WOOD Flash – Immofinanz: 3Q21 – recurring in line, retail faring well, guiding for EUR 135m pre-tax 2023E FFO I

Immofinanz’s 3Q21 results were largely in line. The ample liquidity and an LTV of 37% allow the room for expansion via both developments and acquisitions – management reiterated the plan to continue adding STOP.SHOPs, developing offices and, potentially, also acquire several standing assets throughout the next 12-24 months. There was no update on the plans with the S Immo stake, which is booked at EUR 26.25/share on Immofinanz’s balance sheet. Management is guiding for a pre-tax FFO I of at least EUR 135m by 2022E, in line with our forecast of EUR 140m. This would value the company at a 5.3% pre-tax FFO I yield, and a dividend yield of 3.7% (a 70% payout). From the P/NAV perspective, the stock remains cheap, trading at less than 0.7x, but this is a factor of the weak profitability, in our view. On the current EPRA NTA of EUR 3.8bn, next year’s FFO target implies c.3.2% after-tax FFO ROE. We believe this is below Immofinanz’s cost of equity. While we may see additional tailwinds driven by revaluation gains, it would seem premature to bank on this, given the difficult office leasing markets, the limited transaction evidence in shopping centres, and the prospect of a more hawkish stance adopted by the ECB within the next 12-24 months. Aside from a takeover offer, a re-rating of the shares would need to be driven by a combination of tangible improvements in the profitability of the existing portfolio (especially through the margin on income from asset management), coupled with acquisitions, the launch of new developments, and a speedy and successful rollout of the residential for rent platform, in our view. Some of these could materialise; however, at this juncture, considering the weak profitability, the uncertainty regarding the company’s future strategic direction, and the various options that Mr. Korbacka and Mr. Vitek could pursue, as well as the uncertainty regarding the plans for the S Immo stake, we believe it could be premature to make a case that the stock should trade substantially above the current levels.