Cibus

Cibus's Q1 2023 income from property management (IFPM) was below Infront consensus, even adjusted for EUR -1.2m in one-offs. Earnings capacity-based IFPM per share declined by 9% q/q, to EUR 1.05. This was mainly caused by an increase in the cost of debt, i.e. 4.3% in Q1 from 3.9% in Q4. We cut adjusted EPS by 9-12% for 2023E-25E due to higher interest costs. We also cut our dividend estimates to a flat level of EUR 0.9 in 2023-25, as we believe Cibus will need to reduce its net LTV from the current ~56% level. Our fair value range is SEK 110-140 (120-160) per share, based on a mix of P/EPRA NAV and peer valuation. The share is trading at a ~33% discount to EPRA NRV, which corresponds to an implied yield of ~7% versus the reported 6.1%. Marketing material commissioned by Cibus.

Cibus posted Q1 net operating income of EUR 27.6m, up 27% y/y on the back of acquisitions and 1% above our estimate and 2% above Infront consensus. Income from property management (IFPM) was EUR 11.8m, down 19% y/y and 14% below our estimate and 16% below consensus. However, IFPM included EUR 1.2m of negative one-offs. Adjusting for these, IFPM was 5% below our estimate and 7% below consensus. Fair value changes were EUR -8.5 (~0.4% of portfolio) as yields expanded slightly and average valuation yield was 6.1%. Earnings capacity-based IFPM per share was down q/q at EUR 1.05 from EUR 1.16 owing to increased financial expenses. Net financial expenses in earnings capacity is EUR 49.9m versus EUR 44.3m in Q4. EPRA NRV was EUR 14.4 (SEK 163), down from EUR 14.7 in Q4. Cibus is currently trading at a 33% discount to EPRA NRV and an implied yield of 7.0% versus the average valuation yield of 6.1%. Current hedges will cap interest rate of bank loans at 4.55% as of Q3 2023 through Q2 2025. We expect a slightly negative share price reaction on weaker than expected IFPM.

Ahead of Cibus' Q1 report, we update our estimates (after our research restriction period ending) to reflect the directed share issue conducted on 23 March. We estimate that EPS dilution resulting from the share issue is ~10%. Cibus is currently trading at a 25% discount to EPRA NRV and an implied yield of ~6.8%. We believe Cibus will focus on securing its balance sheet metrics and conduct limited, if any, M&A in the medium term. As yields in the grocery-anchored real estate segment have been stable in recent years, we see limited risk for significant yield expansion. We lower our EPRA NRV-based fair value range to SEK 120-160 (140-180). Marketing material commissioned by Cibus.

Cibus's Q4 2022 income from property management (IFPM) was below consensus, even when adjusted for EUR -1.6m in one-offs. Earnings capacity-based IFPM per share declined by 9% q/q, down to EUR 1.16. This was mainly caused by an increase in the cost of debt, i.e. 3.9% in Q4 from 3.1% in Q3. Cibus cut its dividend to EUR 0.90 (from EUR 0.99) to reflect the changing interest rate environment. From the new dividend base, Cibus argues that it can pay an annually increasing dividend. The share is trading at a ~25% discount to EPRA NRV, which corresponds to an implied yield of ~6.5%. We cut adjusted EPS by 6-9% for 2023E-25E due to higher interest costs. Our fair value range is SEK 140-180 (160-200) per share, based on a mix of P/EPRA NAV and peer valuation. Cibus needs to refinance its EUR 61.8m bond expiring in Q3 2023, which will further increase interest costs. Marketing material commissioned by Cibus.

Cibus posted Q4 net operating income of EUR 26.5m, up 30% y/y on the back of acquisitions and 1% above our estimate and 2% above Infront consensus. Income from property management (IFPM) was EUR 12.4m, down 3% y/y and 21% below our estimate and 17% below consensus. However, IFPM included EUR 1.6m of negative one-offs. Adjusting for these, IFPM was 11% below our estimate and 7% below consensus. Fair value changes were EUR -24.5 (~1.3% of portfolio) as average valuation yield expanded by ~20 bps. Earnings capacity-based IFPM per share was down q/q at EUR 1.16 from EUR 1.27 owing mainly to increased financial expenses. Net financial expenses in earnings capacity is EUR -44.3m, we were at EUR -41.3m for 2023. EPRA NRV was EUR 14.7 (SEK 162), down from EUR 15.2 in Q3. Cibus is currently trading at a 15% discount to EPRA NRV and an implied yield of 6.3% versus the average valuation yield of ~6.0%. 75% of Cibus debt is bank loans with an average interest rate margin of 1.6% and EUR 65m of debt maturities within next 22 months. The hedging ratio is 70% on bank loans. The dividend was cut to EUR 0.90 from EUR 0.99 while consensus expected a dividend of EUR 1.04. The company expects to be able to grow the dividend from the new base level. We expect a negative share price reaction.

