A diversified daily-goods property portfolio
Cibus should have no trouble to execute on its growth targets, but valuation remains a bit high in the present situation with its extraordinary uncertainty around yields.
Not many surprises in Q4 figures
Q4 NRI, at EUR 20.4m, topped the EUR 19.5m/19.7m Evli/cons. estimates. Operating income was EUR 18.7m vs our EUR 18.2m as there were EUR 0.1m in one-off admin costs. Not all deals closed by Cibus in Q4 were in our estimates, and this seems to have been the case also for the consensus, yet the report never held much potential for surprise as is always the case with Cibus.
We expect Cibus to be able to source and finance the deals
Cibus’ growth target for 2022-23 states the company is to add EUR 1.0-1.5bn in properties over the two years. Cibus seeks an IG credit rating and thus a new share class (D) is to be instituted. Two recent issues have already helped net LTV down a bit, but according to Cibus the ratio should further decline to around 50%. We calculate the targets to imply EUR 600-850m in equity issues. The sums are considerable, but we believe Cibus will be able to source the properties without bidding too high as the company’s current position in Finland, by far its biggest presence, amounts to no more than 10% of the market. Denmark is an obvious candidate for expansion as the country has a lot of small grocery stores and is in that sense comparable to Norway. Cibus sees some yield compression in Sweden, but Finnish yields appear to lag the Nordic market as the levels are still around 6% while they are closer to 5% in the other three countries.
Valuation continues to reflect underlying yield compression
In our view Cibus’ valuation has reflected yield compression expectations for a while now. We don’t see the current 1.2x EV/GAV too high if yield compression supports asset values going forward. Cibus traded around 1.4x EV/GAV in late December and the yield almost touched those of other listed Nordic property portfolios. Such a level yield wouldn’t by itself be too problematic for future returns, but in our opinion the 1.4x EV/GAV would be on the aggressive side considering properties’ inherent limited upside potential. Cibus’ portfolio performance is very stable, however the premium valuation combined with relatively high LTV means equity is sensitive to different assumptions. We retain our SEK 215 TP and HOLD rating.
Cibus’ Q4 figures were somewhat above estimates as the company closed many acquisitions towards the end of Q4 which the consensus didn’t seem to have fully reflected. Our estimates didn’t include the purchases which were included after the Q3 report.
Cibus continued to perform as expected. Our view doesn’t change much as valuation appears tight unless further yield compression continues to drive more upside potential.
Not many surprises in Q3 performance and figures
Cibus’ Q3 was a bit better than expected due to lower-than-estimated costs. Net rental income was EUR 19.3m vs our EUR 19.0m estimate and the difference was due to lowish property expenses. The EUR 18.0m operating income was marginally above the EUR 17.8m/17.9m Evli/cons. estimates, while the EUR 12.5m net operating income topped our EUR 11.9m estimate as net financial costs were EUR 0.4m lower than we estimated (there was a EUR 0.2m positive FX item).
The organization is competitive and continues to scale up
Cibus entered Norway through an acquisition of 8 small grocery properties, most of them located in the vicinity of Oslo; the EUR 27.6m price is high in terms of per sqm but is explained by high rents and the properties’ condition. The characteristics are otherwise similar across the Nordics and we assume the Norwegian portfolio yields almost 6%, in other words close to Cibus’ other recent acquisitions. Cibus is now set to complete more than EUR 160m in add-ons this year and a few more deals could materialize by the year-end (we are yet to include the AB Sagax deal in our estimates as it involves an issue of 2m shares). Annual admin costs will increase by only EUR 0.4m by the end of this year and hence will decrease a bit relative to the higher net rental income. In our view this testifies to Cibus’ organizational efficiency and the operation will scale even better once the Norwegian portfolio grows. Danish entry is also likely sometime.
1.3x EV/GAV continues to limit further upside potential
Nordic property sector valuations have remained pretty much unchanged in the past few months; we continue to view Cibus’ book value a major limitation to further upside from the current levels. Cibus’ equity is sensitive to yield assumptions due to the 60% LTV ratio; if Nordic property yields continue to compress, not to mention possible advances in the grocery property market, then Cibus’ shares follow up in the wake, but there would be a major equity-level headwind in a widened Nordic yield scenario even when the portfolio continues to perform as expected. Our TP is now SEK 215 (205) and we retain our HOLD rating.
Cibus’ Q3 report served no big surprises, however net operating income ended up being EUR 0.6m higher than we had estimated as both property expenses and net financial costs were a bit lower than expected.
Cibus’ strategy proceeds according to plan and further Nordic expansion seems inevitable. We find Cibus’ premium justified, while gains beyond the current point seem unlikely without additional property market revaluations. Our TP is now SEK 205 (195); our rating is HOLD (SELL).
Portfolio performance was again very close to estimates
Cibus’ portfolio continued to perform as expected and there were very little changes to key metrics. Q2 net rental income amounted to EUR 18.5m, the same as our and consensus’ estimates. Administration expenses were EUR 1.8m, as we estimated, and included EUR 0.4m in one-offs (for the most part related to the Nasdaq Stockholm transition). Net financial costs were EUR 5.9m, a bit higher than our EUR 5.4m estimate.
