Updates on Positions

Asseco Central Europe

Asseco Poland is tendering for the remaining  6.49% shares of Asseco Central Europe, they do not currently own.
The tender offer price is 23.5 PLN.
This compares to a 52w high of 26 and a current bid of 23.8.
I see no reason to tender my shares at this price. The premium is not there. If Asseco Poland wants to delist the shares so be it, but they will still have cost to provide for minority shareholders. Better for them to pay more.

tender price	23.5
bid	23.8
ask	24
52 weeks high	26
P/BV	1.12
P/E	10.3
Dividend yield (%)	9.4

The company still has more cash than debt. Although it is not as cheap as when bought around 16 PLN.

IMW Immobilien

IMW immobilien is tendering for its own shares at €7.50 per share. The company is still delisted, but share traded on the local Hamburg stock exchange for a short while around €7.50.
The offered price is too low. Their residential real estate in Berlin has increased in value, but this does not show up in the numbers. Book value per last report is €111 million using the conservative German HGB accounting, but economic value is higher. Remember the rents are at the low end of the spectrum and it is impossible to built new objects economically at such rates. This means the rents will increase sustainably for their kind of real estate. I sold all my shares above €9 before repurchasing. Fundamentals for their properties just kept improving and now comes this offer. I would be fine with many other shareholders accepting, so they can pay a real price next time for the rest and still make an unjustified killing for themselves in the future. After all it is dumb German money. So who knows how much shares will be tendered.

KWG Komunale Wohnen
The bok value per 3/31/2016 reached €10.95. I think this is the minimum one should get for the shares. operations are improving and costs are shrinking.

In April/2016 Conwert acquired 7.5% shares via their tender offer for €10.80 per share and reached 87% of shares.

In the meantime German DAX constituent Voniva expressed their intent to take-over Conwert.  Conwert shareholders are to receive 74 Vonovia shares per 149 Conwert shares.

conwert Immobilien Invest SE

VIE:CWI

16.200

1.40%

-1.38%

15.98

Vonovia SE

ETR:VNA

32.170

With Vonovia's shares falling over the last month, the current ofer is €15.98 and the spread is negative (ignoring potential dividends).

When Vonovia acquires Conwert the more synergies to be of benefit to KWG. This will lower cost of debt via cash pooling. Banks are simply willing to lent larger sums at lower interest rates. I do not like this, but for now this are economies of scale for such capital intensive companies like real estate companies.

Hornbeck Offshore
My last blog post is from June. I just did not have the time and the blog did produce almost no feedback except spam comments. So I did not update. In the meantime I have sold my HOS shares for more than double the current price of around $8 at a loss. For now the equity is in distress. It is more like a call option on higher and stable oil prices, which would increase activity in the Gulf of Mexico. The publicly tradable bonds could be the fulcrum and trade at equity like yields. I may rather buy the debt here if at all. The company has Jones act vessels. Could even benefit from Trump.

I have some other positions in my portfolio. Please let me know if you are interested in me keeping to write posts.

Update KWG / bought Flughafen Wien / Macro Enterprises

KWG

After selling most some of my other real estate holdings (IMW,Sirius), the first idea is of course to increase positions, which have not performed according to my expectations.

The LTV is still in the green:

	31.12.2013	30.06.2014
Borrowings	235,475	229,977
Financial Liabilities	4,248	3,440
minority interest book	5,879	6,038
accrued taxes	166	312
1/2 pension liabilites	832	849.5
heating equipment PV	812	812
Cash/Marketable Securities	(7,043)	(6,427)
Financial Assets	(996)	(852)
sum	239,373	234,150
Current/Non-Current/Property	424,476	421,133
LTV	56.39%	55.60%

The problem with KWG is the low FFO cashflow:

