DGAP-News: Instone Real Estate Group AG / Key word(s): Half Year Results/Capital Increase
26.08.2020 / 23:39
The issuer is solely responsible for the content of this announcement.
Instone Real Estate raises mid-term adjusted revenue target to EUR 1.6-1.7bn; Capital increase to fund step change in growth; Q2-earnings affected by COVID-19
- Instone announces a fully underwritten around EUR 175m rights issue to fund ambitious growth plan and implement a step-change in growth
- Rights issue proceeds will provide additional firepower, allowing it to make incremental project acquisitions over the next 6-18 months with an aggregate expected GDV of at least EUR 1.5bn, of which EUR 1.3bn are projects already approved or negotiating a term-sheet
- Increases sustainable mid-term adjusted revenue target to EUR 1.6bn to EUR 1.7bn
- Adjusted H1-revenues of EUR 179.6m imply modest year-on-year growth (+3.1%) despite COVID-19 related temporary contraction in demand
- 32.2% gross profit margin reflects attractive project portfolio and first class execution
- Year-on-year drop in adjusted H1-EBIT (EUR 28.2m, -11.6%) and adjusted EBT (EUR 18.7m , -29.4%) showing the Corona impact
- 2020 financial targets reinstated: Adjusted revenues of EUR 470m to EUR 500m, adjusted earnings after tax of EUR 30m to EUR 35m
- 2021 financial targets reiterated: adjusted revenues of EUR 900m to EUR 1.0bn; adjusted earnings after tax of at least EUR 90m
- First time dividend payment for financial year 2020 confirmed (target pay-out ratio: 30% of adjusted earnings after tax)
Essen, 26 August 2020: Following a good start to the 2020 financial year, Instone's Q2 results have been impacted by the COVID-19 pandemic and associated slow down of economic activity. Reduced customer inquiries, lower apartment sales and the delay of marketing launches have led to lower than expected revenues as well as a depressed adjusted EBIT margin and adjusted earnings after tax margin. However, retail sales activity as measured by Instone's sales ratio (percentage of units sold which are in marketing process) started normalising from it's low of approximately 0.5% towards the end of the quarter and has fully recovered in recent weeks to a range of 2.0-3.0%, in line with pre-Covid levels. In addition, following a period of reduced institutional inquiries, the company most recently received strong indications of interest for projects earmarked for institutional sales.
Most recent industry data points for Instone's core regions suggest fundamental demand and price trends for residential property remain at or have increased above pre-Covid levels as residential assets offer stability and resilience and have outperformed most other property segments. At the same time management sees a window opening up with a temporary opportunity to benefit from increased land supply and a lower number of credible buyers.
"Following a temporary slow-down, we are now observing a full recovery of demand from all our customer groups including owner occupiers, private buy-to-let investors as well as institutional investors. The relative attractiveness of German residential real estate appears to have increased even further. In addition, with the launch of our innovative valuehome product, we are substantially increasing our addressable market and creating a long-term growth opportunity for Instone." says Kruno Crepulja, CEO of Instone Real Estate Group AG.
Targeting a step change in growth
Against that background the company has identified incremental acquisition targets to (i) benefit from attractive post Covid-19 land investment opportunities and (ii) accelerate growth for Instone's new highly scalable valuehome product - which allows for the construction of modern quality homes at increased speed and lower costs by employing standardisation and digitisation. The Company believes that now is the time to raise equity to provide it with additional firepower, allowing it to make incremental project acquisitions over the next 6 to 18 months with an aggregate expected GDV of at least EUR 1.5bn. These new projects are expected to meet or exceed the company's target internal rate of return ("IRR") and margin requirements. The project IRR targets amount to around 25% for valuehome and around 20% for traditional product, while margin targets amount to 20% for valuehome and 25% for traditional product. With these investments, management targets a step change in growth with a view to achieving substantially increased medium-term adjusted annual revenues of EUR 1.6bn to EUR 1.7bn.
Instone management has identified a substantial pipeline of potential incremental investment projects. In total and across its eight regional branches, the Company has approved transactions, or negotiated a term-sheet or is in active discussions with potential sellers on 29 sites across, which could comprise GDV of EUR 4.3bn. There is no certainty that any of the transactions in the pipeline would complete. However, at present, the number of new opportunities and the strength of the Company's negotiating position is continuing to improve each month.
In order to fund the envisaged growth, the management board with the approval of the supervisory board has resolved a capital increase (the "Offering") for which it expects to receive net cash proceeds of around EUR 175m. The Offering is fully underwritten by a syndicate of banks including Credit Suisse and Deutsche Bank as Joint Global Coordinators as well as UniCredit and Mainfirst as Joint Lead Managers.
