research report (anno) - equitystory.com€¦reit-status already in april 2009 with retrospective...

Research Report (Anno)

CR Capital Real Estate

Rating: Buy

Date: 29-10-2009

Important notice: Please pay attention to the Disclaimer

as well as the disclosure of potential conflicts of interest according to §34b WpHG from page 20 ff.

ID2

*5

Price Target: € 2.09 Company Profile

Price: € 1.28

27-10-2009 / XETRA

Currency: EUR

Basic claims dataSource: bis

ISIN: DE000A0WMQ53

WKN: A0WMQ5

Symbol: CRZ

Number of Shares³: 15.00 m

Marketcap: 19.20 m

Enterprice Value: 17.30 m

Freefloat: 100,0 %

Data and Forcasts

Transperency level

Entry Standard P&L in € m/end of year 2008-12-31 2009-12-31e 2010-12-31e 2011-12-31e

Market Segment Total sales 3.60 2.32 4.38 4.80

Freiverkehr EBITDA 3.20 1.58 3.24 3.07

Accounting standard EBIT 3.19 1.56 3.19 3.01

IFRS Net income 3.30 1.50 2.06 2.61

fiscal year end: 31-12 Ratios in €

Earnings per share 0.22 0.10 0.14 0.17

Designated Sponsor: Dividend per share 0.10 0.10 0.12 0.15

CBS

Ratios

EV/Total Sales 4.81 7.46 3.95 3.60

EV/EBITDA 5.41 10.95 5.34 5.64

ID3 EV/EBIT 5.42 11.09 5.42 5.75

Analysts: 1880-1

1 PER 5.82 12.80 9.14 7.53

ID3 PBV 1.05

Cosmin Filker 1880-2

2

[email protected] ID3 Upcoming company events: **last research reports of GBC:

1880-3 3

Felix Gode ID3 Date: event Date: Publishment/Price Target / Rating

[email protected] 1880-4 4 14-4-2009: RS / Buy

ID3 17-11-2009: Release Interim Report Q3 31-3-2009: RS

1880-5 5 1-12-2009: Swiss Equity Real Estate Day

ID3 08-12-2009: VIII. MKK Kapitalmarktkonferenz

1880-6 6

ID3 RS = Research Report; RG = Research Guide

1880-7 7

1880

Rating: Buy

CR Capital Real Estate AG

Sector: Real Estate

Employees: 3 Date: 30-06-2009


* Catalogue of potential

conflicts of interest on

page 22

Foundation: 2008

Headquarter: Berlin

CEO: Mr. Thomas Ehrich

** the research reports can be obtained on www.gbc.de

and requested from GBC AG, Halderstraße 27, 86150

Augsburg respectively

Focus: Residential Property; REIT

The Berlin situated CR Capital Real Estate AG has a Pre-REIT-status and aims being the first

german “Wohn-REIT“. Cashflows from residential property are – compared to commercial property

– less cyclical and therefore less volatile, which is an important security aspect for investors. The

company´s operating focus lies on the management of high-value residential properties at very

attractive locations at the growth market of Berlin/Potsdam. The strategy of CR is outlined to

expand the property portfolio by REIT-compliant residential property (old and new buildings), but

also high return promising commercial property and to maximise the lease rate. Accounting an

equity ratio of 90%, further portfolio growth shall improve the company´s profit situation.


Content

Company

Business Activity…..…………………………………………. 4

Shareholder Structure……….......………………………….. 4

Upcoming Company Events 4

Real Estate Portfolio of CR Capital Real Estate AG……… 5

Market and Market Environment…………………………………… 6

SWOT-Analysis CR Capital Real Estate AG……………… 8

Company Development & Forecast

Figures………………………………………….. ……………. 9

Sales and Profit Development Financial Year 2008……… 10

Balance Sheet as of December 31, 2008…………………. 11

Business Development HY1 2009……..………………….. 13

Outlook and forecast..……………………………………….. 14

Valuation/ Conclusion

Determination of Cost of Capital.….……………………….. 17

Discounted Cashflow (DCF) Valuation...…….…………….. 18

Conclusion……………………………….……………………. 19

Anhang

Disclaimer……………………………..…….………………… 20

Diclosure of potential conflicts of interest according to §34 b WpHG…………………………………………………. 22

Company

Business Activity

The business activity of CR Capital Real Estate is the management of first-class residential and commercial properties in good locations in the greater area of Berlin. The CR Capital Real Estate AG is aiming to obtain the REIT-Status. The company already fulfils the legal requirements for a REIT-company. As a consequence, the federal office for taxes granted the pre-REIT-status already in April 2009 with retrospective effect as of January 5, 2009.

Furthermore, CR Capital Real Estate AG wants to maximize the legal rate of lettable living space which is possible for REIT-companies. Thus CR Capital wants to develop to the first “Wohn-REIT” in Germany. Residential properties are considered as less volatile and also provide continuous cash flows implying more security for investors.

By investing in exclusive properties CR Capital aims to generate sustainable and yield oriented growth with a balanced and diversified real estate portfolio. Important aspects regarding the acquisition of properties and building sites are the REIT-compliance, a favourable purchase price, a good micro environment, a good construction quality as well as a high occupancy rate. The strategy of the company covers the entire value chain by acquiring, developing, letting and selling of real estates.

