I decided to reduce my exposure to the Italian REIF theme after (i) some fund related info was released to the market and (ii) the political environment in Italy worsened. I made the following transactions
1) Reduced position in Unicredito Immobiliare to 2% of the portfolio at EUR 818 sales price from May 3 to May 17 2018:
Management informed the market that the sales process for the fund’s largest asset in Rome is ongoing. One bidder has been provided with exclusivity. The unit price reacted favorably further closing the discount to NAV. I decided to trim the position as the risk reward relation weakened. The fund distributed another EUR 150 per share at the beginning of Q2 2018.
2) Disposition of Amundi Europa at EUR 1,005 per unit from April 17 to May 17 2018:
As a reminder, the REIFs largest asset located in Rome (26% of gross asset value) is leased to a single tenant (former H3G). After the merger with WIND it is unclear whether the property will still be needed in the future by the current tenant. Former H3G has a break option starting from May 2015 until May 2019.
In addition to that, Europa Immobiliare informed unit holders at the end of March, that “following the occurrence of circumstances not known and not foreseeable at the time of drafting and approval of the final settlement of liquidation” the expected repayment for 28 March was suspended. “The aforementioned suspension is due to extraordinary, unforeseeable circumstances inherent in the liquidation of the direct and indirect holdings of the Fund, currently subject to checks of an administrative, accounting, legal and tax nature“. According to this article, it seems that Italian tax authorities are revisiting the tax structures of Europa Immobiliare 1 former investments abroad (mostly England, Sweden and Netherlands). These properties were held indirectly by the fund through the usage of special purpose vehicles. Now, it is unclear how long the tax review will take (best case three months) and what the effect will be on the outstanding distributions for unitholders of Europa Immobiliare 1.
Coming back to Amundi Europa, it seems that the fund used similar tax structures for European investments ex Italy. Therefore and due to the large single tenant exposure, I decided to realize a total return of 29.4% on this investment. The fund distributed another EUR 236 per share at the end of Q1 2018.
This brings the total weight of Italian REIFs in my portfolio down to 8.4%. The following table provides an overview for each fund (click on the table to enlarge):
Notes to the table:
1) Cumulative write down as a percentage of total historic costs (based on current real estate portfolio).
2) Cash available plus short term investments and current assets less current liabilities as a percentage of current market cap plus debt.
3) From a location perspective; note that other assets in the portfolio might have better characteristics in terms of leasing or asset liquidity.
4) Assumptions: liquidation at current NAV. In the case of Europa Immobiliare this scenario also includes a positive outcome from two legal claims.
5) Assumptions: liquidation of property portfolio at 60% of current appraisal values except for the best asset. Best asset to be sold at current appraisal value.
6) Assumption: liquidation of total property portfolio at 30% of current appraisal value.
7) Equal weighting of each scenario. Except for Unicredito Immobiliare, where the worst case scenario is weighted with 15% given the progress made in selling the largest asset close to NAV.
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