CA Immo: Attractive long term, risk of short-term volatility (downgraded to HOLD)

While we cannot rule out short-term volatility, we believe Starwood’s EUR 36/share offer (which is open and set to expire on 9 April) may not be reflecting what we see as CA Immo’s attractive long-term potential. We see significant scope for the organic growth of both earnings and NAV in the next two-to-three years, driven by the: 1) unique development pipeline; 2) under-rented portfolio in Germany; 3) acquisitions, which – given the cheap cost of financing – generate a significant cash-on-cash yield; and 4) potential for yield compression in CEE. We believe the company may have room for around EUR 600-700m of acquisitions – if deployed, this could drive the pre-tax FFO I to around EUR 200m by 2024E, from EUR 130-135m currently. Also, the current development portfolio alone could generate around EUR 300-400m (EUR 3-4/share) of revaluation gains, in our view. In a nutshell, we believe the long-term prospects for CA Immo are attractive. That said, following the recent rally, the near-term upside may be limited. We do not expect significant FFO growth in 2021E, and we also believe the revaluation gains from developments might be offset by deteriorating conditions in some of the office markets where CA Immo operates – we see the risk of pressure on the vacancy and, in turn, the rents in Warsaw and Budapest. The stock is up almost 40% since we upgraded it to a BUY in our September 2020 sector report, and we see limited near-term upside. We have increased our 12M price target (PT) to EUR 41/share, and downgraded the stock to HOLD (from Buy).