Like most other Nordic real estate companies, Cibus will likely focus mainly on its balance sheet and debt obligations. Hence, we believe only small add-on acquisitions could be made in the foreseeable future. On the positive side, grocery-anchored retail premises have not experienced much yield compression over the past few years. Thus, Cibus faces limited risk of asset value declines amid rising interest rates, in our view. We keep our fair value range unchanged at SEK 160-200, based on a combination of P/EPRA NRV and peer group valuations. The compounder case is on hold, as the share is trading at a discount to EPRA NRV. Our fair value range implies a 2023E P/EPRA NRV of 0.86-1.08x, 2023E adjusted P/E of 12-14x and a 2023E dividend yield of 6.1-7.7%. Marketing material commissioned by Cibus.

Cibus's Q3 2022 income from property management (IFPM) was above consensus when adjusted for EUR -1.8m in one-offs. Earnings capacity-based IFPM per share declined by 5% q/q, down to EUR 1.34. We estimate that this was caused by an increased cost of debt, i.e. 3.1% in Q3 from 2.7% in Q2. Cibus has postponed its growth target – EUR 2.5-3bn of owned assets by the end of 2023 – due to the weak credit market environment. The share is trading at a slight discount to EPRA NRV, which also makes equity-financed M&A less attractive. We make minor estimate revisions after the Q3 report. Our fair value range is SEK 160-200 per share, based on a mix of P/EPRA NAV and peer valuation. Marketing material commissioned by Cibus.

Cibus posted Q3 net operating income of EUR 26.2m, up 36% y/y on the back of acquisitions and 1% above our estimate and Infront consensus. Income from property management (IFPM) was EUR 14.7m, up 17% y/y but 3% below our estimate and 9% below consensus. However, IFPM included EUR 0.4m of negative exchange rate losses and EUR 1.4m costs from bond redemption premium and reversal of capitalised arrangement fees. Adjusting for these, IFPM was 9% above our estimate and 2% above consensus. Fair value changes were EUR 8.9m positive (~0.5% of portfolio). Earnings capacity-based IFPM per share was down q/q at EUR 1.27 from EUR 1.34 owing to increased financial expenses. EPRA NRV was EUR 15.2 (SEK 165). Cibus is currently trading at a 6% discount to EPRA NRV and an implied yield of 5.7% versus the average valuation yield of ~5.6%. During Q3 Cibus has refinanced a loan of EUR 200m with an unchanged margin. The CEO also comments that bank relationships remain strong, in our view implying that bond maturities could be refinanced with bank loans if needed. We expect a neutral share price reaction. The EPRA NRV premium turning into a discount makes the compounder case less attractive as Cibus, in order to reach its growth targets and investment grade rating, will need to issue new shares. We expect a neutral share price reaction.

In the current environment, we believe Cibus will find it hard to achieve its growth target by the end of 2023 and investment grade (IG) rating in the foreseeable future, as the credit market (especially for real estate companies) is challenging. Cibus will need to refinance a EUR 135m bond maturing in September 2023, which will be a challenge. However, on the positive side, grocery-anchored retail premises have not experienced much yield compression over the past few years. Hence, we believe Cibus faces limited risk of asset value declines amid rising interest rates. We lower our fair value range to SEK 140-200 (180-240), based on a combination of P/ EPRA NRV and peer group valuations, driven by a lower valuation for Cibus's compounder peers, higher interest rates and increased credit spreads. We also argue that the compounder case is on hold, as the share is trading at a slight discount to EPRA NRV. Our fair value range implies a 2023E P/EPRA NRV of 0.68-0.97x and 2023E adjusted P/E of 10.2-14.5x. Marketing material commissioned by Cibus.

Cibus announced on Friday 26 August that it has issued senior unsecured notes in total of SEK 700m with a three year maturity with a floating interest rate of 3-month STIBOR plus 595 bps, replacing the SEK 600m 2023 bond with STIBOR plus 475 bps, i.e. an 120 bps higher spread. The majority of Cibus’ financing is secured bank loans (EUR 850m) with an average interest margin of 1.6% and maturity of 2.5 years, and here the company has seen minor changes in spreads. About 71% of the Company’s bank loans are interest-hedged. After the new bond issue, Cibus has EUR ~250m in bond financing, plus a EUR 30m hybrid. Assuming a 2 pp higher interest rate, Cibus has disclosed it would cut Cibus’ IFPM per share by 16%, assuming no increase in rents (all rents are CPI-indexed). We estimate that e.g. a 150 bps raise in average cost of debt (currently ~2.5%) and a 5% increase in rents would cut EPS by 16%. This news should be positive for Cibus given the current state of the credit market.