Graphisoft Park: take me to the river (stays BUY)

Graphisoft Park (GSPARK) is facing the same set of challenges as its peers: yield expansion putting valuations under pressure; and the weaker macro making passing on inflation fully difficult, as contracts are rolled over, especially in light of the coming step-up increase in service charges. In a downturn, some tenants may cut back on office space, especially given the high costs and flexible working-from-home (WFH) arrangements (although many bosses see the Zoom “talking heads” as detrimental to innovation, and may use a recession to try to push workers back into the office). Others may decide to move to more central locations. While these are real risks, we believe that Graphisoft Park is better positioned than many of its peers: its properties are booked at reasonable valuations (a yield of over 7%), and its tenants are historically loyal. Tech and IT companies may also be more resilient during a downturn. At 0.57x P/NAV, the stock is cheap, but not excessively so, in the context of the current depressed valuations across the European real estate universe, but its earnings yield of 12-14% remains uniquely high. At 36%, its LTV is reasonable, and its debt (larger maturities only in 2026-29E) is at a fixed rate. Paying out only c.40% of the FFO as a dividend, GSPARK could increase its payout, once the economic outlook stabilises. It could also re-start the development activity in the Southern Area of the Park, which is on hold currently, due to the high costs, despite the interest indicated by tenants. Eventually, M&A and/or the decontamination of the Northern part of the Park could be triggers, in our view. We maintain our BUY rating on the stock, adjusting our 12M price target (PT) to HUF 4,144/share.