TORUNLAR REIC

Company Update

Safe bet for 2024 06/12/2023

High earnings momentum prevails TRGYO

TRGYO has a well-diversified real estate portfolio in terms of
Bloom berg/Reuters Code TRGYO TI / TRGYO.IS
geography and type. We raised our TP for TRGYO to TL62.86 from
Recommendation Outperform
TL38.59 per share, while maintain our Outperform recommendation.
Current Price (TL) 32.70
With this report, we revised our net earnings estimates for 2023-24E Target Price (TL) 62.86 (previous: 38.59)
upwards by an average 12%. We expect 24E net earnings of TRGYO Upside Potential 92%
to expand 27% y/y after posting a whopping 67% growth in 2023.
Market Cap (TL mn) 32,700
4Q23 earnings should be strong on rising rental income and high
Free Float (%) 21%
financial gains. Note that TRGYO will have its real estate portfolio 12M high/low (TRL) 38.30 / 11.83
revalued at the end of 2023, from which we expect a huge TL29bn ADV (3M avg - $mn) 4
additional income in 4Q. We foresee deleveraging to be finalized in
Sum m ary Financials 2021 2022 2023E 2024E
4Q (3Q: TL911mn net debt), meaning that TRGYO should deliver
Revenues (mTL) 1,456 2,580 4,112 6,135
financial gains rather than losses in 4Q and onwards. Besides,
% grow th -25% 77% 59% 49%
performance in office rentals is going quite well, as businesses move EBITDA (mTL) 1,085 1,813 3,372 4,992
into safe locations in order to be protected against potential % grow th 31% 67% 86% 48%
earthquake in Marmara region. TRGYO has renewed most of its Net Income (mTL) 5,746 19,230 32,164 40,964
% grow th 346% 235% 67% 27%
expired rental agreements based on average inflation (c60%) for
RoE 49% 80% 64% 47%
offices, which should support earnings in 4Q and in 2024, in our view. EPS (TL) 5.75 19.23 32.16 40.96
24E EBITDA strong; positive impact from inflation accounting DPS (TL) 0.00 0.20 1.13 1.43
With this report, we revised our 2023-24E revenue estimates
Multiples
upwards by an average 25% and EBITDA estimates by an average
P/E 5.69x 1.70x 1.02x 0.80x
47%, respectively. We envisage rental revenues growing 60% y/y in
P/B 2.25x 0.97x 0.50x 0.31x
2024 after delivering 80% growth in 2023. Note also that inflation
accounting will be in effect in 4Q. We expect positive impact from 1M 3M 12M YTD
inflation accounting to TRGYO through monetary gains from Rel. Performance -9% 26% 11% 18%
Absolute 0% 24% 81% 72%
revaluation of inventories and its land bank. Thus, equity should grow
in turn, which is to push P/B multiple further south.
Cash position set to strenghten in 2024
Mall of Istanbul Hilton Hotel, convention center and the adjacent 50.0
Share Price (TL) Rel.Perf. (%) 50%
residential project should support earnings going forward. 45.0 40%
40.0
Destocking of remaining residential units at 5th Levent Phase 2 (c500 30%
35.0
units) and Torun Center, will be another focus of Torunlar REIC. As 30.0 20%
for the tower in Torun Center, we foresee residential sales (170 flats) 25.0 10%
to begin in 2024, while an agreement with Hilton for the hotel part 20.0 0%
15.0
(110 rooms) has already been done. An agreement with a potential -10%
10.0
international luxury brand for the hotel at the Pasabahce project and 5.0 -20%
unit sales from this project could be named as medium term catalysts 0.0 -30%
for the stock. Renewal of Torun Tower rental agreement should be Dec-22 Mar-23 Jun-23 Sep-23 Dec-23

earnings accretive, as well, in 2024.

High dividend on the cards; attractive valuation
We expect to see TL1.1bn dividend payment from TRGYO in 2024,
indicating a yield of 3.4%. TRGYO trades at a 7.5% discount to its
current NAV on a 24E P/E of 0.8x and P/B of 0.3x. We find its current
valuation attractive considering existing catalysts, rising EPS
momentum and potential net cash position. Analyst: Övünç Gürsoy, PhD +90 212 319 1213

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Exhibit 1: NAV Premium (Discount) to 3Y average

