Creating a new real estate investment group

publity 29 July 2019 Flash note
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publity

Creating a new real estate investment group

Real estate asset management

Scale research report - Flash

29 July 2019

Price

€33.75

Market cap

€348m

Share price graph

Share details

Code

PBY

Listing

Deutsche Börse Scale

Shares in issue

10.3m

Last reported net debt at 31 December 2018

€21m

Business description

publity is an asset manager with a focus on German office buildings. It has a track record of more than 18 years as an investor in commercial real estate in larger German cities and currently manages a portfolio worth €5.0bn.

Bull

Experienced player with a focus on one segment of the property market.

New asset management mandates with institutional clients.

Strong demand in the German office market.

Bear

Dependent on banks for property sourcing.

Economic slowdown may affect the property markets.

Funding risk associated with convertible bonds.

Analysts

Milosz Papst

+44 (0) 20 3077 5700

publity plans to transfer up to 94.9% of its stake in subsidiary publity Investor (Investor) to PREOS Real Estate (PREOS), a listed real estate investor controlled by publity’s main shareholder. The transaction is structured as a capital increase for PREOS in exchange for a contribution in kind, implying a valuation for Investor of €400m. The deal will create a real estate investment group led by publity and valued at c €574m, according to company own estimates. We believe this will also solve a potential conflict between Investor and PREOS over deal origination given their similar investment focus.

Capital increase through contribution in kind

The transaction will be executed as a non-cash capital increase excluding PREOS’s shareholder subscription rights. Up to 47.45m new shares at €8.0 per share will be issued to publity in exchange for up to 94.9% of its stake in Investor at a 5:2 ratio, based on Investor’s valuation of €400m. In addition, on completion of the deal, PREOS plans to issue a convertible bond with a volume of up to €300m, with publity’s up to €150m claims under current and prospective shareholder loans to publity Investor being contributed to PREOS.

Similar businesses to operate within the same group

In our opinion, the combination of Investor and PREOS is a natural step, as both focus on similar German office properties and aim to benefit from publity’s ‘manage to core’ strategy. Following the c €20m capital increase in Investor last December, publity has developed it into its own investment vehicle (with a property portfolio worth €600m after full development, according to publity), while in January 2019 it received an asset management mandate from PREOS, allowing the latter to benefit from its extensive real estate database. publity will continue to manage the combined assets and support the development of the real estate business.

publity to hold a majority stake in PREOS

Through his investment vehicles, Thomas Olek is the majority shareholder of both publity and PREOS, with more than a 74% share in the former and c 75% in the later. Consequently, the transaction should be approved by both parties. On completion of the deal, publity will hold a 66.21% stake in this newly formed real estate group valued at c €574m based on publity’s own estimates.

Historical financials

Year
end

Revenue
(€m)

PBT
(€m)

EPS
(€)

DPS
(€)

P/E
(x)

Yield
(%)

12/15

23.8

19.9

2.27

2.0

14.9

5.9

12/16

41.6

34.4

3.81

2.8

8.9

8.3

12/17

23.6

14.6

1.67

0.0

20.2

N/A

12/18

34.6

21.6

1.52

1.5

22.2

4.4

Source: publity

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Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1,185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1,185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Edison Investment Research provides qualitative research coverage on companies in the Deutsche Börse Scale segment in accordance with section 36 subsection 3 of the General Terms and Conditions of Deutsche Börse AG for the Regulated Unofficial Market (Freiverkehr) on Frankfurter Wertpapierbörse (as of 1 March 2017). Two to three research reports will be produced per year. Research reports do not contain Edison analyst financial forecasts.

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