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Ozak REIC February 8, 2016 Outperform Analyst: Kerim Gokoz ... · Ozak REIC is an affiliate of Ozak...
Transcript of Ozak REIC February 8, 2016 Outperform Analyst: Kerim Gokoz ... · Ozak REIC is an affiliate of Ozak...
Ozak REIC Outperform
Share Price
TL2.08
TL520mn
Stock Market Data (February 5, 2016)
Bloomberg/Reuters:
Rel. Performance: 1 mth 3 mth 12mth
7% 20% 24%
12M Range (TL):
1.1
YTD TL Return: 12%
Beta (2year, w eekly) 1.00
Weight in BIST-100 -
250.0
Current 12M ago
24% 4%
Ahmet Akbalik 52.8%
Urfi Akbalik 30.6%
Ozak Textile & Other 6.1%
Effective Free Float 10.5%
Financials/Ratios 2014 2015E 2016E 2017E
Net Sales (TLmn) 383 185 182 124
YoY 312% -52% -1% -32%
EBITDA (TLmn) 114 60 66 42
YoY 328% -47% 11% -37%
Net Income (TLmn) 220 196 115 95
YoY n.m. -11% -41% -18%
EBITDA margin 29.7% 32.5% 36.4% 33.6%
Net margin 57.5% 105.9% 63.4% 76.7%
EBITDA Margin 29.7% 32.5% 36.4% 33.6%
EV/EBITDA (x) 7.5 14.3 12.9 20.5
EV/Sales (x) 2.2 4.6 4.7 6.9
EPS (TL) 0.88 0.78 0.46 0.38
DPS (TL) 0.00 0.00 0.00 0.00
Div. Yield 0.0% 0.0% 0.0% 0.0%
ROE 27% 18% 9% 7%
Analyst: Kerim Gokoz Analyst: Emre Cezairli
+90 (212) 384 11 29 +90 (212) 384 11 36
[email protected] [email protected]
Sales: +90 (212) 384 1155-58 [email protected]
Ozak REIC w as established by Ozak Global Holding in 2009, a
conglomerate w ith 20 years of prior experience in the
construction sector w ith their initial company, Int-Er Yapi. Today,
Ozak REIC continues its land and project developments targeting
3 different segments: Housing, Commercial, and Tourism.
Shareholders Structure
The Company in Brief
1.41 / 2.26
Shares Outstanding (mn):
Foreign Ow n. in Free Float :
Average Daily Vol (TLmn) 3 mth:
USD179mn TL856mn
OZKGY.TI / OZKGY.IS
EV
Potential Return12M Target Price
TL3.50 68%
Mcap
February 8, 2016
Unleashing the potential with Kazlicesme launch Investment Thesis:
An exponential growth story: Two massive projects coming up
Ozak REIC has a very lucrative period coming up. With two massive projects in its pipeline, the REIC is set for exponential growth.
The first of these projects is the Kazlicesme project, a mixed use project situated on the coast line of Zeytinburnu Istanbul with sales expected to kick-off in 1Q16, while the project is estimated to be completed by 2019. In January 2016, Ozak REIC obtained the construction permit for the Kazlicesme project. The project has a revenue-sharing model and Emlak Konut REIC (EKGYO.IS, OP) holds a 37% share in the revenues, while Ozak REIC holds a 55% stake in the remaining 63% share. The Company expects the project to rake in TL4.2bn in sales revenues and aims to obtain a hefty TL800mn profit for its 55% stake in the project.
The second project in the pipeline is Ozak REIC’s Izmir project, which it also expects to launch this year. The Company expects to complete the first phase in 2019 and its revenue forecast stands at TL2.2bn. Ozak REIC expects to earn a TL450mn profit from this project, also via a revenue sharing model, with its 63% stake.
Trading at a deep discount to its NAV
As of 9M15, the Company has a net asset value of TL1bn (2014: TL895.6mn) and trades at a 48% discount to its NAV.
Income generating assets
The Company’s rental income of TL45.8mn as of 9M15 constitutes approximately
one-third of its total revenues. 94% of its rental
contracts are FX-based and linked to either LIBOR or Euro CPI. The Company also generates revenues from the deliveries of residential sales and tourism revenues thanks to the consolidation of Aktay Hotel, the managing company of Ela Quality Resort Hotel.
Catalysts: A strong sales pace in the Kazlicesme project would be an important catalyst for the stock. Also, positive newsflow from the Izmir project would be another catalyst.
Valuation: We initiate coverage for Ozak REIC with an Outperform recommendation and a 12-month target price of TL3.50 share, indicating a 68% upside. We value the Company’s rental portfolio at TL479mn and its land bank and subsidiaries at TL133mn, applying a 50% discount to their appraisal values. We reach a TL383mn value for the Kazlicesme project after applying a 15% additional discount to our DCF valuation, which already includes our conservative assumptions compared to the Company guidance, to reflect any possible delays in the project. We value the Izmir project with its advanced payment value of TL83mn.
