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Trade Estates | Too low, too long; 2-digit total return, initiate with a Buy

c13% average annual total annual return, c35% discount to NAV; Buy – Trade Estates (TE) is one of the largest real estate investment companies (REIC) in Greece with a portfolio of assets of c€0.5bn gross asset value (GAV). Having been created in 2021 after the demerger of Fourlis’s property assets, it got listed on the ATHEX in November 2023. Since then, the stock has been weighed down by a confluence of factors including the tightening policy rates cycle (peak rates in Q1’24) and the tepid appetite for real estate stocks, both of which drove EU REITs’ valuation to a c40% discount to NAV between Q4’22 and Q4’23. In Q3’24 the easing policy helped EU REITs bounce back to a c20% discount to NAV, before retreating again to levels near 30% towards the end of 2024. Trade Estates’ valuation hardly moved over this period, remaining at a whopping c35-40% discount to NAV. With the latter set to grow at c4% CAGR over 2024-28e as TE executes its €220m investment pipeline and a 6-10% dividend top-up being on offer, we find the c13% average annual total return over 2025-27e quite compelling and the stock de-risked at these levels. We thus initiate coverage with a Buy.

Focused REIC with visible pipeline; 11% rental CAGR through to 2028e – TE has quite a differentiated and niche approach (thus being quite efficient cost-wise), targeting assets relating to retail parks and omni-channel logistics centers, with both segments enjoying structural growth drivers and a benign demand-supply backdrop in Greece, while being resilient during downturns. TE’s properties boast top-notch tenants and high occupancy while incorporating long-term leases (thus adding visibility on LFL rental growth) with inflation-indexed rents. Following c€10-11m income boost from the Smart Park acquisition (FY24 first year of contribution), we forecast c11% 4-year CAGR in rental income (to c€54m by 2028e) driven by indexation and pipeline adds (which will account for >80% of the growth in the period), with turnover-driven rent upside conservatively left as optionality.

c50% cumulative growth in portfolio value through to 2028e; c4% NAV CAGR – Visibility regarding the execution of the €220m pipeline is high, given the related projects are secured/under development. From a financing perspective, the group is well positioned to execute this capex plan given leverage within sector norms (LTV c45%), secured debt facilities and active interest cost management. Ceteris paribus, i.e. without assuming any further scaling-up of assets through new agreements, GAV is set to increase to >€700m by 2028e, namely +46% vs 2023 levels. Our numbers assume another c11% effect on GAV from re-valuations (5bps yield shift)/development gains over 2025-2028e, thus leading the total portfolio value to c€750m by then. This will translate to c4% NAV CAGR, coupled with a 6-10% dividend yield (>80% payout of FFO).

Valuation: it’s all about total returns – TE has a clear trajectory of NAV growth and therefore total return (NAV growth + divis) in excess of 10%, a level which, for EU REITS, has historically been associated with NAV parity assuming “normal” cost of equity levels. Our PT applies a c20% discount to 2025e NAV, a bit higher than the cross-cycle discount for the EU real estate sector (c15%) but a tad smaller than the EU sector’s current valuation given the more benign country market dynamics and TE’s NAV profile.