Atrium: Embracing the resi stance (stays HOLD)

Atrium’s plan to move into residential (resi) for rent makes sense, and should be rewarded by a multiples expansion eventually, in our view. That said, we believe that, during the transition period, the FFO is likely to decline and the LTV trend up. With limited retail transaction evidence, we cannot rule out further write-offs, which could push the leverage up further, when combined with the generous dividend policy. We believe that CEE shopping centres are better-positioned structurally than those in WE, due to the faster growth of wages and retail sales, the lower space density and, mostly, a lack of high street competition. Still, we believe we could see continued pressure on vacancy and rents in 2021E, amidst the difficult COVID-19 backdrop in CEE. At a 10% dividend yield, a 7% FFO yield and 0.63x P/NAV, the valuation is relatively undemanding, in our view. Price to BV parity would suggest that the stock is pricing in around EUR 0.5bn of additional write-offs – a good buffer, but we see the earnings multiple as a better predictor of share price levels. While it has a low probability, another bid from Gazit could be an upside trigger, in our view. We maintain our HOLD rating, adjusting our 12M price target (PT) to EUR 2.8/share.