	H1/2013 restated	H1/2014	normalized	annualized	2015*
Vermietungserlöse	22,513	22,156	22,156	44,312	46,158
Veräußerungserlöse aus zum Verkauf gehaltenen Immobilien		2,621		0
Veräußerungserlöse aus als Finanzinvestitionen gehaltenen Immobilien	9,186	5,383		0
Umsatzerlöse	31,698	30,160	22,156	44,312	46,158
Immobilienaufwendungen	-9,925	-10,375	-10,375	-20,750	-20,750
Aufwendungen aus dem Abgang von zum Verkauf gehaltenen Immobilien		-1,326		0
Aufwendungen aus dem Abgang von als Finanzinvestitionen gehaltenen Immobilien	-9,225	-5,326		0
sum	12,548	13,133	11,781	23,562	25,408
Gewinne aus der Anpassung des beizulegenden Zeitwertes	8,896			0
Abschreibungen und übrige außerplanmäßige Wertminderungen	-105	-66		0
Sonstige betriebliche Erträge	750	435		0
Personalaufwendungen	-1,527	-1,818	-1,818	-3,636	-3,636
Sonstige betriebliche Aufwendungen	-2,355	-3,339	-2,447	-4,894	-4,894
Betriebsergebnis (EBIT)	18,206	8,345	7,516	15,032	16,878
Finanzerträge				0
Finanzaufwendungen	-5,337	-4,967		0
Finanzergebnis	-5,335	-4,959	-4,959	-9,918	-9918
Ergebnis vor Ertragsteuern (EBT)	12,872	3,386	2,557	5,114	6,960
Ertragsteuern	-2,337	-579	-405	-809	-1,101
Konzernergebnis nach Ertragsteuern	10,535	2,807	2,152	4,305	5,859
davon entfallen auf Anteile ohne Beherrschung	479	189	189	378	394
davon entfallen auf Anteilseigner des Mutterunternehmens	10,056	2,618	1,963	3,927	5,464
EPS in € / normalized FFO	0.62	0.16	0.12	0.25	0.34
number shares	15,881,234	15,881,234	15,881,234	15,881,234	15,881,234

After looking at the new numbers, one can expect an FFO of 0.34 per share for 2015. This would justify a price of 6.80 at a yield of 5%. For 2015, I expect rents to increase 2% and 60*12+20*12 increase in cold rents due to renovation projects. I think an increase of 2% is prudent:
"As of 30 September 2014 the vacancy rate of the KWG portfolio improved by 10.4% to 12.9% (30/09/2013: 14.4%). At the same time, average portfolio rents rose slightly from €5.00/sqm/m to €5.10/sqm/m."
After finishing renovations vacancy will drop further, which is party included in the expected new lettings.

source H1/2014 report

Conclusion
Properties are valued at 421 and net cold rent is ~ 31 mio, which implies a yield of 7.4%. The book value is 10.80/share. But as long as recurring cash flows do not improve the share price will not rise sustainably. Compared with my investment in IMW (purchased at 2.5-3.3 and sold between 7-9.20), KWG was a drag on performance YTD. I will hold on to my position. Maybe some cost savings materialize as the company moved headquarters to Berlin nearer to its parant company, although I have modeled none.

Flughafen Wien is a short-term speculative bet on a tender offer not being accepted by too many shareholders. You can read a write-up at one of my favourite blogs.

Macro Enterprises has announced a buy-back today. You can read more at their website, red corner blog or Corner of Berkshire.  Macro is a Canadian construction company in the ressource industry. I hope not to be too early as with Sberbank, but believe Macro's balance sheet will shield the company from an outright bancruptcy in 2015 and the company is worth multiples of the current price if the situation improves. It is no compounder, but more a kind of an option like Sberbank but less risky. The position is about 2.5%, but this can change quickly.

Update IMW Immobilien

Sale of Dukes Court
On 16.09.2014 IMW informs about the sale of Firefly Ltd., the company which owns IMW's UK property Dukes Court, for about GBP 60m. The sales price translates into roughly €75.2m. At the time of the sale Dukes Court was fully let.
At the last balance sheet date (31.03.2014) Dukes Court was valued at €67.7m, using a discount rate of 7.38%.  The vacancy was 3.4% at the time of the valuation (now fully let). The corresponding debt was €36.2m, which means IMW can expect a residual cash flow of about €39m. The profit is ~€7.5m less corresponding cost. Because the sale was a share deal, I do not expect significant cost. IMW intends to invest the proceeds into other real estate projects.

