Market cap and trading segment
|KWG Komunale Wohnungen||€ 6.36||15,881,234||101,068,173||Entry Standard|
|IMW Immobilien||€ 3.40||16,466,666||55,986,664||General Standard|
The market cap of KWG with 101M is almost double the market cap of IMW with 56M. IMW is listed in the General Standard and has to meet ongoing transparency requirements of the Regulated Market:
- use of international accounting standards (IFRS/ IAS or US-GAAP),
- publication of interim reports.
This is clearly an advantage of IMW. The cost for listing in the General standard is only 2,500€ more than in the entry standard, which means there is no excuse for KWG.
To be fair the CEO of IMW holds the share 000.001, which according to the articles of association gives the power to appoint one member of the supervisory board. Thus IMW trades on the better market segment but has a corporate governance issue due to this special right.
It's not apples to apples as IMW has pure commercial office property in its portfolio. The Dukes Court office property is located in the UK, Woking in the Greater London Urban Area and the London commuter belt. Furthermore IMW has a significantly lower vacancy than KWG, which is serial aquirer of undermanaged property portfolios with high vacancy.
|qm||Valbonne||Dukes Court||Austerlitz||Falcon Crest||sum|
The portfolio of KWG is more scattered among Germany than IMW's. Over half of the portfolio of KWG per m² is situated in North-Rine Westfalia, whereas the chunk of IMW's is situated in Berlin (Valbonne, 292,200m² of 329,300 total).
|portfolio of KWG [company presentation]|
|Units||Parking||Size in m2||Units||Parking||Size in m2|
|Lower Saxony, total||1,327||404||79,946||1,226||355||74,522|
|Other Lower saxony||289||119||18,927|
To really get a feeling about the value of the properties one would have to know the valuation in each of the micro locations in the corresponding cities. Selling the Wolfsburg property was a good decision in my opinion. The Wolfsburg market is very much dependant on Volkswagen, which is doing well for now, but it is a cyclical.
Based on the figures for the first half of the fiscal year KWG:01.01.2013-30.06.2012 IMW:01.04.2013-30.09.2013 the following table shows a short comparison:
|total m²||property value||Euro/m²||gross cold rent H1||yield annualized|
Notably the yield of KWG is higher, but IMW started the fiscal with high vacancies in their more expensive (per m²) portfolios Dukes Court (11.8) and Asuterlitz (26.4). Overall vacany for IMW per m² was just 3.92%. KWG started with vacancy of 1.6% in their core portfolio, which has risen to 2.8% in the first half due to integrating aquired properties into the core portfolio.
The most recent balance sheets look as follows.
|[Euro]||total assets||equity||financial debt||property value||minorities||cash&equivalents|
Overall the balance sheets look quite similar. KWG has a slightly higher equity ratio.
|1||Financial Derivative Liabilities||6,389,003||0|
|1||minority interest book||3,884,795||7,054,681|
|1||Remaining purchase price liability Dukes Court||2,700||0|
|1||short-term financial assets||-7,294,944||0|
LTV looks familiar, too. IMW has a slightly lower LTV, but both are in a healthy region. Let's look at the interest expense and implied rate next.
|interest expense H1||debt||implied rate|
In H1 IMW has paid for Valbonne portfolio interest for an implied yield of 4.2%. This debt of 133M will be refinanced in 2014 with 136M for ten years at 3.6% fixed. The expensive Dukes Court loan has a duration till 2015. Refinancing could lower interest expenses further. KWG has not that much room to lower interest expenses going forward.
On a per share basis IMW looks a little bit cheaper than KWG.
|per share||last price||equity||P/B||non-current Deferred tax liability||P/(eq+tax)|
|KWG||€ 6.36||€ 10.70||0.59||€ 1.03||0.54|
|IMW||€ 3.40||€ 7.41||0.46||€ 0.95||0.41|
|H1 2013||staff cost||Depreciation and amortisation||other normalized||Expenses related to investment property||sum||sum/gross cold rent|
KWG has the far better cost structure. IMW is burning nearly half of the gross cold rent away. Both companies are very undervalued on an asset basis, but have not so much showing for them regarding the bottom line before special effects like fair value of properties.
I am long both companie's shares. Both companies are trading below liquidation value. The share price has some downside protection due to the underlying hard assets. I don't believe a P/B=1 is warranted with the current cost structure. In the end it is not enough to be relatively cheap compared to other real estate companies. Due to the already taken measures I think both companies will improve their bottom line and may initiate a dividend in the next years. IMW's dividend proposal was voted down at the annual meeting, but taking into acccount further debt repayments I won't vote against future dividends. Markets are not cheap these days and I don't see how I could loose money with these companies. The upside just isn't huge either barring a liquidity event to realize the underlying value. If for example IMW would sell the whole company, in my opinion they could fetch a price near book with >100% upside.