In my last post, I announced that I will acquire a position in Valore Immobiliare Globale (VIG) for the portfolio with a limit price of EUR 1,500 per unit. So far I have bought a 1.2% position between February 3rd and February 24th of 2015 at a VWAP of 1,457 assuming that I am trading one third of daily volume.
Yesterday, the fund management released its annual report for 2014. Most importantly, they announced the distribution of a large part of the current cash pile (33% of total assets) to unitholders at the end of March 2015. The distribution of EUR 16.7 m or EUR 539.7 per unit is equal to roughly 37% of my initial investment.
As of yearend 2014, the fund’s real estate portfolio is consisting of three properties:
Via Messina 38 (“Procaccini Center”) is located in the semicentro of Milan, north of Chinatown. The complex consists of four towers and VIG owns two of them. Each tower has a net leasable area of roughly 4,500 sqm.
Tower A has been fully let to B&B Italia S.p.A in February 2015, where the tenant is operating a three star hotel with 120 rooms. The fund invested EUR 5.3 m to convert the building from office to hotel usage. The lease is non-cancellable for 20 years with an annual base rent of EUR 0.6 m plus a variable rent component depending on the hotel’s performance.
Tower C is currently 46% leased to Sport Network (final expiration: 2020), Tom Tom Sales (2018) and Almirall S.p.A. (2018).
Via Bombay in Rome is 83% leased to Oracle. The building was already occupied by Oracle, when VIG acquired the building in 2000. The lease with Oracle expires at the end of 2017. However, the lease agreement also rules a break option to be exercised from December 1st 2015 with a 12 months’ notice. According to the annual report, Oracle has informally communicated the intention to vacate one floor. (out of a total of eight floors).
The remaining space is leased to Money Gram Payment System Italy until March 2019.
Via Leone Tolstoj is a logistics center leased to Tech Data. The tenant indicated that he will vacate the property in July 2015. However, fund management and the tenant reached an agreement that the fund will invest approx. EUR 8.0 m of capex. In return Tech Data signed a non-cancellable lease agreement for a nine year lease term and an annual rent of EUR 1.1 m. Going further the capital expenditure should be reflected in the properties’ valuation.
Based on my purchase price of EUR 1,457 the fund has a market cap of EUR 44.5 m. The fund’s properties are valued at EUR 55.3 m. The current cash balance is EUR 27.4 m and other assets make up EUR 0.8 m. The fund has no bank debt outstanding and other liabilities of EUR 1.1 m. This leads to an NAV of EUR 82.4 m or EUR 2,673 per unit. Hence, the discount to NAV is 46%. After the distribution of EUR 539.7 per unit in March, the discount will widen to 57%. The fund’s lifetime will end in 2019 when all assets have to be liquidated and the net proceeds will have to be returned to unitholders.
From my perspective, the biggest risk is that Oracle could vacate the property in Rome. However, the large discount to NAV and the non-existence of financial leverage more than compensate for this risk.
From today on I will increase my position to 2% of the portfolio with a price limit of EUR 1,650 (making use of today’s relatively large trading volume).
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