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On Tuesday, BofA Securities adjusted its stance on Grand City Properties SA (ETR:GYC:GR), downgrading the real estate company's stock rating from Neutral to Underperform. The firm also revised its price target downward to €11.50 from the previous €14.00.
The downgrade by BofA Securities comes with a new price target that suggests limited growth potential for Grand City Properties' shares. The analysts at BofA Securities believe that the current share price does not fully account for the company's exposure to the UK market and the risk of a potential dividend reduction. The revised target represents an 18% decrease from the former price objective.
The change in the price target is attributed to an increased exit cap rate by 10 basis points and the application of a 4% risk-free rate in the cost of capital calculations for the company's UK portfolio, which makes up 20% of the total portfolio. These adjustments reflect a more cautious view of the company’s future financial performance.
Additionally, BofA Securities anticipates a significant reduction in Grand City Properties' dividend. The analysts expect a 33% dividend cut in 2025, which would be paid out in 2026. This move is intended to eliminate the dilutive effect of the scrip dividend option.
Currently, Grand City Properties is distributing dividends that exceed 200% of its adjusted funds from operations (AFFO) post modernization measures, a significant increase from the approximately 135% payout ratio maintained over the past decade. Following the projected cut, the payout ratio is expected to return to around 130%.
The assessment by BofA Securities reflects concerns over Grand City Properties' financial sustainability and its ability to maintain dividend payouts without further diluting shareholder value. The firm's analysis indicates that the company's current dividend policy is not sustainable in the long term without adjustments.
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