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.

Bought Essex Rental / Updates on several position / re-entered UMS United medical

Essex Rental

Essex Rental (ticker:ESSX) is up 30% on higher than average volume today. There is a write-up on seekingalpha. I have not much to add. The company has two subsidiaries. One is worth zero and the other more than the current market cap of Essex Rental. Because of the price action today, I believe now is a good time to initiate a position. Technically the debt of the worthless sub should be non-recourse. Maybe someone knows more. This is a specualative position and liquidity is low. This has to be sized accordingly.

Update Cleco

I have decided to hold on to the position after the sale was rejected by the commision. The hearing was webcasted and I listened to it. Should have sold the position with a small gain as soon as I realized a negative outcome is probable. The decision process looks very non fact-based to me. Although the decision to reject may be right. It looks like it played a role that the buyer was not American...

Update Medisana

As expected the money has arrive in the bank account. This was a nice gain in a short time period.

Medisana

€ 2.80

€ 2.70

2/25/2016

3/3/2016

3.70%

Update SPIL

The offer might not go through. Good that is a just an odd-lot. The downside should not be high. SPIL is not expensive at this price. The position is at a small loss. If this gets slaugthered as a broken arb I may increase the position

Spil

$7.55

$7.56

1/15/2016

yes

-0.13%

Update KWG Komunale Wohnen

At last Conwert has come out with a offer to acquiry shares of KWG. Because of the complex land transfer tax in Germany the company does not tender for all remaining shares. It is important not to get over 95%. The price on offer is €10.80. This was one of the more successful position with an IRR of 26.2% since the start of 2014.

KWG Komunale Wohnen

€ 10.56

€ 6.36

1/6/2014

yes

66.04%

Update Apple

As written this was a short-term play. As you could have seen on the portfolio tab of the blog, the position was already sold again. Yes, I think Apple is still undervalued... It is just that I also want to hold some cash. Since 2012 I went with near 100% stock at all times.

Apple

$101.96

$96.20

1/15/2016

3/4/2016

5.99%

Update snow

Same with SNOW. The tendered odd-lot was accepted and the position eliminated. I am not bullish on SNOW as a core long position because the maintenance capex looks high to me.

Snow

$9.00

$8.51

1/15/2016

2/11/2016

5.76%

Update Dream Global

Obviously with the current decision of the ECB and the low interest rate environment German Real estate is still very attractive. DRG has started to rise. There is also a write-up on seekingalpha. Not much to add here. This a big position and I intend to trim a little bit at higher prices.

Dream Global Reit

CA$ 8.68

CA$ 8.30

12/2/2015

yes

6.18%

Update Pfandbriefbank 

Dt. Pfandbriefbank

€ 9.49

€ 8.66

2/5/2016

yes

9.58%

 This is a typical case of being early. Six days after purcase on 2/11 the stock was as cheap as €7.43. I did not dare to increase the already full position. That is the disadvantage of a bank stock it is not good to average down because you will get diluted at the buttom in most cases. Although this time no one already knew more...

Just look at the chart:

I am very happy with the results this year sofar. This also reminds me of the time when I bought a Greek stock in their crisis. The next day it was down 10% on one day and I felt terrible about my timing.

Re-entered UMS

UMS was already part of the blog portfolio:

UMS

€ 10.15

€ 9.40

9/5/2014

9/22/2014

7.98%

UMS

€ 10.88

€ 9.52

9/5/2014

4/28/2015

14.29%

Liquidity is very low but with patient limit orders, it was possible to built a small position for the blog again.

UMS

€ 3.31

€ 3.25

3/11/2016

yes

1.85%

If everything goes according to plan, it would look like this:

UMS

FRA:UMS

3.31

-8.06%

8.76%

3.6

liquidation

pre-tax IRR

46.00%

5/31/2016

Please fell free to comment and do your own homework as always!

Updates Gyro, KWG, Glentel, WTW,

Gyrodyne

Gyrodyne filed a S-1 form with the SEC and I exited the position. This may look like a loss, but in Euro Gyro actually earned me some money as the Euro has lost in value.

Although the prospectus is preliminary and we don't know the actual numbers yet, I expect them to offer the new shares with a discount to current trading prices. The issue of new shares seems to be neccessary in order to get enough votes for the merger:

"On June 5, 2014, Gyrodyne announced that a special meeting of Gyrodyne shareholders would be held on August 14, 2014 to authorize the Merger. Gyrodyne postponed the special meeting, first to August 27, 2014 and then to December 5, 2014, to allow additional time for shareholders to vote on the Merger. Although the shares that were voted in these previous attempts to conduct the special meeting were voted overwhelmingly in favor of the Merger, not enough shares were voted to achieve the two-thirds of the outstanding shares vote requirement. Accordingly, on November 4, 2014, Gyrodyne announced a further postponement of the special meeting until the first half of 2015. Given the small size of holdings of many Gyrodyne shareholders and the nature of various holders, we believe many holders may not have paid enough attention to the Merger to exercise their right to vote. The board believes, however, that shareholders who would exercise their subscription rights in the rights offering may be more interested in the current structure of Gyrodyne and thus more likely to vote their shares on the Merger proposal."

I believe the shareholder who didn't bother to vote, will not bother to participate in the offering and will be diluted. This could be a chance to get back in at lower prices. The "Strategic alternative costs" for Gyro over the past years and continuing are a little high for my taste.

KWG Komunale Wohnen
 
Deutsche Wohnen announced a takeover offer for €11.50 per Conwert share. Conwert is KWG's parent company, which means KWG is now implicit in play. I have increased my KWG position directly after the announcement in February and it is now trading higher. The majority of the portfolio of KWG should be considered non-core by Deutsche Wohnen.

