CORESTATE Capital S A : Transcript

Transcription

CORESTATE Capital Holding S.A. - Deal Announcement

EV00119608

15 January 2021

CORESTATE Capital Holding S.A. - Deal Announcement

EV00119608

PRESENTATION

00:00:02 Operator

Dear ladies and gentlemen, welcome to the conference call of Corestate Capital Holding S.A. At our customer's request this conference will be recorded; as a reminder, all participants will be in a listen only mode. After the presentation, there will be an opportunity to ask questions. May I now hand you over to Kai Klinger, who will lead you to this conference.

Please go ahead.

00:00:36 Dr. Kai Klinger

Hello, everyone, and a warm welcome to our conference call today for the presentation of our groundbreaking

transaction. As usual, I'd like to direct your attention to the forward looking statement and disclaimer wording on page 2

of the presentation. The Safe Harbor language applies to the presentation and all comments we'll be making today. I

would also like to mention that everything is being recorded, after the call a replay will be available on our website. Our

CEO, René Parmantier, our CFO Lars Schnidrig, our new colleagues, Johannes Märklin and Sebastian Ernst, and I will

guide you through the presentation, followed by the usual Q&A session. The time frame for today's call is about 30 to 45

minutes. Now it's my pleasure to turn the call over to René, for all these years.

00:01:27 René Parmantier

Thank you very much, Kai, and thank you very much to the team. Good morning, Ladies and Gentlemen, and very happy that you are on board for this this call. We announced yesterday the acquisition of AFS, a BaFin Regulated Securities Trading Bank as a primarily share deal with an enterprise value of 113 million. The AFS deal is an amazing market opportunity at the right time for Corestate Capital Group. The transaction makes strong strategic sense, which I will describe shortly, given the growth in our real estate debt asset management advisory business. Plus it creates 10 million of annual run rate synergies within this deal.

It is key, you know, credit markets are currently constrained and disrupted, especially in higher risk asset classes, which opens an exceptional market opportunity for us to acquire Aggregate financial services. HFS and AFS both have an unparalleled track record and significant complementary experience in real estate debt. Also, cross-selling is huge for us within Corestate, HFS, AFS and within the group. This is clear, and very important that you get this message which will really support our business in the long run; from our point of view, in terms of timing. It was the right time to do this transaction as a lot of companies are looking at expanding the equity business onto the debt sides, as the banking industry has changed a lot during the last couple of years.

The purchase price consideration of 8.5 million new Corestate shares at 14.73 per share as of January 14, 2021, and 5 million in cash to be paid on completion of offer, is implying a consideration of a total euro 130 million. AFS has a net cash position of 17 million. The enterprise value is, like I said, already at the beginning, 113 million. The AFS shareholders are Aggregate Participations, 70 percent, Leonis Capital Management 15 percent, which is represented by Johannes Märklin and Feldmannhof Capital, which is Sebastian Ernst with 15 percent. Both Aggregate Participations and the two founders, are very long term orientated and very aligned investors. They support the future strategy and the management, of course, that's why it's key for all of us, for Lars, for the rest of the management board that these two gentlemen are now part of the team, part of this group. In addition up to 1.5 million new shares in total could be issued over the next three years on very clear achievements of certain profitability metrics of AFS.

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CORESTATE Capital Holding S.A. - Deal Announcement

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I turn now to page 4. AFS will join forces together with HFS Helvetic Financial Services. Of course, that's highly profitable private debt business. You know that this is a key part of our group. Let me highlight a few points. Sebastian and Johannes will commit themselves to Corestate for the long term, with a three year contract as managing partners of AFS and also future members of the management boards at Corestate. And also they will support Martin Bassermann and myself as members of the board of directors at HFS. And this is key to us.

They are receiving primarily shares of Corestate, it is really, just an all paper deal with long term lock up, which incentivize them to continue within the group and to deliver the profits we're envisaging.

Turning to page 5 and you all know the real estate market in Germany and Europe quite well but let me talk a little bit about the real estate market in Germany and the debt market. Germany is the largest housing market in Europe and is structurally undersupplied. With government bond yields close to historic lows, German residential properties look even more attractive on a relative basis. Credit remains accessible as dry powder levels of European debt fund continues to grow. This is key for us, and that's why we did it at this time. It's a great opportunity and you all know these slides and you know the market.

That's why I turn to page 6. And you know the banking markets, banks have rationalized their real estate lending activities and that lending has been negative recently, nonbank lenders and specialist debt funds are becoming increasingly popular alternatives for commercial real estate borrowers for the whole market. I think it's key, our customers in the future will be all listed real estate companies and non-listed, Corestate together with AFS and HF will be the one stop shop in this area. Mezzanine lenders are managing to obtain more favorable terms, higher coupons, lower LTVs as a result of this trend. There remain significant refinancing requirements in the markets, creating abundant opportunities for alternative lenders to take advantage of decreased competition and capitalize on more attractive loan pricing. That's why I mean, this gives you a little bit of a highlight why we're doing this. There are other companies within the sector aiming to expand the debt business. And in a way and I hope that you understand that that we are some sort of the ones who already had a debt business with HFS and now supporting this debt business and growing all parts of financing in the real estate market. I think this is very key to understand, and that's why it's a pleasure for me to introduce you Johannes and Sebastian. They introduce themselves, their background, where they come from, and they will also show you the commitment to the team, to Lars and the other members of the management boards, to the group. We had a very long call this morning with the senior management team, and I think it was very productive and people really see what cross-selling is really coming from, how can we bring this company forward? And that's why welcome to Sebesta and your and I hand over to Sebastian now.

