CTP: attractive growth story, but high LTV a risk (HOLD - initiation of coverage)

We initiate coverage of CTP with a HOLD recommendation, and a price target (PT) of EUR 14.3/share. CTP is the leading logistics landlord in CEE, and one of the largest in Europe. Its EUR 9bn standing portfolio spans 10m sqm GLA (c.EUR 900/sqm), and is booked at a 5.35% EPRA net initial yield. CTP’s ambition to double the size of its portfolio (to 20m sqm GLA by 2030E) is the key driver of the equity story, in our view. Even if the yields continue to expand, developing 1-2m sqm GLA p.a. should generate hundreds of millions of EUR of revaluation gains annually, realising a wide gap between the mid-single digit FV yields and the development yield of 10%+. We expect a FFO CAGR of c.10-15% annually in the next 3Y, driven by developments and growing rents (a combination of indexation and steep market-wide rental uplift, driven by robust leasing demand). CTP is a growth story, and a play on the sustained strength of CEE manufacturing, driven by near-shoring and the green, digital and energy transitions. That said, at 1.2x P/B, we believe the near-term upside is limited. We expect the real estate yields to continue to widen throughout 2023E and possibly 2024E. The combination of development capex and write-downs on the existing portfolio could push the LTV to 50% by 2024E, from the already high 45% currently. This could necessitate either slower growth, or lower dividends, and could create a better entry point for long-term orientated investors than the current levels, we believe.