We value real estate stocks using an economic profit model where the key drivers are the stock's rental value growth, yield compression and development profit. The sum of the discounted 5-year future economic profit provides the basis for our valuation.

For Aedifica, the key assumptions underpinning our EUR79.7 target price are portfolio value growth of +15% and a weighted average cost of capital (WACC) of 6.6%.

The key risk, in our view, is the next cyclical turning point and, while the catalyst will be unknown and a shock, the effect is likely to result in rent decline and valuation yield expansion, both causing property valuations to fall, dragging stock prices lower, and potentially testing debt covenants. Types of risk inherent in property include tenant risk, location risk, sector risk, planning risk, legal risk, taxation risk, structural risk, liquidity risk, development risk, valuation and pricing risk, and listed securities have in addition the risk inherent in stock markets. These may prevent shares from reaching our target price.