Prime Transport Hub Office Clusters Will Drive Strong Long-Term Demand Tailwind

Catalysts

About Entra

Entra is a Norwegian office property company focused on high quality, centrally located assets clustered around key transport hubs in major cities.

What are the underlying business or industry changes driving this perspective?

• Concentration of the portfolio around central transportation hubs in Oslo and Bergen is increasingly aligned with tenant preference for prime, accessible city center offices, supporting sustained rent outperformance and higher revenue growth.
• Structurally limited new office supply in central Oslo and Bergen, combined with growing tenant drive toward core locations, is expected to tighten effective vacancy over time and support market rents that grow faster than CPI, expanding net operating income and earnings.
• Large upcoming lease expiries in the Oslo market toward 2027 are set to trigger elevated search activity. Entra’s modern cluster assets and ongoing refurbishments should capture outsized share of relocations, lifting occupancy and stabilizing rental income.
• CPI linked contracts with solid long term tenants, combined with an improving Norwegian macro backdrop with wage growth and gradual rate cuts, position Entra for robust like for like rental uplifts that steadily enhance cash flow and margin resilience.
• Disciplined capital allocation focused on high returning refurbishment projects in core clusters, a growing green financing platform and potential for a future rating upgrade should lower funding costs and magnify the impact of rent growth on earnings and return on equity.

Assumptions

This narrative explores a more optimistic perspective on Entra compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts. How have these above catalysts been quantified?

• The bullish analysts are assuming Entra's revenue will grow by 2.3% annually over the next 3 years.
• The bullish analysts assume that profit margins will shrink from 45.4% today to 44.7% in 3 years time.
• The bullish analysts expect earnings to reach NOK 1.5 billion (and earnings per share of NOK 7.51) by about December 2028, up from NOK 1.4 billion today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bullish analyst cohort, the company would need to trade at a PE ratio of 23.8x on those 2028 earnings, up from 14.6x today. This future PE is greater than the current PE for the GB Real Estate industry at 15.8x.
• The bullish analysts expect the number of shares outstanding to remain consistent over the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 11.39%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

• Structural changes in office usage, such as continued public sector transition to free seating and private sector focus on cost reductions and space downsizing, may mean that employment growth in Oslo does not translate into net office absorption. This could limit rental income growth and pressure earnings over time.
• Persistently soft demand in the Oslo office market, together with an expected increase in vacancy above the current 7%, could delay the letting of both existing vacant space and refurbished projects. This may keep occupancy below historic levels and weigh on rental income and net margins.
• If market rents in Oslo and Bergen fail to rise to or remain at the breakeven levels needed to justify new developments, Entra may be unable to launch or fully monetize key refurbishment and new build projects in its central clusters. This would reduce the anticipated uplift in revenue and constrain return on equity.
• Higher for longer real interest rates, or a less favorable forward curve than currently assumed, would keep all-in financing costs elevated despite tighter credit spreads. This could squeeze net income from property management and limit progress toward the 10% return on equity ambition.

Valuation

How have all the factors above been brought together to estimate a fair value?

• The assumed bullish price target for Entra is NOK138.0, which represents up to two standard deviations above the consensus price target of NOK118.75. This valuation is based on what can be assumed as the expectations of Entra's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of NOK138.0, and the most bearish reporting a price target of just NOK98.0.
  
• In order for you to agree with the more bullish analyst cohort, you'd need to believe that by 2028, revenues will be NOK3.3 billion, earnings will come to NOK1.5 billion, and it would be trading on a PE ratio of 23.8x, assuming you use a discount rate of 11.4%.
  
• Given the current share price of NOK111.0, the analyst price target of NOK138.0 is 19.6% higher. Despite analysts expecting the underlying business to decline, they seem to believe it's more valuable than what the market thinks.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.