Risks: The main risk is a delay, or a slower than expected sales performance in the Kazlicesme project, which is our key upside-generating asset. A better than expected sales performance in the Kazlicesme project presents an upside risk to our valuation. The Izmir project also carries an upside risk in case of a positive development from the project regarding its pending license approval.
Please see the last page of this report for important disclosures.
2
Ozak REIC
February 8, 2016
RESEARCH
SUMMARY FINANCIALS (TLmn)
Income Statement 2014 2015E 2016E 2017E
Net Sales 383 185 182 124
Operating Expenses -280 -23 -26 -30
Operating Profit 103 49 54 28
Consolidated EBITDA 114 60 66 42
Net Other Income/ Expense 135 203 95 97
Profit (Loss) from Subsidiaries 0 0 0 0
Net financial Income/ Expense -16 -56 -34 -31
Profit (Loss) before Tax 222 196 115 95
Tax -2 0 0 0
Minority Interests 0 0 0 0
Net Income 220 196 115 95
Ratios
EBIT Margin 27.0% 26.3% 29.7% 23.0%
EBITDA Margin 29.7% 32.5% 36.4% 33.6%
Net Income Margin 57.5% 105.9% 63.4% 76.7%
Sales Growth 312% -52% -1% -32%
EBITDA Growth 328% -47% 11% -37%
Net Income Growth n.m. -11% -41% -18%
Balance Sheet 2014 2015E 2016E 2017E
Current Assets 259 184 202 307
Cash and Cash Equivalents 149 141 153 258
Short-Term Trade Receivables 6 10 15 11
Inventories 70 14 15 16
Other Current Assets 34 20 20 21
Long Term Assets 1,264 1,491 1,766 2,043
Total Assets 1,523 1,675 1,968 2,350
Short Term Liabilities 408 294 236 239
Short-Term Financial Loans 268 178 118 118
Short-Term Trade Payables 46 29 30 30
Other Short-Term Liabilities 94 86 88 90
Long Term Liabilities 298 275 511 795
Long-Term Financial Loans 172 222 162 212
Other Long-Term Liabilities 126 53 348 583
Shareholders Equity 817 1,106 1,221 1,316
T. Liabilities & S.holders Equity 1,523 1,675 1,968 2,350
Cash Flow Summary 2014 2015E 2016E 2017E
EBITDA 114 60 66 42
WC Change -201 -36 5 -2
Operating Cash flow -31 101 273 287
Capex -10 -100 -155 -155
Investing cash flow -42 -77 -129 -126
Dividends paid 0 0 0 0
Change in net debt 114 -32 -132 -56
CF from financing activities 97 -32 -132 -56
Key metrics 2014 2015E 2016E 2017E
Net Debt/EBITDA (x) 2.6 4.3 1.9 1.7
Net Debt/Equity (x) 0.4 0.2 0.1 0.1
Capex/Sales (%) 58% 114% 56% 84%
WC Change/Sales (%) -52% -20% 3% -2%
ROCE (%) 9% 4% 3% 1%
ROIC (%) 358% 52% 31% 15%
FCF yield (%) -35% 12% 60% 40%
Please see the last page of this report for important disclosures.
3
Ozak REIC
February 8, 2016
RESEARCH
INVESTMENT THEME We initiate coverage for Ozak REIC, a real estate portfolio
management company with 20 years of experience in the construction industry, with an Outperform recommendation.
Our recommendation comes on the back of the Company’s strong growth potential coming from its large-scale projects, primarily the Kazlicesme mixed use project on the Zeytinburnu coastline, Istanbul.
Ozak REIC is also supported by an FX-denominated rental portfolio.
Meanwhile, promising land banks in its current portfolio have the potential to boost the Company’s total real estate appraisal value.
Our 12-month target price of TL3.50/share implies a 68% upside potential. A higher than expected sales performance in Kazlicesme and launch of the Izmir project is likely to push the upside further.
An experienced player in the sector
Ozak REIC is an affiliate of Ozak Global Holding, a conglomerate involved
in the construction, tourism and textile industries since 1985. Following an
intensive period of REIC investments, the Company completed its IPO
process and started to trade on the BIST as of 2012.
Presence of game changers: Kazlicesme and Izmir
Ozak REIC’s growth story is based on two major upcoming projects.
1) The Kazlicesme project is a mixed-use project situated on one of the
most valuable and largest lands currently available on the Zeytinburnu
coastline. This constitutes one of Emlak Konut REIC’s (EKGYO.IS, OP)
largest tenders via a revenue-sharing model, in which EKGYO has a 37%
share of the revenue, while the remaining 63% of revenue is divided
between the Ozak REIC-Ziylan-Yenigun consortium (OZKGY’s share:
55%). Emlak Konut REIC, meanwhile, is the largest REIC company in
Turkey with a USD5bn market cap, and is mainly focused on the
development of upper-middle and middle income housing markets. Emlak
Konut REIC also develops mixed-use real estate projects.