The company mainly focuses on the segment residential properties (new building as well as old building). New buildings are accomplished by the company´s own right who additionally is moreover appearing as proprietor thereafter. Newly built residential properties are REIT-compliant according to the legal requitements. Besides that, good located old buildings shall be bought in order to refurbish and lease them. The strategic orientation of CR Capital Real Estate is compeleted by the purchase, the refurbishment and lease of commercial properties.

Shareholder Structure

Upcoming Company Events


Shareholders in %

Free Float 100.0 %

Event Date

Release Interim Report Q3 November 17, 2009

Swiss Equity Real Estate Day, Zürich December 1, 2009

VII. MKK-Kapitalmarktkonferenz, München December 8, 2009

Real Estate portfolio of CR Capital Real Estate AG

Source: CR Capital Real Estate AG; GBC AG

Refering to the balance sheet as of December 31, 2008, the portfolio of CR Capital Real Estate AG covers commercial and residential properties with a total rentable area of 4,538.40 sqm. In accordance with the core company strategy the major part of the companys property is located in Berlin Grunewald, one of the most attractive locations in the greater area of Berlin. The utilization of the real estate is therby divided into both, commercial and residential, whereas the commercial use still outbalances the residential use. The average rental contract duration amounts to five years.

This very financial year the company aims to sell parts of the total property portfolio in order to use the liquid funds for new property investments. In the meanwhile CR Capital Real Estate AG was able to announce the successful disposal of the urban villa located in Hubertusalle 69. The transaction with a foreign embassy was settled at very attractive conditions with a multiplier of 22 of the annual net rent. Furthermore there is a high chance for an additional sale at comparable attractive conditions of the urban villa located in Hubertusbader Straße 18.

The commercial property in Lilienthalstraße 5c is located in a very promising area nearby the shortly to be finished new international airport Schönefeld. At the same time it represents the companies’ business model which allows the realisation of attractive investment opportunities in the greater area of Germanys capital. The emphasys of the future portfolio makeup lies on the residential property development.


Object Plot of land in

m2

Commerical premises in

m2

Living space in m2

Rentable area in m2

Berlin - Grunewald. Lassenstr. 32

3,422 681.29 582.57 1,263.86

Berlin - Grunewald. Hubertusbader Str. 18

1,456 390.62 340.73 731.35

Berlin - Grunewald. Hubertusallee 73

2,869 580.80 506.39 1,087.19

Berlin - Grunewald. Hubertusallee 69

1,735 0 716.00 716.00

Berlin - Schönefeld. Lilienthalstr. 5c

826.00 740.00 0 740.00

Total 10,308 2,392.71 2,145.69 4,538.40

Market and Market Environment

In spite of the economic downturn the development of the German real estate market remains relatively stable in comparison to other European countries. Negative effects of the economic slowdown are mainly noticeable in a decreasing trade volume. Reason for that is the fact that banks restrict their credits but also the reluctance of foreign investors who accounted for large part of the trade volume in the past. The all in all decrease of the German trade and investment market in the field of real estates is -60 % in comparison to the year before.

The German rental market, on the contrary, is largely unaffected by the economic downturn. This trend reflects the still high purchasing power of the Germans as well as a decreasing supply of area.

Residential property market BerlinThe specified premises also and especially apply to the Berlin real estate market. This market sector represents a demographic related higher demand for properties. The unchanged high immigration rate leading to an increase of 8,500 inhabitants only in the first half year 2008 is opposed to limited living space. According to the new Housing Market Report from GSW and Jones Lang LaSalle, the number of households is increasing apart from immigration rates. This is due to more individualized living and more and more single households. This effect should lead to an annual growth of 7,500 households.

Purchasing power of the Berlin residents also developed well in 2008. In this context the Berlin-Brandenburg Statistics office stated an increase of the number of employed people in the area of Berlin and Brandenburg. Despite the economic and financial crisis this was an increase of 2.1 % which is above the German average of 1.4 %. The effects of the financial crisis in 2009 will affect Berlin as well, the job situation in Berlin, however, remains relatively stable. Characteristic for this development in the first quarter 2009 is an increase of the number of employed people of 1.5 % which we see as positive.

However, there is only limited supply for this increased demand for living space. According to the Housing Report of GSW and Jones LaSalle (date: March 2009) the number of building permits issued until September 2008 was lower than in the same period a year ago although there were only 3,700 new homes built in the year before. Due to changes of use, consolidation or demolition about 18,000 properties are withdrawn from the market which should further accelerate the decrease of residential properties.

On the one hand, the Berlin property market is affected by falling supply prices as a result of the financial crisis, on the other hand, rents are going up due to the tense supply of rental properties. In 2008 the rent increase comes up to 5.8 %, the city-wide average rent is almost € 6.00.


Following graph shows the rental spreads according to city districts:

Source: GSW; Jones Lang LaSalle, Immobilienscout24

The CR Capital Real Estate AG focuses on the best and most popular regions in the Greater Berlin urban area. This targets a group of high-income households which are clearly above the Berlin average. The rents of the properties are in relation to the mostly high incomes on an above average level. Investment focus of the company lies also on Potsdam which is likewise attractive to lease.

