Tuesday, 28 October 2014

Sold Covidien / Better timeline for UMS special situation


Having bought the Covidien at discounts well above 10% I have exited the position completely. The situation looks like this as of now 10/28/2014:


implied value bid98.68

price covidien90.12


medtronic break-even price

If the spread to the implied value of Medtronic's bid to aquire Covidien rises again, the position will probably be established once again. On the Ideas tab of the blog you can follow my trades in Covidien, which I try to update regularly. As the situation at Shire has shown this type of investment is no true value investment, but more speculative.
I have been long Covidien before the bid of Medtronic and think the long-term downside if the bid does not go through and the market closes for the next 10 years is not huge.


I have updated my expected IRR due to UMS providing more visibility re the timeline of its liquidation. You can find the CEO's speech in German here. Pre-tax the situation could look like this:

buydividend 1dividend 2
pre-tax IRR13.54%

If one includes the effect of taxes of the typical German retail investor the situation could look like this:

buydividend 1dividend 2tax refund
tax on 1/2
net cashflow-9.556.51093752.65051.52975

after-tax IRR8.15%

Instead of 2016 for the second dividend I have used 2017 to be on the safe side, because there could be obstacles to liquidate the whole company already on 2016. Additionally I do not know how much of the dividends will be tax exempt, so I have modelled for the dividends to be half tax-exempt. Depending on the individual situation the timing of the tax refund will differ of course. If I am right the situation is more interesting for tax-exempt investors than for retail investors. Liquidity is way lower than for e.g. Covidien and I plan to actively trade around the position. The upside is capped, but the downside is still there in these situations. If the pre-tax IRR falls below 10% I would start to sell.

The current IRR looks promising compared to 5yr Bunds with 0.16% YTM.

As always: Do your own research and use limit orders for UMS.

Wednesday, 8 October 2014

Update Sirius Real Estate

After the last blogpost about Sirius and selling part of the position at prices a little bit lower than € 0.35, the price has come down to € 0.30 despite a positive trading update.

Should the shares be repurchased at the lower price or the position be exited enterily? What has changed?

Sirius plan to pay out a larger part of their profits. Instead of paying 65% of  recurring earnings after tax, the company intends to pay out 65% of Funds From Operations ** ('FFO).Per this interview this means the prospective dividend will be ~1.6c instead of 1.3c. At the current price of 30c this implies a forward dividend yield of 5.3%. I conservatively expected a dividend of at least 1.2c would be sustainable based on the results for the last year and the higher share count. In the end the dividend policy does not affect my valuation, but other investors value dividends highly and may pay a higher price for Sirius after delivering a little bit of dividend growth.

Land sales
The company has completed and notarised land sales to the value of € 4.541m in the period to 30/09/2014. Based on 522,075,395 shares this comes to 0.9c per share:
"In the period under review, the Company has completed the sale of 4,736 sqm of non-income producing land in Bremen to Aldi for €2.15 million, as well as a separate 2,743 sqms of non-income producing land in Bonn Siemmenstrasse for €186,725, in addition a further 27,000 sqm of land at the back of the Berlin Gartenfeld site has been notarised for €2.205 million. The Gartenfeld Land was contributing €22k of income per annum. The three aforementioned transactions amount to just under 35,000 sqms of land at an average price per sqm of €130."
They exchanged €22k of income for € 4.541m in cash. I believe the excess land sales to be value accretive. The Company has over 80,000 sqms of non-income producing land from which management has identified a number of additional opportunities within the portfolio that can be considered for sale in the future. Assuming €130 per sqm for the whole remaining land, this would add 2c per share cash.
Investment for organic growth 
The company  planned to convert 100,000 sqm of currently vacant space into lettable areas for an investment of € 9m. The following table dated from end of August 2014 was provided in the trading statement. 
Captial Investment Programme Progress
Rental Increase


Achieved to Date
Achieved to Date
Achieved to Date
In Progress




To be Commenced This Financial Year




To be Commenced Next Financial Year






26,818 sqm are already completed.This looks promising. Investments were under budget and achieved higher rates. On the other hand an investment of € 7.8m or 1.5c per share for two financial years is lower than the 1.6c expected dividend for this financial year alone. There is only so much vacant space one can convert.
The budgeted rental increase for this financial year of €2.415m and €1.149m the year thereafter compares to an annualised recurring rent roll of €41.3m (31/03/2014). This is rater unimpressive.

Nothing has changed. Mngmt is still looking for atractive business parks.Financing is available at 3.5% and net yields of 8-10% are offered as per this interview. This could possibly create value for shareholders. I would prefer a more opportunistic instead of the new deterministic dividend policy (65% of FFO).

Despite the positive results Sirius is a hold for now. The new initiatives will not create enough earnings to make up for the dilution and the now higher share count. On the other hand raising equity and refinancing debt has materially derisked Sirius' operation which implies a lower cost of equity. From an asset perspective the company trades at 30c with a discount to its NAV (~44c per share). A dividend yield of 5.3% makes waiting for this gap to narrow worthwile.

site note: How can the selling/buying in increments be implemented in this blog's portfolio? Under the "idea" tab, the sale for 35c was not reflected as the position is still active. I will think a little bit about this.