On January 27, 2016 Ozak REIC disclosed that it had obtained the
construction permit for the Kazlicesme project. The project is expected to
begin in 2016 and is estimated to be completed in 2019. Ozak REIC
foresees the project raking in TL4.2bn in sales revenues, while the REIC’s
share of expected profits stands at TL800mn. We expect the construction
to be completed by 2019 with sales reaching 75%. We estimate total
sales revenue at TL4.2bn, in line with the Company guidance, while we
assume a more conservative total project development cost at TL1.4bn
vs. the company guidance of TL1.2bn. We value the Company’s stake in
the project at TL383mn.
2) The Izmir project is in notable proximity to Izmir’s most upscale
neighbourhood, Alsancak, and is the largest land available downtown for
the construction of a massive mixed-use project. The Izmir project is also
based on a revenue-sharing model with the collaboration of Emlak
Planlama Pazarlama (EPP), a corporation belonging to the Prime Ministry
Housing Development Administration of Turkey (TOKI). However, since
Please see the last page of this report for important disclosures.
4
Ozak REIC
February 8, 2016
RESEARCH
the project is pending approvals, our valuation only incorporates TL83mn,
the advance payment given in order to participate in the tender. We
believe the project could bring a strong upside risk in addition to our
current valuation in the case of positive news flow from the legal process.
Izmir Project is expected to begin in 2016 and the first phase is expected
to be completed in 2019 with sales to end in 2020, according to the
Company’s forecasts. Ozak REIC’s revenue guidance stands at TL2.2bn,
of which 37% is to be paid to EPP. Ozak REIC’s share of expected profits
from the project stands at TL450mn.
Trading at a deep discount to its NAV
As of 9M15, the Company has a net asset value of TL1bn (2014:
TL896mn) and trades at a 48% discount to its NAV, compared to its
average discount of 54% in the last 12 months. The discount has been
falling since the market started appreciating Ozak REIC’s appealing story.
Diverse sources of income and a proven track record in value
creation
Ozak REIC has a balanced portfolio of investments ranging from
commercial and industrial rental contracts to mixed use residential
projects and land investments. The Company completed five projects in
five years (2007-2012), beginning with the Ela Quality Resort Hotel
(2007), office buildings 34 Portall Plaza and Is Istanbul 34 (2010), the
Metro Gross Market (2012) and finally added Bulvar 216 (2014) to its
portfolio. Bulvar 216 is a mixed use project in Atasehir on the Anatolian
side of Istanbul. This is the first shopping mall concept in Turkey to focus
primarily on the food and beverage segment, featuring prominent names
like PF Chang’s and Harvard Cafe. All five projects bring in stable rental
income. Ozak REIC’s residential Hayattepe project, on the other hand, is
about to be completed with the sale of the remaining residences. Finally,
Ozac REIC’s latest projects include Kazlicesme and Izmir.
Land bank investments provide additional value
Ozak REIC retains a portfolio of valuable assets. The Company is
currently developing projects for its land banks; residential projects in
Balmumcu and Gokturk, a business center in Mahmutbey-Istanbul and
hotels in Didim and Demre in southern Turkey. While lands in Istanbul are
company owned, the REIC holds usufruct rights for Didim & Demre, which
are tourism allocated lands by the government for 49 years.
Consolidation complete after the IPO,
The IPO of Ozak REIC took place between February 8-10, 2012 at an
offering price of TL.2.50/share (adjusted price: TL1.56/share). The
Company successfully transferred its Ela Resort Hotel to its REIC portfolio
in 2009 and merged with its tourism subsidiary Aktay Turizm in March
2015.
Foreigners are showing avid interest in the REIC
After the Company went public with a 25% free float, its main
shareholders, the Akbalik family and Ozak Textile, initiated a share
Please see the last page of this report for important disclosures.
5
Ozak REIC
February 8, 2016
RESEARCH
Source: The Company
35,4
45,8
0
5
10
15
20
25
30
35
40
45
50
9M14 9M15
Rental Income Yearly Change (TLmn)
buyback for price stabilization. However, the buyback led to a decline in
Ozac REIC’s free float to 3.68%. In September 2014, the main
shareholders made a share placement to institutional investors, increasing
the effective free float back to 10.48%. The Company initiated a share
buyback program on September 28, 2015. Ozak REIC allocated TL5mn
for the repurchase of up to 3mn shares. The shares repurchased so far
amount to 331,000, but the Company is once again striving to reach a
25% free float in the coming period. Today, 24% of Ozak REIC’s free float
is made up of foreign investors.
No cash dividends in the near term, but the future holds promise
With a diverse product portfolio including industrial and retail rentals, land
investments and upcoming massive scaled projects, Ozak REIC is well
positioned for aggressive growth. Despite high growth prospects, the
REIC does not plan to distribute any cash dividends in the foreseeable
future. Instead, the focus will be on maximizing the Company’s value
through the continuous reinvestment of distributable profits.
Consistent increase in rental income
Ozak REIC maintains its average occupancy rate of 98.1%, and 94% of
its rental contracts are FX-based, linked to either LIBOR or Euro CPI. The
Company has consistently increased its rental income during the past five
years, with a small exception on the tourism front.
