CTP: better late than never (upgraded to BUY)

As we may be getting closer to rate cuts by the ECB, we have upgraded CTP to BUY (from Hold), hiking our 12M price target (PT) to EUR 18.9/share. The risks related to CTP’s fairly high LTV (in the mid-40s) and the possibility of further yield expansion, which we flagged in our initiation (February 2023) are still relevant. However, values have been more resilient than we expected, as the demand for logistics space remained robust even when economic growth slowed down. This means that higher rents, and the gains generated by properties under development, have offset the impact of the yield expansion on valuations, so far. We cannot rule out that we may see revaluation losses, going forward, but CTP’s development pipeline generates stellar value, delivering space at a yield on cost of around 10%. This is well above both the prime yields (now at c.5-6%, we estimate) and funding costs (c.5%). We see CTP as an attractive long-term story, offering both capital appreciation (via NAV growth) and a steady (and growing) dividend. We do not take a strong view on near-term trading (rate cuts and growing earnings could be triggers; continuing yield expansion and the LTV creeping higher could be a headwind), and we cannot rule out better entry points ahead. However, the stock is 16% above its IPO price, while we forecast the 2024E FFO c.35% and 70% ahead of 2022 and 2021, respectively. We missed the beginning of the rally, and we believe that waiting for a better entry point could mean that we may never go long on what we consider one of the highest-quality real estate names in CEE.