(%)
50
30
10
-10 (7.5)
-30
(43.6)
-50
-70
-90
Jun-21

Jun-22

Jun-23

Dec-23
Dec-20

Dec-21

Dec-22

Source: Company Data, Oyak Yatirim

Exhibit 2: SOTP Valuation

Appraisal
Sum of Total Parts Valuation Method value Fair Value Weight
(TLm) (TLm) (%)
Landbank @30% discount to appraisal value 867 607 1%
Operational assets DCF 31,169 42,252 81%
Ongoing Projects @30% discount to appraisal value 5,983 4,188 8%
Buildings @30% discount to appraisal value 5,256 3,679 7%
Participations @30% discount to appraisal value 1,358 1,604 3%
Total Real Estate 44,633 52,330
Cash & Securities @3Q23 3,187
Other Assets @3Q23 1,527
Liabilities @3Q23 -4,632
NPV of Opex DCF -2,208
Total Fair Value 50,205
12M fwd target value 62,856
Current market cap 32,900
Current share price (TL) 32.70
Target Price (TL) 62.86
Upside Potential 92%
Source: BIST, Oyak Yatirim

Risks
Key downside risks to our SOTP-based TP include a deterioration in the macroeconomic environment, sharp contraction
in economic activity, increasing volatility of the TRY against the USD and EUR, and potential delays in ongoing and
planned projects.

Upside risks include a potential acceleration in mortgage lending at lower interest rates, stable currency and a potential
increase in housing demand domestically and internationally. An agreement with a potential tenant for the hotel at the
Pasabahce project and unit sales coupled with higher unit sales at the 5th Levent project could be positive catalysts for
the stock.

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Exhibit 3: Torunlar REIC Summary Financials
INCOME STATEMENT
TLm 2021 2022 2023E 2024E
Revenues 1,456 2,580 4,112 6,135
COGS (287) (565) (525) (915)
Gross profit 1,169 2,015 3,588 5,221
EBITDA 1,085 1,813 3,372 4,992
D&A 36 9 10 11
EBIT 1,049 1,804 3,362 4,981
Other operating income 6,011 18,106 28,859 36,033
Operating Expenses (127) (231) (247) (263)
Other income, net 144 476 96 101
Financial income, net (1,331) (925) 94 112
Pre-tax Earnings 5,746 19,230 32,164 40,964
Income Tax 0 0 0 0
Net Earnings 5,746 19,230 32,164 40,964

BALANCE SHEET
TLm 2021 2022 2023E 2024E
CURRENT ASSETS 1,105 1,992 4,370 5,502
Cash and Cash Equivalents 242 921 2,762 3,315
Short-Term Trade Receivables 108 501 751 902
Other Short-Term Receivables 0 10 15 22
Inventories 545 473 709 1,064
Other Current Assets 210 88 132 198
LONG TERM ASSETS 18,796 37,267 66,986 107,606
Long-Term Trade Receivables 45 72 76 80
Associates 516 986 1,479 2,218
Investment property 17,967 35,744 37,532 39,408
Tangible fixed assets 33 32 49 73
Other long term assets 235 432 27,849 65,825
TOTAL ASSETS 19,901 39,260 71,356 113,108

CURRENT LIABILITIES 2,799 2,123 2,539 3,041

Financial Loans 2,460 1,807 2,169 2,603
Trade payables 85 115 127 139
Other payables 51 37 37 37
Debt provisions 25 30 33 36
Other current liabilities 179 134 174 226
LONG TERM LIABILITIES 2,581 3,344 2,860 3,146
Financial Loans 2,578 2,597 2,857 3,143
TOTAL LIABILITIES 5,380 5,467 5,399 6,188
SHAREHOLDER'S EQUITY 14,522 33,793 65,957 106,921
Paid in Capital 1,000 1,000 1,000 1,000
Other shareholders' equity 13,522 32,793 64,957 105,921
TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY 19,901 39,260 71,356 113,108
* Inflation accounting is not applied
Source: Company, Oyak Yatirim

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Disclaimer
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Valuation Approach
Valuation tools employed most frequently are Discounted Cash Flow (DCF) and International Peer Group Comparison, though
other metrics such as Dividend Discount, Gordon Growth, and Replacement Value Methods are also used wherever appropriate.
Oyak Securities analysts may calculate the target return of each stock considering only one method or assigning different weights
to more than one method depending on the analyst’s opinion. The “Expected Market Return” (EMR) of the BIST-100 is
determined through aggregate target returns of each stock under coverage based on their respective free float market
capitalization. Our coverage accounts for around 80% of the total market capitalization of the BIST.
Rating Methodology
Oyak Securities assigns recommendations to each stock according to the following criteria:
Price target for a stock represents the value analyst expects the stock to reach during our performance horizon, which is 12
months. For stocks with an OUTPERFORM recommendation, target return must exceed the EMR by at least 10% over the next
12 months. For a stock to be classified as UNDERPERFORM, the stock must be expected to underperform the EMR more that
10% over the next 12 months. Stocks that an analyst expects to perform parallel to the EMR within a band of +/- 10% are rated
as MARKETPERFORM.

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