Commissioned Equity Research • 4 March 2019 Construction and Real Estate Cibus Sweden KEY DATA Optimally structured for the dividend-hungry Stock country Sweden Bloomberg CIBUS SS Cibus is one of the leading Nordic players focusing on grocery and daily Reuters CIBUS.ST goods properties. Its asset base is currently in Finland, but it plans to Share price (close) SEK 118.0 expand to the other Nordic countries. Stable cash flow from reliable Free Float 59% Market cap. (bn) EUR 0.35/SEK 3.67 tenants, optimal use of leverage and a high payout ratio are helping the Website www.cibusnordic.com company to maintain a sustainable dividend yield of over 8%. Cibus should Next report date 04 May 2019 be able to improve its dividend capacity by continuing to lower the cost of debt while maintaining LTV at 55-60%. We argue that grocery and daily PERFORMANCE goods assets have a closer resemblance to infrastructure than traditional commercial retail real estate. E-commerce should be less of a threat for grocery and daily goods in the Nordics, where the market is dominated by 117 few players and population density is low. 111 105 Stable cash flow from market-leading tenants 99 Properties where Finnish grocery market dominators Kesko and S-Group 93 and discount retailer Tokmanni are anchor tenants account for more than Mar18 Jul18 Nov18 Mar19 90% of Cibus's rental income. All rents are CPI indexed and the occupancy rate is high, at 96%, for the 132 properties in Cibus's portfolio. The EUR Cibus Source: Thomson Reuters Sweden OMX Stockholm All-Share (Rebased) 816m portfolio's net yield is 5.8% and Cibus will likely continue with bolt-on acquisitions to grow the portfolio. Larger transactions, possibly in Sweden, would likely need an equity component in addition to debt. VALUATION APPROACH, SEK Balance sheet optimised for dividends, debt cost to come down DCF 117 150 With its stable cash flow from high-quality tenants, Cibus can optimise its balance sheet to maximise its dividend capacity. Net LTV was 58% at the end of 2018 and the cost of debt has declined, as old loan facilities have EV/GAV and 124 144 P/EPRA NAV been refinanced at lower margins and longer maturities. The bond financing is relatively expensive, but Cibus should be able to refinance the Peer valuation EUR 135m bond in 2020E-21E. This would reduce its cost of debt further 112 119 P/EPRA NAV and increase its dividend capacity to well above SEK 10 per share. 100 110 120 130 140 150 160 Source: Nordea estimates Valuation Our fair value range is mainly based on an EV/GAV and P/EPRA NAV ESTIMATE CHANGES valuation approach with support from our peer valuation and DCF model. We do not factor in significant yield compression and use a target 2020E P/ Year 2019E 2020E 2021E EPRA NAV of 0.89-1.05x. We derive a fair value range of SEK 115-135 per Sales n.a. n.a. n.a. EBIT (adj) n.a. n.a. n.a. share, corresponding to 2020E adjusted P/E of 11.0-12.9x and a dividend Source: Nordea estimates yield of 7.2-8.4%. The payout ratio is slightly over 90%, but we believe dividends are sustainable. In the medium term, we expect the dividend capacity to increase thanks to debt refinancing. SUMMARY TABLE - KEY FIGURES Nordea Markets - Analysts Svante Krokfors EURm 2015 2016 2017 2018 2019E 2020E 2021E Analyst Total revenue n.a. n.a. n.a. 29 60 61 62 NOI margin n.a. n.a. n.a. 81.0% 81.0% 81.2% 81.4% Niclas Höglund EPS (adj) n.a. n.a. n.a. 0.40 0.96 0.99 1.05 Senior Analyst, Sector Coordinator EPS (adj) growth n.a. n.a. n.a. n.a. 142.3% 2.7% 5.7% P/E (adj) n.a. n.a. n.a. 25.4 11.6 11.3 10.7 DPS 0.00 0.00 0.00 0.84 0.88 0.92 0.96 NAV per share 0 0 0 11 11 12 12 NAV growth n.a. n.a. n.a. n.a. 4.4% 4.3% 3.4% NOI/EV (adj) n.a. n.a. n.a. 3.0% 5.9% 6.0% 6.2% P/NAV n.a. n.a. n.a. 91.6% 97.6% 93.6% 90.6% P/EPRA NAV n.a. n.a. n.a. 90.8% 96.3% 92.0% 88.9% Dividend yield n.a. n.a. n.a. 8.3% 7.8% 8.2% 8.6% Loan-to-value (adj) n.m. n.m. n.m. 56.4% 56.9% 55.6% 54.5% Net debt / EBITDA (adj) n.m. n.m. n.m. 21.9 10.5 10.3 10.0 Source: Company data and Nordea estimates Marketing material commissioned by Cibus 4 March 2019 Cibus Contents Factors to consider when investing in Cibus 3 Valuation 6 Company overview 10 Property portfolio 13 Tenants and the retail market 16 Market participants 22 Financial information and estimates 24 Macroeconomic outlook 29 Risk factors 31 Reported numbers and forecasts 32 Disclaimer and legal disclosures 35 Marketing material commissioned by Cibus 2 4 March 2019 Cibus Factors to consider when investing in Cibus Cibus is a Nordic