GTC: taking profits, after relative outperformance (downgraded to SELL)

We have downgraded GTC to SELL, setting our 12M price target (PT) at PLN 5.6/share. At P/Bs of 0.6-0.7x and a FFO yield of around 10%, it is not expensive, but neither are its peers. In EUR terms, GTC is down by a mere 10% in the LTM, while the EPRA Index, tracking the broader European real estate universe, is down by over 35%. The high earnings yield and dividends may offer downside protection. However, with the LTV above 40%, GTC ranks among the more indebted companies in our real estate coverage, and the leverage could amplify the impact of the prospective revaluation losses. While the green credentials and rent indexation offers a silver lining, we believe the magnitude of the rate shift means that we may see a tangible yield expansion across the CEE real estate markets – in which case, the rental growth, driven by inflation, may not fully offset the impact on values. Securing zoning and flipping the Irish project could pay off, but we are not sure a dilutive capital increase to fund growth is the right step now. We expect a new price equilibrium in the real estate markets could be established in 2023-24E, and we expect this period to be marked by revaluation losses, which could limit the positive triggers.