Glentel

Glentel is trading lower than my purchase price. With BCE trading for 53.32 this offers upside of about 12%, which I think is attractive. I have increased my position a little bit.

		glentel
50% cash	26.5	13.25
50% BCE	0.4974	13.26	53.32
	implied value bid	26.51
	price glentel	23.67	100% cash
	discount	-10.72%	-10.68%
	upside	12.00%	11.96%

Weight Watchers

The purchase of weight watchers was a mistake. I did not understand the falling price on no news and thought either the price in December was too high or the price now (at purchase) too low. The high percentage of float shorted was another interesting piece. The enterprise value is dominated by debt and the business trend is downwards. Any change in the fundamentals will have a huge impact on the share price. The actual numbers were bad and management ignorant of the problems. I will hold the company for now to keep it on my radar, but I don't really think this will be a full position anytime soon with this management team.

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.

IMW Immobilien vs KWG Komunale Wohnen

One my favourite bloggers Wexboy has chosen KWG as his best investment into German residential property. I am both long IMW and KWG. That makes a comparison of both companies interesting.

Market cap and trading segment

name	last price	#shares	mcap	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:

• ad-hoc-disclosure
• use of international accounting standards (IFRS/ IAS or US-GAAP),
• publication of interim reports.

Whereas KWG is not subject to the high Europe-wide transparency standards and strict provisions for investor protection on organized markets as it is listed on the open market.

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.

Property
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
commercial	3.200	20.500	9.800	6.800	40.300
residential	289.000	0	0	0	289.000
sum	292.200	20.500	9.800	6.800	329.300
vacancy 3/2013	2,7%	11,8%	26,4%	0%	3,92%
€/qm 3/2013	773	2.682	2.037	1.574	946
€/qm 9/2013	784	2.842	2.037	1.574	966

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]

Some of the properties of KWG have a mixed use between residential and commercial. KWG has no office space, but sometimes retail units are integrated into the property. There is no exact split in their reports, but the homepage gives more details. Mixed use, I think, is a positive as commercial rents tend to be higher. The portfolio has evolved as follows in the first six month. The property in Wolfsburg was sold.

	31.12.2012			30.06.2013
	Units	Parking	Size in m2	Units	Parking	Size in m2
Total portfolio	9,636	2,623	601,710	9,477	2,575	591,901
North Rhine-Westphalia	4,751	1,652	324,291	4,691	1,632	319,920
Dortmund	137	36	11,748	-1.26%	-1.21%	-1.35%
Düsseldorf	201	54	12,171
Gelsenkirchen	146	0	8,799
Mülheim	176	73	12,926
Oberhausen	151	92	11,508
Bochum	428	210	31,470
Wuppertal	2,995	878	199,774
Hagen	254	65	15,037
Other NRW	263	244	20,859
Berlin, total	1,022	34	63,789	1,024	32	63,785
Mitte	679	22	41,255	0.20%	-5.88%	-0.01%
Neukölln	146	0	9,010
Schöneberg	46	0	3,435
Treptow-Köpenick	51	0	2,883
Other Berlin	100	12	7,206
Saxony, total	1,868	533	99,205	1,868	536	99,195
Hainichen	968	442	51,868	0.00%	0.56%	-0.01%
Glauchau	346	35	17,573
Chemnitz	250	56	14,937
Bernsdorf	304	0	14,828
Lower Saxony, total	1,327	404	79,946	1,226	355	74,522
Braunschweig	198	26	11,439	-7.61%	-12.13%	-6.78%
Wolfsburg	160	77	9,379	sold
Delmenhorst	442	57	21,859
Celle	238	125	18,342
Other Lower saxony	289	119	18,927
Thuringia, total	668	0	34,479	668	0	34,479
Erfurt	347	0	17,162	0.00%	0.00%	0.00%
Bad Langensalza	321	0	17,317

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
KWG	591,901	429,492,794	726	15,630,000	7.28%
IMW	329,300	321,965,040	966	11,074,055	6.88%

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.

Balance sheet 

The most recent balance sheets look as follows.

[Euro]	total assets	equity	financial debt	property value	minorities	cash&equivalents
KWG	442,683,731	170,005,512	231,874,346	429,492,794	7,054,681	3,690,710
%	100.00%	38.40%	52.38%	97.02%	1.59%	0.83%
IMW	343,947,729	121,993,750	180,449,546	321,965,040	3,884,795	11710354.08
%	100.00%	35.47%	52.46%	93.61%	1.13%	3.40%

Overall the balance sheets look quite similar. KWG has a slightly higher equity ratio.

		IMW	KWG
weight		30.09.2013	30.06.2013
1	Borrowings	180,449,546	231,874,346
1	Financial Derivative Liabilities	6,389,003	0
1	minority interest book	3,884,795	7,054,681
0.5	Pension/Employee Liabilities	470,181	851,542
1	Remaining purchase price liability Dukes Court	2,700	0
1	Cash/Marketable Securities	-11,710,354	-3,690,710
1	short-term financial assets	-7,294,944	0
sum		172,190,927	236,089,859
	Current/Non-Current/Property	321,965,040	429,492,794
	LTV	53.48%	54.97%

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
KWG	4,744,815	231,874,346	4.09%
IMW	4,288,461	180,449,546	4.75%

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

 Cost structure

H1 2013	staff cost	Depreciation and amortisation	other normalized	Expenses related to investment property	sum	sum/gross cold rent
KWG	1,947,355	104,905	1,460,000	2,715,048	6,227,309	39.84%
IMW	1,231,995	34,971	1,718,000	2,356,324	5,341,291	48.23%

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.

Conclusion
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.