Since the beginning of 2015, I have bought a basket of different Italian real estate funds. I started with a position in Unicredito Immobiliare and shortly thereafter added three more funds including Amundi RE Europa, Europa Immobiliare Uno and Valore Immobiliare Globale.
After reading though the half year reports, I will make the following transactions from today on:
1) Increase position in Europa Immobiliare Uno to 3% of the portfolio with a limit price of EUR 800:
Management is making good progress in disposing its assets with the fund maturing at the end of 2017:
The sale of a nursing home in Milan (Via Lope de Vega) was completed at the end of July at a price close to appraised value. In addition, final negotiations are currently ongoing regarding the fund’s two major assets (in terms of NAV) located in Sweden (Golden Portfolio) and UK (Croydon Colonnades Leisure Park). Management expects the closing of the transactions to take place during the third quarter.
If completed successfully, I expect the fund to receive net cash proceeds between EUR 60 m and EUR 70 m coming from these three dispositions. Management might use the proceeds to pay down most of the current debt outstanding (EUR 73 m at the end of June). Consequently, the fund will be almost debt free trading at a discount to NAV of close to 50%.
It will be challenging to sell the remaining assets at current appraised values as most of the properties face difficulties (e.g. lease maturities, single tenant risk or located in an oversupplied market). However, management has indicated that advanced negotiations are ongoing regarding a number of portfolio components including Via Bisceglie and Amstelveen. In conclusion, while a further reduction in appraised fair values will be a probable outcome, I believe that there is substantial upside to current market price.
2) Increase position in Valore Immobiliare Globale to 3% of the portfolio with a limit price of EUR 1,200:
The fund is holding three properties valued at EUR 55 m, has a cash balance of EUR 12 m and no debt outstanding.
From an asset management perspective good progress is being made:
First, roughly EUR 8 m of capex will be invested to be able to re-lease the fund’s logistics property for a fixed period of 9 years. Second, management is still in negotiations with the major tenant (Oracle) to renew the tenant agreement concerning the fund’s office building in Rome. In a worst case scenario Oracle could move out with the fund having to invest in an agreement with a new tenant. The third asset located in Milan has been stabilized. Roughly 20% of the space is still vacant being marketed by DTZ.
With the fund maturing at the end of 2019, management is not in a rush to sell. Nevertheless, with market sentiment improving in Italy and long term leases in place the fund’s assets might be attractive targets for a number of institutional investors. Fund units are currently trading at a 45% discount to NAV.
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