Rental Income Quarterly Change (TLmn)
Source: The Company
Risks
Any delays and a slower than expected sales performance in the
Kazlicesme project.
The ongoing legal process in the Izmir project and the pending
status for the license obtainment - although Izmir is not in our
valuation except for its advance payment, a rejection of the
application could have a negative sentiment impact on the share.
Prolonged geopolitical risks, which could further reduce foreign
tourist arrivals and hurt Ozak REIC’s tourism business.
REICs are exempt from the 20% corporate income tax. While we
assign a low probability, a removal of exempt status by the
government, is a risk.
A high portion of the NAV comes from the Kazlicesme project,
which presents a high degree of concentration of risk.
12,8 12,513,4
14,5
17,9
0
2
4
6
8
10
12
14
16
18
20
3Q14 4Q14 1Q15 2Q15 3Q15
Please see the last page of this report for important disclosures.
6
Ozak REIC
February 8, 2016
RESEARCH
VALUATION
Based on a SOTP valuation, we calculated a 12-month target share price
of TL3.50 for Ozak REIC, suggesting a 68% upside potential. Accordingly,
we are initiating our coverage with an Outperform recommendation.
(TLmn) Method Appraisal
Value Target Value
% of est. NAV
Land Bank 99 50 7%
Mahmutbey Appraisal Value 30 15
Balmumcu Appraisal Value 13 7
Gokturk Appraisal Value 56 28
Rental Portfolio DCF 1,064 479 63%
34 Portall
251
Is Istanbul 34 117
Metro Gross Market 94
Ela Resort Quality 378
Bulvar 216 224
Projects 244 481 64%
Hayattepe Appraisal Value 32 16
Kazlicesme DCF 130 383
İzmir Alsancak Advance Payment 83 83
Subsidiaries 166 83 11%
Arstate Turizm Appraisal Value 83 42
Aktay Otel Appraisal Value 83 42
Net Cash -336
Estimated NAV 758
12M Target Value 875
12M Target Share Price (TL) 3.50
Current Share Price (TL) 2.08
Upside Potential 68%
Please see the last page of this report for important disclosures.
7
Ozak REIC
February 8, 2016
RESEARCH
Kazlıcesme Project Valuation Summary (TLmn) 2015E 2016E 2017E 2018E 2019E 2020E 2021E 2022E
Sales area (sqm) 315,000
Average sqm sales price (TL/sqm) 13,460
Total Revenues (TLmn) 4,240.0
Construction Area 441,000
Average sqm cons. price (TL/sqm) 3,200
Total Development Cost (TLmn) -1,411.2
Construction Completion Ratio 0% 20% 40% 80% 100% 100% 100% 100%
Sales Completion Ratio 0% 15% 30% 45% 75% 85% 95% 100%
Delivery Completion Ratio 0% 0% 0% 0% 15% 85% 95% 100%
Presale Cash Inflow to OZY (TLmn) 0.0 534.2 423.7 322.2 566.0 424.0 415.5 133.6
Construction Costs (TLmn) 0.0 -282.2 -282.2 -564.5 -282.2 0.0 0.0 0.0
FCF 0.0 252.0 141.4 -242.2 283.8 424.0 415.5 133.6
Discount Factor 1.12 1.27 1.45 1.64 1.87 2.12 2.41
PV of Cash Flows 819.6 224.5 111.0 -167.4 172.7 227.2 196.1 55.5
Ozak REIC's Share (55%) 450.8
Discount 15%
Value 383.1
Delivery & Sale Revenues (mnTL) 2013 2014 2015E 2016E 2017E 2018E 2019E 2020E 2021E 2022E
Hayattepe 182.8 75.0 65.0
Kazlicesme 0.0 0.0 0.0 0.0 349.8 1,632.4 233.2 116.6
İzmir Alsancak
Bulvar 216 Ofis 95.0
Total Residential Income 0.0 277.8 75.0 65.0 0.0 0.0 349.8 1,632.4 233.2 116.6
Revenues 2013 2014 2015E 2016E 2017E 2018E 2019E 2020E 2021E 2022E
Total Rental Income 40.0 47.9 61.1 64.3 67.3 70.6 74.1 77.9 81.9 86.3
Residential Sale Income 0.0 277.8 75.0 65.0 0.0 0.0 349.8 1632.4 233.2 116.6
Tourism Income 53.3 57.6 49.0 53.2 57.2 61.4 66.0 71.0 76.3 82.1
Net Sales 93.0 382.9 184.6 182.0 124.0 131.5 489.4 1780.7 390.8 284.2
Rent Revenues (mnTL) 2013 2014 2015E 2016E 2017E 2018E 2019E 2020E 2021E 2022E
34 Portall 12.4 13.9 15.1 16.2 17.4 18.7 20.2 21.7 23.3
Is Istanbul 34 5.0 4.5 4.9 5.3 5.7 6.1 6.6 7.1 7.6
Metro Gross Market 4.9 5.2 5.6 6.1 6.5 7.0 7.5 8.1 8.7
Ela Resort Quality 21 24.3 26.6 26.8 27.1 27.4 27.6 27.9 28.2 28.5
Bulvar 216 1.3 10.9 11.8 12.7 13.6 14.7 15.8 16.9 18.2
Total Rental Income 40.0 47.9 61.1 64.3 67.3 70.6 74.1 77.9 81.9 86.3
Tourism Revenues (mnTL) 2013 2014 2015E 2016E 2017E 2018E 2019E 2020E 2021E 2022E
Ela Resort Quality 53.3 57.6 49.0 53.2 57.2 61.4 66.0 71.0 76.3 82.1
Please see the last page of this report for important disclosures.
