S Immo: it was good while it lasted (downgraded to SELL)

We see CPI’s offer as attractive and recommend shareholders who remained invested in S Immo to accept it during the extended offer period, which runs until to 18 November. Since we upgraded the stock to Buy in July 2021, the shares are up 19%, and the stock outperformed the broader European real estate EPRA Index by 50% over the period. We see a risk that the combination of a weak economy and rising yields could weigh on property values, and believe that, in the absence of the support from the offer, the share price would likely have collapsed already, similar to what we have seen at Immofinanz, or the sector at large. Given that CPI already controls a c.80% stake in S Immo, the remaining investors could be squeezed out and, even if the stock remains listed, the liquidity is likely to be significantly lower. Additionally, there is limited visibility on a new strategy and we expect that management may change (the CEO, Mr. Ettenauer, resigned earlier this month). We believe that CPI may try to sell down part of S Immo’s portfolio to bring the leverage down, which increased in the recent deal-making spree. This reduces the visibility on the fate of S Immo further, if it would remain, for some time, as a stand-alone entity. We cut our 12M price target (PT) to EUR 14.4/share, on a combination of the adverse macro outlook and higher rates, and we recommend to SELL (downgraded from Buy) the shares into the CPI offer.