WOOD Flash – S Immo: 1Q21 review - hotels struggling but rents steady, selling shares to buy properties could boost FFO

S Immo’s 1Q21 results were largely in line with expectations. Rental income remains resilient, while the cost-savings measures at hotels have helped to contain the losses in that segment. The company trades at a 13% discount to EPRA NAV, and at a c.3.4-3.7% FFO yield for 2021E, on our estimates. Immofinanz’s bid (at EUR 22.25/share) remains open, with acceptance running until 16 July. The recently-appointed CEO of S Immo, Mr. Ettenauer, has highlighted that, should the bid fail to attract a sufficient level of interest, the company would sell its stakes in CA Immo (CAI) and Immofinanz (IIA), which are worth nearly EUR 550m at the current levels. It would then try to reinvest the proceeds (with added leverage) into directly-owned, yielding real estate, to total as much as EUR 1.0bn. Should the money be successfully deployed, it could increase the FFO by c.10-40%, on our estimates, depending on the yield at which the assets are purchased. That said, we note that investing the entire EUR 1.0bn could push the LTV north of 50%. Furthermore, the supply of quality assets is limited, and we believe that rotating the capital away from shares and into real estate could take time.