WOOD Flash – Grivalia: 4Q17 – higher expenses drive miss on FFO (BVPS EUR 9.3; FFOPS EUR 0.37)

Grivalia reported its 4Q17 results yesterday (31 January). Low leverage, and a substantial room for debt financed expansion provides attractive upside optionality for Grivalia, as does its exposure to the hospitality business. However, most of its hospitality assets are to be (re)developed first, and the visibility on the quality and volume of potential acquisitions is inherently limited. With the recurring result in 2017 depressed by elevated expenses, Grivalia missed our full-year FFO forecast by some 12%. On yesterday’s close, the 2017E FFO translates into a mere 3.9% FFO yield. Even if the company continues to deploy capital throughout 2018E, it seems unlikely that it could generate an FFO yield in excess of 5.0% during 2018E (at the current share price). We believe that this indicates that the share price already reflects, to some degree, expectations regarding the potential new income generated by possible future asset purchases. As such, while we may need to revise our PT (due to the recent compression in Greek bond yields), a tangible rerating from the current levels remains conditional upon the continued successful execution of the capital deployment programme, sizeable upward revaluations, or a combination thereof, in our view. Trading at a lower FFO yield than most of its European peers (for example, Merlin Properties, a pure play on an Iberian recovery, is trading at a 5.7% yield on the Bloomberg 2018E consensus FFO), we believe the profitability is likely to cap the additional upside for the share price in the near-term.