First Berlin Equity Research has published a research update on Grand City Properties S.A. (ISIN: LU0775917882). Analyst Ellis Acklin reiterated his BUY rating and decreased the price target from EUR 14.80 to EUR 12.80.

Abstract
GCP has taken a 20.04% stake in LEG Immobilien AG, thus putting a sizeable chunk of its liquidity to work in a close German residential peer. The attraction is clear. LEG offers an FFO yield >13% and materially better economics than GCP can currently achieve buying comparable properties directly; plus management expect ~30% pro-rata FFO accretion. But we think the more interesting message is what the deal says about today’s residential market. Listed portfolios can currently be bought at discounts that are difficult to replicate in bricks and mortar, giving well-capitalised landlords another route to growth. GCP also knows the markets and rental dynamics underpinning LEG’s operations. The trade-off is reduced liquidity at a time when property stocks are being battered by rising bond yields. Even so, the earnings uplift looks substantial enough to warrant the deployment. We retain our Buy rating but lower our PT to €12.8 (old: €14.8) after incorporating higher German 10-year bond yields into our DCF model (77% upside).