WOOD Flash – NEPI Rockcastle: 3Q21 – tenants' sales 2% above pre-pandemic level

NEPI Rockcastle (NRP) published its 3Q21 business update yesterday (18 November). The performance of the shopping centres during the quarter exceeded our estimates: tenants’ turnover was 2% above the level reached in 3Q19, and the footfall was only 11% below the 3Q19 level. We see this as a major positive, as we believe it indicates that the pre-pandemic rent levels should be sustainable, especially considering that, at around 12% prior to the pandemic, NRP’s occupancy cost ratio (rent to sales) was not particularly stretched, in our view. At 32%, the LTV remains low; and, with over EUR 1bn of liquidity, the company is well-positioned to capitalise on any acquisition opportunities, should they emerge. Since September, the number of COVID-19 cases has been rising across CEE, and some countries have already re-introduced restrictions on trading. Although these restrictions affect mostly unvaccinated people, and nearly 100% of the GLA remains open currently, management expects the 4Q21E results to be affected. NRP trades currently at a 10% discount to the latest-reported EPRA NRV of EUR 6.44/share.