European Event-Driven Analyst

Jesus Rodriguez Aguilar

Event-Driven

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<a href="https://www.smartkarma.com/entities/s-immo-ag" target="_blank" data-smartkarma-citation="entities:22559:1" rel="noopener">S IMMO AG (SPI AV)</a> owns 14.2% of <a href="https://www.smartkarma.com/entities/immofinanz-ag" target="_blank" data-smartkarma-citation="entities:22547:1" rel="noopener">IMMOFINANZ AG (IIA AV)</a>, Immofinanz owns 26.5% of S Immo. <a href="https://www.smartkarma.com/entities/cpi-property-group-sa" target="_blank" data-smartkarma-citation="entities:21688:1" rel="noopener">CPI</a> is on a buying spree: 32% of Immofinanz, 11.6% of S Immo. </li>
<li>Merger discussions take another twist with two offers for Immofinanz: CPI launches an anticipated mandatory offer, which could later allow it to increase its stake; S Immo seeks to protect itself.</li>
<li>Immofinanz trades at 3.8% FFO yield. My TP, economic profit-based is €25.86/share, 15% discount to EPRA NAV, and 5% above the median TP of Capital IQ consensus. Long IIA AV.</li>
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S IMMO AG (SPI AV) owns 14.2% of IMMOFINANZ AG (IIA AV), Immofinanz owns 26.5% of S Immo. CPI is on a buying spree: 32% of Immofinanz, 11.6% of S Immo. 
Merger discussions take another twist with two offers for Immofinanz: CPI launches an anticipated mandatory offer, which could later allow it to increase its stake; S Immo seeks to protect itself.
Immofinanz trades at 3.8% FFO yield. My TP, economic profit-based is €25.86/share, 15% discount to EPRA NAV, and 5% above the median TP of Capital IQ consensus. Long IIA AV.


Leading International Investment Research, Edison Investment Research

Edison Investment Research

Leading International Investment Research

Edison is an investment research and advisory company, with offices in North America, Europe, the Middle East and AsiaPac. The heart of Edison is our world renowned equity research platform and deep multi-sector expertise. At Edison Investment Research, our research is widely read by international investors, advisors and stakeholders. Edison Advisors leverages our core research platform to provide differentiated services including investor relations and strategic consulting.

Equity Bottom-Up

S Immo reported a 10% increase in EPRA net tangible assets (NTA) per share in Q221 to €27.21 (and 13% in H121), supported by c €129m of property revaluation gains, primarily in its German portfolio (72% of H121 gains), including the positive impact from the Berlin rental cap repeal on its residential portfolio. One of its top priorities will be the redeployment of proceeds from the sale of its CA Immo stake and the potential disposal of its IMMOFINANZ stake into new properties. It is also launching a new share buyback programme in September for c 1.36% of its share capital.

S Immo reported a 10% increase in EPRA net tangible assets (NTA) per share in Q221 to €27.21 (and 13% in H121), supported by c €129m of property revaluation gains, primarily in its German portfolio (72% of H121 gains), including the positive impact from the Berlin rental cap repeal on its residential portfolio. One of its top priorities will be the redeployment of proceeds from the sale of its CA Immo stake and the potential disposal of its IMMOFINANZ stake into new properties. It is also launching a new share buyback programme in September for c 1.36% of its share capital.


S Immo - Embarking on an extensive investment plan

So far, S Immo has weathered the COVID-19 crisis relatively well, with its EPRA net tangible assets (NTA) per share down by only c 6% between end-2019 and end-March 2021, mostly due to the impact on its hotels (c 9% of its property portfolio at present). Its future investments agenda depends on the outcome of the IMMOFINANZ takeover bid. Success would trigger a review of its hotel and residential strategy, whereas a failure would likely result in the sale of its minority stakes in both listed peers, with proceeds redeployed into new properties to further enhance its FFO1.

So far, S Immo has weathered the COVID-19 crisis relatively well, with its EPRA net tangible assets (NTA) per share down by only c 6% between end-2019 and end-March 2021, mostly due to the impact on its hotels (c 9% of its property portfolio at present). Its future investments agenda depends on the outcome of the IMMOFINANZ takeover bid. Success would trigger a review of its hotel and residential strategy, whereas a failure would likely result in the sale of its minority stakes in both listed peers, with proceeds redeployed into new properties to further enhance its FFO1.