8
Ozak REIC
February 8, 2016
RESEARCH
We value the land bank, the subsidiaries and the Hayattepe project
with a 50% discount on their 2015-end appraisal values, in line with
the Company’s current discount.
We use the DCF valuation methodology for the valuation of the
Kazlicesme project. We expect the company to kick-off sales in
2016 with sales reaching 15% by the end of 2016. We expect
construction to be completed by 2019 with sales reaching 75%. We
estimate total sales revenue at TL4.2bn, in line with the Company
guidance. We assume a more conservative total project
development cost at TL1.4bn vs. the company guidance of
TL1.2bn. We further add a 15% discount to the DCF valuation to
incorporate possible delays in the cash flow. Accordingly, we value
the Company’s stake in the project at TL383mn. A better than
expected sales performance in the Kazlicesme project would add
further upside to our valuation.
For the Izmir Alsancak project, we have to keep the ongoing legal
process in mind. Therefore, we do not include any sales proceeds
from the project in our estimates and instead, include the project
with the value paid for the advance payments. An approval for the
license would provide an upside risk, on top of our current
valuation.
We use the DCF valuation methodology for the valuation of the
rental portfolios. Accordingly, we value the NPV of the net operating
incomes of the rental portfolio at TL479mn.
We use the 9M15 net debt position of TL336mn. We expect the
Company to be able to pay off its debt starting from 2019 with unit
sales from the Kazlicesme project.
Accordingly, we reach a 12-month target share price of TL3.50/
share, indicating a 68% upside potential.
Please see the last page of this report for important disclosures.
9
Ozak REIC
February 8, 2016
RESEARCH
FINANCIAL ANALYSIS
Revenue Company Guidance (TLmn)
EBITDA Company Guidance (TLmn)
Garanti Securities Revenue Forecast (TLmn)
Garanti Securities EBITDA Forecast (TLmn)
110 260 192
770
2,463
1,252
7593 136
189
223
229
0
500
1000
1500
2000
2500
3000
2015E 2016E 2017E 2018E 2019E 2020E
Real Estate Tourism
185 353 328
959
2,686
1,481
33116 86
238
718
357
22
31 49
68
80
83
0
100
200
300
400
500
600
700
800
900
2015E 2016E 2017E 2018E 2019E 2020E
Real Estate Tourism
55
147 135
306
798
440
185 182124 132
489
1781
0
200
400
600
800
1000
1200
1400
1600
1800
2000
2015E 2016E 2017E 2018E 2019E 2020E
60 6642 43
161
589
0
100
200
300
400
500
600
700
2015E 2016E 2017E 2018E 2019E 2020E
Our estimates differ from the Company’s
guidance.
The Company’s latest guidance includes
a potential sale of the Bulvar 216 project
in 2016 and 2017, which is not included
in our estimates.
The Company projects a significant jump
in 2019 stemming from the completion of
its upcoming projects: Kazlicesme &
Izmir Alsancak.
We, however, project that Kazlicesme
deliveries will start in 2019 and estimate
that most of the project will be delivered
in 2020.
For the Izmir Alsancak project, we have
to keep the ongoing legal approval
process in mind. Therefore, we do not
include any sales proceeds from the
project in our estimates and instead
include the project with the value paid for
the advance payments, which is TL83mn.
Please see the last page of this report for important disclosures.
10
Ozak REIC
February 8, 2016
RESEARCH
Ozak REIC has undertaken a total debt of TL130mn for its Kazlicesme
project, while the debt amount for the Izmir Alsancak project is TL82.5mn,
the advance payment value. The debt for its other projects was
TL191.4mn as of 9M15.
Debt Split by Project
Source: The Company
The net debt of the Company stood at TL335.6mn as of 9M15 (2014:
TL292mn). However, the net debt figure declines to TL123.1mn when
total advance payments for the projects, amounting to TL212.5mn, are
deducted.