00:09:24 Sebastian Ernst

Thank you very much, René. Good morning, everyone. My name is Sebastian Ernst. I'm 45 years old, I'm married and the father of three children. Let me start by saying that I'm really thrilled and delighted to become part of the Corestate Group. In a short period of time, AFS has already become one of the leading debt financing platforms of real estate in Germany. And together with Corestate and especially HFS, we will be able to offer our real estate clients and institutional investors a really unique and tailor-made product suite in the real estate debt space. Prior to founding AFS, I enjoyed the 17-year career at Deutsche Bank with various management positions within Deutsche Bank's investment bank, mainly in the credit rating and credit structuring departments. For the last five years at Deutsche Bank, I was the global head of illiquid and repackaged credit trading with teams in London, Frankfurt in New York. The team focused on the underwriting and structuring of financing solutions for global debt issuers and secondary trading in the liquid bonds and loans. For primary and secondary trading activities included complex and mortgage backed financings for German and European real estate companies, as well as secured financings for corporate customers. On the basis of that experience, and my longstanding working relationship with Johannes, who was also DB, we founded AFS in 2018 with the aim to create an independent, very specialized, flexible and best in class bank for real estate debt financing solutions. This transaction creates the opportunity for us to further expand our medium term strategy to build a unique

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debt platform which is complemented by debt funds in the mezzanine, whole loan, and senior space. I'm really convinced that this newly formed organization will lead to improved services to our clients, significant business opportunities, sustainable revenue growth and a win-win situation to all involved parties. And finally, let me say, I'm really happy to be given the opportunity to actively drive and develop the combined business into a long term success story together with the existing Corestate team. That's also the reason why I accepted a long lockup period for my shares. With this, let me turn it over to Johannes for his introduction.

00:11:38 Johannes Märklin

Thank you, Sebastian, and a warm welcome from my side to the audience as well. Let me briefly give you some background about myself. I'm married and a father of four children, and I started my career more than 25 years ago in the German banking sector and spent 19 years of my career at Deutsche Bank, where I took various responsibilities in DB's Investment Bank, mainly focusing on origination syndication and structuring of debt products for international and domestic clients. Most recently, I owned global responsibility as a managing director for Deutsche Bank's private debt syndicate division with teams in Frankfurt, London, Singapore, and Tokyo developing tailor-made financing solutions for international and domestic corporate customers, including real estate clients. In this role, I took responsibility for the structuring, financing, and placement of real estate debt products to institutional investors, ranging from acquisition financing of a single asset or yielding real estate portfolios to development and construction financing.

In July 2018, I co-founded AFS as managing partner to purely focus on building an independent, dedicated real estate financing platform. At AFS I'm proud of working together with a highly specialized and experienced real estate team that serves the needs for tailor-made solutions for our real estate clients.

Let us now move to page eight and let me give you some background from our side on why this deal makes a lot of sense and its value for AFS. We founded AFS and left DB to create an independent, dedicated real estate financing platform with corporate finance, institutional client and sales, structuring and capital market divisions, as you can see on the right hand side. Our product suit ranges from mezzanine to senior loan financings, promissory notes, bonds, fund solutions and occasionally the mediation of real estate assets. Now, as a combined business as part of Corestate Group, AFS is fully complementary to the successful HFS Mezzanine Fund business. Our response time on client solutions, financing for our clients will be much faster given the access to HFS mezzanine lending on the one side. And it clearly drives accelerated, but also sustainable growth. On the other side, AFS investors searching for attractive risk return can be offered the HFS product suit comprising of future senior lending funds.

On top, the lending of HFS mezzanine capital to real estate clients can be complemented by HFS cross-selling, further financing products. We estimate such potential purely on a standalone basis to generate at least EUR 7 to 10 million of revenues per year. The AFS banking license allows us to issue and offer financial instruments to both AFS and Corestate clients. As a summary AFS management, and I personally are thrilled about this opportunity to be part of Corestate group. This opportunity accelerates our efforts to serve our customers with excellent products in line with our high expectations and followed by our earnings. I'm convinced that there is no better opportunity in timing to form such integrated debt financing platform. This is a long term opportunity to generate high growth in AFS debt business. And that's actually the reason why the five year lock up matches my personal business interest perfectly.

00:16:41 René Parmantier

Thank you very much, Sebastian and Johannes, I think Sebastian is now going to continue on page 9.

00:16:47 Sebastian Ernst

Thank you, Rene. Let us now turn to page 9 and look at the history and the development of AFS. AFS has a great track record of growth over the past three years since its founding. We have advised, structured, and placed north of 3 billion

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