Capital increase marks a step change

Globalworth Real Estate Investments 6 December 2016 Update

Globalworth Real Estate Investments

Capital increase marks a step change

Subscription for shares

Real estate

6 December 2016

Price

€6.25

Market cap

€402m

€1.1886/£

Net debt (€m) as at 31 December 2015

367.3

Shares in issue

64.3m

Free float

23.5

Code

GWI

Primary exchange

AIM

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

25.6

15.7

8.2

Rel (local)

24.5

18.2

1.3

52-week high/low

€6.2

€4.9

Business description

Globalworth Real Estate Investments is incorporated in Guernsey and listed on AIM. It is a real estate investment company focused on opportunities in South East Europe and the CEE region, primarily Romania, where all its current assets are.

Next events

EGM

19 December 2016

Analysts

Julian Roberts

+44 (0)20 3077 5748

Andrew Mitchell

+44 (0)20 3681 2500

Globalworth Real Estate Investments is a research client of Edison Investment Research Limited

Globalworth (GWI) has announced that it is raising €200m via a subscription by two investors for 25m new shares priced at €8. As well as significantly increasing GWI’s capital available for investment, the terms of the subscription introduce a new dividend policy similar to that of a REIT and strengthen corporate governance structures, in line with its institutional shareholder base. GWI will pay dividends equivalent to at least 90% of FFO and has indicated a total payment of €0.44 per share for 2017 (a yield of 7% on the current share price). We have suspended our forecasts pending shareholder approval of the proposals, expected by 20 December 2016.

Year end

NOI*
(€m)

PBT**
(€m)

EPS**
(c)

EPRA NAV/
share (€)

DPS
(c)

P/E
(x)

Yield
(%)

12/13

5.3

3.0

30.6

6.03

0.0

20.4

N/A

12/14

12.9

(9.4)

(21.0)

8.09

0.0

N/A

N/A

12/15

28.4

(4.0)

(7.6)

9.08

0.0

N/A

N/A

Note: *NOI is net operating income. **PBT and EPS are normalised, excluding valuation movements, bargain purchase gains and share-based payments, and using existing shares.

New institutional shareholder

The two investors are Growthpoint Properties (GRT) and Oak Hill Advisors. Growthpoint is the largest REIT in South Africa with a market cap of c ZAR65bn (c £4bn). It is one of the top five constituents of the EPRA NAREIT EM index and has a portfolio comprising 467 properties in South Africa and 63 in Australia as well as a 50% interest in the V&A Waterfront in Cape Town. GRT has identified GWI as a platform to pursue an investment strategy in Central and Eastern Europe (CEE) and this €183m investment marks its first commitment in the region. Oak Hill is a US-based alternative investment firm managing a portfolio of c $30bn. It already owns 8.4m shares in GWI, 13.1% of the outstanding shares, and intends to invest a further €17m. Following the issue of all new shares, GRT would own 27.7% and Oak Hill 11.2% of the outstanding shares. The positions of the major shareholders now and immediately after the proposed subscription are shown in Exhibit 1.

€200m subscription

Subject to shareholder approval, GRT will subscribe for 23.3m shares and Oak Hill for 1.7m at €8 each, a 60% premium to the share price of €5 at the time of the announcement and a discount of 12.6% to the 30 September NAV per share of €9.15. Apart from the subscription shares, Globalworth is issuing an initial 1m free shares to GRT and 72,961 to Oak Hill, with a further 1m and 72,962 by 31 December 2017. Full details can be found on the company’s website, but other proposals agreed by the subscribing investors are described on the following pages of this report.

Valuation: Forecasts suspended

We have suspended our forecasts pending shareholder approval of the subscription and will update them following the result of the EGM, which will take place on 19 December 2016.

Effects of the subscription

Below we list the salient points of the proposal in the shareholder circular on the subject of the subscription and their effects.

GWI indicates that proceeds of the subscription will be used to fund the completion of the Globalworth Campus and invest in new assets (including an identified pipeline of €136m) within the existing investment policy (explained in detail in our note of 8 August 2016). The company also indicates that it is open to investing in assets in Central and Eastern Europe (CEE) outside Romania but, in any instance, within its investment policy of up to 50% of NAV.