Net Asset Value Revealed by the Company (2014-2015)
Kazlicesme Project; 32,2%
Izmir Project; 20,4%
Other Projects; 47,4%
2014 9M15 2015
24.8 27.0 29.7
7.9 11.6 13
32.7 38.6 42.7
194 222.6 251.2
89.7 102.8 116.9
84.2 84.0 94.1
309.4 350.0 378.0
677.3 759.4 840.2
35.9 50 56.4
171.8 171.8 223.8
207.7 221.8 280.2
32.2 45.9
68.0 31.7 22.0
11.0
68.0 31.7
- - -
64.1 64.1 83
34.1 34.1 83
0.01 0.01 0.01
98.2 98.2 166
142.9 45.3
212.5 212.5
59.3 57.5
217.7 152.9
417.9 359.1
895.6 999.0
Balmumcu, Istanbul - Land
Total
34 Portall, Istanbul - Off ice
Subsidiaries
(Tourism)
Bulvar 216, Istanbul - Retail
Total
Hayat Tepe
Newly-Included
Projects
Portfolio Value
Lands
Ongoing Projects
Completed
Projects
(Inventory)
Buildings
Hayat Tepe Suites
Total
Is Istanbul 34, Istanbul - Off ice
Metro Gross Market, Istanbul - Retail
Ela Resort Quality Hotel
Total
Gokturk, Istanbul - Land
Mahmutbey, Istanbul - Land
NET ASSET VALUE
TLmn
(-) Other Liabilities
(-) Loan
Betuyap - Detuyap
Total
(+) Cash
(+) Advance Payments in Projects
(+) Other Assets
Aktay Turizm
Arstate Turizm
Aktay Otel
Land; 7,4%
Project; 6,5%
Retail; 21,4%
Office; 27,2%
Tourism; 37,5%
Portfolio Breakdown by NAV
Source: The Company
Please see the last page of this report for important disclosures.
11
Ozak REIC
February 8, 2016
RESEARCH
THE COMPANY
Ozak Global Holding is a conglomerate focusing on four business
segments: textiles, construction, tourism and REICs.
Ozak Textile
Founded in 1985, the Company has 57,000sqm of enclosed space in four
separate factories. Ozak REIC holds a 5% share in Ozak Textile, a stake
the REIC plans to spin off in the coming period, although the timing is
uncertain. Ozak Textile is a contract manufacturer for established brands,
such as Armani, Prada, Hugo Boss, Zara, Guess, Massimo Dutti, Replay
and Esprit. 95% of its production is intended for export. The Company has
had consistently stable growth since its inception with average annual
revenues of TL250mn. Ozak Textile employs 2,200 personnel.
Construction
Established in 1995, Int-Er Yapi provides project management,
procurement management, quality management and cost and process
management services for Ozak REIC’s projects. Int-Er Yapi has a
professional team of 210 specialists along with 1,500 construction site
personnel, including subcontracting staff.
Tourism
Ozak Global Holding entered the tourism industry in 2007 with the Ela
Quality Resort Hotel through its stakes in Aktay Turizm and Aktay Hotel.
The Ela Resort, located in Antalya, has a family/child priority concept, and
superior quality rooms with personalized “villas”. The hotel has nine
separate a la carte and snack restaurants overseen by celebrated chefs
and is supervised by quality management under a full-time staff of food
engineers. The hotel reaches up to a 100% occupancy during the high
season.
REIC
Founded in 2009, Ozak REIC carries out real estate and real estate
investment projects as well as tourism activities. The REIC employs a
team of specialists in business development, zoning laws and regulations,
feasibility studies and market research, property appraisals and
architectural concept formulation. The REIC has designed distinguished
urban-center projects that have been recognized and cited for awards by
leading European organizations. Ozak REIC is independently audited by
Ernst & Young. The Company was ranked 57th in Forbes 2015 list of “The
Biggest 100 Turkish Firms”.
Ozak REIC Subsidiaries:
Aktay Hotel Management (Ela Resort) (95%)
Arstate Tourism (100%)
Ozak-Yenigun-Ziylan Joint Venture (Ozak REIC’s stake is 55%)
Please see the last page of this report for important disclosures.
12
Ozak REIC
February 8, 2016
RESEARCH
Source: The Company
Ozak REIC differentiates itself as a project developer, operating in four
different segments (industry, commercial, residential and tourism)
providing diversification against risks. Meanwhile, the TRY depreciation
against the currency basket does not pose a risk to rental contract
revenues.
Source: The Company
Ozak REIC has five completed projects (its rental portfolio), one project
with ongoing sales (Hayat Tepe), and two upcoming projects in its
portfolio. The REIC is already obtaining sustainable cash flow generation
through the rental income of its completed projects. The two upcoming
projects, Kazlicesme and Izmir Alsancak, however, will be game changers
for the REIC.
Shareholder Structure
Ahmet Akbalik; 52.80%
Urfi Akbalik; 30.60%
Ozak Textile & Other; 6.10%
Effective Free Float;
10.50%
Please see the last page of this report for important disclosures.