S Immo - Future strategy depends on takeover bid

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On 25 March, <a href="https://immofinanz.com/en/news/immofinanz-ag-price-increase-for-the-announced-voluntary-public-takeover-offer-to-the-shareholders-of-s-immo-ag" target="_blank" rel="noopener">Immofinanz increased the offer price by 23%</a>, to €22.5 per share (less than 4% below my TP).
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<li>The offer price represents 47.2x EV/Fwd EBITDA,  18.4x P/Fwd E and 1.18x P/Fwd BV.</li>
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S Immo shares are currently trading at a 3% FFO yield and offer a 1.9% dividend yield (source: Capital IQ consensus). Diluted EPRA NNNAV per share as of YE 2020 was €20.67 (vs. €20.02 at Q3 2020).
The improved offer price seems fair, but not overly generous, at the same level at which S Immo was trading in December 2019, around €22.5 per share. The market seems happy with this outcome.
Immofinanz quickly improved its opening gambit as S Immo's shares were trading higher than the initial offer. The improved offer price represents 2.9% 21e FFO yield and almost the same as mean consensus ind. NAVPS.
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Recommendation is long, TP €22.5 (around the same level as mean consensus ind NAVPS, supported by FFO/share yield). The shares are trading at a gross spread of 4.4%, c. 9% annualised. Patience may be needed to build a position.
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On 25 March, Immofinanz increased the offer price by 23%, to €22.5 per share (less than 4% below my TP).

The offer price represents 47.2x EV/Fwd EBITDA,  18.4x P/Fwd E and 1.18x P/Fwd BV.

S Immo shares are currently trading at a 3% FFO yield and offer a 1.9% dividend yield (source: Capital IQ consensus). Diluted EPRA NNNAV per share as of YE 2020 was €20.67 (vs. €20.02 at Q3 2020).
The improved offer price seems fair, but not overly generous, at the same level at which S Immo was trading in December 2019, around €22.5 per share. The market seems happy with this outcome.
Immofinanz quickly improved its opening gambit as S Immo's shares were trading higher than the initial offer. The improved offer price represents 2.9% 21e FFO yield and almost the same as mean consensus ind. NAVPS.


Recommendation is long, TP €22.5 (around the same level as mean consensus ind NAVPS, supported by FFO/share yield). The shares are trading at a gross spread of 4.4%, c. 9% annualised. Patience may be needed to build a position.


On the evening of 14 March, <a href="https://www.smartkarma.com/entities/immofinanz-ag" target="_blank" data-smartkarma-citation="entities:22547:1" rel="noopener">IMMOFINANZ AG (IIA AV)</a> announced its intention to launch a voluntary takeover offer to acquire the 72.5% stake in <a href="https://www.smartkarma.com/entities/s-immo-ag" target="_blank" data-smartkarma-citation="entities:22559:1" rel="noopener">S IMMO AG (SPI AV)</a> it does not already own for approximately €930 mn.
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Immofinanz currently holds approximately 26.49% of S Immo.
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S Immo indirectly holds 10.86% of Immofinanz.
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S Immo currently holds a 6% stake pct in <a href="https://www.smartkarma.com/entities/ca-immobilien-anlagen-ag" target="_blank" data-smartkarma-citation="entities:22540:1" rel="noopener">CA Immobilien Anlagen AG (CAI AV)</a>.
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At the end of January 2021, Ronny Pecik (CEO of Immofinanz), was to step down upon the completion of the sale of his c. 10.7% stake in Immofinanz to Aggregate Holdings.
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</ul>
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To make things more interesting, Aggregate Holdings is interested in CA Immo, which itself is the object of a bid by Starwood (see <a href="https://www.smartkarma.com/insights/ca-immo-starwood-mandatory-offer" target="_blank" data-smartkarma-citation="insights:46905" rel="noopener">CA Immo - Starwood: Mandatory Offer</a> and <a href="https://www.smartkarma.com/insights/ca-immo-raised-offer-aggregate-s-potential-competing-offer" target="_blank" data-smartkarma-citation="insights:48625" rel="noopener">CA Immo: Raised Offer, Aggregate's Potential Competing Offer</a>).
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<li>
Aggregate confirmed that it may be considering a takeover bid for CA Immo, which could jeopardize the current bid of Starwood (largest shareholder with a c. 30% stake). Immediately after its sweetened offer of €34.44 per share was placed, the share price rose above that level and has remained ever since.
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<li>
In 2018, Pecik himself was instrumental in Starwoods's acquisition of its stake in CA Immo, which resulted in the failure of Immofinanz’s own takeover bid for CA Immo at the time, prompting it to acquire its 26.49% stake in S Immo instead. As mentioned, S Immo also owns an almost 12% stake in Immofinanz.
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</ul>
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<li>
Recent announcements, bid and shareholder changes are raising expectations of a three-way merger between CA Immo, Immofinanz and S Immo.
</li>
</ul>
The offer price seems low (closing price on the last trading session prior to the release), quite under the level at which S Immo was trading in December 2019, around €22.5 per share. Diluted EPRA NNNAV per share as of Q3 2020 was €20.02. The move by Immofinanz looks more like an opening gambit and shares are trading 8% higher vs. offer on exceptions of a sweetened offer and/or a move by Aggregate.
S Immo shares are currently trading at an FY20e P/NAV of 0.81x (based on Capital IQ consensus), around the same level as peers, equally with regards to FY21e and FY22e. The shares offer FFO yields of 2.9% and 4.0% based on FY20e and FY21e numbers, respectively.
Target price is €23.1 per share (around the same level as consensus ind NAVPS, supported by FFO/share yield), 18% higher than current levels.

