Immofinanz / S Immo: It’s complicated (IIA stays HOLD; initiating on SPI with a HOLD)

In this report, we have updated our forecasts for Immofinanz (IIA), and initiate coverage of S Immo (SPI), a real estate owner and developer listed in Vienna (a EUR 1.1bn market cap). The merger with CA Immo (CAI) seems to be off the table now, with IIA potentially opting to combine with SPI instead. Presently, we do not see a straightforward way to trade this situation. Trading at around 5.2% (IIA) and 5.6% (SPI) 2019E FFO yields, both companies rank at the more expensive end of the European continental real estate universe (which, historically, trades at around a 6.0% 1Y FWD FFO yield). While IIA’s restructuring efforts could improve the FFO beyond our forecasts, we need to see more evidence to price in a more bullish outlook. While the sale of the CAI stake could boost IIA’s share price, crucially, visibility on what IIA does with the proceeds from the sale of the CAI stake remains limited. As for SPI, a tender offer at EUR 20/share by IIA would represent c.18% upside to its current levels. That said, the likelihood of a cash deal is difficult to assess, in our view. We believe it would be imprudent to recommend to buy SPI only because IIA may potentially launch a tender offer. We thus recommend to HOLD both companies, setting our 12M price targets (PTs) at EUR 21.6/share for IIA and EUR 19.0/share for S Immo.