We view Cibus the premier Nordic grocery property owner
The Nasdaq Stockholm switch has, among other developments, rendered Cibus’ shares more liquid and attractive for acquisitions. We consider Cibus the leading owner for Nordic daily-goods properties and thus the company is in a great position to gain further property mass within selected markets. We would expect Cibus to expand to either Norway or Denmark (or both) next year at the latest. This would be straightforward in the sense that the Nordic markets are all quite similar. Meanwhile acquisitions within Finland and Sweden should continue and Cibus has already announced more than EUR 130m in add-ons this year. Cibus was able to purchase these at a 6% yield. Cibus sees the price level remains stable for now and expects to make many more small deals in addition to possible larger portfolio acquisitions, for which it can tap equity and debt.
We find valuation full barring further property revaluations
In our opinion a premium to book is justified, but we consider Cibus’ 1.25x EV/GAV already significant, and at least any additional big gains would seem hard from these levels. We view Cibus’ shares pretty much fully valued, but we note the Nordic property sector’s revaluation could continue to drive further gains also for Cibus’ shares. Cibus already has a competitive organization for managing the leading Nordic grocery property portfolio, however we find Cibus’ valuation has in the past followed other Nordic property portfolios’ yields very closely. Our TP is now SEK 205 (195) and our new rating is HOLD (SELL).
Cibus’ property portfolio performance once again matched estimates as net rental income amounted to EUR 18.5m in Q2. Administration costs were as we expected, while net financial costs were slightly higher than expected.
Cibus reports Q2 results on Wed, Aug 18. We make estimate revisions to include the already closed deals. We view Cibus as the leading ownership structure for Nordic grocery properties, but we consider valuation too steep. Our TP is now SEK 195 (175) and our rating is SELL (HOLD).
Very busy deal-making in Q2
Cibus has announced, after the release of Q1 report, a total of EUR 124m in acquisitions. The total comprises 88 properties and so the average lot is small even by Cibus’ standards. Only some EUR 32m of these were closed so that they had time to generate rental income during Q2 (we estimate the contribution to have been EUR 0.2m), and an additional EUR 20m will add to Q3 numbers. We assume Cibus has been able to purchase all the EUR 124m at a 6% yield and so estimate together they will add some EUR 7.4m to next year’s net rental income. We expect Cibus’ Q2 admin costs to have been elevated, at EUR 1.8m, due to the busy deal-making. We thus see Q2 operating income at EUR 16.7m.
Cibus is a great home for small grocery store properties
The latest announced large acquisition, valued at EUR 72m (or 5% of Cibus’ GAV), is set to close in Q4 and involves an equity issue of 2m shares to the seller, AB Sagax; we are yet to include this portfolio in our estimates (Cibus has already issued a EUR 30m hybrid bond). The AB Sagax deal comprises 72 small grocery stores across Finland. The average asset is less than 600sqm in size and all but one feature Kesko as the tenant. Cibus’ typical Kesko property has been a 3,000sqm supermarket store, but Cibus is also a natural owner for such smaller properties.
A high price to pay for public market liquidity
Cibus’ valuation has been driven up, in our opinion, to a large extent in the wake of other Nordic property companies. Cibus’ 4% yield is still competitive relative to the 3.25% level seen around the wider property sector, but in our view Cibus’ current 1.3x EV/GAV and 1.9x P/NAV multiples limit further upside potential. The Nordic grocery property market’s potential revaluation could begin to lift book value, however we view Cibus’ 4% yield simply too tight and ahead of the underlying market as long as the company is still able to acquire additional assets at a 6% yield. Our SEK 195 (175) TP values Cibus at some 1.2x EV/GAV and 1.6x P/NAV. Our rating is now SELL (HOLD).
Cibus’ portfolio continued to perform as expected. Nordic daily-goods properties remain valued at attractive levels, which in our view highlights the underlying assets’ illiquid and idiosyncratic nature. Our new TP is SEK 175 (170).
Q1 was uneventful like so many other quarters
Cibus’ EUR 18.2m Q1 net rental income was in line with our EUR 18.1m estimate. Admin costs were EUR 1.7m (vs our EUR 1.3m estimate) as some EUR 0.1m related to the Nasdaq Stockholm main list transfer added to costs, in addition to certain seasonal variation. Net financial costs were only EUR 4.9m, compared to our EUR 5.4m estimate, as there was a EUR 0.5m FX gain. Net operating income, at EUR 11.6m, was therefore a bit above our EUR 11.4m estimate. Q1 was not unlike all other Cibus quarters despite the pandemic and somewhat extraordinary economic developments. Cibus also didn’t close new acquisitions in Q1.
