About a year and a half ago I mentioned a relatively unknown East European REIT in my FT Adventurous Investor column – the fund was called GlobalWorth and it operates high-end office blocks in Romania (the ticker is GWI). My contention then – as now – is that Eastern Europe represents one of the more interesting bits of the EM spectrum, benefitting from a combination of tailwinds including the Eurozone revival as well as a strong recovery in Russia and China. Here’s what I wrote about Global Worth back in August 2016 – the original article is here https://www.ft.com/content/168daba2-5242-11e6-9664-e0bdc13c3bef and the share price at the time was around €5.05.
“ The Aim-listed property company Globalworth is one of the largest commercial office owners in Romania. Recently, it has largely “derisked” its property book for investors, and is positioned to collect increased rents from its blue-chip international tenant base, as its properties grow in value. Chief executive Ioannis Papalekas holds more than 36 per cent of the outstanding shares in the group with a further 1 per cent held by other directors. I’m also reassured by the fact that Globalworth has an independent chairman in the shape of Geoff Miller, the veteran investment trust chairman who has experience of dealing with investments in emerging markets. Admitted to Aim back in July 2013, Globalworth has built up in and around Bucharest a portfolio of prime office blocks, which is currently valued at about €930m while the market cap is close to €320m (the shares are quoted in euros). Net debt is €322.5m although this will probably reach €529m by the 2017 year end. The loan to value ratio is 44.9 per cent against assets. The portfolio comprises 15 assets: nine completed, four under development and two land holdings. The tenants look top notch (with triple net, euro denominated, indexed leases usually on five to 10-year terms) comprising more than 75 national and multinational companies, with names such as Deutsche Telekom, Hewlett-Packard, Intel and Vodafone, from more than 20 countries. €930m Value of Globalworth’s portfolio of prime office blocks in and around Bucharest Now of course, Romania wouldn’t be Romania if there wasn’t some controversy. One recent scandal implicated a former business partner of the chief executive, but company filings show the local prosecutors have confirmed there is no need for any investigation into Mr Papalekas. Globalworth’s balance sheet has been strengthened from a recent refinancing, and it is hoped that as the property portfolio matures, the business could pay a dividend. Globalworth is trading at a 45 per cent discount to NAV (€9.08 NAV vs €5.05 share price) and brokers at Cantor Fitzgerald have a target price of €8.25. It is encouraging to note Globalworth’s directors have also been buying the stock — I count at least 11 such purchases in the past few months alone. “
Flash forward just under 18 months and the fund has made huge strides – helped along by an advancing share price which is now trading not far under €9 a share. The big excitement has been the acquisition of a 67% share in Polish listed REIT GPRE which has just completed, together gross assets to close to €2bn with a market cap to €1bn. Crucially Globalworth has also just completed a $340m equity raise at €8.75 which is around NAV – the old discount has all but vanished. As an aside Globalworth has also completed (in the summer) a €500m bond issued at a 3% yield which now trades at 2.5%. Clearly, the bond markets are fairly comfortable about the risks involved with Globalworth.
The Polish acquisition makes a lot of sense and massively improves diversification within the portfolio – Globalworth is now clearly an East European real asset play rather than just a Romanian one. In other respects, though the shares still look appealing, even after the recent run-up in the share price. The fund will pay a €0.22 dividend in January and the board has said that they’ll pay at least €0.27 in August, which equates to a 5.6% yield plus there’s also a move to the main market on the cards which should help improve the institutional coverage of this fast-growing EM property play – as another aside the Polish deal is earnings accretive from the very beginning.
But I think the most interesting recent news was buried in the trading update section that came with the fund raise announcement: it says the fund raise and Polish deal have helped further broaden Globalworth’s “tenant base with new high quality national and international corporates such as Amazon, General Motors, ABB, Interglobe Technologies, Capgemini and Tradeshift.”
Note the first company on that list – Amazon. The internet e-commerce giant isn’t enormously well established in all Eastern Europe yet, but its logistics footprint is growing by the day – apparently, Amazon has only just started delivering in most of central and Eastern Europe. Imagine what might happen if Globalworth got a contract to build the odd warehouse or two for the giant from America?