Commercial Property Market Berlin The portfolio of the CR Capital Real Estate AG is in line with legal REIT-requirements. It must be stated that it is necessary to furnish the rental objects in a way that a higher portion of rent is generated from commercial use. Consequently, the development of the Berlin commercial property market which is subject to similar trends as the just observed residential property market is for the CR Capital Real Estate AG of high importance.

According to AtisReal (date: June 30, 2009), the Berlin market for office properties which represents the commercial real estate market reached a letting turnover of 77,000 sqm in the first quarter 2009 and was thus just 1.3 % below the figure a year before. At the same time, the vacancy rate could be decreased by roughly 4 % to 1.48 sqm. All in all, also the Berlin market for office properties was affected by the financial crisis, however, not at the same extent. Evidence for this is a falling prime rent which was with € 20.50/sqm 7 % below the previous year level. There are no signs of further significant decreases, however. The development of rents for the entire year is expected to be good.


Range of rents 2. HJ 2008 in €/sqm/month

4 4,5 5 5,5 6 6,5 7 7,5 8 8,5

Potsdam

Charlottenburg-

Friedrichshain-Kreuzberg

Lichtenberg

Marzahn-Hellersdorf

Mitte

Neukölln

Pankow

Reinickendorf

Spandau

Steglitz-Zehlendorf

Tempelhof-Schöneberg

Tretow-Köpenick

Average

SWOT - ANALYSIS CR Capital Real Estate AG

Strengths

• Pre-REIT status already obtained; REIT status planned

• Residential-REIT as USP

• Clear business model

• Higher independence from banks due to high equity ratio

• Focus on residential properties should generate sustainable cash flows

• Investment focus on attracitve locations and objects allowes high rental yield

• Free Float of 100 % Weaknesses

• Company size is still small, manageable property portfolio

• So far the company has a small track record

• Low market capitalization and trade volume

Opportunities

• Increasing demand for high value Berlin properties on international level is expected in the medium term

• Inflation hedge and long term value growth regarding high value properties

• In the future investors might focus more on REIT-companies as investment opportunity

• Appealing dividend-distribution regulations and tax exemption for REIT-companies

• Stable rental incomes on basis of the portfolio strategy in the growth market Berlin

Threats

• Rising interests may complicate debt financing and therewith investments

• Planned capital increase may not be placed as intended

• Property prices in the greater Berlin area may not develop as expected

• Currently higher risk in the real estate sector due to financial crisis

• Economic slow-down could lead to difficulties in the letting of objects

Seite 8


Researchstudie (Initial Coverage)

Seite 9



Company Development & Forecast

Figures

P&L (in € m) FY 2008e* FY 2009e FY 2010e FY 2011e

Rental income 0.004 0.520 1.700 3.700

Other operating income 0.000 0.800 0.800 0.300

Sales revenues from properties 3.595 7.800 6.271 4.150

Carrying amount of property sold 0.000 6.800 4.390 3.350

Sales profit 3.595 1.000 1.881 0.800

Total income 3.599 2.320 4.381 4.800

Cost of materials -0.004 -0.100 -0.295 -0.590

Personnel costs -0.045 -0.160 -0.250 -0.390

Depreciation and amortization -0.012 -0.020 -0.045 -0.060

Other operating expenses -0.350 -0.480 -0.600 -0.750

EBIT 3.188 1.560 3.191 3.010

Interest income 0.113 0.065 0.100 0.200

Interest costs -0.004 -0.048 -0.350 -0.600

Results of ordinary activities 3.297 1.577 2.941 2.610

Taxes 0.006 -0.080 -0.882 0.000

Net profit 3.303 1.497 2.059 2.610

EBITDA 3.200 1.580 3.236 3.070

in % 88.91 68.10 73.86 63.96

EBIT 3.188 1.560 3.191 3.010

in % 88.57 67.27 72.84 62.71

Earnings per share in € 0.22 0.10 0.14 0.17

Dividend per share in € 0.10 0.12 0.15

*Short fiscal year 30.05.08-31.12.08

0.10

Sales and Profit Development - Financial Year 2008

Sales Development Financial Year 2008

In the founding year of the CR Capital Real Estate AG the two sales drivers of the company performed differently. The company aims to create a sustainable portfolio property which is its core business and generated a rental income of € 3,744.05. This is mainly due to the fact that the company started with the letting only in December 2008. Moreover, as of the balance sheet date on December 31, 2008 the property portfolio was still in early stages. Thus the rental income was generated from two objects only.

Strategic focus of the CR Capital Real Estate AG is on Berlin’s premium locations. Therefore the company sold its Saxon property portfolio. Along with this transaction the subsidiary LYZ Development was sold as well. Second operating is the real estate trade in which the company generated a total turnover of € 3.60 m. As the company was founded in the past year and started then also its operating business a comparison to the year before is not possible.

Cost Development Financial Year 2008

Total real estate expenditures in connection with the property portfolio as well as personnel expenses of the company add up to € 0.05 m in the past short financial year 2008 and thus had just a little effect on the company´ result.

