WOOD Flash – Atrium: keep calm and BUY the yield (3Q16 review)

Atrium reported its 3Q16 results yesterday (16 November).
The company’s adjusted EPRA earnings amounted to EUR 0.23/share for 9M16, some 6% below the level reached in 9M15. If annualised, this amounts to EUR 0.31/share for 2016E, broadly in line with our 2016E FFO estimate of EUR 0.30/share, and translates into an 8.4% FFO yield. Following the distribution of the special dividend, the EPRA NAV has declined somewhat, at EUR 5.5/share, valuing Atrium at a c.33% discount to EPRA NAV.
Helped by the special dividend, announced in September, the stock has returned 29% since our latest update, issued in February, and remains our preferred play among CEE real estate. Within the normal course of business, we believe the stock may get traction from: 1) additional non-core disposals; 2) progress in the development of the extensions to its existing centres; 3) further refinancing or debt repayments, leading to a gradual optimisation of the capital structure; and, eventually, 4) the resolution of the remainder of the outstanding claims related to the heritage lawsuits, which may come at some point in 2017E.
While the likelihood of either the disposal of the large land plot in Istanbul (valued at EUR 106m) or an exit from Russia may seem rather low under the current circumstances, the realisation of either of these should prove to be a substantial trigger for the share price, in our view. We also believe that any potential corporate action from Gazit, whose management (Gazit’s CEO, Ms. Lavine, is the former CEO of Atrium) has hinted that it plans to refocus the group towards direct property ownership, as opposed to the ownership of stakes in listed entities, could also act as a strong catalyst for the share price.