.a. 1.8 x 1.7 x 1.5 x 1.4 x 1.4 x 1.3 x

Book value per share ex intangibles 6.63 9.99 13.66 14.76 15.09 15.12 16.99

EV / Sales n.a. 1.7 x 4.1 x 3.3 x 12.9 x 9.9 x 4.6 x

EV / EBITDA n.a. 7.6 x 14.7 x 15.7 x 51.2 x 42.6 x 21.4 x

EV / EBIT n.a. 7.7 x 14.8 x 15.9 x 52.1 x 43.6 x 22.0 x

EV / EBIT adj.* n.a. 7.7 x 14.8 x 15.9 x 52.1 x 43.6 x 22.0 x

P / FCF n.a. 4.2 x n.a. n.a. n.a. n.a. n.a.

P / E n.a. 6.0 x 9.2 x 8.9 x 60.3 x 33.9 x 10.0 x

P / E adj.* n.a. 6.0 x 9.2 x 8.9 x 60.3 x 33.9 x 10.0 x


FCF Potential Yield (on market EV) n.a. 10.0 % 5.3 % 5.0 % 1.8 % 2.1 % 3.8 %

*Adjustments made for: -

Company Specific Items

2016 2017 2018 2019 2020e 2021e 2022e

Property Sales 37.8 61.9 48.2 63.0 12.0 22.8 73.8 Rental income 6.7 6.1 7.9 12.9 15.6 22.2 25.7 Gross profit 13.2 21.5 21.6 21.6 12.8 17.2 27.9 Payout Ratio n.a. 50.2 % 50.0 % 49.8 % 50.0 % 50.0 % 0.0 % Properties for Sale 80.2 99.2 176.7 238.8 332.0 421.4 438.8 Total equity 6.6 29.3 49.5 53.4 66.5 66.6 74.9 ROE 63.3 % 29.6 % 18.7 % 16.4 % 2.2 % 4.2 % 0.0 % Property sales margin 24.5 % 28.6 % 35.9 % 22.9 % 35.0 % 22.0 % 19.0 % Rental income margin 57.6 % 62.9 % 54.4 % 55.8 % 55.5 % 55.0 % 54.0 %

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Consolidated profit & loss In EUR m 2016 2017 2018 2019 2020e 2021e 2022e

Sales 44.6 68.0 56.1 75.9 27.6 45.0 99.5

Change Sales yoy 87.1 % 52.6 % -17.5 % 35.2 % -63.7 % 63.0 % 121.3 % Property Sales 37.8 61.9 48.2 63.0 12.0 22.8 73.8

Property sales margin 24.5 % 28.6 % 35.9 % 22.9 % 35.0 % 22.0 % 19.0 %

Rental income 6.7 6.1 7.9 12.9 15.6 22.2 25.7

Rental income margin 57.6 % 62.9 % 54.4 % 55.8 % 55.5 % 55.0 % 54.0 %

Gross profit 13.2 21.5 21.6 21.6 12.8 17.2 27.9

Gross profit margin 29.6 % 31.7 % 38.5 % 28.5 % 46.6 % 38.3 % 28.0 % Personnel expenses 2.2 2.4 3.5 4.1 4.4 5.0 5.2

Other operating income 0.2 0.2 0.7 1.0 1.2 1.3 1.5

Other operating expenses 1.3 4.0 3.1 2.6 2.7 3.1 3.0

EBIT 9.9 15.2 15.5 15.8 6.9 10.2 20.7

Margin 22.2 % 22.4 % 27.7 % 20.8 % 24.9 % 22.7 % 20.8 %

Interest income 0.0 0.2 0.2 0.2 0.1 0.2 0.4

Interest expenses 3.9 3.1 3.0 3.8 4.9 6.4 7.7

EBT 6.0 12.2 12.8 12.1 2.1 3.9 13.5

Margin 13.5 % 18.0 % 22.8 % 15.9 % 7.4 % 8.8 % 13.5 % Total taxes 1.8 3.6 3.5 3.4 0.6 1.1 3.9

Net income before minorities 4.2 8.7 9.3 8.7 1.5 2.8 9.6

Minority interest 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Net income 4.2 8.7 9.2 8.7 1.5 2.8 9.6

Margin 9.4 % 12.7 % 16.5 % 11.4 % 5.3 % 6.2 % 9.6 % Number of shares, current n.a. 2.9 4.0 4.0 4.0 4.0 0.0

EPS n.a. 2.99 2.57 2.41 0.36 0.64 2.18

*Adjustments made for:

Guidance: n.a.

Financial Ratios 2016 2017 2018 2019 2020e 2021e 2022e

Tax rate (EBT) 30.1 % 29.1 % 27.4 % 28.3 % 29.1 % 29.1 % 29.0 %

DPS 0.00 1.50 1.29 1.20 0.18 0.32 1.09


Payout Ratio n.a. 50.2 % 50.0 % 49.8 % 50.0 % 50.0 % 0.0 %

Sales, EBITDA in EUR m


Operating Performance in %


Performance per Share


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Consolidated balance sheet In EUR m 2016 2017 2018 2019 2020e 2021e 2022e Assets Property, plant and equipment 0.1 0.4 0.5 0.4 0.5 0.6 0.7

Inventories 80.2 99.2 176.7 238.8 332.0 421.4 438.8

Accounts receivable 0.1 1.7 24.1 8.2 1.3 2.1 4.6

Liquid assets 5.8 21.8 9.7 8.6 23.0 9.2 12.7

Other short-term assets 1.3 4.7 3.2 2.8 3.6 1.6 1.6

Total Assets 87.5 127.8 214.1 258.9 360.4 434.9 458.5 Liabilities and shareholders' equity Subscribed capital 0.5 2.9 3.6 3.6 4.4 4.4 4.4