Relatively few buyers help maintain the markets cool
Cibus has made a couple of small acquisitions after Q1. The four properties (three ICA and one Tokmanni) amounted to a total purchase price of EUR 8.7m. We assume a 6% yield and thus update our estimates accordingly. We understand Cibus’ acquisition pipeline remains plentiful beyond these few small deals. Cibus will have no problem financing even larger portfolio acquisitions as credit is available through various channels and equity can be accessed with a directed share issue (an exercise completed twice last year) or by a hybrid bond. Cibus also continues to act with restraint and is wary of paying a lot more than the levels it has gotten used to in the past few years.
1.2x EV/GAV begins to beg some underlying asset inflation
There has been no marked heating in the Nordic daily-goods property markets; the Swedish market shows some modest yield compression while Finland has remained much the same. We wouldn’t be surprised to see some acceleration in yield compression over the year, but in our view Cibus’ valuation already reflects such expectations to an extent. Cibus is valued almost 1.2x EV/GAV and 1.5x P/NAV, and in our opinion the levels don’t leave further upside even though Cibus’ absolute yield remains competitive relative to other listed Nordic properties. We update our TP to SEK 175 (170) as Swedish yield compression still provides additional minor support for Cibus’ valuation.
Cibus’ Q1 was quiet in terms of completed acquisitions but preparations continued for the Nasdaq Stockholm main list move as well as the long pipeline of potential property purchases. Meanwhile Cibus’ property portfolio performed according to expectations.
Cibus’ Q4 report didn’t serve surprises. Our view on Cibus remains to a large extent unchanged, however we update our TP to SEK 170 (165) to reflect minor yield compression in the Swedish market. We retain our HOLD rating.
Transfer to the Nasdaq Stockholm main list happens in H1
Cibus’ EUR 16.7m Q4 net rental income was in line with our EUR 16.6m estimate. Administration expenses amounted to EUR 1.8m vs our EUR 1.5m estimate (there were non-recurring costs to the tune of EUR 0.5m). The planned switching to the Nasdaq Stockholm main list, to be completed in H1’21, as well as costs for conducting an inventory of fittings and equipment in the Swedish portfolio elevated administration expenses temporarily. Operating income was therefore EUR 14.8m vs our EUR 15.1m estimate. Net financial costs amounted to EUR 5.5m, compared to our EUR 5.2m estimate. There was a negative EUR 0.5m charge due to currency exchange rates. Net operating income then amounted to EUR 9.3m while we expected EUR 9.9m.
Still plenty of smaller property deals in the pipeline
Portfolio net rental income performance remains stable. Cibus has some small-scale plans to develop e.g. parking lots attached to the properties. The company also says it has plans for some adjacent residential developments in the Swedish portfolio. We understand these would entail only limited balance sheet risks. Cibus sees the Finnish market values stable and slight yield compression in the Swedish market. Last year was a banner for Cibus in terms of acquisition volume. The EUR 386m spree however doesn’t eat from this year’s target; Cibus is confident about completing another EUR 50-100m of add-ons in 2021.
There is upside if the underlying market yields compress
Cibus remains valued at 1.12x EV/GAV and 1.35x P/NAV. We view this premium level appropriate as Cibus still delivers high yields in comparison to other listed Nordic property portfolios. In our opinion the Nordic grocery and daily-goods store property space has some additional yield compression potential, considering the attractive 6% valuation levels where Cibus has been lately able to transact even relatively large (above EUR 100m) portfolios. We update our TP to SEK 170 (165) in anticipation of modest Swedish yield compression. We retain our HOLD rating.
Cibus’ Q4 report was unsurprising, although administration and financial expenses were slightly higher than we estimated.
Cibus reports Q4 results on Feb 25. We update our estimates to include the latest purchase. We see no big picture changes; we retain our SEK 165 TP, rating HOLD.
Cibus’ GAV grew by 43% last year
2020 was an extraordinary year for Cibus only in the sense that the company was very busy with acquisitions. Cibus acquired about EUR 375m worth of properties in Finland and Sweden, financed in part by two equity issues that raised a combined EUR 125m. The first large Swedish portfolio acquisition was completed in March just before the pandemic lockdown. Cibus completed another large Finnish portfolio acquisition in December, and we update our estimates accordingly before the Q4 report. The latest deal adds some EUR 7m in annual net rental income capacity but will only contribute around EUR 0.3m in Q4. Cibus’ quarterly administration expenses are budgeted at EUR 1.1m; we estimate the Q4 figure a bit higher at EUR 1.5m due to the acquisition. We thus see operating income at EUR 15.1m. There should be no major extraordinary financial expenses and so our bottom-line Q4 estimate, before taxes, is EUR 9.9m.
Some more acquisitions are to be expected
The pandemic has had very limited impact on Cibus. Portfolio performance is unchanged. Cibus still has a long pipeline and is likely to add another EUR 50-100m of assets through smaller transactions this year. Cibus will probably expand to either Norway or Denmark (or both) in the coming years. The expansion is somewhat unlikely to happen this year as Cibus would prefer to inspect the properties on location. Vaccination progress now suggests travel remains difficult until at least the end of the year. Meanwhile Cibus has plenty of prospects in Finland and Sweden. The recent EUR 116m in Finnish additions imply 6% net rental yield. The figure represents some 100bps extra on Cibus’ similar metric, meaning add-ons are attractive. These relatively low valuations however limit Cibus’ shares current upside potential.
