WOOD Flash – NEPI Rockcastle: 2H20 – dividends reinstated, 5.2% like-for-like revaluation loss

NEPI Rockcastle’s (NRP) FFO for 2H20 came in slightly below our expectations, mainly on a slightly lower top line. That said, the balance sheet was stronger than we expected, and the company is restarting its dividend payments, with a dividend of 16.88 Euro cents from the 2H20 profit (going ex-div on 17 and 18 March on JSE and Euronext, respectively). On an annualised basis, this translates into a 6.6% dividend yield. In our forecasts, we had expected the DPS to be restarted only in 2021E, initially at an 80% payout, moving to 90% from FY22E-onwards. The company guides for the distributable earnings (FFO) to increase by around 10% in 2021E, implying a FFO of EUR 0.42/share. This translates into an 8.5% FFO yield, some 10% below our FFO forecast for FY21E (EUR 0.46/share). A portion of the miss relative to our forecast (published in September 2020) likely results from the more adverse external environment – the pandemic is far from under control in CEE and various restrictions are still in place in a number of the countries in which NRP operates. The recurring results could be improved marginally by acquisitions, but we do not see NRP as having the capacity to buy much more than EUR 200m – even this would be likely to push the LTV a touch north of 35%, on our estimates. As such, we see some 5-10% downside for our existing 2021E FFO forecast. On the other hand, we note that the dividend from the 2021E earnings may come in slightly ahead of our expectations, on a higher payout – NRP has indicated that it plans to maintain the 90% payout ratio, or potentially increase it to 100%, eventually. A 90% payout would imply a DPS of EUR 0.38, on the FFO guidance, marginally above our forecast of EUR 0.36.