Approximation of IRR for Dukes Court Investment
Dukes Court was bought for GBP 52m or €61.1m in 2012. It generated a profit of €0.7m for fiscal year 2012/2013 and €1.4m for 2013/2014. Investments into Dukes Court were €3.8m and €4.0m respectively. Plugging the numbers into a table results in this unlevered return:

	Cash flow
year 1	-61,1
year 2	-3,1
year 3	72,6
IRR	6,5%

We know this is not the right IRR due to ignoring derivatives, debt and timing of cash flows. Additionally no G&A expenses and transaction cost were allocated. But overall the investment was not as bad as expected by me in 2012. Although concentrating on Berlin residential properties would have yielded better results. A buy-back would have yielded the best returns for shareholders.

AGM on 29.09.2014

• dividend of 0.04€ per share rejected
• renewal of the right to purchase own shares

The company intends to downgrade their listing from the general to the entry standard of the Frankfurt stock exchange.

Asset based valuation
This is just my estimate of pro forma LTV and could be off:

weight		30.09.2013	31.03.2013	31.03.2014	pro forma
1	Borrowings	180.449.546	182.090	180.347	146.500
1	Financial Derivative Liabilities	6.389.003	9.399	3.507	3.507
1	minority interest book	3.884.795	3.720	4.295	4.295
0.5	Pension/Employee Liabilities	470.181	455	430	430
1	Remaining purchase price liability Dukes Court	2.700	9.700	0	0
1	Cash/Marketable Securities	-11.710.354	-26.297	-10.684	-48.754
1	short-term financial assets	-7.294.944	-5.476	-2.742	-3.990
1	other long-term assets ( pledged bank deposits)	0	-1.000	0	0
sum		172.190.927	172.591	175.153	101.988
	Current/Non-Current/Property	321.965.040	315.427	341.806	277.598
	LTV	53,48%	54,72%	51,24%	36,74%

IMW is not distressed and can be valued as a going concern. LTV has improved from 53.5% since my last post on IMW due to earnings and the sale of Dukes Court.

	#shares	equity	deferred tax	P/EQ	P/(EQ+DT)	price
3/31/2014	16,466,666	8.57 €	1.07 €	0.82	0.73	€ 7.00
pro forma	16,466,666	9.21 €	1.07 €	0.76	0.68	€ 7.00

 IMW is not as cheap in the past, but still trades under book at a price of €7.00. At a p/b of 1.0 IMW would trade at €9.21.

Earnings based valuation

A valuation based an earnings/cash flows is difficult because of the uncertainty regarding the reinvestment of the proceeds of the sale of Dukes Court.

Outlook for 2015:

Zu Beginn des neuen Kalenderjahres 2015 fallen rund 1.900 Wohneinheiten aus der bisherigen Nachwirkung der Förderung des sozialen Wohnungsbaus. Dies versetzt uns in die Lage, moderate Mietpreisanhebungen vorzunehmen, die auf Jahressicht zu einem Anstieg der Mieterlöse im Konzern von rund 6 % auf etwa € 19,3 Mio. führen sollen.

IMW expects to increase gross rental income from € 18.2m 2013/2014 to € 19.3m. Let us assume € 1.1m will flow right to the bottom line. The revaluation of the Vorratsimmobilie and 50% of "Risikovorsorge für Betriebsprüfungen" was added back as these items are non-recurring. For the tax audit I was not sure and added only 50% back.  € 3.1m maintenace cap-ex is included in the following figures for continued operations:

	2013/2014	2014/2015*
EBIT from continued operation before revaluations	9,916	11,016
add back revaluation Vorratsimmobilie	300	300
add back 50% of "Risikovorsorge für Betriebsprüfungen"	400	400
Interest expense	-6,249	-5,600
add back interest expense due to tax arrears	548	0
normalized income before tax	4,915	6,116
theoretical tax @15.825%	778	968
normalized earnings	4,137	5,148
per share	€ 0.25	€ 0.31

Taking into account the cash proceeds of ~€ 39m or € 2.4 per share due to the sale of Dukes Court is difficult, as we do not know on which projects the money will be spend. Investments into the Valbonne portfolio in Berlin will be self-financed.

