EquitResearch

06 December 2018

Abitare In is well on track to meet its business plan targets for 2018. The group has sold 123 apartments at the under-construction Abitare In Maggi-olina project, and a further 94 units from initial marketing of Milano City Vil-lage, where a second campaign is now underway. Two further Milan residen-tial projects are in the pipeline: BelVil in Via Cadolini and AIS in via Privata Somalia (Accursio). We have updated our valuation to reflect the capital in-creases that expanded the number of shares to 2.56m (from 1.8m in July 2017), as well as a more conservative completion schedule for current projects. In this report we cut our target price from EUR69.7 (post the 10:1 split in September) to EUR47.8 per share, but maintain our BUY. • Abitare In will close out 2018 having completed sales of its Abitare In Maggi-

olina project and a successful initial promotional campaign for Milano City Vil-lage. Indeed, all 94 apartments in the latter project’s City Plaza building have been sold, and a second marketing campaign is now underway.

• The group recently acquired the land for two more projects, BelVil via Cadolini (530 apartments due in 2022-23) and AiS via Privata Somalia (135 apart-ments) due in 2021-22.

• In this report we cut our target price from EUR69.7 (post the September stock split) to EUR47.8 per share. This represents 72% upside from yesterday’s close at EUR27.7.

SEE PAGE 10 FOR DISCLAIMER & DISCLOSURES

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Rating

Y

Target price

EUR

AbitareIn S3ckingtotheblueprint

Matteo Radaelli +41 91 210 4818 matteo.-

radaelli@hammer-partners.com

Pan-European Sales Desk

+41 91 92 40160 sales@

hammer-partners.com

Closingprice EUR27.7

Marketcap EUR69.2bn

Bloomberg

ABT:IM

RatingBUY

Target price

EUR47.8 (from EUR69.7)

Financials overview

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Investmentcase

Abitare In’s innovative business model and strong focus on integrated marketing strategies have enabled the group to position itself as a key beneficiary of Milan’s housing market recovery. Above all, the company is delivering on what it promised to investors.

In line with the group’s model, the Abitare in Maggiolina project was fully sold before start of construction, and sales of units at the Milano City Village project are now well underway. The company already has two more in the pipeline: Bel-Vil in via Cadolini and AiS in via Privata Somalia (Piazzale Accursio).

Abitare In has an established track record of delivering on its projects with effi-cient marketing campaigns. This leads us to believe Abitare In could finish all projects in line with the original plan by 2023. Still, we have chosen to be prudent, and to postpone the completion date of the current projects. For example, we now project Abitare In Maggiolina to report all revenue in 2020 and not 50% in 2019 and 50% in 2020 as in the original model.

We have updated our valuation to factor in both a later completion date for the projects and the higher number of shares outstanding. As a result, we lower our target from EUR69.7 to EUR47.8 per share. This represents 72% upside from yes-terday’s close at EUR27.7. We therefore maintain our BUY rating on the stock.

Milanhousingmarketcon3nuestosnapbacksmartlyAbitare In operates exclusively in Milan, where the housing market continues to benefit from some key positive drivers:

1) Positive long-term demographic trend: In a 15-month period in 2014-15, Milan welcomed +50k new citizens under the age of 40. Estimates now call for the number of residents to grow by 200k by 2035 (from 1.352m in 2017).

2) Not sensitive to real estate cycles: The Milan housing market has already recovered from EUR7bn a year in 2007 to EUR12bn. New construction ac-counts for only 10% of all transactions.

3) High growth market: the positive trend has continued in 2018, with transac-tions up 4.4% YOY.

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2018-23projectsFollowing the completion of the first project, Abitare In Poste, Abitare In is now working on four additional sites: Abitare in Maggiolina, Milano City Village, BelVil via Cadolini and AiS in via Privata Somalia (close to Piazzale Accursio).

Abitare in Maggiolina We expect this second project to be completed by September 2020. The project comprises 125 apartments in Milan’s northeast.

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All Abitare In Maggiolina apartments have been sold, with the company securing sale prices higher than originally planned. For example, the first campaign gener-ated sale prices 14% higher on average than estimated in the business plan at the time of the IPO,. wioth an average price per sq m of EUR4,200. The following ta-ble details the results of the four campaigns:

Abitare In Maggiolina is projected to have sales totalling EUR67.4m and EBT of EUR15.7m.

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Milano City Village The land, acquired for EUR13.5m, sits in Via Tacito in southeast Milan.

The project is slated for delivery in 2021-22. This project includes 210 apartments with an average surface of 92 sq m divided into two buildings (City Plaza and City Garden). Sales of the first 110 units of the City Plaza building started in June 2018. All 94 have now sold for a total value of EUR34.1m (EUR10.9m already contractualised). This corresponds to an average price per sq m of EUR3,900. We expect prices on the second campaign to have risen further, to a project average of EUR4,000.

The second phase of the marketing campaign started on 12 October. The final event of the second campaign was held on Saturday 24 November.

Milano City village is expected to generate revenue of EUR82.4m, and EBT of EUR19.8m.

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BelVil (Via Cadolini) The area, in Via Cadolini, is in southeast Milan, close to via Milano City Village.

BelVil is the biggest project in Abitare In’s pipeline, with 545 apartments slated for construction. These will be on sale from 2020, and are expected to be delivered in 2022-23. The project should generate revenue of EUR193.9m and EBT of EU-R55.4m.