Numerous cost items like rent, advertising and travel expenses, outside services, legal and professional fees or supervisory board compensation were consolidated in other operating expenses. In 2008 this was the largest cost item and came up to € 0.35 m.


in EUR m FY 2008*1

Total income*2 3.60

EBITDA 3.20

EBIT 3.19

Group result 3.30

EPS in EUR 0.22

*1 Short fiscal year May to December 2008

*2Sales plus other operating income


Profit Development Financial Year 2008

As a consequence the company realized an operating income before interests, taxes, depreciation and amortization (EBITDA) of € 3.20 m. Correspondingly the CR Capital Real Estate AG reached a high EBITDA margin of 88.9 %.

Scheduled depreciation on tangible assets and amortization on intangible assets were expectedly low and amounted to € 0.01 m. This is also the result of a small portfolio at the end of the year. Economic lifetime of the properties is usually up to 40 years.

The all in all EBIT of the CR Capital Real Estate AG is € 3.19 m which is an EBIT margin of 88.6 %.

The CR Capital Real Estate AG showed high liquid funds and at the same time a relatively low rate of interest bearing liabilities on the balance sheet date. This is especially reflected by an interest income of € 0.11 m. On the contrary, there are almost no interest costs leading to a net interest income of € 0.11 m.

Accordingly the company has an income before taxes of € 3.30 m. After deduction of taxes of income the net profit amounted to € 3.30 m after the seven months financial year. This corresponds to diluted earnings per share (EPS) of € 0.22. According to REIT regulations which are already largely fulfilled by CR Capital Real Estate AG, 90 % of the net profit, based on the HGB result, are to be distributed to the shareholders. With a high dividend per share of € 0.10 (pay out ratio 50 %) the company does not yet meet these requirements but the shareholders’ profit is above average.

Balance Sheet as of December 31, 2008

In the course of the open market listing on the Frankfurt stock exchange the CR Capital Real Estate AG made a capital increase by cash investment amounting to € 14.95 m. Along with the seed money of € 0.05 m the total share capital comes up to € 15.00 m as of the balance sheet date December 31, 2008. Considering the retained profit of the financial year 2008 amounting to € 3.15 m as well as the legal reserves of € 0.16 m total equity of the company is € 18.30 m. Based on total assets which are € 19.11 m, CR Capital Real Estate AG has a very comfortable equity ratio of 95.8 %. Thus the company fulfils the REIT requirements which stipulate a minimum equity ratio of 45 %.

This also reflects the strategy of the company which deliberately did not take up any capital from a credit institute in the short fiscal year 2008. Liabilities of the company come up to € 0.55 m and mainly consist of acquisition tax to be paid. Reserves regarding the supervisory board compensation add up to € 0.18 m. Accounts receivable amount to € 0.08 m, thus total liabilities come up to € 0.81 m.



On December 31, 2008 the CR Capital Real Estate had just two properties which where shown as long-term asset in the balance sheet and came up to € 2.56 m. Regarding three properties the transfer of rights and liabilities was not accomplished at the balance sheet date, however, the company made a deposit for the three properties of € 3.50 m which was entered in the balance sheet as deposit made and construction in progress. This item is attributed to the tangible fixed assets and comes up to a total of € 3.78 m. Thus the CR Capital Real Estate AG has tangible fixed assets of € 6.36 m. Part of a property which has been rented since December 1, 2008 can already be attributed to the investment properties. Considering the fair value this part of the property was entered in the balance sheet with € 0.28 m. All in all, the long-term assets of the company add up to € 6.65 m.

Short-term assets of the CR Capital Real Estate mainly consist of liquid funds which were € 8.35 m at the balance sheet date. Other short-term assets amounting to € 4.11 particularly include accounts receivables from the selling of a stake as well as short term receivables from the realized subsidiary LYZ Development GmbH amounting to € 0.45 m.


Cash Flow Development Financial Year 2008

The positive result of the Capital Real Estate AG as well as the increased receivables from the selling of the stakes were the major reason for the positive effect on the development of the operating cash flow in the short financial year 2008. Earnings before taxes came up to € 3.30 m and the receivables increased by € 4.03 m. The operating cash flow of the company is thus € -0.75 m.

Investments in the financial year 2008 only account for the acquisition of assets. As a result the investment cash flow was € -5.91 m. The capital increase as well as the payment of the seed money led to a cash flow from financing activities amounting to € 15 m.

Structure of the Balance sheet as of 31.12.2008 in € m

Assets Liabilities

Short-term

Assets

Long-term

Assets

Equity

Liabilities

Business Development HY1 2009

With its core business, the management of portfolio property, CR Capital Real Estate AG generated a rental income totalling € 0.22 m in the first half year 2009 from three rented properties with a letting space of about 3,000 sqm. These properties became part of the portfolio at different points of time. Rent level of these objects comes up to € 13-14/sqm.

One rented object was capitalized as of June 30, 2009 as financial pro-perty and thus estimated at fair value. The difference which has an effect on profit was capitalized with € 0.35 m and complements total income to € 0.57 m. There were no disposals of properties in the first half year of 2009.