We continue to view valuation neutral
Cibus is valued at 1.13x EV/GAV and 1.37x P/NAV. The premium on book value is warranted considering Cibus’ still attractive ca. 4.75% yield, compared to the below 4% yield seen in the wider Nordic property sector. We continue to consider Cibus’ current valuation neutral. We retain our SEK 165 TP and HOLD rating.
Cibus’ Q3 was uneventful. We make small revisions to our estimates, our TP is now SEK 165 (160), rating HOLD (BUY).
No major property acquisitions were completed in Q3
Cibus reported EUR 17.0m in Q3 rental income (vs our EUR 17.5m estimate) and EUR 16.6m in net rental income (vs our EUR 16.2m estimate). Operating income was EUR 14.9m and slightly lower than our EUR 15.3m estimate as Swedish management costs were reclassified from property expenses to administration costs. The management agreement with Sirius has been terminated and Q4 will be clean in terms of cost structure. Q3 net financial costs were EUR 5.4m i.e. somewhat higher than our EUR 5.0m estimate due to an EUR 0.6m cost attributable to bond and bank loan fees. Cibus’ annual net rental income capacity was updated only a bit and we revise our estimates accordingly.
The long-term strategy is proceeding as planned
Cibus’ organization is developing as planned and the company sees some potential to generate more income from the existing asset base through additional services like car washes and parking lots. Cibus continues to focus on the Finnish and Swedish markets for now, however entry to other Nordic markets remains likely in the long-term. Cibus also upped the annual acquisition target from EUR 50m to EUR 50-100m. Q3 was quiet in terms of new acquisitions, yet Cibus remains well on track on the deal front this year after acquiring some EUR 70m in Finnish properties besides the more extraordinary EUR 180m Swedish market entry. Cibus reports very little changes in the daily-goods property markets’ transaction dynamics, with deal flow and valuations basically unchanged throughout the pandemic.
We see current valuation landing within a fair spot
While Cibus still trades at an attractive yield relative to other Nordic public properties we however see the shares’ upside potential limited by the daily-goods property market’s flat valuations. In other words, further meaningful Cibus yield compression would need to be backed by a pricing pick-up in the private markets. Cibus is valued 1.12x EV/GAV and 1.35x P/NAV, hence additional gains would stretch the valuation premium rather large. Considering the relatively high 4.75% yield and the premium to book and private markets valuations we view Cibus’ valuation now fair. Our TP is SEK 165 (160), rating HOLD (BUY).
Cibus Nordic’s property portfolio continued to perform well in Q3 as net rental income exceeded our estimate, however administration and financial costs were higher than we expected.
Cibus’ portfolio remains unaffected by the pandemic and additional acquisitions are imminent despite already busy H1’20. Our TP is now SEK 160 (150) per share, rating BUY.
Certain exceptional transactions burdened Q2 bottom line
Cibus was largely immune to the pandemic (shared certain small Finnish tenants’ troubles to the tune of EUR 0.2m). Property figures were as expected with rental income at EUR 16.4m vs our EUR 16.2m estimate. Property expenses remained in check and so net rental income amounted to EUR 15.1m i.e. same as our estimate. Administration costs were elevated by some EUR 0.5m due to bond transactions as well as the restructuring of Finnish books. The EUR 13.6m in operating income thus fell short of our EUR 14.2m estimate. Net financial costs were driven high, to EUR 5.8m, by a one-off EUR 2.9m item attributable to bond redemption premiums and arrangement fees. Net operating income was thus EUR 7.8m vs our EUR 9.9m estimate.
Both existing portfolio and prospects basically unchanged
The daily-goods property market remains stable and the pandemic hasn’t discernibly altered deal flow. This means Cibus is in a strong position to add to its property mass through smaller portfolio acquisitions and thus scale the current organization. Yields are still attractive as Cibus can buy assets at some 100-150bps pick-up relative to its own book valuation. In addition to the EUR 180m Swedish entry, Cibus is well ahead of its annual EUR 50m acquisition target since Finnish purchases total over EUR 70m YTD. With EUR 85m in cash and long-term financing in place further additions might well happen in H2’20. Cibus is also instituting additional shareholder-friendly effects in the near term, namely the transitioning to monthly dividend payments as well as switching to the Nasdaq Stockholm main list.
We see scope for further valuation rerating
In our opinion some tightening in valuation relative to the wider Nordic property sector is warranted since the pandemic has very limited direct bearing on Cibus. The situation is different for the bulk of commercial real estate e.g. offices. Cibus’ yield spread relative to other listed Nordic entities has indeed tightened a bit recently, however in our view there’s still room to go with Cibus yielding ca. 5% vs some 4% for a typical Nordic portfolio. Our TP is now SEK 160 (150) per share. We retain our BUY rating.