On the evening of 14 March, IMMOFINANZ AG (IIA AV) announced its intention to launch a voluntary takeover offer to acquire the 72.5% stake in S IMMO AG (SPI AV) it does not already own for approximately €930 mn.


Immofinanz currently holds approximately 26.49% of S Immo.


S Immo indirectly holds 10.86% of Immofinanz.


S Immo currently holds a 6% stake pct in CA Immobilien Anlagen AG (CAI AV).


At the end of January 2021, Ronny Pecik (CEO of Immofinanz), was to step down upon the completion of the sale of his c. 10.7% stake in Immofinanz to Aggregate Holdings.




To make things more interesting, Aggregate Holdings is interested in CA Immo, which itself is the object of a bid by Starwood (see CA Immo - Starwood: Mandatory Offer and CA Immo: Raised Offer, Aggregate's Potential Competing Offer).


Aggregate confirmed that it may be considering a takeover bid for CA Immo, which could jeopardize the current bid of Starwood (largest shareholder with a c. 30% stake). Immediately after its sweetened offer of €34.44 per share was placed, the share price rose above that level and has remained ever since.


In 2018, Pecik himself was instrumental in Starwoods's acquisition of its stake in CA Immo, which resulted in the failure of Immofinanz’s own takeover bid for CA Immo at the time, prompting it to acquire its 26.49% stake in S Immo instead. As mentioned, S Immo also owns an almost 12% stake in Immofinanz.




Recent announcements, bid and shareholder changes are raising expectations of a three-way merger between CA Immo, Immofinanz and S Immo.


The offer price seems low (closing price on the last trading session prior to the release), quite under the level at which S Immo was trading in December 2019, around €22.5 per share. Diluted EPRA NNNAV per share as of Q3 2020 was €20.02. The move by Immofinanz looks more like an opening gambit and shares are trading 8% higher vs. offer on exceptions of a sweetened offer and/or a move by Aggregate.
S Immo shares are currently trading at an FY20e P/NAV of 0.81x (based on Capital IQ consensus), around the same level as peers, equally with regards to FY21e and FY22e. The shares offer FFO yields of 2.9% and 4.0% based on FY20e and FY21e numbers, respectively.
Target price is €23.1 per share (around the same level as consensus ind NAVPS, supported by FFO/share yield), 18% higher than current levels.

Austria

S IMMO AG is a property investment company that invests in diversified real estate in Eastern Europe. The Company invests in prime real estate in Austria, Germany and countries in Central and Southeastern Europe. S IMMO's portfolio includes residential, office, retail space and hotels.

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S IMMO AG (SPI AV)

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