Cost of materials which had an effect on profit came up to € 0.05 m in the reporting period. Moreover, personnel expenses were about € 0.08 and other operating expenses € 0.33 m. Consequently, total expenses in the first half year 2009 totalled approx. € 0.45 m.

The company‘s EBITDA came up to € 0.11 m which is an EBITDA margin of 19.8 %. Major reasons are the still missing write-ups which have an above average effect on profit. Additionally, there were no sellings of pro-perties or investment book values in the current financial year.

Considering scheduled depreciation of € 0.01 m, earnings before interest and taxes (EBIT) came up to € 0.11 m, the corresponding margin is 18.6 %.

All in all the company has sufficient liquid funds amounting to € 4.5 m as of the balance sheet date June 30, 2009. Due to low liabilities of € 2 m the CR Capital Real estate AG shows a positive financial income amoun-ting to € 0.02 m. As a consequence the company generated earnings be-fore tax of € 0.12 m.

After a tax deduction of € 0.04 m the net profit comes up to € 0.08 m which corresponds to earnings per share (EPS) of € 0.01 m. It must be considered that there were no sellings in the first half year 2009 which should lead to positiv earnings contributions from sellings in the upco-ming periods.


Outlook and Forecast

In the past financial year 2008 the properties of the Saxon subsidiary were sold as expected. Thus the CR Capital Real Estate puts the focus on the stable Berlin real estate market which is a good basis for the company. Furthermore, we consider the concentration on the best and most popular areas in Berlin as positive. These properties perform more stable and above average with an almost unchanged rental market despite the current economic downturn.

In order to max out the potential in the Berlin real estate market the company has already made further investments. Recently it has been announced that the company acquired premises with a possible rentable area of about 2,200 sqm in the district Prenzlauer Berg which is also a popular location in the Greater Berlin area. CR Capital Real Estate AG plans to build a 7 floor building with apartments. We see this as an initial transaction since the company still pushes the expansion of the residential property portfolio in order to become Germany’s first “Wohn-REIT”. Residential properties usually generate continuous cash flows and are less volatile which is especially attractive for investors, in our opinion.

The planned realisation of new buildings will consider ecological aspects which allow the company to take up low interest credits of the KfW bank. In future these planned new buildings and the acquisition of properties at top locations of Berlin is to be complemented by investments in health centres which also fulfil the REIT requirements. A larger investment focus on Potsdam is planned as well. The stable real estate market in Potsdam is the reason for such a measure apart from the expertise of the company in this region.

CR Capital Real Estate AG aims for the obtaining of a REIT status by 2011. The portfolio of the company already fulfils the legal requirements for a REIT company. Thus the strategy of the company is clear. As a consequence we have considered in our estimates the legal requirements of an only restricted property trade (in line with REIT requirements), the high shareholder friendly payout ratios as well as the complete exemption of corporate income and local business tax.

Sales and Profit Forecast 2009

For 2009 and the following periods we have identified two important sales pillars. The property portfolio of the CR Capital Real Estate AG comprises currently five properties with a total area of 4.538 sqm. The company in this respect mainly acts as a proprietor. Nevertheless does the strategy of CR Capital Real Estate also include the selling of properties, if attractive bids are made. Due to the high demand from foreign embassies we expect three objects to be sold in the current financial year 2009. In this context the company announced that one of the three objects has already been sold. With an attractive multiplier of 22, based on the annual net rent, this transaction generated revenues amounting to € 2.46 m. At the same time the company was able to show a gain on sales activities of about € 0.10 m. In our opinion, the further planned selling of a property should be realized in a similar way and thus generate additional revenues of € 5.34 m. Expected sales in 2009 will thus come up to € 7.80 m. The properties´ book-value of € 6.80 m would lead to a result of sales activities of € 1.00 m.

Researchstudie (IPO)


Letting throughout the year but also a gradual increase of the portfolio had a positive effect on rental income which is the second sales pillar of the company. By the end of financial year 2009 we expect an expansion of the leased space to a total of 6.800 sqm considering the selling of the three objects just mentioned. Thus the real estate portfolio should be extended by 3.700 sqm by the end of the year 2009. Here we see the already mentioned investment focus of the company and expect for 2009 an expansion of the leased space of totally 2,500 sqm by investments in health centres which fulfil REIT requirements. Furthermore, we forecast an expansion of the old building portfolio of 1,250 sqm. In our opinion, the CR Capital Real Estate will push the new building business also in the current year, however, due to long-term construction there are no sales yet. For 2009 we expect a rental income of € 0.52 m plus other operating income amounting to € 0.80 m the expected total income comes up to € 2.32 m.

Furthermore, we expect an EBIT of € 1.56 m for 2009. Including an expected positive financial result of € 0.02 m as well as a tax burden of € 0.08 m, we anticipate a net profit on basis 2009 of € 1.50 m and an EPS of € 0.10 respectively.

Sales and Profit Forecast 2010—2011

In our opinion CR Capital Real Estate AG should aim for the legal REIT requirements with an equity ratio of at least 55 % and expand the real estate portfolio with low-interest financial liabilities. Using the credit capital the lettable space should be expanded to 12,900 sqm. At the same time we expect further property sellings. Correspondingly, we expect a rental income of € 1.70 m in the upcoming financial year 2010. Our sales expectations are complemented by a sales profit of € 1.88 m. Thus our total income forecast for 2010 amounts to € 4.38 m.