Cibus’ portfolio continued to perform according to expectations while transactions and financing activities drove central administration expenses and especially net financial costs exceptionally high.
Cibus performed strong. The fundamentals are solid as before, yet wider property valuations are subject to higher uncertainty. We retain our SEK 150 TP and BUY rating.
There’s little reason to expect performance to be impaired
Cibus’ portfolio performed as expected with Q1 rental income at EUR 14.0m vs our EUR 13.9m estimate, while net rental income amounted to EUR 13.0m (vs our EUR 13.0m expectation). We did expect temporarily elevated administration costs due to the Coop acquisition, as the company suggested, and estimated the Q1 figure at EUR 1.1m. The figure came in at EUR 1.5m and thus the EUR 11.5m Q1 operating income missed our EUR 11.9m estimate. Meanwhile we overestimated financial costs (excluding currency losses) since net operating income excluding currency losses was EUR 7.7m, compared to our EUR 7.6m estimate. In terms of earnings capacity, the updated property expenses line is higher than we expected while the administration cost line is slightly lower. We make only small revisions to our estimates.
Cash flow is solid, yet valuation is not immune to macro
In our view Cibus’ figures and comments prove the pandemic will have little impact operationally. While in the big picture retail rents are likely to be under pressure (mainly due to shopping centers) in our opinion there’s no valid reason to expect this will apply to daily-goods stores. Cibus hasn’t noticed changes to deal flow and bank financing prospects. We see the daily-goods property market remaining stable and would not expect distressed sellers to surface in any meaningful numbers. Even though the pandemic will provide strong tailwind for online grocery sales the fact remains that such operations still struggle profit-wise in the Nordics. We expect Cibus will continue to generate robust cash flow as before. We view wider property valuation trends as the main risk for Cibus’ shareholders: uncertainty runs high and it remains to be seen how exactly e.g. telecommuting practices will affect office vacancy rates.
We reiterate our SEK 150 TP and BUY rating
Cibus continues to scan e.g. the Norwegian market, but for now the focus is on Finland and Sweden. The purchased Swedish properties are being converted into Coop stores (Coop purchased them from Netto last year); Cibus says the conversion is progressing well. We retain our SEK 150 TP and BUY rating.
Cibus Nordic reported Q1 property portfolio performance in line with our estimates, while operating income was slightly below our estimate due to the Coop portfolio acquisition which temporarily elevated central administration expenses.
Our updated TP is SEK 150 (155), rating now BUY (HOLD).
Cibus has performed according to expectations
Cibus’ portfolio performance has delivered the promises since the IPO in March 2018. Moreover, the portfolio’s exposure to supermarkets, in our view the preferred daily-goods store type, has increased following a string of acquisitions large and small. The company has also advanced on the organizational side. Cibus is now more independent entity, and Sirius’ partial exit made entry for other institutional investors easier and helped facilitate the Swedish property market expansion earlier this spring.
The Swedish market entry fits the strategy well
Cibus was able to acquire the EUR 180m Coop supermarket portfolio at a yield of close to 6%, which to us was a surprisingly high level, especially considering the portfolio’s quality, 10-year triple-net lease structure as well as Coop’s agreement to invest SEK 3m into each of the 110 stores for rebranding purposes (Coop acquired the stores from Netto last year). We view the portfolio a good base for further expansion in Sweden.
We base our TP on the portfolio’s current CF capacity
Cibus continues to trade at attractive levels relative to other listed Nordic property portfolios since Cibus’ assets are small in the institutional investor context and thus there’s a paucity of buyers as this specific asset class isn’t the most convenient way to deploy large amounts of capital. Single grocery stores can often be purchased at high yields. We’d describe Cibus a vehicle for capitalizing on the yield differential. Since Cibus’ portfolio is well diversified we see there’s scope for fair value gains every time Cibus buys a property. Having said that Cibus isn’t the only Nordic daily-goods property portfolio (although it’s the only publicly traded one) and so we view it prudent to focus on the current portfolio cash flow capacity. We value Cibus’ current cash flow prospects with a yield we see sufficiently below that of the underlying daily-goods property market (to account for diversification benefits) on the one hand, and adequately above that of the wider property market (the vehicular benefits shouldn’t be exaggerated) on the other. Our TP is now SEK 150 (155), rating BUY (HOLD).
Cibus Nordic enters the Swedish property market with the EUR 180m portfolio acquisition of 111 Coop supermarkets. We view the deal as a fine way to gain more property mass and extend geographical reach in a controlled manner. Our new TP is SEK 155 (150), rating HOLD.
