Grand City Properties SA (GYC)

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Analysis FY 2022 results: Net Debt/EBITDA = 11.4x. AFFO diminished -1.26%. FFO/per share +3% at 1.14€. P/FFO (Today) = 7/1.14 = 6.14. Guidance FY 2023 FFO/share to decrease -13.16% max to 0.99€/share. P/FFO (2023e) = 7/0.99 = 7.07. Sector P/FFO for Residential REITs in US has been moving steadily between 17 and 25 in 2010-2018 period (S&P Global Market Intelligence, Nareit 2018). GYC is clearly undervalued already. Technical aspect doesn’t show any signs of recovery yet.

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James Sullivan Mar 18, 2023 5:09AM ET

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Hi, @alexinveI'm interested how did you calculate 'GYC going down to 4.42€'?Which values did you use?Do you think it will go up to 10€ -15€ in the next 4-5 years?

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alexinve Mar 18, 2023 5:09AM ET

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Hello James, it's an estimation I made based on the monthly chart. January and February 2013 lows were around 4.42€. Current PER is 9.51 and dividend yield has been cut to 0% in 2022. Interest rates keep rising at the moment and before the SVB, FRC, Credit Suisse fall; investors thought they would go up until 5.5-6%. Even though debt is lower than its bigger competitor Vonovia and according to GYC website the company’s debt have a 95% interest hedging ratio, which is expected to reduce to 91% as some interest rate hedging matures throughout 2023; in an environment of increasing interest rates, investors could switch from REITs to bonds. The fact that GYC cut its dividend to 0, may look very disciplined and responsible. But a REIT who does not pay dividend is no longer attractive in my opinion. Whether it will be at 10-15€ in the next 4-5 years, that depends on: inflation stabilisation, interest rates beginning to drop at comfortable levels (1-3%), reduced banking crisis uncertainty and reduced recession fears, among other factors.

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alexinve Mar 18, 2023 5:09AM ET

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It's also important to track the FFO and AFFO and compare these two metrics with competitors in order to see if the stock has been oversold or overbought. Hope this helps!

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James Sullivan Mar 18, 2023 5:09AM ET

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Thanks for the explanation! I have some GYC stocks bought at 10.5€ a month ago.I tought it was a safe investment. The company had paid high divident and the stock had already fallen 50% from ATH.But now there is no divident and the stock is another 30% down. :-)Looks like I will keep it for a long period.

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alexinve Mar 18, 2023 5:09AM ET

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I understand your decision. If Central Banks stop to raise interest rates or inflation drops further, then REITs will be one of the first sectors to recover as they may be experiencing overselling. When I analysed GYC back in Oct, I saw good fundamental reasons to invest in it. Macroeconomic uncertainty is now overweighting those fundamental reasons. That's why diversification is the best path to financial calmness:)

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alexinve Mar 16, 2023 4:27AM ET

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Unfortunately, Grand City decided not to pay 2022 dividend due to macroeconomic uncertainty. The results were somewhat weak even though positive. I see GYC going down to 4.42€ in the next months. Better to avoid

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Daniel Farkas Mar 16, 2023 4:27AM ET

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haha...in next yeat 2024 with starting inflation down grow up price GCP min 12€ up, if dividend restart from 2024 rapudli up prces

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alexinve Oct 13, 2022 3:26AM ET

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Compared to Vonovia, Grand City has a double better debt position than its big competitor. Earnings payout are 23% and cash payout 64%. Vonovia's respective figures are 67% and 61%. Debt quity ratio at 57% is highly different from Vonovia's at 117%. Grand City may experiment higher costs of debt refinancing in 2023 but not as much as Vonovia in relative numbers. Grand City is able to breath better within this whole interest rates hike environment than mostly any other REIT. Sometimes, it's better to aim at 1,5B valued companies than 15B valued ones.

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alexinve Jun 11, 2022 8:26AM ET

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With German real state crisis, even though the stock performed nicely over the past 9 years, the fear of new rent regulations is present and Vonovia or Grand City may see their stock prices drop 30%-50% still.

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