Moreover, we assume an increase of material costs to € 0.30 m. Large part of the construction and renovation costs are capitalized without effects on the result. This development will be accompanied by an increase of personal expenditures (€ 0.25 m), other operating expenses (€ 0.60 m) as well as depreciations amounting to € 0.05 m. Consequently, we anticipate an 2009 EBIT of € 3.19 m. As a result of higher bank loans we expect a negative financial result amounting to € 0.25 m and thus a net profit of € 2.06 m.

In financial year 2011 the company should expand its property portfolio to a total rental space of about 30,000 sqm. If the expansion of the property portfolio and the selling of properties within the legal frame of 10 % continues, we expect total income amounting to € 4.80 m. Due to the assumption of a slight increase of other cost items we expect a 2011 EBIT of € 3.01 m and a net profit of € 2.61 m.



Source: GBC AG



Forecast GBC 2009e 2010e 2011e

Rental income in € m 0.52 1.70 3.70

Sales revenue from pro-perties in € m

7.80 6.27 4.15

Carrying amount of pro-perty sold

6.80 4.39 3.35

Sales profit 1.00 1.88 0.80

Property portfolio in sqm 6,800 12,900 30,000

Total income (including sales profit)

2.32 4.38 4.80

EBITDA 1.58 3.24 3.07

Net profit 1.50 2.06 2.61

Other operating inco-me

0.80 0.80 0.30

Valuation

DCF-Valuation

Determination of Cost of Capital

The weighted average cost of capital (WACC) of the CR Capital AG is calculated from the cost of equity and cost of debt. In order to calculate the capital cost, the risk premium, the beta as well as the risk-free interest rate are to be determined.

As risk free rate, we take the interest rate of the German 10-year Treasury bill. This is currently at 3.50 % (previously: 4.25 %).

Our calculation of the market premium is based on the historical risk premium of 5.5 % which is backed upon historical analysis. The market premium reflects the extra return that the overall stock market or a particular stock must provide over the rate on Treasury bills to compensate for market risk.

According to our internal estimates we calculated a beta of 0.72.

Regarding the assumptions implied, we calculate cost of equity of 7.48 % (10- year interest rate plus beta multiplied with risk premium). Based on our current expectations cost of debt comes up to 5.00 %. Implying a sustainable weight of equity cost of 45 %, the weighted cost of average (WACC) will be at 6.11 % (previously: 6.80 %).

WACC of 6.11 %


Cost of Capital

Cost of equity 7.48 %

Weight in % 45 %

Cost of debt 5.00 %

Weight in % 50 %

Taxshield in % 0.00 %

WACC 6.11 %




CR Capital Real Estate AG - Discounted Cashflow (DCF) Valuation

Value driver of DCF model following to the estimate phase:

consistency - Phase final - Phase

Total income growth 2.5% Perpetual sales growth 2.0%

EBITDA-margin 66.0% Perpetual EBITA margin 64.7%

AFA to operating assets 0.2% Effective tax rate final value 0.0%

Working Capital to sales 83.3%

three step DCF model:

Phase estimate consistency final

in EUR m FY 2009e FY 2010e FY 2011e FY 2012e FY 2013e FY 2014e FY 2015e FY 2016e terminal value

