Atrium: Gazit’s EUR 3.63 offer – attractive (downgraded to SELL)

We believe Gazit’s offer is attractive, and we would recommend investors use the opportunity to exit. We appreciate Atrium’s plan to divest into residential, but we believe it could take three-to-four years before resi becomes a meaningful earnings contributor; accordingly, we would see an earlier multiples re-rating as premature. Following Gazit’s bid, Atrium is trading at around 5-6% on our 2022-23E FFO yields already – well below its long-term 1YF average of c.8%. Its European retail real estate peers trade close to and around 10%, on fears over e-commerce, a further deterioration of earnings and valuation losses. We believe CEE retail is better positioned than in WE, mainly on the faster wage growth. Still, we believe the share of e-commerce is likely to continue to rise, which could affect landlords’ negotiating power. In the near term, the encouraging rebound in tenants’ sales should mean that the rents in place pre COVID-19 should be largely sustainable, we believe, but the straight-lining of discounts and the interest paid on the hybrid notes mean that the FFO is unlikely to return to the EUR 110m p.a. level, seen prior to the pandemic. On a per share basis, this is exacerbated by the higher number of shares, stemming from the scrip optionality. If the offer is not successful, we see a risk that the DPS may not be reinstated at the former level of EUR 0.27, as this would not be covered by the FFO. We have downgraded Atrium to SELL, and we keep our 12M price target (PT) at EUR 2.8/share.