Globalworth: The leading CEE office landlord (HOLD - initiation of coverage)

Globalworth (GWI) is the largest CEE office landlord by portfolio value, and one of the fastest-growing companies in the CEE real estate universe. It owns a portfolio of primarily A-class offices in Bucharest, Warsaw and large Polish regional cities. The quality of GWI’s assets is illustrated by the composition of its tenants, the majority of which are large international companies, such as Amazon, Renault, UniCredit, Nokia, Vodafone, HP, IBM, Rockwell, Deutsche Bank, Honeywell and Dell. Since its listing on the AIM in 2013, the team assembled by GWI’s founder, CEO and 18% shareholder, Mr. Papalekas, has overseen the rapid expansion of the business. The value of the portfolio increased from EUR 118m in December 2013 to over EUR 2bn in mid-2018. Going forward, we expect Globalworth to grow its NAV by around 6% p.a. over 2017-22E, driven by accretive acquisitions, developments and hands-on asset management, while paying out over 90% of its FFO as a dividend. With the dividend added back, the NAV would grow by around 10% over the next 5Y. Although we like its portfolio and believe that, over the medium to long term, Globalworth should benefit from a yield compression in both Bucharest and the Polish regional cities, in the short term, the expected inflow of new office space may cap the rental growth achievable in both Warsaw and Bucharest, in our view. As such, we initiate with a HOLD, setting our 12M price target (PT) at EUR 10.0/share.