WOOD Flash – GTC: 1Q22 – in line, stock cheap, but difficult and uncertain macro may continue to weigh on price

Trading at sub-0.6x P/NAV and an FFO yield approaching 10%, GTC remains inexpensive, in our view. For the year-to-date, the shares have lost 13%, marginally outperforming both the WIG (-20%) and the European real estate EPRA indices (-17%). As long as the ECB remains reactive, and the scale of the coming tightening does not exceed the current consensus expectations materially (the Bloomberg consensus expects the key ECB rate at 0.5% and 0.9% in 2022E and 2023E, respectively), the scale of the real estate yield expansion ahead could be limited, we believe. In that case, the rental growth, driven by indexation, could partially mitigate the prospective adverse impact from the higher cost of capital, and the value of the portfolio could remain fairly stable. Booked at an average yield of 7.5%, if adjusted for full occupancy, the valuation of GTC’s portfolio does not strike us as particularly demanding. From this perspective, the current high discount to NAV could appear excessive. That said, while not our central scenario, we cannot completely rule out a hawkish pivot by the ECB at some point later this or next year. The visibility on the magnitude of the macro slowdown ahead, and its impact on both consumers and office occupiers across the region also remains limited. Against this backdrop, we believe investors may continue to prefer larger, more liquid names, with lower leverage and less exposure to development.