The dividend policy will be to pay out at least 90% of free funds from operations (FFO) in dividends twice each year. FFO is defined as EPRA earnings, ie IFRS profit after tax, less property revaluation gains and changes in the fair value of financial instruments.

Two dividends of 0.22 per share are to be paid in respect of the six months to 30 June and 31 December 2017 and are to include the subscription and fee shares in issue.

Warrants for 1.5m shares currently held by a company under the control of GWI’s CEO and founder Ioannis Papalekas will be transferred to GRT.

New relationship agreements between Globalworth and Mr Papalekas, and with GRT, confirm the objective that the company be managed for the benefit of all shareholders.

Mr Papalekas, through Zakiono enterprises, and GRT will each appoint one non-executive director to the board for every 8% of the company’s shares they hold, ie three each. Other directors will be appointed so that a majority of the board is independent. An investment committee will be created (investments were previously the responsibility of the board) and other existing committees will be strengthened.

GRT and Mr Papalekas will offer any real estate investment opportunities they find in the region to GWI and will not invest in Romania on its own account.

This subscription and associated changes to GWI’s shareholder structure, dividend and investment policy are material in terms of the scale of the business and the opportunity to pursue GWI’s broader regional remit. Although we have suspended our forecasts, the directors, as outlined in the prospectus, believe that some of the likely benefits to GWI and its shareholders are as listed below:

The subscription will inject a significant amount of capital into GWI, enabling investment in ongoing and new projects, and broadening the scope of GWI’s future investments. A gearing level of c 40-50% LTV is expected to be maintained.

The improved financial position and more diverse equity funding may enhance the company’s ability to raise debt at attractive rates.

Dividends will be paid twice yearly and amount to at least 90% of FFO, or 44c in 2017.

The shareholder base will be wider and more balanced, which may increase liquidity.

If we apply all the new subscription and fee shares that will be issued by end FY17 (27.1m) to end-September NAV there would be pro forma dilution of NAV per share of c 6.3%. We note that the shares trade at a discount in excess of 30%, and traded at a discount of 45% before the announcement. We will issue new forecasts after the subscription has been completed, which is expected to be on 20 December 2016.

Exhibit 1: Major shareholdings before and after the subscription

Shareholder

Shares held on
1 December 2016

% of outstanding shares

Shares held after subscription

% of outstanding shares

Shares held on
31 December 2017*

% of outstanding shares

Growthpoint

0

0.0%

24,300,000

26.9%

25,300,000

27.7%

Ioannis Papalekas

23,247,028

36.1%

23,247,028

25.7%

23,247,028

25.4%

York

16,770113

26.1%

16,770113

18.6%

16,770,113

18.3%

Oak Hill

8,396,613

13.1%

10,169,574

11.2%

10,242,536

11.2%

Gordel

3,835,141

6.0%

3,835,141

4.2%

3,835,141

4.2%

Altshuler

2,645,603

4.1%

2,645,603

2.9%

2,645,603

2.9%

Other

9,429,489

14.7%

9,429,489

10.4%

9,429,489

10.3%

Total

64,323,987

100.0%

90,396,948

100.0%

91,469,910

100.0%

EPRA NAV/share**

€9.15

€9.00

€8.58

Source: Globalworth Real Estate Investments, Edison Investment Research. Note: *Assuming no equity issues other than the fee and subscription shares. **Post-subscription NAVs use 30 September reported NAV/share of €9.15 and €196m of cash after costs raised through the subscription.

Exhibit 2: Financial summary

Year end 31 December, €000s

2013

2014

2015

INCOME STATEMENT

Net operating income (NOI)

5,304

12,893

28,370

Administrative expenses

(1,856)

(11,654)

(10,440)

Acquisition and other costs

(229)

(2,967)

(1,185)

Other operating income

10,740

105,450

66,649

EBITDA (excluding fair value gains and bargain purchase)

3,219

(1,728)

16,745

Profit before financing cost (EBIT)

13,959

103,722

83,394

Finance cost

(255)

(8,322)

(21,407)

Finance income

2

327

526

Net finance (cost)/income

(253)

(7,995)

(20,881)

Profit before tax (PBT)

13,705

95,727

62,513

Income tax expense

(976)

(5,100)

(11,092)

Minorities

(39)

497

0

Attributable profit after tax (PAT)