13
Ozak REIC
February 8, 2016
RESEARCH
Rental Portfolio
34 Portall Plaza, Istanbul / Industrial Office Building
Completion Date: 2010
Occupancy Rate: 100%
Annual Rental Income: TL14.3mn
Rental Yield Ratio: 26.7%
Land & Development Costs: TL53.3mn
Appraisal Value: TL222.6mn (4.2x)
Is Istanbul 34, Istanbul / Office & Commercial
Completion Date: 2010
Occupancy Rate: 85%
Annual Rental Income: TL4.4mn
Rental Yield Ratio: 20.6%
Land and Development Cost: TL21.5mn
Appraisal Value: TL102.8mn (4.8x)
Bulvar 216, Istanbul / Office & Retail
Completion Date: 2014
Occupancy Rate: 91%
Annual Rent Income: TL11.8mn
Rental Yield Ratio: 15.9%
Land & Development Costs: TL73.9mn
Appraisal Value: TL171.8mn (2.3x)
Metro Gross Market, Istanbul / Retail
Completion Date: 2012
Occupancy Rate: 100%
Annual Rental Income: TL5.2mn
Rental Yield Ratio: 14.9%
Land & Development Costs: TL34.7mn
Appraisal Value: TL84.2mn (2.4x)
Ela Quality Resort Hotel, Antalya / Tourism
Completion Date: 2007
Occupancy Rate: 65%
Annual Rent Income: TL26.6mn
Rental Yield Ratio: 21.5%
Land & Development Cost: TL123.9mn
Appraisal Value: TL350.0mn (2.8x)
Please see the last page of this report for important disclosures.
14
Ozak REIC
February 8, 2016
RESEARCH
Kazlicesme Project
The consortium of Ozak REIC, Ziylan REIC and Yenigun Construction has
won the revenue-sharing project by offering the highest bid in Emlak
Konut REIC’s January 2014 tender in exchange for land sale located in
Kazlicesme, Istanbul. Ozak REIC is the consortium leader in the project
with a 55% stake (Ziylan 30%, Yenigun 15%).
On October 23, 2015 Ozak REIC established the Buyukyali Hotel
Management Inc. with a letter of consent from Emlak Konut REIC and the
Ozak-Yenigun-Ziylan partnership with the aim of reaching an agreement
with an international hotel chain for the hotel segment of the Kazlicesme
project. Ozak REIC’s board of directors decided to purchase a 55% share
in the Buyukyali Hotel Management Inc., established for tourism and hotel
management.
In January 2016, Ozak REIC obtained the construction permit for the
Kazlicesme project.
The expected revenue from the project is TL4.2bn, 37% of which will be
paid to Emlak Konut REIC (TL1.6bn). The consortium partners paid
TL235mn in advance payments to Emlak Konut REIC (Ozak REIC paid
TL130mn) for the project. Construction is expected to start in 1Q16 and
be completed by 2Q19. We anticipate sales to reach 75% at the end of
2019. We expect the construction to be completed by 2019 with sales
reaching 75%, and estimate sales revenue at TL4.2bn, in line with the
Company guidance, while we assume a more conservative total project
development cost at TL1.4bn vs. the company guidance of TL1.2bn.
Accordingly, we value the Company’s stake in the project at TL383mn
after applying a 15% additional risk discount to reflect any possible delays
in the project. Consequently, a better than expected sales performance in
the Kazlicesme project would present an upside risk for our valuation.
Project Details
Mixed Use
Istanbul, Kazlicesme
2016
Construction 2019, Sales 2020
111,200 sqm
TL1.2bn
TL4.2bn
TL800mn
TL13,370
185,000 sqm Residence
85,000 sqm Office & Home Office
20,000 sqm Hotel
25,000 sqm Commercial
315,000 sqm
Expected Average
Sale Price per
square meter
Ozak REIC (55%)
Ziylan Gayrimenkul (30%)
Yenigun Insaat (15%)
Expected
Completion Date
Land Area
Sellable / Leasable
Area
Expected Project
Development Cost
Expected Sale
Income
Expected Profit
(55% OZAK REIC
share)
Ownership
Project Type
Location
Expected Start Date
Peer Projects Sale Price per m2
Yali Atakoy
TL20,900 - TL24,200
Sea Pearl, Bakirkoy
TL15,950 - TL23,100
Ottomare, Zeytinburnu
TL12,320 - TL17,150
Source: The Company
Source: The Company
Please see the last page of this report for important disclosures.
15
Ozak REIC
February 8, 2016
RESEARCH
Izmir Project
Ozak REIC won Emlak Planlama Pazarlama (EPP)’s tender for the
revenue-sharing project in September 2013, in exchange for the land
located in Alsancak, Izmir. The REIC has full ownership in the project,
which is in notable proximity to Izmir’s most upscale neighbourhood,
Alsancak, and is the largest land available downtown for the construction
of a massive mixed-use project. The Izmir project will include residential
units, a hotel, a shopping mall, as well as office and commercial areas.
The REIC plans to start construction in 4Q16 and complete the first phase
in 4Q19, and the second phase in 4Q21. The Company estimates the
project to generate TL2.2bn of revenues, of which 37% will be paid to
EPP. Ozak REIC targets to obtain TL450mn profit from the project. There
is an ongoing legal process regarding the Alsancak land, and the
Company has not yet obtained the construction permit.