We believe Cibus is an ideal owner for the supermarkets
Cibus acquires a portfolio of 111 properties located in Southern Sweden for EUR 180m. The portfolio of grocery properties belonged to Coop, the second largest grocery retailer in Sweden (19% market share), which had acquired the portfolio last year from Netto. Coop will provide some SEK 3m into each store for rebranding purposes and sign 10-year triple-net lease contracts. In this sense the new Swedish portfolio is even more cost-efficient from Cibus’ point of view. The longer lease contracts will lift Cibus’ WAULT to 5.5 years from 4.9 years. Coop has in total about 800 stores in Sweden; thus the 111 properties mean Cibus’ relationship with Coop can be compared to that with Kesko, considering Cibus’ properties amount to more than 10% of Kesko’s facility sourcing. The properties now acquired are relatively modern (83% were either constructed or renovated during the last 15 years), and are mostly located in residential areas, traffic routes and city centers. The typical property is only some 1,000 sqm in area (compared to old Cibus’ 3,500 sqm), so they can be best described as rather small supermarkets. As Coop is now in the process of rebranding the stores the inventory selection is set to expand from 1,800 items per store to 6,000.
The deal is valued at a yield above that where Cibus trades
The price implies a yield of almost 6%, which is undemanding as Cibus trades only slightly above 5%. Cibus’ net debt LTV ratio stays close to the old almost 60% level. Cibus fully used the mandate to issue 6.22m shares and thus raised EUR 84m new equity via a directed share issue. The EUR 123m new senior bank debt carries a 2% interest; Cibus consequently has some EUR 25m more cash in its balance sheet to make add-on acquisitions in Sweden. Cibus expects the deal to close next week, on Mar 10.
Cibus’ valuation and yield development
Cibus trades at a 100bps wider yield compared to the median NTM EBITDA/EV of a listed Nordic Real Estate company. Cibus managed to issue new equity at a 1.18x P/NAV (or 2.7% below the day’s closing price) to fund the Swedish expansion, which we see as a strong signal that investors view Cibus’ book value as quite conservative. We have updated our estimates; we expect Cibus’ rental income to continue to increase at the rate of inflation, and we estimate annual operating income at more than EUR 10m higher going forward.
The deal adds some EUR 10m in operating income capacity
The deal is good news for Cibus as portfolio diversification further improves. Our TP is SEK 155 (150), remain HOLD.
Cibus reported an unsurprising portfolio performance for Q4, however administration costs were temporarily elevated due to development efforts. Nordic expansion could well be on the cards this year. We see Cibus’ yield still relatively attractive. Our TP is now SEK 150 (135), rating still HOLD.
The existing portfolio continues to perform well
Cibus’ Q4 rental income, at EUR 13.2m, was close to our EUR 13.3m estimate. There were no surprises in terms of property expenses, as these summed up to EUR 0.6m and thus net rental income was EUR 12.6m, compared to our EUR 12.5m estimate. Cibus’ budgeted admin costs run close to EUR 1.0m per quarter. The admin costs amounted to EUR 2.0m in Q4 due to many one-off considerations. First, the outsourcing contract with Pareto, now terminated, still had an effect. Second, Cibus booked EUR 0.5m in restructuring costs in order to achieve a more efficient legal structure. Cibus also incurred EUR 0.2m due to mapping of Nordic markets beyond Finland. Therefore Cibus’ Q4 operating income missed our estimate by ca. EUR 1.0m. There were no notable changes to key metrics as EPRA NAV (EUR 11.4), LTV ratio (59%), occupancy rate (95%) and WAULT (4.9 years) remained basically unchanged. Cibus also highlighted its active property management successes in certain less-than-metropolitan areas like Nastola and Kajaani by filling local vacancies with tenants such as Lidl and Rusta (a discount store chain).
Authorization could enable a EUR 200m GAV acquisition
The acquisition of three Tokmanni-anchored properties helped lift the portfolio’s annual net rental income capacity by about EUR 1.0m to EUR 50.9m. Last year Cibus managed to achieve its annual EUR 50m acquisition target, however this year a larger transaction might take place as Cibus is authorized to issue up to 6.22m new shares. Cibus is eyeing other Nordic markets beyond Finland. Sweden seems to be the most potential option; the market is, on average, slightly higher priced than Finland, but Cibus believes it can apply its own concept there successfully.
Cibus’ 1.23x P/NAV still offers a 100bps yield pick-up
Cibus’ shares have rerated along with the rest of the Nordic RE market. While Cibus trades at a clear premium relative to GAV/NAV (1.08x/1.23x), the portfolio remains priced at a competitive yield. Our TP is now SEK 150 (135), rating still HOLD.
Cibus Nordic reported property portfolio results in line with our expectations. However, administration costs were higher than we had estimated due to certain group restructuring and development-related costs.
Cibus’ portfolio performed as expected in Q3 as the EUR 12.5m net rental income figure was in line with our estimate. Admin and financial expenses were elevated due to administrative transition as well as IFRS 16 adjustments and other financial costs. We make minor changes to our estimates, retain our SEK 135 TP and HOLD rating.