12,691

91,124

51,421

Adjusted PBT

3,009

(9,389)

(4,011)

Les current tax

(778)

(64)

(245)

Adjusted profit after tax

2,232

(9,453)

(4,256)

Basic average number of shares (m)

7.3

45.1

55.9

Fully diluted average number of shares (m)

7.3

45.1

55.9

EPS - basic (c)

173.9

202.1

92.0

EPS - diluted (c)

173.9

202.1

92.0

EPS - adjusted and diluted (c)

30.6

(21.0)

(7.6)

DPS (c)

0.0

0.0

0.0

BALANCE SHEET

Investment property

121,335

599,257

937,119

Other long-term assets

21,652

28,416

20,216

Total non-current assets

142,987

627,673

957,335

Cash & equivalents

9,506

21,957

37,036

Other current assets

13,056

19,066

25,767

Total current assets

22,562

41,023

62,803

TOTAL ASSETS

165,549

668,696

1,020,138

Interest bearing loans & borrowings

(165)

(143,814)

(261,287)

Other non-current liabilities

(12,482)

(49,169)

(76,138)

Total non-current liabilities

(12,647)

(192,983)

(337,425)

Interest bearing loans & borrowing

(20,296)

(61,187)

(143,024)

Other current liabilities

(12,327)

(21,785)

(40,008)

Total current liabilities

(32,623)

(82,972)

(183,032)

TOTAL LIABILITIES

(45,270)

(275,955)

(520,457)

NET ASSETS

120,279

392,741

499,681

Non-controlling interests

(588)

(6)

0

SHAREHOLDERS' EQUITY

119,691

392,735

499,681

EPRA NAV

126,158

434,149

568,332

Period end number of shares (m)

20.9

53.6

62.6

Basic NAV per share (€)

5.73

7.32

7.98

EPRA NAV per share (€)

6.03

8.09

9.08

LTV

16.9%

34.4%

43.1%

CASH FLOW STATEMENT

PBT

13,705

95,727

62,513

Adjustments

(10,365)

(98,835)

(45,220)

Cash flows from operating activities before changes in working capital

3,340

(1,108)

17,293

Changes in working capital

(3,336)

2,659

4,148

Cash flows from operating activities

4

(32,327)

3,018

Cash flows from investing activities

(36,317)

(92,976)

(184,297)

Cash flows from financing

48,652

74,917

48,819

Other (increase)/decrease in net debt (including debt assumed on acquisition)

(23,294)

(121,702)

(52,771)

(Increase)/decrease in net debt.

(10,956)

(172,088)

(184,231)

Opening net (debt)/cash

0

(10,956)

(183,044)

Closing net (debt)/cash

(10,956)

(183,044)

(367,275)

Source: Globalworth Real Estate Investments

Edison, the investment intelligence firm, is the future of investor interaction with corporates. Our team of over 100 analysts and investment professionals work with leading companies, fund managers and investment banks worldwide to support their capital markets activity. We provide services to more than 400 retained corporate and investor clients from our offices in London, New York, Frankfurt, Sydney and Wellington. Edison is authorised and regulated by the Financial Conduct Authority. Edison Investment Research (NZ) Limited (Edison NZ) is the New Zealand subsidiary of Edison. Edison NZ is registered on the New Zealand Financial Service Providers Register (FSP number 247505) and is registered to provide wholesale and/or generic financial adviser services only. Edison Investment Research Inc (Edison US) is the US subsidiary of Edison and is regulated by the Securities and Exchange Commission. Edison Investment Research Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison and is not regulated by the Australian Securities and Investment Commission. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER
Copyright 2016 Edison Investment Research Limited. All rights reserved. This report has been commissioned by Globalworth Real Estate Investments and prepared and issued by Edison for publication globally. All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report. Opinions contained in this report represent those of the research department of Edison at the time of publication. The securities described in the Investment Research may not be eligible for sale in all jurisdictions or to certain categories of investors. This research is issued in Australia by Edison Aus and any access to it, is intended only for "wholesale clients" within the meaning of the Australian Corporations Act. The Investment Research is distributed in the United States by Edison US to major US institutional investors only. Edison US is registered as an investment adviser with the Securities and Exchange Commission. Edison US relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. As such, Edison does not offer or provide personalised advice. We publish information about companies in which we believe our readers may be interested and this information reflects our sincere opinions. The information that we provide or that is derived from our website is not intended to be, and should not be construed in any manner whatsoever as, personalised advice. Also, our website and the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. This document is provided for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.
Edison has a restrictive policy relating to personal dealing. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report. Edison or its affiliates may perform services or solicit business from any of the companies mentioned in this report. The value of securities mentioned in this report can fall as well as rise and are subject to large and sudden swings. In addition it may be difficult or not possible to buy, sell or obtain accurate information about the value of securities mentioned in this report. Past performance is not necessarily a guide to future performance. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (ie without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision. To the maximum extent permitted by law, Edison, its affiliates and contractors, and their respective directors, officers and employees will not be liable for any loss or damage arising as a result of reliance being placed on any of the information contained in this report and do not guarantee the returns on investments in the products discussed in this publication. FTSE International Limited (“FTSE”) © FTSE 2016. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 9258 1161