real estate company focusing on grocery and daily goods retail assets. Currently, Cibus owns assets in Finland only but aims to expand to the other Nordic countries, particularly to Sweden. Cibus differs from its retail real estate peers in that it is less dependent on macroeconomic fluctuations and competition from e-commerce. Its portfolio is diversified with over 132 properties and its geographical diversification within Finland is also wide. Stable cash flow from solid daily goods tenants combined with financial leverage and a high payout ratio makes Cibus an attractive proposition for investors who want a high and predictable dividend yield. Largest Finnish owner of daily goods assets, second-largest in Nordics Second-largest Nordic player in Cibus has established a strong presence in the Nordic real estate sector with its focus segment dominated by pension on grocery and daily goods anchored properties. Currently, the portfolio consists of only funds Finnish assets, but the plan is to expand to the other Nordic countries in the medium to long term, with Sweden being the natural first priority. In a segment dominated by Swedish and Finnish pension funds, Cibus has rapidly become the second-largest Nordic investor in the field. Highly diversified property Cibus targets stable cash flow from established grocery and daily goods tenants. portfolio with a market value of Combined with its balanced use of leverage, this results in a company with very high EUR 816m dividend capacity. Cibus has 132 properties in its portfolio and a leasable area of more than 472,000 m2. The portfolio has a market value of EUR 816m. The portfolio is diversified, as no single property accounts for more than 3.3% of the value. On an individual basis, over 70% of Cibus's properties do not account for more than 1% of total rental income. RENTAL INCOME PER TENANT, JUL-SEPT 2018 RENTAL INCOME PER STORE TYPE, JUL-SEPT 2018 Other retail Other Other daily-goods 3% 5% 6% Market 10% S-Group 8% Supermarket 43% Hypermarket 17% Tokmanni Kesko 25% 58% Discount 25% Source: Company data and Nordea Source: Company data and Nordea Largest grocery and daily More than 90% of rental income comes from properties where either Kesko, Tokmanni goods players in Finland are or S-Group is the anchor tenant. The portfolio is also diversified in terms of property Cibus's anchor tenants type, with supermarkets accounting for 43% of rental income, discount stores (Tokmanni) for 25%, hypermarkets for 17%, smaller markets for 10% and 5% belonging to Other. Grocery and daily goods resilient to macroeconomics and e-commerce A segment with little Grocery and daily goods sales have, for obvious reasons, been highly resilient to dependence on macroeconomic swings and this is true also for Finland, which we illustrate in the left- macroeconomic factors hand chart below. Grocery and daily goods In recent years, retail real estate has fallen out of investors' favour, mainly due to fears segment less affected by e- over the impact of e-commerce on demand for physical stores for fashion, consumer commerce electronics, etc. Grocery and daily goods have seen increased online sales in recent years, albeit from a very low level. Particularly in countries and areas with low population density, we believe the proposition of grocery and daily goods online ordering and home delivery is difficult to make profitable. Marketing material commissioned by Cibus 3 4 March 2019 Cibus GROCERY SALES IN FINLAND VS GDP GROWTH, 2005-17 GROCERY CONSTITUTED A SMALL SHARE OF NORDIC E- COMMERCE IN 2017 10% 8% 40% 6% 35% 4% 30% 2% 0% 25% -2% 20% -4% 15% -6% -8% 10% -10% 5% 0% Clothing/ Media Home Beauty/ Furniture/ Sports/ Groceries Finland GDP growth, y/y Grocery sales in Finland, EURm Footwear electronics Health decoration Leisure Sweden Denmark Norway Finland Note: In 2017, FGTA included petrol station stores and discount stores with a reduced selection of groceries. For comparability, we exclude these items. Source: PostNord 2018 and Nordea Source: Finnish Grocery Trade Association, Nordea Economic Outlook and Nordea Barriers to entry are high for This is true for the Nordics where the population density is low outside the largest players focusing purely on cities. In Sweden and Finland, the grocery market is relatively concentrated to a few online grocery operations players, which also might enhance the barriers to entry for pure online players, as the traditional players are not keen to invest in large-scale grocery online offerings and services.