AIS (via Privata Somalia - Piazzale Accursio) Abitare In signed a preliminary deed for the acquisition of this area in Via Somalia, in northwest Milan, in February 2018.

The purchase price was EUR4.1m, and the acquisition was completed on 1 Octo-ber 2018. The area has 12,000k sq m. The project will consist of 135 apartments, with the first marketing phase expected to start in 2019, and completion expected between 2021 and 2022. The project should generate revenue of EUR52.5m and EBT of EUR12.6m.

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Summary of all projects In the following table we summarise the projects that Abitare In is either develop-ing or is planning to develop out to 2023.

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We expect Abitare In revenue and EBT to peak in 2021 and 2022, when Milano City Village, BelVil and AiS project are to be concluded. By 2023, Abitare In will have only the BelVil project still to complete and could shift its attention to new projects.

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Compared to the estimates in our August 2017 report, we have postponed the conclusion of the projects as follows:

• Abitare in Maggiolina from 50% 2019 – 50% 2020 to 100% 2020.

• Milano City Village from 50% 2020 – 50% 2021 to 100% 2021.

• BelVil via Cadolini from 25% 2021 - 50% 2022 - 25% 2023 to 75% 2022 – 25% 2023.

• AiS via Privata Somalia (Piazzale Accursio) from 50% 2021 – 50% 2022 to 25% 2021 – 75% 2022.

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Impact of higher interest rates The increase of Italy’s long-term government bond yields YTD is not likely to have a significant impact on the company’s results. For example, for Milano City Village an increase of Euribor rates to 5% would see total financial charges expand from EUR0.7m to EUR2m.

Capital increase In June 2018 Abitare In realised a capital increase with an accelerated book building. The aim of the operation was to raise resources to fund upcoming projects. The company issued 66.661 new shares at EUR300 per share (pre-split). The value of the operation was EUR20m. The total number of shares af-ter split rose to 2.554m from 1.88m. We did not factor this capital increase into our previous report.

New land acquired On 3 December, Abitare In announced that it had signed an agreement to buy a piece of land close to Porta Romana in Milan’s southeast, for a total of EU-R4.1m. EUR500,000 has already been paid. The purchase will be closed by 30 April 2019. While no further details have been disclosed, the operation confirms that the company will continue to seek out new opportunities to develop projects in the heart of Milan.

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Valua3onWe value Abitare In using a DCF model based on the following assump-tions:

• Development of projects in line with previous indications. • We did not consider other projects after the completion of BelVil/Via Cadolini

project in 2023. • WACC of 14.2%. • Perpetual growth rate of 0%.A total number of shares of 2.59m as we already

include the capital increase of 40.04k (1.5% of total shares) shares dedicated to employees and consultants free of charge that the BoD will propose to the extraordinary shareholders meeting on 18 December. However, we did not include the possibility of a share buyback, for which the company will seek authorisation on the same date, as there were no indication as to its size.

We derive a EUR47.8 per share target price, which implies 72% upside from yesterday’s close of EUR27.7 per share.

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DISCLAIMER & DISCLOSURES

DISCLOSURE NOTICE: Hammer Partners acts as a paid consultant to Abitare in. Directors of Hammer Partners SA may have purchased and hold Abitare in shares.

This report has been prepared by Hammer Partners S.A. This report is for distribution only under such circumstances as may be permitted by applicable law. Nothing in this report constitutes a rep-resentation that any investment strategy or recommendation contained herein is suitable or appropriate to a recipient's individual circum-stances or otherwise constitutes a personal recommendation. It is published solely for information purposes, it does not constitute an adver-tisement and is not to be construed as a solicitation or an offer to buy or sell any securities or related financial instruments in any jurisdic-tion. No representation or warranty, either express or implied, is provided in relation to the accuracy, completeness or reliability of the infor-mation contained herein, except with respect information concerning Hammer Partners S.A., nor is intended to be a complete statement or summary of the securities, markets or developments referred to in the report. Hammer Partners does not undertake that investors will ob-tain profits, nor will it share with investors any investment profits nor accept any liability for any investment losses. Investments involve risks and investors should exercise prudence in making their investment decisions. The report should not be regarded by recipients as a substi-tute for the exercise of their own judgment. Any opinions expressed in this report are subject to change without notice. Research will initiate, update and cease coverage solely at the discretion of Hammer Partners S.A. The analysis contained herein is based on several assump-tions and different assumptions could result in materially different results. Hammer Partners is under no obligation to update the information contained herein. Analyst compensation is not based on investment banking revenues.

Any prices stated in this report are for information purposes only and do not represent valuations for individual securities or other instru-ments. There is no representation that any transaction can or could have been effected at those prices and any prices do not reflect Ham-mer Partners theoretical model-based valuations.

COMPANY NUMBER OC333807 Hammer Research Partners LTD, FRN 767687, is a company authorised and regulated by the Financial Conduct Authority as an Appointed Representative of Amagis Capital Partners LLP, FRN 616272.

This report is for distribution to institutional investors only Hammer Partners specifically prohibits the redistribution of this material in whole or part without the written permission of Hammer Partners. Hammer Partners accepts no liability whatsoever for the actions of third parties. Copyright Hammer Partners S.A. 2009.

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