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%


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


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


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


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%


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


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.


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.


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


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%)


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%


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


Occupancy Rate: 85%



Land and Development Cost: TL21.5mn


Bulvar 216, Istanbul / Office & Retail


Occupancy Rate: 91%

Annual Rent Income: TL11.8mn




Metro Gross Market, Istanbul / Retail


Occupancy Rate: 100%





Ela Quality Resort Hotel, Antalya / Tourism


Occupancy Rate: 65%

Annual Rent Income: TL26.6mn


Land & Development Cost: TL123.9mn



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


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


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



Mahmutbey Land, Istanbul

Project Type: Business Center



Didim Land, Aydin

Project Type: Hotel



Demre Land, Antalya

Project Type: Hotel



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%)


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


18

Ozak REIC

February 8, 2016

RESEARCH

Price Performance - Ozak REIC

Source: BIST

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Garanti Securities

Etiler Mah. Tepecik Yolu

Demirkent Sokak No:1

34337 Besiktas, Istanbul / Turkey

Phone: +90 (212) 384-1155

Fax: +90 (212) 352-4240

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.

ozak reic february 8, 2016 outperform analyst: kerim gokoz ... · ozak reic is an affiliate of ozak...

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