CTP Brace for yield expansion impact on LTV ratio

As the results season unfolds, it becomes clear that some valuation experts have woken up to the new market reality over 4Q22 and put the knife in valuations. At peer VGP, its own portfolio yields rose 55bps, mainly Germany was hit hard. We noted also steep yield expansion at WDP in NL. As the mix at CTP is less exposed to GE, NL and more oriented to CEE, the impact should be lower. CTP NIY stood at 5.23% at 1H22 vs. VGP at 4.64%. CEE yields did not compress as aggressively compared to NL and GE. In Czechia, the high occupancy and low supply also pushes ERV's up to compensate the yield expansion impact on FV. But on the other hand, CTP operates with less headroom on its balance sheet to absorb the potential FV declines with its LTV around 45%. We have modelled 65bps of yield expansion over the next 18 months, but it looks like valuation experts are “over-reacting” after a delayed response to rising interest rates.
The last reported 9m EPRA EPS of 0.45 was well on track to reach the guidance of 0.60 per share over FY22. As mainly completions drive development profits over 2H22, we expect a strong result as the company refers to a >10% yield on construction cost (ex-land). EPRA NTA amounted to 13.43, so the stock is now trading close to NTA. We initiated last October with a BUY and approx. 40% upside of which now only 6% remains. Hence we cut our rating to Accumulate and maintain our TP of 13.8. In order to stretch our TP, we need to see higher occupancy levels in the speculative developments in Poland and Romania to settle the tense market nerves.
FY22 results will be reported on 3/3, we expect EPRA EPS at 0.59, a tad below their guidance of 0.60. For FY23-24, we are more cautious than CTP guidance on the back an expected economic slow-down and continued disruption waves in the supply chain after Covid, the War, Central Banks, …