Putting a multiple of 20x on earnings, not outlandish for Berlin residential property, and adding € 2.4 would imply a price of € 8.6 per share.

In November 2013 IMW signed a € 136m loan for ten years at 3.6% p.a. The spread to the 1.705% of the 10-year Bund was 1.9%. With the Bund (risk-free rate) now at 1.1% this implies a pre-tax cost of debt of 3.0%. The labor cost of € 2.5m for fiscal 2013/2014 will not rise proportionally with new investments. That is why I was against the dividend, which was not approved at the AGM. Taking into account the cost basis adding back the € 2.4 may be too low. But the management team in place has not earned the capital cost for the business.

For the time being I will hold on to my remaining position. At a price of 8.6€, I would sell. As my position was very big, the position was trimmed significantly above 7€ already.

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?

Dividend
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	Area	Investment		Rental Increase
				€		Occupancy		Rate
	Sqm	Budget	Actual	Budget	Achieved to Date	Budget	Achieved to Date	Budget	Achieved to Date
Completed	26,818	€2,197,000	€1,823,610	€1,358,559	€678,653	80%	33%	5.27	6.40
In Progress	7,680	€1,687,000		€392,902		75%		5.70
To be Commenced This Financial Year	15,009	€1,481,766		€663,444		72%		5.11
To be Commenced Next Financial Year	23,301	€2,431,000		€1,148,508		80%		5.13
Total	72,808	€7,796,766	€1,823,610	€3,563,413	€678,653	78%		5.24

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.

Aquisitions
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).

Conclusion
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.

update Sirius Real Estate

Sirius has posted results for the the year ended 31 March 2014 on 18/06/2014. The results were good.

Dividend

Sirius intends to recommence the payment of a regular dividend, starting with a final dividend of 0.30c per share for the period. Whilst only a modest payment at this stage, the 0.30c dividend represents 65% of the recurring profits after tax for the March 2014 quarter, following the capital raising completed in December. The Board has set a policy to pay a dividend equal to 65% of the recurring profits after tax in respect of each financial year of the Group.  It is intended that dividends will be paid on a semi-annual basis and offered to shareholders in cash or scrip form. 

Recurring profits are profits after tax and before property revaluation, change in fair value of derivative financial instruments and non-recurring costs.

Putting dividend into perspective:
Earnings Per Share amounted to 7.31c (2013: -9.52c) while Adjusted Earnings Per Share excluding property revaluation, change in fair value of derivative financial instruments and non-recurring costs amounted to 2.73c (2013: 2.66c). 

implied yield at share price of 34c:

2.73x65%/34=5.2%

Despite the dilutive equity issuance last year Sirius Real Estate is able to offer a good forward yield in this yield starving environment. My initial thesis regarding the dividend has played out as expected. But if yield seeking investors pour in after one year of semi-anual dividends I am inclined to sell. This yield has to be taken with a grain of salt because management has used a weighted average number of ordinary share. As shown in the P&L analysis and before savings for 2014 from refinancing loans I would use 1.84c as adjusted earnings: 1.84x65%/34=3.5% is a realistic yield without factoring in the favourable operational upside of Sirius.

