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Premia Properties | Premia Potential: Expanding and Yielding - initiating with a Buy

High yield, diversified RE portfolio – Premia Properties (PP) is one of the largest real estate investment companies (REICs) in Greece featuring a €307m portfolio and annualized rental income of c€23m, translating to a 7.6% yield on income-generating assets. PP’s portfolio is quite diversified, comprising Logistics/lndustrials (75% of annualized rental), Serviced apartments (11%), Social Infrastructure/Schools (8%) and Big boxes (6%). Its properties boast top-notch tenants and high occupancy (c99%) while incorporating long-term leases (c7 years WAULT) with inflation-indexed rents.

… set to surge 40% by 2026 through €94m pipeline – PP is pursuing an ambitious expansion strategy, with anticipated CapEx of c€94m by 2026, mostly focused on green offices, logistics & serviced apartments. 55% of the aforementioned amount has been penciled in for developing existing assets targeted for completion by H1’24, with the rest relating to the acquisition of new properties and participation in JVs. Additionally, with WAULT c7 years, there is great visibility on rental growth, further enhanced by indexation clauses in most contracts. The pipeline corresponds to additional income of >€8m (based on >7% yield) by 2026 on our estimates, accounting for c83% of total rental growth by then, with the remainder stemming from CPI indexation, rent reviews and new leases. Overall, we forecast c15% rental CAGR over 2023-26e.

Solid financials and portfolio growth to drive c11% NAV CAGR through to 2026 – PP looks well placed to finance its investment budget given the reasonable leverage (c50% Net LTV) and the c4% average cost of debt. Notably, half of PP’s debt (c€100m) is tied to a bond issued in 2022, bearing a 2.8% coupon and due in 2027. We expect Net LTV to peak at 57% in 2024 but stay below 60% throughout the investment period 2024-26e, with debt costs remaining around 4%. Overall, we forecast c12% CAGR in GAV through to 2026 (to €430m) driven by capex, development gains (c€10mn) and revaluations (c€31mn). This will correspond to c11% CAGR in NAV (far more compelling than the EU avg of c2%), further topped up by a c2% dividend yield (FFO payout c50%).

Valuation – Similar to other Greek REICs, PP shares have been weighed down by rising rates and stagflation fears, with most companies seeing their valuations retreating to near record lows to levels similar to those of EU peers (c30% discount to spot NAV). With this in mind, we see scope for a rebound as the monetary easing cycle is set to begin, with room for domestic yield contraction, particularly in logistics/industrials and student housing (especially post the recent legislation for private universities) where PP has notable presence. We note that PP is exposed in a structurally attractive market with favourable supply-demand dynamics, while standing out among its EU peers due to the prospects for strong NAV growth driven by yield compression, development gains, and rising operating profit. Our baseline valuation applies a 15% discount to adj. NAV, at the low end of PP's peer group current valuation given the aforementioned merits of the thesis, yielding a PT of €1.48/share. We thus initiate coverage with a Buy.