Intervest Offices & Warehouses Tough start of the year for new CEO

Intervest reported 1Q23 below our estimates at EPRA EPS of 0.29 vs. our expectation of 0.35. The main reasons were increased interest costs and higher operating costs. The cost of debt rose to 2.8% vs. 2.0% expected and the operating margin fell to 70% vs. 77% expected. The EPRA FY23 guidance for FY23 still refers to 1.48. We cut our EPS forecast from 1.50 to 1.41 and now expect only slow EPS recovery. However, there are some silver linings : the lfl growth was relatively strong at 7.3% and yield expansion was low, only 10bps in BE. This kept the debt ratio in check below 50% at 48.7% and the NTA increased slightly from 23.50 to 23.64. Also the occupancy in BE-logistics increased to 99% form 97%.

The new CEO Joel Gorsele has his work cut out with the “clean up” of the “old” Office portfolio of which some face complex restructuring. These asset sales will cut the high yielding rents, but also save on future Capex or new expensive debt. In future, Intervest most likely will focus on its logistic projects that now make up 100% of the pipeline. Many of these will complete over FY24. We believe the office portfolio has some interesting features on location and could be monetized as soon as financial conditions in the market stabilizes.

The stock is now trading at 29% discount to NTA, which offers protection for the market reaction on the portfolio restructuring uncertainty. We lower our target price to 21.0 from 25.0, a 10% discount to current NTA.