In July 2016, fund management announced the disposition of Via Messina in Milan at a sales price close to appraised value. The fund’s unit price appreciated sharply after this positive news flow. After the deal closing, liquidity will sum up to 43% of NAV with no debt outstanding. Fund units can currently be purchased at a 24% discount to NAV.
The disposition of the asset in Milan leaves the fund with two remaining properties.
The first one is a re-development of a logistics centre to be completed at year end with a non-cancellable lease for nine years.
The second property is more challenging. Via Bombay in Rome is 83% leased to Oracle. In the third quarter 2016 report published on October 18, 2016, management outlined that Oracle will vacate the building in September 2017 at the latest. I believe that chances are high that new tenants might pay a lower rent than Oracle did. Management has also said that they might have to invest capital to attract new tenants.
Consequently, there is a risk that the current valuation of Via Bombay will not be realized given a lower rental income from this asset going forward. I think that a 25% rent reduction (leading to proportional decline in appraised value) is a conservative but realistic assumption. In addition, part of the recent property realization proceeds might be reinvested in Via Bombay and not distributed to unitholders. The property was completed in 1999 and long term leased to Oracle. Maintenance spending has been relatively low. So I think that a capital expenditure of one third of appraised value or EUR 8.0 m might be necessary to refurbish the property.
As of June 2016, the fund held EUR 59.1 m in real estate, EUR 9.4 m in cash, EUR 1.0 m in other assets and EUR 3.7 m in other liabilities. Hence, the NAV at that time was EUR 65.8 m
After completing the sale of Via Messina and the re-development of the logistics centre, I expect the fund to hold EUR 37.3 m in real estate and EUR 28.1 m in cash leading to a NAV of EUR 65.4 m.
Currently, the fund has a market value of EUR 50.3 m. Taking my two assumptions regarding rent reduction and capex spending for Via Bombay into account, the NAV decreases to EUR 51.4 m. Consequently, in this scenario which from my perspective is a conservative but likely outcome, this investment does not provide for an adequate return any longer.
Therefore, I decided to sell Valore Immobiliare Globale. For the portfolio, I started selling my position on October 19, 2016 one day after the release of the quarterly report, and finished the disposition on November 8, 2016 at an average sales price of EUR 1,652 per unit. I realized a total return of 45.5% and an IRR of 37.4% over a total holding period of 1 year and 9 months.
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