Level 25, Aurora Place

88 Phillip St, Sydney

NSW 2000, Australia

Wellington +64 (0)48 948 555

Level 15, 171 Featherston St

Wellington 6011

New Zealand

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 9258 1161

Level 25, Aurora Place

88 Phillip St, Sydney

NSW 2000, Australia

Wellington +64 (0)48 948 555

Level 15, 171 Featherston St

Wellington 6011

New Zealand

Edison, the investment intelligence firm, is the future of investor interaction with corporates. Our team of over 100 analysts and investment professionals work with leading companies, fund managers and investment banks worldwide to support their capital markets activity. We provide services to more than 400 retained corporate and investor clients from our offices in London, New York, Frankfurt, Sydney and Wellington. Edison is authorised and regulated by the Financial Conduct Authority. Edison Investment Research (NZ) Limited (Edison NZ) is the New Zealand subsidiary of Edison. Edison NZ is registered on the New Zealand Financial Service Providers Register (FSP number 247505) and is registered to provide wholesale and/or generic financial adviser services only. Edison Investment Research Inc (Edison US) is the US subsidiary of Edison and is regulated by the Securities and Exchange Commission. Edison Investment Research Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison and is not regulated by the Australian Securities and Investment Commission. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER
Copyright 2016 Edison Investment Research Limited. All rights reserved. This report has been commissioned by Globalworth Real Estate Investments and prepared and issued by Edison for publication globally. All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report. Opinions contained in this report represent those of the research department of Edison at the time of publication. The securities described in the Investment Research may not be eligible for sale in all jurisdictions or to certain categories of investors. This research is issued in Australia by Edison Aus and any access to it, is intended only for "wholesale clients" within the meaning of the Australian Corporations Act. The Investment Research is distributed in the United States by Edison US to major US institutional investors only. Edison US is registered as an investment adviser with the Securities and Exchange Commission. Edison US relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. As such, Edison does not offer or provide personalised advice. We publish information about companies in which we believe our readers may be interested and this information reflects our sincere opinions. The information that we provide or that is derived from our website is not intended to be, and should not be construed in any manner whatsoever as, personalised advice. Also, our website and the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. This document is provided for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.
Edison has a restrictive policy relating to personal dealing. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report. Edison or its affiliates may perform services or solicit business from any of the companies mentioned in this report. The value of securities mentioned in this report can fall as well as rise and are subject to large and sudden swings. In addition it may be difficult or not possible to buy, sell or obtain accurate information about the value of securities mentioned in this report. Past performance is not necessarily a guide to future performance. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (ie without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision. To the maximum extent permitted by law, Edison, its affiliates and contractors, and their respective directors, officers and employees will not be liable for any loss or damage arising as a result of reliance being placed on any of the information contained in this report and do not guarantee the returns on investments in the products discussed in this publication. FTSE International Limited (“FTSE”) © FTSE 2016. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 9258 1161

Level 25, Aurora Place

88 Phillip St, Sydney

NSW 2000, Australia

Wellington +64 (0)48 948 555

Level 15, 171 Featherston St

Wellington 6011

New Zealand

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 9258 1161

Level 25, Aurora Place

88 Phillip St, Sydney

NSW 2000, Australia

Wellington +64 (0)48 948 555

Level 15, 171 Featherston St

Wellington 6011

New Zealand

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