WOOD Flash – Graphisoft Park: 1Q23 – bargain, with 0.5 P/NAV, a 17% FFO yield, 33% LTV and properties at 8% yield

Graphisoft Park has delivered a strong set of 1Q23 results, with earnings translating into an annualised FFO yield of 17%. The rents increased with indexation successfully, occupancy remained high (at 97%), and interest on loans remains fixed. With a 33% LTV, even a further 20% drop in valuations would not erase a substantial portion of equity. In such a case, the portfolio would be booked at a 10% yield (up from 8% currently), and the LTV would increase to 41%, while the current share price would still imply around a 30% discount to NAV. Already now, Graphisoft Park books its portfolio at over a 2ppts higher yield compared to the 5.75% reported for prime Budapest offices by Cushman & Wakefield (CW). Accordingly, we feel comfortable reiterating our bullish view on the stock. Although we cannot rule out further yield expansion, the FFO yield is robust, even against the backdrop of the current valuations of European real estate. Over time, Graphisoft Park may continue to amortise the debt, potentially emerging as net cash towards the end of the decade (while continuing to pay dividends implying a yield of around 5%). Alternatively, it may maintain a degree of leverage. Then, it would have capacity to either: 1) materially increase the dividend payout; or 2) use some of the retained earnings for further developments in the Southern Area of the Park, where it can develop up to 20k sqm of GLA, driving the organic growth of earnings.