Inbox: CA Immo bekommt höheres Kursziel

- Recurring earnings (FFO I) estimates raised by 2% amid interest expense savings
- EPRA NAV projections lifted in order to reflect re-valuation gains for Tower 185 in Frankfurt
- Target price lifted to EUR 25.0 (EUR 20.6) mainly due to higher forecasts for the transition period 2020e - 2022e
- HOLD rating maintained given a P/FFO(x) of 19.0 for 2018e.

Last week we visited all properties of CA Immo in Bucharest and we were impressed by the good location of the assets and the know-how of the local management team. Nevertheless, the office market in Bucharest is also characterised by intense competition from the market leader Globalworth Real Estate and ample supply of modern office space. We calculate a new target price of EUR 25.0 (EUR 20.6) for CA Immo due to 1) higher projections for rental income and margins for the transition period 2020e-2022e, 2) higher EPRA NAV projections driven by re-valuation gains and 3) lower WACC given today´s issue of a convertible bond. We maintain our HOLD rating because we think the shares are fairly valued with a P/FFO (x) of 19.0 for 2018e.

Issue of a EUR 200 mn convertible bond: The management of CA Immo resolved today to issue senior, unsecured convertible bonds with an offering size of EUR 200 mn, a maturity of 7.5 years, a coupon of 0.75% and an initial conversion premium of 27.50% above the VWAP of CA Immo shares today. Based on the key terms and the coupon of this new convertible bond the transaction should lead to lower cash interest expenses of approximately EUR 2.0 - EUR 3.0 mn according to our calculation.

Estimate changes: We made the following changes to our earnings projections: 1) small upgrades to our recurring earnings estimates entirely due to the savings of cash interest expenses from the issue of the above-mentioned convertible bond, 2) higher EPRA NAV projections in order to reflect significant re-valuation gains of more than EUR 50 mn for the Tower 185 in 2017e, because it is now targeted for sale by the management and 3) higher capital expenditure given the inclusion of construction expenses for all current developments including the new Tower ONE office project in Frankfurt, which in turn leads to higher net debt projections.

Our property visit in Romania: CA Immo currently manages five prime office assets with a fair value of EUR 255.6 mn in 2Q 2017. The portfolio is currently valued at a 7.7% yield and we calculate an effective monthly place-in rent of EUR 15.5/sqm. Moreover, the group has one large office development under construction with a planned GLA of 36,900 sqm, a completion date in 1Q 2018 and a pre-leasing level of 65%. We were impressed by local management and the very good location of all office assets which we think is the main competitive advantage of CA Immo in Bucharest. Nevertheless, the office market is also characterised by intense competition from the market leader Globalworth Real Estate and ample supply of office stock at present, potentially leading to some pressure on the level of rents, in our opinion. The locations of the office properties of CA Immo and IMMOFINANZ are quite complementary in Bucharest, a fact that we also realised during our property visit to Warsaw in July.