HEMA - key money estimate and 2020 transition

All,

Please find our updated analysis here.

We have contacted a Dutch retail specialist to confirm the touted E100m valuation for the key-money HEMA expect from Jumbo. In his experience the valuation is reasonable and we have laid out the math in our analysis. 

However, by the same token, Hema will have to pay corresponding key-money in their replacement of these locations. Given Hema will have more time and should be looking for slightly smaller locations (thinking 200m2 and less back room) Hema’s outlay should be considerably smaller, and the company may eventually not replace all these stores. 

Thus we have modelled a significant initial reduction in leverage due to key-money and VAT differential, followed by a subsequent rise - largely back to current levels - due to such key-money outlay and lower EBITDA from non-renewed stores, increased DC opex from Feb. onwards, investment in WC and a shorter Q4 (back to 52 weeks). 

Actual deleveraging should be a 2021 event, where eventually we see the SUNs covered.

We thus remain long the SSNs at this stage and wait for the announcement of the key-money transfer, whereupon at least on an LTM basis the company should de-lever significantly - for a moment. The fundamental rationale for our investment remains however longer term.

Wolfgang