Terms of the Offering
The company's share capital will be increased from EUR 36,988,336 by EUR 10,000,000 to EUR 46,998,336 against cash contributions through the issue of 10,000,000 new ordinary bearer shares with no par value (the New Shares). The New Shares carry full dividend rights as of January 1, 2020. The New Shares will be offered to existing shareholders for indirect subscription at a ratio of 15:4 and at a subscription price of EUR 18.20 per New Share. Fifteen existing shares of Instone AG entitle holders to subscribe for four New Shares. The subscription period will start on September 1 and end on September 14, 2020.
Q2 results reflect Covid-19 related temporary decline in customer sales
Despite the coronavirus-related demand slow down, adjusted H1 2020 revenues increased by 3.1% year-on-year, to EUR 179.6m (H1 2019: EUR 174.2m). The strong gross margin of 32.2% (H1 2019: 33.6%) underpins the quality of the Instone project pipeline focused on attractive inner-city locations in Germany's A cities and metropolitan regions while also illustrating Instone's competence in project acquisitions and construction execution.
Adjusted H1 2020 EBIT decreased by 11.6% to EUR 28.2m (H1 2019: EUR 31.9m). The H1 2020 EBIT margin amounted to 15.7% (H1 2019: 18.3%) reflecting lower H1 2020 revenues and investments made into Instone's platform to prepare for future growth, including the set-up of the valuehome division and associated investment costs.
Adjusted H1 2020 earnings after tax decreased by 45.4% to EUR 13.7m (H1 2019: EUR 25.1m). The H1 2020 earnings after tax margin amounted to 7.6% (H1 2019: 14.4%), a c.7 percentage point decrease given the lower H1 2020 adjusted EBIT Margin and as new project acquisitions in 2019 have led to increased H1 2020 financing costs. In addition, first time recognition of tax loss carry forwards in H1 2019 resulted in a reduced tax rate.
Strong liquidity; Successful refinancing of the EUR 125m 2021 Term Loan Facility
On August 21, Instone successfully completed a EUR 100m 5-year promissory note agreement (the "Notes") with a group of pension funds. Collineo Asset Management acted as an arranger in this transaction. Proceeds from the Notes have been used to repay the EUR 75m amount drawn from the Term Loan Facility. The remaining undrawn EUR 50m amount of the facility has been cancelled. Following these transactions, Instone has successfully continued reducing its corporate level cost of debt, further diversified its investor base and termed out its debt maturity profile.
As of the quarterly reporting date, and pro-forma for the refinancing as well as the rights issue proceeds available corporate level cash and unused credit lines amounted to c. EUR 360m. In addition, c. EUR 210m are available to the company in the form of unused committed project finance facilities. Taking account of the equity raised through the rights issue, the company's pro forma leverage will be around 2.8x (net financial debt/adjusted EBITDA).
2020 targets reinstated, 2021 targets confirmed
With the whole year expected to be significantly impacted by the effects of the COVID-19 pandemic, the Management Board expects 2020 FY adjusted revenues between EUR 470m and EUR 500m, and 2020 FY adjusted earnings after tax of EUR 30m to EUR 35m. In addition and against the background of a stabilising macroeconomic environment, the Management Board confirms 2021 FY targets of adjusted revenues between EUR 900m and EUR 1.0bn, and adjusted earnings after tax of at least EUR 90.0m.
Moreover, the Management Board reiterates its intention to distribute around 30% of the adjusted earnings after tax as a first-time dividend for the 2020 financial year to shareholders in 2021.
"The announced capital increase will fully fund our ambitious and profitable mid-term growth targets of achieving EUR 1.6bn to EUR 1.7bn adjusted revenues. We will use the proceeds over the next 6 to 18 months for incremental project acquisitions with an expected GDV of at least EUR 1.5bn. This will allow Instone to both accelerate the growth of our highly scalable valuehome product and benefit from attractive post-Covid investment opportunities in our core product." says Foruhar Madjlessi, CFO of Instone Real Estate Group AG.
To download the Q2 2020 quarterly statement, use the following link to the company's homepage:
* For definitions of the alternative performance indicators mentioned in this press release, see the glossary on the Company's website at
About Instone Real Estate (IRE)
Instone Real Estate is one of Germany's leading residential developers and is listed in the SDAX. The company develops attractive multi-family and residential buildings as well as publicly subsidized housing, designs modern urban quarters and refurbishes listed buildings for residential use. Buyers are mainly owner-occupiers, private investors intending to buy and let, and institutional investors. Over the past 29 years, Instone Real Estate successfully developed more than one million square metres. Its 380 employees work out of nine different locations nationwide. As of 30 June 2020, the company's project portfolio comprised 53 development projects with an expected total sales volume of c. 5.7 billion euros and 13,075 units.