Project Details
Phase 1 Phase 2
2019 2021
2020 2022
5,000 sqm Commercial
Expected Average
Sale Price per
square meter
TL6,645
Ozak REIC (100%)
Land Area
Expected
Completion Date
133,360 sqm
Construction
Sales
Expected Project
Development CostTL941mn
Expected Sale
IncomeTL2.2bn
Expected Profit
(55% OZAK REIC
share)
TL450mn
Sellable / Leasable
Area
111,000 sqm Office & Home Office
15,000 sqm Hotel
80,000 sqm Shopping Mall
330,000 sqm
120,000 sqm Residence
Location Izmir, City Center - Alsancak
Expected Start Date 2016
Ownership
Project Type Mixed Use
Peer Projects Sale Price per m2
Ege Perla, Gulf of Izmir
TL5,500 - TL8,400
Mistral, Alsancak
TL6,600 - TL8,800
Folkart Towers, Bornova
TL5,900 - TL7,000
Source: The Company
Source: The Company
Please see the last page of this report for important disclosures.
16
Ozak REIC
February 8, 2016
RESEARCH
Land Bank & Planned Projects
Balmumcu Land, Istanbul
Project Type: Residence
Land Area: 8,349 square meters
Appraisal Value: TL105.0mn
Gokturk Land, Istanbul
Project Type: Residence
Land Area: 17,403 square meters
Appraisal Value: TL56.4mn
Mahmutbey Land, Istanbul
Project Type: Business Center
Land Area: 6,680 square meters
Appraisal Value: TL29.6mn
Didim Land, Aydin
Project Type: Hotel
Land Area: 164,000 square meters
Appraisal Value: TL50.0mn
Demre Land, Antalya
Project Type: Hotel
Land Area: 71,000 square meters
Appraisal Value: TL18.9mn
Ongoing Sales Portfolio
Hayat Tepe Residences, Bayrampasa Istanbul
Start Date: 2012
Sellable Area: 78,533 square meters
Ozak Hayat Tepe (Delivered as of September 30, 2015): TL234.8mn
Delivery Ratio (as of September 30,2015): 479/546 (87.7%)
Hayat Tepe Suites Pre-Sales (as of September 30, 2015): TL18.2mn
Pre-sales Ratio (as of September 30, 2015): 49/68 (72%)
Please see the last page of this report for important disclosures.
17
Ozak REIC
February 8, 2016
RESEARCH
4Q15 Preview
Ozak REIC generated TL63mn in revenues in 3Q15, down by 59% YoY,
despite an increase in rental revenues by 40% YoY. The decrease in
revenues is attributable to the high base effect from 3Q14 due to the
USD45mn sale of Bulvar 216 offices to OPET Petrolculuk.
As of end-9M15, the Company has a net debt position of TL336mn and it
has a TL94mn short FX position. We project Ozak REIC’s net debt to
decline to TL260mn at 2015E, yet we estimate the debt status of the
Company to remain in the red until 2019 with fluctuations every year due
to project funding costs.
We expect 4Q15 revenues to decrease by 79% YoY. This is attributable
to the high base effect from the sale of Hayat Tepe residences from 4Q14.
We expect 4Q15 net income to increase by 44% YoY, despite a huge
decrease in residential sales income YoY (2014: TL278mn, 2015E:
TL75mn), thanks to a significant contribution from other income, which is
mainly from the revaluation of assets held.
Ozak G.M.Y.O. Summary Financials
(mn TL) 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15E YoY QoQ
Net Sales 152 190 40 43 63 39 -79% -38%
Gross Profit 78 42 6 16 33 17 -60% -49%
Operating Profit 74 35 1 12 29 8 -78% -74%
EBITDA 78 35 6 13 31 10 -71% -68%
Net Other Income/Expense 63 58 7 72 -12 136 133% n.m.
Financial Inc./ Exp. (net) -11 2 -27 -14 -10 -5 n.m. n.m.
Tax -4 0 2 1 -3 0 n.m. n.m.
Net Income 122.0 95.9 -16.1 71.5 2 138 44% n.m.
Net Cash -297 -292 -345 -331 -336 -260 n.m. n.m.
Working Capital 190 31 24 14 23 -6 n.m. n.m.
Shareholders Equity 708 817 851 975 979 1,106 135% n.m.
Ratios
Gross Margin 51.4% 22.3% 14.3% 37.4% 52.8% 43.7%
Operating Margin 49.0% 18.3% 2.1% 27.3% 45.5% 19.4%
EBITDA Margin 51.7% 18.1% 15.6% 29.5% 49.7% 25.2%
Net Profit Margin 80.4% 50.4% n.m. 167.0% 3.6% 353.5%
Change
Please see the last page of this report for important disclosures.
18
Ozak REIC
February 8, 2016
RESEARCH
Price Performance - Ozak REIC
Source: BIST
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RESEARCH
Definition of Stock Ratings
OUTPERFORM (OP) The stock's return is expected to exceed the return of the BIST-100 over the next 12 months.
MARKET PERFORM (MP) The stock's return is expected to be in line with the BIST-100 over the next 12 months.
UNDERPERFORM (UP) The stock's return is expected to fall below the return of the BIST-100 over the next 12 months.