What happened?
GPE hosted an analyst and investor session last Friday afternoon on its Flex office product. It updated the market on its progress to date, as well as reminding the market on its ambition to get to 1m sqft and c.GBP76m of NOI from the fully managed product. Management was very bullish on the outlook for the business - it felt even more so than we have seen them in many years.
BNPP Exane View:
Flex backdrop: GPE has been producing flex space for 6 years now - it''s important to remember that this is not coworking space - tenants have their own floor, front door to their space etc. The company came across as having really high conviction in its assets, highlighting strong momentum across the group at present, and flagging consistent leasing ahead of ERV. It also sees the infrastructure it has built to manage the flex product as a barrier to entry and is now seeing economies of scale to manage the product coming through.
Investment market thoughts: CEO Toby Courtauld believes this GPE''s markets are closer to the beginning of the cycle than even the middle of it and still sees the investment market at an attractive entry point. As well as being past the market trough, GPE is expecting strong NTA and EPS growth, not just over the next year or so, but over the medium-term also, driven in part by the ''dramatic shortage of prime office space''.
The growth opportunity: Tenant requirements that are 5k sqft or less are by and large taken up by flex customers - indeed c.90% of GPE''s 5k sqft deals are now flex leases. Net Operating Income (NOI) today annualised is c.GBP16m (GBP32m annualised rent roll) and this is forecast by GPE to grow to c.GBP49m by 2028. Flex today is c.22% of the portfolio and this is expected to grow to more than 30% of the portfolio in the next few years. The longer-term target is c.1m sqft of flex product, generating NOI of c.GBP76m, generated by organic growth and acquisitions.
Beating internal expectations: GPE highlighted a...