Capital reserve 2.0 16.8 31.5 31.5 45.2 45.2 45.2

Retained earnings 4.1 9.3 14.1 18.1 16.7 16.8 25.0

Shareholders' equity 6.6 29.0 49.2 53.2 66.3 66.4 74.6

Minority interest 0.0 0.2 0.2 0.2 0.2 0.2 0.2

Total equity 6.6 29.3 49.5 53.4 66.5 66.6 74.9

Provisions 3.4 7.3 5.4 5.0 5.5 5.9 5.9

Financial liabilities (total) 70.6 86.2 155.0 181.0 284.7 358.5 372.9

thereof short-term financial liabilities 18.0 1.6 20.4 4.5 4.9 4.9 4.9

Accounts payable 0.5 0.8 1.9 18.5 0.5 0.7 1.6

Other liabilities 6.4 4.3 2.2 1.1 3.2 3.2 3.2

Liabilities 80.8 98.6 164.6 205.5 293.9 368.3 383.6

Total liabilities and shareholders' equity 87.5 127.8 214.1 258.9 360.4 434.9 458.4

Total Sales in EUR m


Properties for sale in EUR m


Total equity in EUR m


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Consolidated cash flow statement In EUR m 2016 2017 2018 2019 2020e 2021e 2022e Net income 4.2 8.7 9.3 8.7 1.5 2.8 9.6

Increase/decrease in long-term provisions 1.2 1.2 -0.3 -0.3 0.5 0.4 0.0

Cash Flow before NWC change 5.5 9.8 9.2 8.7 2.1 3.4 10.1

Increase / decrease in inventory 8.4 -3.6 -99.8 -46.1 -86.2 -90.2 -19.9

Increase / decrease in working capital (total) 8.2 -3.1 -101.1 -29.2 -104.2 -90.0 -19.0

Net cash provided by operating activities [1] 18.7 12.9 -85.9 -18.3 -96.0 -80.1 -1.5

Net cash provided by investing activities [2] 0.0 -4.1 0.0 0.0 -0.2 -0.2 -0.3

Change in financial liabilities -9.8 -6.4 68.8 26.0 103.7 73.7 14.4

Net cash provided by financing activities [3] -15.4 3.4 75.9 17.4 110.5 66.5 5.3

Change in liquid funds [1]+[2]+[3] 3.3 12.1 -10.0 -0.9 14.4 -13.8 3.6

Effects of exchange-rate changes on cash 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Cash and cash equivalent at end of period 5.8 17.9 7.9 7.0 21.3 7.5 11.1

Financial Ratios 2016 2017 2018 2019 2020e 2021e 2022e

Cash Flow

FCF 18.7 12.4 -86.1 -18.5 -96.2 -80.3 -1.7

Free Cash Flow Potential 8.1 11.8 12.2 12.6 6.4 9.3 17.4

Interest Received / Avg. Cash 0.3 % 1.1 % 1.3 % 1.6 % 0.5 % 1.1 % 3.6 %

Interest Paid / Avg. Debt 5.2 % 4.0 % 2.5 % 2.3 % 2.1 % 2.0 % 2.1 %

Management of Funds

Investment ratio 0.1 % 0.7 % 0.4 % 0.2 % 0.6 % 0.5 % 0.3 %

Maint. Capex / Sales 0.0 % 0.0 % 0.0 % 0.0 % 0.0 % 0.0 % 0.0 %

Capex / Dep 119.5 % 480.1 % 125.3 % 56.6 % 142.5 % 91.9 % 51.0 %

Avg. Working Capital / Sales 189.5 % 132.2 % 266.2 % 281.6 % 1017.4 % 840.2 % 434.4 %

Trade Debtors / Trade Creditors 23.4 % 204.2 % 1256.0 % 44.6 % 260.0 % 300.0 % 287.5 %

Inventory Turnover 0.3 x 0.5 x 0.6 x 0.2 x 0.1 x 0.1 x 0.2 x

Receivables collection period (days) 1 9 156 40 17 17 17

Payables payment period (days) 7 6 6 127 9 8 8

Cash conversion cycle (Days) 1,310 753 729 1,554 6,282 4,895 2,308

CAPEX and Cash Flow in EUR m


Free Cash Flow Generation


Working Capital


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Noratis

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RESEARCH

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Company Disclosure Link to the historical price targets and rating changes (last 12 months)

Noratis 5 http://www.mmwarburg.com/disclaimer/disclaimer_en/DE000A2E4MK4.htm

http://www.mmwarburg.com/disclaimer/disclaimer_en/DE000A2E4MK4.htm

Noratis

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RESEARCH

INVESTMENT RECOMMENDATION

Investment recommendation: expected direction of the share price development of the financial instrument up to the given price target in 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 131 64

Hold 57 28

Sell 10 5

Rating suspended 6 3

Total 204 100

WARBURG RESEARCH GMBH – ANALYSED RESEARCH UNIVERSE BY RATING R

R 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 32 82

Hold 5 13

Sell 0 0

Rating suspended 2 5

Total 39 100

PRICE AND RATING HISTORY NORATIS AS OF 11.06.2020

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.

Noratis

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RESEARCH

EQUITIES Matthias Rode +49 40 3282-2678 Head of Equities [email protected] RESEARCH Michael Heider +49 40 309537-280 Eggert Kuls +49 40 309537-256 Head of Research [email protected] Engineering [email protected]

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Philipp Kaiser +49 40 309537-260 Real Estate [email protected]

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