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Cibus Nordic - Still more yield left to bite

Cibus’ Q2 rental income of EUR 12.6m was a little soft (we expected EUR 12.8m) due to a change in tenancy, while EUR 0.3m in accruals also had a negative impact. However, the fundamentals remain as before, strategy is on track and there is further room for yield compression. We update our TP to SEK 135 (125); rating remains HOLD.

Cibus is well ahead of its EUR 50m annual acquisition goal

Cibus completed the acquisition of five properties during the quarter (the total number now stands at 139), meaning Cibus has already acquired EUR 45m worth of properties this year, thus bringing the portfolio gross asset value to EUR 862m. The net debt LTV ratio increased to 59.0% during the quarter, up from the previous 56.7%, however Cibus’ average interest rate on borrowings declined by ca. 30bps, to 2.6%. Adjusted EPRA NAV increased slightly to EUR 11.3 (11.2) per share.

Occupancy temporarily lowish due to a tenancy change

Cibus reported a little soft Q2 net rental income due to a change in tenancy as occupancy rate dropped to 94.3% (has typically been above 95%). Another one-off was a EUR 0.3m accruals charge, and thus net rental income stood at EUR 11.5m vs our EUR 12.0m estimate. The most important forward-looking metric, namely net rental income less central administration costs, increased by EUR 2.0m to EUR 46.2m. We see the current portfolio posting EUR 46.7m next year, which translates to a 5.2% yield.

Cibus continues to grow the portfolio, attracts new investors

So far this year Cibus has announced EUR 45m in Finnish daily-goods property acquisitions, meaning the company is now well ahead of its stated annual EUR 50m investment target for the year. The portfolio is now worth EUR 862m in terms of gross asset value, comprising of 139 properties located around Finland and with a total lettable area of some 500,000 sqm. Central portfolio metrics such as occupancy rate (94.3%), weighted average unexpired lease term (5.0 years) and net debt LTV ratio (59.0%) have remained steady. The tenant mix stays anchored to Kesko (54%) and Tokmanni (28%), with S-Group (7%) and others (11%) making up the rest. During the last twelve months the company has been able to improve its cost of borrowing by around 60bps as the interest-bearing liabilities’ average interest rate now stands at ca. 2.6%.

Cibus has also continued developing its own organization with the help of few recruits, and in the long-term may eventually enter the Swedish property market. Funds managed by Sirius Capital Partners sold three quarters of their stake in May, which we see as a positive development as it widens Cibus’ institutional investor base and so makes it easier to arrange e.g. an equity issue in connection with a major portfolio acquisition.

Cibus trades above GAV and NAV, but yield still attractive

Cibus’ shares have rerated during the last year, now trading at a premium on book value. In early 2019 Cibus was trading at ca. 0.95x EV/GAV and 0.85x P/NAV, whereas the respective multiples now stand at 1.05x and 1.10x. We estimate the corresponding yield compression at 75bps. Meanwhile major Nordic Real Estate companies’ yields have also compressed, and Cibus’ absolute yield spread has stayed largely unchanged at ca. 100bps. The high underlying portfolio yield, as well as the resulting 7% dividend yield (itself a function of the property yield, leverage and dividend payout ratio), means Cibus’ shares have further potential. We update our TP to SEK 135 (125), valuing Cibus at a 1.10x P/NAV multiple (1.05x EV/GAV). Our rating stays HOLD.

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