Restructuring proceeding well

– Since our last company report in February, Immoeast has made good progress in its restructuring process, reducing the risk of bankruptcy considerably, which has been reflected in the strong stock price performance, especially in March and April. Nevertheless, Immoeast stock still trades at a discount of around 30% to its peer group, due to the still unresolved issues and overall higher uncertainty surrounding the company. We have incorporated the recent developments into our estimates and dropped the pessimistic scenario of bankruptcy in our valuation model, relying entirely on a going concern scenario. Based on our DCF model, we derive a new 12-month target price of EUR 2.0 and therefore upgrade our recommendation from Hold to Accumulate.

– Running into liquidity problems last year, management has taken several steps to improve the liquidity situation, as well as adjust Immoeast’s volume-driven business model to the changed market circumstances. The most important measures on the liquidity side have been a radical reduction of the development pipeline to around EUR 1.4bn, reducing remaining construction costs to around EUR 680mn and agreed or contracted additional loan facilities of around EUR 460mn. A further important milestone in the restructuring process was the settlement of outstanding inter-company receivables amounting to EUR 1.8bn through the transfer of Immoaustria to Immoeast. In return, Immoeast guaranteed Immofinanz’s new convertible bond issue.

– Although the progress in the restructuring process has been successful, there are still some unresolved issues. The settlement of the EUR 513mn IBAG corporate bond and the internalization of management are still pending and could become upside triggers. Negotiations with banks concerning amendments of loan terms and waivers of covenants of a EUR 425mn revolving credit facility seem to be quite tricky. Divestments of non-core business, operational improvements, etc., are running in the background.