Admin and financial expenses were temporarily elevated
Cibus’ portfolio developed without surprises during Q3 as the properties generated EUR 13.2m in rental income (vs our EUR 13.3m estimate). Property expenses also were largely as expected, and thus net rental income amounted to EUR 12.5m (we expected EUR 12.4m). Cibus is currently in the process of developing its organization and so transitions administration as well as asset management back to itself. This meant central administration as well as financial costs were temporarily elevated during the quarter, with admin expenses amounting to EUR 1.2m (compared to the normal EUR 0.9-1.0m level), and thus operating income stood at EUR 11.3m (vs our EUR 11.5m estimate). Cibus also made IFRS 16 related adjustments to its reporting, and now records site leasehold fees among its financial expenses, the effect being roughly EUR 0.15m per quarter. Net financial expenses totaled EUR 4.0m in Q3, and Cibus sees the level at around EUR 3.4m going forward.
Q3 was quiet in terms of portfolio development
There were no changes to Cibus’ portfolio during the quarter as the company still holds 139 Finnish properties valued at EUR 862m. Net debt LTV ratio and occupancy rate were basically unchanged at their respective 59% and 95% levels. Average lease-length remains at 5.0 years. Likewise, annual net rental income capacity continues to stand at EUR 49.9m, implying EUR 46.2m operating income potential. Cibus says it expects to list on the Nasdaq Stockholm Main List by Q3’20. Cibus continues to actively monitor the Nordic property market beyond Finland.
Cibus’ portfolio still offers a 100bps yield pick-up
We leave our operative estimates largely intact following the report. We retain our TP of SEK 135 per share, rating HOLD. Cibus’ portfolio net yield, at 5.1%, remains almost 100bps above that of a typical listed Nordic Real Estate portfolio.
Cibus posted Q3 results largely in line with expectations. Operating income (rental income less property and central administration expenses), at EUR 11.3m, was close to our EUR 11.5m estimate. Larger than expected financial expense items meant profit from property management was a little soft as Cibus is developing its own organization.
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.
Cibus’ Q2 rental income stood at EUR 12.6m, in line with expectations. Property expenses were slightly higher than we expected, and thus net rental income, at EUR 11.5m, was less than our EUR 12.0m estimate. Central operating metrics remained largely unchanged.
Cibus’ Q1 developed without surprises as NOI, at EUR 12.1m, was 1.7% above our estimate. Cibus is now well on track to achieving the annual target of EUR 50m in dailygoods property acquisitions this year. At the end of Q1 the portfolio GAV stood at EUR 821m and is expected to reach EUR 850m by the end of Q2 as already announced deals will be closed. We update our estimates to reflect the situation as expected from Q3 onwards. We update our TP to SEK 125 (120) per share while our rating remains HOLD.
No significant changes in key metrics during Q1
Valuation per sqm (EUR 1,740), EPRA NAV (EUR 11.2 per share) and net LTV ratio (57%) all improved a bit. Occupancy rate declined by a percentage point to 95%. Cibus’ average borrowing rate now equals 2.8%, and there is still room for improvement as the third senior debt facility is yet to be refinanced. The EUR 135m bond is trading above par and Cibus is likely able to refinance at a rate more than 100bps below the current coupon.
The portfolio WAULT remains stable at 5.0 years
The portfolio is stable in terms of the weighted average unexpired lease term. The measure has proved steady at around 5.0 years as the portfolio has an even number of leases coming up for renewal each year. The leases are typically extended with the same terms for the next 5 years. Cibus also continues with its plans to develop the organization while monitoring the Swedish property market even if there are yet no concrete entry plans.
We update estimates based on earnings capacity for Q3
Cibus has so far this spring announced EUR 30m in acquisitions; these are reflected in the current earnings capacity figure for Jun 30 (the deals will close in Q2). We therefore update our estimates from Q3 onwards. Cibus now trades close to par in terms of EV/GAV and P/NAV. In our view a slight premium (somewhere in the 0-10% range) can be justified as the valuation methodology for individual daily-goods properties doesn’t capture the risk diversification effect Cibus can achieve with its property portfolio (currently numbering 132 assets). We update our target price to SEK 125 (120) per share and retain our HOLD rating.
Cibus’ Q1 net rental income came in a bit above our expectations. Q1 earnings capacity was unchanged, but is expected to increase by about 3% by the end of Q2 as recently announced acquisitions will be closed.
Cibus updated its dividend policy. Dividend payments will now increase on a quarterly basis (at a 5% annual pace). While there have been no major changes in the underlying portfolio fundamentals, the company has managed to increase its cash flow by 10% since the March 2018 IPO due to acquisitions and refinancing activities. The portfolio now holds 132 Finnish properties with a gross asset value of EUR 816m; 2019 pipeline might add another EUR 50m.
