NEPI Rockcastle: The leading CEE shopping centre landlord (BUY - initiation of coverage)

NEPI Rockcastle (NRP) is the leading CEE shopping centre investor and developer, the result of the merger of NEPI and Rockcastle on 11 July 2017. It owns over 50 standing, income-producing assets with a fair value of EUR 5.0bn in Romania, Poland and seven other CEE countries. The portfolio is focused on large retail assets with a high-quality, diversified tenant base. The stock is trading at 1.1x price to the last reported BVPS, down from the peak of almost 2.5x at the end of 2017. We believe this is a buying opportunity, as we expect NRP to grow its FFOPS by 12% annually over 2017-19E, driven by acquisitions, developments and the like-for-like growth of rents. At the same time, we expect it to generate an 8-9% FFO ROE throughout our forecast horizon, well above its peers. Trading at around 7.3% 2018E FFO, we believe that NEPI offers compelling value at current levels. As such, we initiate our coverage with a BUY and a price target (PT) of EUR 9.14/share, even though we believe the shares may remain under pressure as long as the FSCA investigation into potential insider trading and share-price manipulation is ongoing.