NAV

Opening adjusted net asset value per share 48.4c
Impact of equity capital raisings and issues during the year (10.1)c
Impact of valuations/disposals 3.8c
Impact of retained profits 2.2c
Closing adjusted net asset value per share 44.3c

My personal calculations of NAV differs slightly with a NAV of 43.9c:

	31.03.2013	31.03.2014
Cash/Marketable Securities	16,718	13,747
Current/Non-Current/Property	440,020	443,720
Derivative financial instruments	0	678
Borrowings	(289,390)	(224,884)
Financial Derivative Liabilities	(197)	(174)
minority interest book	(17)	(22)
accrued interest and expenses	(8,108)	(7,690)
NAV	159,026	224,697
Deferred tax liabilities	2,636	4,200
Epra NAV	161,662	228,897
shares with voting rights	317,578,176	512,238,576
NAV per share	€ 0.50	€ 0.44
Epra NAV per share	€ 0.51	€ 0.45
P/NAV @0.34	67.90%	77.51%
P/Epra NAV @0.34	66.79%	76.09%

The equity issue was dilutive. It is difficult to follow the logic of raising equity in order to pay out this cash as a dividend to shareholders in the future. Debt is cheap like never before. At least the NAV would have increased without the effect of the equity issue.

LTV

The lower LTV has enabled Sirius to refinance at competitive financing rates.

	31.03.2013	31.03.2014
Borrowings	289,390	224,884
Financial Derivative Liabilities	197	174
minority interest book	17	22
accrued interest and expenses	8,108	7,690
Cash/Marketable Securities	(16,718)	(13,747)
Derivative Financial Assets	0	(678)
sum loan	280,994	219,023
Current/Non-Current/Property	440,020	443,720
LTV	63.86%	49.36%

  

P&L 

	year to 3/31/2013	year to 3/31/2014
Rental income	46,115	45,065
Direct costs	-16,889	-16,519
Net rental income	29,226	28,546
Surplus/(deficit) on revaluation of investment properties	-35,776	22,735
Loss on disposal of properties	-1,201	-1,687
Administrative expenses	-4,684	-4,043
Other operating expenses	-2,411	-2,298
Operating profit/(loss)	-14,846	43,253
Finance income	25	64
Finance expense	-14,998	-12,155
Change in fair value of derivative financial instruments	350	-128
Profit/(loss) before tax	-29,469	31,034
Taxation	-783	-2,102
Profit/(loss) for the period	-30,252	28,932
Profit/(loss) attributable to:
Owners of the Company	-30,227	28,927
Non-controlling interest	-25	5
Profit/(loss) for the period	-30,252	28,932
shares with voting rights	317,578,176	512,238,576
Profit/(loss) per share cents	-9.53	5.65
	year to 3/31/2013	year to 3/31/2014
Profit/(loss) before tax	-29,469	31,034
Surplus/(deficit) on revaluation of investment properties	-35,776	22,735
Loss on disposal of properties	-1,201	-1,687
Profit before revaluation, disposal and tax	7,508	9,986
Non-recurring costs	1,537	1,235
surrender premium	1,000	1,700
Change in fair value of derivative financial instruments	350	-128
tax effect of revaluations	564	1,564
normalised profit before tax	8,259	11,213
tax @15.825%	1,307	1,774
normalised net profit	6,952	9,439
shares with voting rights	317,578,176	512,238,576
normalised Profit/(loss) per share cents	2.19	1.84
Weighted average number of ordinary shares for the purpose of adjusted earnings per share	317,559,843	395,758,526
	2.19	2.38

Non‑recurring costs relate primarily to loan extension fees associated with the debt facility with ABN Amro Bank N.V. and early payment penalties associated with the refinancing of the debt facility with Berlin Hannoversche Hypothekenbank AG.

As the refinancing is finished I am inclined to accept this related costs as non-recurring. I did not add them back in the original write-up.

Management uses Weighted average number of ordinary shares for the purpose of adjusted earnings per share, but I think it is more accurate to use the actual number of shares, although the raised equity did not work for the whole period already. The cost savings from repaying and refinancing borrowings would raise the adjusted EPS from 1.84c abviously.

Conclusion

Sirius Real Estate still offers a yield above 5% base on my conservative normalized earnings of 1.84c per share. This is not bad for German Real Estate. Additionally Sirius Real Estate is on an upward trajectory operationally. They will add new sights and have enough cashflow to invest in their - according to management high ROI projects. Nevertheless I will start to sell my position at these prices around €0.35 and reinvest into Dream Global REIT.