Globalworth: Bigger boys and stolen sweethearts (downgraded to HOLD)

Globalworth has returned some 42% since we upgraded it to BUY in September 2020. The investment demand for quality offices in CEE continues to outstrip supply, supporting pricing. Still, there is limited visibility on occupiers’ office requirements, going forward, and we are seeing pressure on vacancy and effective rent levels in both Bucharest and key Polish cities, driven by the completion of the developments launched before the pandemic. This could translate into further pressure on valuations. While the impact on the earnings is likely to be gradual, due to the staggered lease terms, we do not see a case for the like-for-like growth of rents in the near term. The shift in the shareholder structure continues, as CPI and Aroundtown control over a 50% stake already. This introduces risks for the minority investors, including a potential management reshuffle, changes in the Supervisory Board, and a reduction of the already weak liquidity, among others. At around a 5.1% FFO yield, Globalworth is cheaper than most European office landlords currently. We see the fair value above the current levels, especially considering the potential upside that could be driven by acquisitions and developments. That said, given the current office market headwinds, as well as the Globalworth-specific risks introduced by the shareholding changes, we believe investors should consider carefully whether to keep their shares, or follow Globalworth’s CEO and Board members, and sell into the offer. We have increased our 12M price target (PT) to EUR 8.0/share, and downgraded Globalworth to HOLD (from Buy).