NOI capacity unchanged at EUR 47.8m, income at EUR 31m
Profit from property management was 1.5% below our expectations. Administration costs were higher during Q4, amounting to EUR 1.4m vs the budgeted EUR 0.9m cost. The higher expenses were attributable to the CEO departure. Cibus has now shifted to financial year that follows the calendar year. Dividends will be paid out on a quarterly basis; the first 2019 payment has a June record date. From now on, Cibus targets a 5% annual increase in dividends. In our view, Cibus has ample capacity to increase its annual payments. The proposed 2019 distribution of EUR 0.84 per share implies a total dividend of EUR 26.1m, or a 7.8% yield. We have estimated that the current portfolio has an annual distribution capacity amounting to close to EUR 30m. Cibus estimates its operating income capacity at EUR 31m, up from the previous EUR 30.6m figure.
EPRA NAV amounted to EUR 11.1 (11.2) per share
The central portfolio metrics were basically flat. Occupancy rate improved slightly to 96.0% (95.8%), with LTV at 58.4% (58.3%). Cibus has increased its bank financing to EUR 354m (EUR 325m), while the margin has decreased by 20bps, to 1.9%, and the weighted average tenor increased to 2.9 years (2.3).
Our target still stands at SEK 120, downgrade to HOLD
Our expectations for Cibus’ portfolio remain unchanged. We expect Cibus’ 2019 acquisition pipeline (approximately EUR 50m) to comprise mainly of grocery properties let to Kesko. We are waiting to see the acquisitions materialize. We retain our target price of SEK 120 per share and update our rating to HOLD (BUY).
Cibus disclosed a new dividend policy with quarterly increases. From now on, the company targets a 5% annual increase in dividends.
Cibus’ quarterly results closely reflected the company’s earnings capacity. We update our estimates to account for the acquisition of six properties the company announced in early November. The add-on properties are expected to contribute ca. EUR 2m in annual rental income. We retain our BUY rating and target price of SEK 120 per share.
The portfolio now includes 132 properties
Following the company’s latest acquisition of six Finnish daily-goods properties (all let to Kesko and Tokmanni), the portfolio now has a total lettable area of some 477,000 sqm and NOI capacity of EUR 47.8m. The latest add-on portfolio was acquired at a total cost of EUR 30m, the acquisition yield estimated at 6.5%. Consequently, Cibus’ portfolio gross asset value currently stands at around EUR 815m. After subtracting the central administration and net financial costs, Cibus now has capacity to pay ca. EUR 30m in annual dividends. The dividend guidance currently remains at EUR 0.2 per share per quarter, or EUR 24.9m on an annual basis.
EPRA NAV increased to EUR 11.2 (11.0) per share
Going forward, Cibus’ financial year will follow the calendar year. This means the company’s next year-end report will be published in late February 2019 for the period covering the second half of 2018. Meanwhile board member Jonas Ahlblad will serve as an interim CEO until a new CEO has been appointed. During the coming months we are expecting the company to announce the refinancing of two bank loans. Cibus might increase its borrowings and use the proceeds to acquire additional daily-goods properties in Finland. We expect the completed refinancing to meaningfully cut the company’s average borrowing rate, which currently stands close to 3%.
Retain BUY rating with TP of SEK 120 per share
We update our estimates to reflect the latest add-on acquisition. We expect the company to announce further portfolio acquisitions during the next quarters. We retain our BUY rating and target of SEK 120 per share.
Cibus’ Jul-Sep 2018 quarter proceeded in-line with estimates. Net rental income and operating income came in as guided by the company’s earnings capacity. From now on, dividends will be paid on a quarterly basis.
We initiate coverage on Cibus with BUY rating and target of SEK 120. We expect the grocery retail portfolio to generate stable and predictable inflation-linked cash flows while from a valuation standpoint there is room for further yield compression.
Solid grocery retail portfolio with anchoring tenant strategy
Cibus’ property portfolio is largely occupied by three leading Finnish daily-goods retailers. A natural outcome due to the market’s oligopolistic structure, we view the portfolio’s tenant risk as negligible. We expect the average lease duration to remain at its current level of ca. 5 years and the occupancy rate to stay at 95%. The portfolio’s rental income is fully linked to inflation while the properties’ operating costs are mostly borne by the tenants owing to the contracts being largely net lease in nature.
We like the portfolio’s large exposure to supermarkets
In our view the supermarket-size store is the most attractive and resilient type of daily-goods store, offering a good balance between logistic efficiency and daily convenience. 43% of the portfolio’s rental income is attributable supermarkets spread around Finland, while another 25% is contributed by discount stores located for the large part in Southern Finland.
Groceries to manage e-commerce in cities and rural areas
In our view e-commerce currently represents a manageable tail risk for grocery retailers. The economics of grocery e-commerce remain challenging, especially in a country as sparsely populated as Finland. We think supermarkets as particularly well-positioned to weather the e-commerce threat and even benefit owing to their status as a distribution network.
Initiating coverage with a BUY rating and TP of SEK 120
We expect Cibus’ income to grow in-line with the Finnish CPI and property expenses to stay at ca. 7%, paving the way for a highly predictable financial performance. As the shares currently trade slightly below par in terms of EV/GAV, we see potential for both price gain as well as solid income from dividends.
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Cibus aims to increase dividend payments by 5% annually
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