WOOD Flash – Graphisoft Park: 4Q18 results - FFO in line for the year, management proposes DPS of EUR 0.40

Graphisoft Park reported its 2018 earnings yesterday, after the market closed, posting EUR 9.9m of FFO I, in line with our estimate of EUR 9.8m. This translates into an FFO yield of 9.0%, among the highest in our coverage universe. The management has proposed a dividend of EUR 0.40/share from the 2018E profit (3.7% yield), significantly exceeding our estimate of EUR 0.31/share. The occupancy of the 82k sqm gross leasable area (GLA) portfolio remains at 95%, unchanged from the previous quarter. The portfolio is rented at around EUR 14-15/sqm, and the properties are booked at a c.5.8% yield, on the 4Q18 annualised net rental income. We maintain our view that, at a sub-6% yield, the valuation leaves little room for additional upside, especially when considering that rents are already above the market average. Strong leasing demand, coupled with limited availability, has translated into growing rents on the Budapest office market, however. At the same time, yields continued to compress in 2018. As such, the gap between our perception of the value of the portfolio and the actual reported fair value has narrowed since our initiation, published in December 2017. Looking ahead, FFO should maintain its upward trajectory in 2019E, in our view, driven by the full contribution of the development in the southern area of the Park, completed in 2018. Management’s guidance suggests 2019E FFO of EUR 11.8m, some 10% above our forecast of EUR 10.7m.