Instone Real Estate
Tel.: +49 (0)201 45355-137
Cautionary Statements Regarding Forward-Looking Information
Certain statements contained in this release may constitute "forward-looking statements" that involve a number of risks and uncertainties. Forward-looking statements are generally identifiable by the use of the words "may", "will", "should", "plan", "expect", "anticipate", "estimate", "believe", "intend", "project", "goal" or "target" or the negative of these words or other variations on these words or comparable terminology. Forward-looking statements are based on assumptions, forecasts, estimates, projections, opinions or plans that are inherently subject to significant risks, as well as uncertainties and contingencies that are subject to change. No representation is made or will be made by Instone that any forward-looking statement will be achieved or will prove to be correct. The actual future business, financial position, results of operations and prospects may differ materially from those projected or forecast in the forward-looking statements. Instone does not assume any obligation to update, and does not expect to publicly update, or publicly revise, any forward-looking statements or other information contained in this release, whether as a result of new information, future events or otherwise, except as otherwise required by law.
This release does not constitute an offer of securities for sale or a solicitation of an offer to purchase securities. Neither this announcement nor anything contained herein shall form the basis of, or be relied upon in connection with, any offer or commitment whatsoever in any jurisdiction. The offer will be made solely by means of, and on the basis of, a securities prospectus which is to be published. An investment decision regarding the publicly offered securities of Instone should only be made on the basis of the securities prospectus. The securities prospectus will be published promptly upon approval by the German Federal Financial Supervisory Authority (Bundesanstalt für Finanzdienstleistungsaufsicht) and will be available free of charge from Instone Real Estate Group AG, Grugaplatz 2-4, 45131 Essen, Germany, or on Instone's website (www.instone.de).
The securities of Instone may not be offered or sold in the United States absent registration or an exemption from registration under the U.S. Securities Act of 1933, as amended (the "Securities Act"). The securities of Instone have not been, and will not be, registered under the Securities Act.
In member states of the European Economic Area ("EEA"), the placement of shares described in this announcement is only directed at persons who are 'qualified investors' within the meaning of Article 2(e) of the Regulation (EU) 2017/1129 of the European Parliament and of the Council of 14 June 2017 (as amended, the "Prospectus Regulation") ("Qualified Investors"). In the United Kingdom, the placement of shares described in this announcement is only directed at Qualified Investors who are persons (i) who have professional experience in matters relating to investments falling within Article 19(5) (investment professionals) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (as amended, the "Order"), (ii) falling within Article 49(2)(a) to (d) (high net worth companies, unincorporated associations, etc.) of the Order, or (iii) to whom it may otherwise be lawfully communicated; any other persons in the United Kingdom should not take any action on the basis of this announcement and should not act on or rely on it.
Notice to Distributors
Solely for the purposes of the product governance requirements contained within (i) EU Directive 2014/65/EU on markets in financial instruments, as amended ("MiFID II"), (ii) Articles 9 and 10 of Commission Delegated Directive (EU) 2017/593 supplementing MiFID II, and (iii) local implementing measures (together, the "MiFID II Product Governance Requirements"), and disclaiming all and any liability, whether arising in tort, contract or otherwise, which any "manufacturer" (for the purposes of the MiFID II Product Governance Requirements) may otherwise have with respect thereto, the subscription rights to the new shares and the new shares have been subject to a product approval process. As a result, it has been determined that such subscription rights and such new shares are (i) compatible with an end target market of retail investors and investors who meet the criteria of professional clients and eligible counterparties, each as defined in MiFID II and (ii) eligible for distribution through all distribution channels as are permitted by MiFID II (the "Target Market Assessment"). Notwithstanding the Target Market Assessment, distributors (for the purposes of the MiFID II Product Governance Requirements) should note that: the value of the subscription rights and the price of the new shares may decline and investors could lose all or part of their investment. The new shares offer no guaranteed income and no capital protection; and an investment in the subscription rights and the new shares is compatible only with investors who do not need a guaranteed income or capital protection, who (either alone or in conjunction with an appropriate financial or other adviser) are capable of evaluating the merits and risks of such an investment and who have sufficient resources to be able to bear any losses that may result therefrom. The Target Market Assessment is without prejudice to the requirements of any contractual, legal or regulatory selling restrictions in relation to the offering described in the release. For the avoidance of doubt, the Target Market Assessment does not constitute: (a) an assessment of suitability or appropriateness for the purposes of MiFID II; or (b) a recommendation to any investor or group of investors to invest in, or purchase, or take any other action whatsoever with respect to the subscription rights or the new shares. Each distributor is responsible for undertaking its own target market assessment in respect of the subscription rights and the new shares and determining appropriate distribution channels.
26.08.2020 Dissemination of a Corporate News, transmitted by DGAP - a service of EQS Group AG.
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