Total income (US) 2.32 4.38 4.80 4.92 5.04 5.17 5.30 5.43

Change of Total income -35.5% 88.8% 9.6% 2.5% 2.5% 2.5% 2.5% 2.5% 2.0%

Total income to operating assets 0.17 0.20 0.12 0.12 0.12 0.12 0.12 0.12

EBITDA 1.58 3.24 3.07 3.25 3.33 3.41 3.50 3.58

EBITDA margin 68.1% 73.9% 64.0% 66.0% 66.0% 66.0% 66.0% 66.0%

EBITA 1.56 3.19 3.01 3.18 3.26 3.34 3.43 3.51

EBITA marge 67.2% 72.8% 62.7% 64.7% 64.7% 64.7% 64.7% 64.7% 64.7%

Taxes on EBITA -0.08 -0.96 0.00 0.00 0.00 0.00 0.00 0.00

to EBITA 5.1% 30.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%

EBI (NOPLAT) 1.48 2.23 3.01 3.18 3.26 3.34 3.43 3.51

ROCE 14.9% 13.1% 11.5% 7.1% 7.2% 7.2% 7.2% 7.2% 7.2%

Working Capital (WC) 3.70 3.80 4.00 4.10 4.20 4.31 4.42 4.53

WC to Sales 159.5% 86.7% 83.3% 83.3% 83.3% 83.3% 83.3% 83.3%

Investment in WC -0.40 -0.10 -0.20 -0.10 -0.10 -0.11 -0.11 -0.11

Operating assets (OA) 13.33 22.42 41.00 41.00 42.03 43.08 44.15 45.26

Depreciation of OA -0.02 -0.05 -0.06 -0.07 -0.07 -0.07 -0.07 -0.07

Depreciation of OA 0.2% 0.2% 0.1% 0.2% 0.2% 0.2% 0.2% 0.2%

Investment in OA -6.70 -9.14 -18.64 -0.07 -1.09 -1.12 -1.15 -1.17

Invested capital 17.03 26.22 45.00 45.10 46.23 47.38 48.57 49.78

EBITDA 1.58 3.24 3.07 3.25 3.33 3.41 3.50 3.58

Taxes on EBITA -0.08 -0.96 0.00 0.00 0.00 0.00 0.00 0.00

Total invest -7.10 -9.24 -18.84 -0.17 -1.19 -1.22 -1.25 -1.28

Investment in OA -6.70 -9.14 -18.64 -0.07 -1.09 -1.12 -1.15 -1.17

Investment in WC -0.40 -0.10 -0.20 -0.10 -0.10 -0.11 -0.11 -0.11

Investment in Goodwill 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

Free Cashflows -5.60 -6.96 -15.77 3.08 2.14 2.19 2.24 2.30 62.90

FY 2009e FY 2010e

Value operating business (due date) 29.93 38.72 Valuation of cost of capital:

Discounted value of explicitFCFs -11.58 -5.33

Discounted Value of Continuing Value 41.52 44.06 Riskfree return 3.5%

Net debt -1.27 7.44 Market risk premium 5.5%

Cash value of all options 0.00 0.00 Beta 0.72

Equity value 31.21 31.29 Cost of capital 7.5%

Minorities 0.00 0.00 Weight 45.0%

Value share capital 31.21 31.29 Cost of debt 5.0%

Outstanding shares in m 15.000 15.000 Weight 55.0%

Fair value in EUR 2.08 2.09 Taxshield 0.0%

WACC 6.1%

WACC

Return on

capital 5.1% 5.6% 6.1% 6.6% 7.1%

5.2% 1.68 1.27 0.96 0.72 0.52

6.2% 2.47 1.93 1.52 1.21 0.95

7.2% 3.26 2.59 2.09 1.69 1.38

8.2% 4.05 3.25 2.65 2.18 1.81

9.2% 4.84 3.91 3.22 2.67 2.24

Sensitivity analysis - Fair value per share in EUR

Conclusion

Business activity of CR Capital Real Estate is the management of first-class residential and commercial properties at very good locations in the greater Berlin area. A important strategic focus are residential properties. Thus the company is to become the first „Wohn-REIT“ in Germany. Residential proper-ties usually generate continuous cash flows and are less volatile which should be particularly interesting for investors, in our opinion.

All in all, due to demographically positive conditions the Berlin real estate market performs well in spite of the current economic situation. Higher pur-chasing power of the Berlin population as well as an unchanged high immig-ration rate is opposed to limited space of living. As a consequence the financi-al crisis had only little effect on the Berlin real estate market which was even characterized by a slight increase of rents.

CR Capital Real Estate is well positioned in the top regions of Berlin which represents a good basis for future success. Due to high demand three proper-ties are to be sold, at the same time the total lettable space should be expan-ded to 6,800 sqm by the end of the year. Due to the strategic focus of the company which is planning to obtain the REITstatus, investment focus of CR Capital Real Estate AG will be in line with legal requirements. In this process the company intends to max out the allowed portion of residential area in or-der to expand a balanced commercial and residential portfolio. Rental income from residential properties is considered as relatively stable and offers additio-nal security for investors.

Moreover, future investments are partly planned to be done with credit capital. Law requires a minimum equity rate of 45 % for REIT companies. Implying an equity rate of 45 % we expect a total portfolio of 6,800 sqm by the end of 2009 as well as 12,900 sqm (end of 2010). Based on that we forecast an inc-rease of rental income of € 0.52 m (2009) and € 1.70 m (2010). Sales reve-nues of the three objects just mentioned are expected to have a positive ef-fect on total income in the current financial year 2009 as well. Consequently, we expect total income amounting to € 2.32 m (2009), respectively € 4.38 m (2010). In addition we see in 2009 a net profit of € 1.50 m and in 2010 of € 2.06 m as realistic.

Based on our DCF model we have calculated a fair value per share of € 2.09. With a current price level of € 1.28 we see a strong undervaluation. Our Rating is „BUY“.



Seite 20


Annex

§1 Disclaimer

This document only serves information purposes. GBC considers all sources of information and data of this research report as reliable. In order to ensure correctness of facts and opinions, analysts took greatest care. Nevertheless, any liability and guarantee regarding correctness will not be assumed – neither expressed nor implied. Moreover, all information is subject to in-completeness and aggregation. Neither GBC nor its analysts assume liability as to damages due to application of this document or its content or in some other way.

Furthermore, we point out that this document does neither represent an invi-tation to subscribe nor to purchase any security paper and is not to interpret as such. It is not allowed to use it or part of it as basis of a binding contract, whatsoever or as reliable source. A decision associated with a presumable sales offer for security papers of the company discussed in this publication should exclusively made on basis of information deriving from brochures or quotations, released in association with such offer.

