WOOD Flash – Graphisoft Park: 2Q22 – a small beat, attractive valuation

Graphisoft Park’s 2Q22 figures came in slightly ahead of our estimates. The occupancy in the portfolio increased to 98%, from 96% at the year-end. In response, management has raised the guidance for this fiscal year marginally. Currently, it expects the rental income to exceed the 2021 level by around 4%. The value of the standing assets was stable during the first half of the year, but the appraisers reduced the value of the landbank by c.EUR 6.5m, reflecting mainly the prolonged uncertainty regarding the timing (and likelihood) of the decontamination of the Northern Development Area. This does not affect the P&L, as the land plots are carried at cost on the balance sheet, and Graphisoft Park presents them at FV estimate only in its NAV reconciliation. Trading at over a 40% discount to NAV, and a c.14% FFO yield, the stock remains among the cheapest European listed real estate names, especially on earnings. While we believe the rate hikes are likely to drive yield expansion across the region, we would argue the valuation already factors in a very challenging outlook, especially considering that the standing assets are booked at a 7% yield, some two percentage points above the prime yield reported for Budapest.