GBC does not assume guarantee that the suggested yield or the stipulated price targets will be reached. Changes in the relevant assumptions on which this document is based, might have material effect on the intended yields. Income from investments is subject to fluctuation. Investment decisions re-quire advise by an investment consultant. Thus the present document can-not undertake advisory function.

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You also can find the disclaimer on following webside:

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Seite 21


§ 2 Disclosure according to §34b Abs. 1 WpHG and FinAnV

You also find the disclosure according to §34b WpHG: http://www.gbc-research.de / index .php/publ isher /a r t ic lev iew / f rmCat Id /17 /frmArticleID/98/

2 (I) Update:

Currently, a date regarding a concrete update of the present research report(s) has not been set yet. GBC reserves the right to make an update of the research report without notice.

§ 2 (II) Rating:

GBC AG has applied a 3 step absolute Share-Rating-System since 2006-07-01. Since 2006-07-01 Ratings refer to a time horizon of at least 6 to a maxi-mum of 18 months. Prior to this Ratings referred to a time horizon of up to 12 months. Investment advise at time of release is in line with the below descri-bed Rating with reference to the expected yields. Temporary price variance beyond these ranges do not automatically lead to a different Rating, but give cause to update the original advise. The corresponding Ratings are as follo-wed:

Price targets of GBC are assessed by fair value per share, which is calcula-ted on the basis of generally accepted and widely used methods of funda-mental analysis, as the DCF-model, the Peer-Group comparison and/or the Sum-of the-Parts valuation. This is done by the implication of fundamental factors as stock splits, capital reductions, capital increases, M&A activities, share repurchase, etc.

§ 2 (III) Historical Advise:

Historical advise of GBC regarding the present research report(s) can be seen at the webside

http://www.gbc-ag.de/index.php/publisher/articleview/frmCatId/17/frmArticleID/98

BUY The expected yield, based on the calculated price target, incl. dividend payment within the corresponding time horizin is >= + 10 %.

HOLD The expected yield, based on the calculated price target, incl. dividend payment within the corresponding time horizin is > - 10 % and < + 10 %.

SELL The expected yield, based on the calculated price target, incl. dividend payment within the corresponding time hori-zon is <= - 10 %.


Seite 22


§ 2 (IV) Basis of information:

Publicly available information about the issuer (as far as available, the three latest released annual and quarterly report, ad-hoc-messages, press re-leases, security prospectus, company presentations, etc.) are used for the present research report(s). GBC considers these sources reliable. Further-more, for detailed facts regarding business development there have been conversations with the management of the concerning company(ies).

§ 2 (V) 1. Conflict of interest according to §34b Abs. 1 WpHG and Fi-nAnV:

GBC AG as well as the responsible analyst herewith declare that there exists following conflicts of interest regarding the company(ies) listed below. Thus they meet their obligations according to §34b WpHG. The exact explanation of potential conflicts of interest is stipulated in the catalogue of potential conflicts of interest under § 2 (V) 2..

Potential conflicts of interest regarding the discussed security papers or financial instruments in the analysis may arise: (5)

§ 2 (V) 2. Catalogue of potential conflicts of interest:

(1) GBC or any associated legal entity is holding shares or other financial instruments in the company at time of release.

(2) This company has a stake of more than 3% in GBC or an associated le-gal entity.

(3) GBC or an associated legal entity is Market Maker or Designated Spon-sor in the financial instruments of this company.

(4) GBC or an associated legal entity was in charge or involved in the public issue of financial instruments regarding this company in the last 12 months.

(5) GBC or an associated legal entity made an agreement on the making of research reports in return for payment with this company in the last 12 months. In the context of this agreement the analysis (without valuation) was made available to the issuer.

(6) GBC or an associated legal entity made an agreement on the making of research reports in return for payment with a third party in the last 12 months. In the context of this agreement the analysis (without valuation) was made available to the issuer.

(7) The responsible analyst holds a share or other financial instruments in the company at date of release.

(8) The responsible analyst of this company is member of the management board or of the supervisory board of the same company.

(9) The responsible analyst received or purchased shares in the analysed company prior to the public issue before date of release.


Seite 23


§ 2 (V) 3. Compliance:

GBC has made intern arrangements to prevent conflicts of interest. In case of existance, conflicts of interest are disclosed. Responsible Compliance Of-ficer is Markus Lindermayr at the moment. Questions and suggestions to [email protected].

§ 2 (VI) Responsible for this Research Report:

Responsible company for this research report is GBC AG, based in Augs-burg.

GBC AG is registered as Research Institute at the Federal Institute for Fi-nancial Services – Controlling Body: Bundesanstalt für Finanzdienstleis-tungsaufsicht (BaFin), Lurgiallee 12, 60439 Frankfurt

GBC AG is represented by its members of the management board Manuel Hölzle, Jörg Grunwald and Christoph Schnabel.

Responsible analyst for this research reports are:

Analyst 1: Cosmin Filker; Dipl. Betriebswirt (FH); Financial Analyst

Analyst 2: Felix Gode; Dipl. Wirtschaftsjurist (FH); Financial Analyst

Translation, editing and revision of English Version:

Marion Baier, Dipl.Kffr.

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research report (anno) - equitystory.com€¦reit-status already in april 2009 with retrospective...

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