DJE Real estate fund – follow up

This is the great thing about blogging: I get direct feedback which (hopefully) improves the analysis.

Following up the intitial post about the DJE fund, some readers emailed me some very important facts and issues.

The first major point is the fact, that DJE actually issued some more recent detailed information than the half year report here. Unfortunately, my browser did not show the graphics, but it shows the perecentages of the major investments as of November 30th., which to my shame is also shown in the fact sheet.

Warburg Henderson Deutsch   18.49%
Warburg-Henderson Multi   10.85%
Invesco Hotel   9.84%
TMW   8.66%
AXA REIM   7.92%
ABN CW   7.82%
DEGI German Busin   5.96%
SEB   4.87%
UBS D   4.59%
DEGI Global   3.33%

Interestingly, the position in the P2 value seems to have decreased. It does not show up in the top positions anymore whereas I had calculated with ~6% weight.

For further analysis, I will assume the following:

– P2 Value has a weight of 3%
– the Axa Immoselect a weight of 2.1%
– Stocks have a weight of 9% as reported in the fact sheet
– Cash etc. has a weight of 3.4% (to get a total of 100%).

So in total I assume the following current allocation in the fund:

Warburg Henderson Deutsch   18.5%
Warburg-Henderson Multi   10.9%
Invesco Hotel   9.8%
TMW   8.7%
AXA REIM   7.9%
ABN CW   7.8%
DEGI German Busin   6.0%
SEB   4.9%
UBS D   4.6%
DEGI Global   3.3%
P2 Value   3.2%
Axa Immoselect   2.1%
Stocks   9.0%
Cash   3.4%

The second major point made by two readers is the fact, that both Warburg Henderson funds are also in a liquidation mode, so assuming a short term undiscounted cashflow might be too optimistic. Lets look at hose two funds:

Warburg Henderson Deutschland Nr.1

The last report can be found here.

It is actually a relatively small fund with 233 mn EUR net value (395 mn gross), so DJE holds a share of around ~18% of the fund.

The document says the following:

Es sind keine weiteren Ankäufe für das Sondervermögen geplant und der Fonds befindet sich in der Desinvestitionsphase. Der Anlagehorizont wurde gemeinsam mit den Anlegern bis zum 30. Juni 2012 verlängert. Während der Desinvestitionsphase kommt es zu passiven Anlagegrenzverletzungen, die nicht geheilt werden können.

if understand this correctly, this was not an open ended fund anyway, but was planned to invest and then sell the real estate over a period of time, more similar to a PE investment.

A quick search on Google shows, that they were able to sell some of their real estate already, for instance here, here

The biggest object is a 1a prime location in Munich which should also be quite easy to sell.

All in all I would assume that this fund despite being in the selling phase, looks OK because of the German focus. My assumption wil be that the NAV will flow back 1/3 per annum in the next 3 years.

Warburg Multinational plus

The same applies for the Multinational plus funds. The last available report says the following:

Mit Zustimmung des Anlageausschusses, dem beratenden Gremium des Fondsmanagements, hat
das Fondsmanagement den Beschluss gefasst, die Immobilien des Fonds in den kommenden 18 bis
30 Monaten zu veräußern.

Again, the DJE fund owns about 20% of the fund, however this fund seems to consist of “normal” yielding real estate in Germany, France and the Netherlands compared to the “special situation” real estate in the Deutschland fund. For valuation purposes I will assume a 3 year liquidation period PLUS rent income of 5% net.

While we are at it, a quick view to the other funds:

Invesco EUR Hotel Real estate

I only found a generic propectus here, but it looks like a quite large and succesful structure, which should be liquid within the next 12 months.

AXA REIM European Real estate & Herald Henderson (Certifcates)

I couldn’t locate reports or pespectus for those funds, but so far they seem to do OK. I will assume that the money will flow back over the next 5 years (20% p.a.) incl. a running yield of 6%

DEGI, Axa, P2 Value, TMW

For all funds (excl. P2 Value) I will assume that over 5 years, 80% of the NAV will flow back. The cashflows will be distributed at 30% in the first year, 20% in year 2-4 and 10% in year 5. For the P2 Value I will assume 80% of the NAV flowing back over the next 5 years in equal installments.

UBS D & SEB,Stocks, Cash

I still optimistically assume a repayment in 2012 as well as a sale of the stocks and existing cash (end of year, discount 1 year).

New valuation:

If I calculate all the cashflows as assumed above for the next 5 years, I can discount them in a second step to come to a (hopefully) more precise Intrinsic value.

The projected cashflows for the whole fund would look like this:

01.11.2011 Val NAV Mn EUR adj NAV 2012 2013 2014 2015 2016 Total
Warburg Henderson Deutsch 18.5% 41.79   13.93 13.93 13.93 0.00 0.00 41.8
Warburg-Henderson Multi 10.9% 24.52   8.17 8.99 8.54 0.00 0.00 25.7
Invesco Hotel 9.8% 22.24   22.24 0.00 0.00 0.00 0.00 22.2
TMW 8.7% 19.57 15.66 4.70 3.13 3.13 3.13 1.57 15.7
AXA REIM 7.9% 17.90   4.47 4.25 4.04 3.84 3.64 20.2
ABN CW 7.8% 17.67   4.46 4.25 4.04 3.84 3.65 20.2
DEGI German Busin 6.0% 13.47 10.78 3.23 2.16 2.16 2.16 1.08 10.8
SEB 4.9% 11.01   11.01 0.00 0.00 0.00 0.00 11.0
UBS D 4.6% 10.37   10.37 0.00 0.00 0.00 0.00 10.4
DEGI Global 3.3% 7.53 6.02 1.81 1.20 1.20 1.20 0.60 6.0
P2 Value 3.2% 7.23 5.79 1.74 1.16 1.16 1.16 0.58 5.8
Axa Immoselect 2.1% 4.75 3.80 0.76 0.76 0.76 0.76 0.76 3.8
Stocks 9.0% 20.34   20.34 0.00 0.00 0.00 0.00 20.3
Cash 3.4% 7.68   0.00 0.00 0.00 0.00 0.00 0.0
Total 100.0% 226.07   107.23 39.83 38.96 16.08 11.87 214.0

Based on different discount rates I get the following “intrinsic” values:

Discount rate in% of NAV in EUR NAV Upside to IV
7% 83% 6.63 187.54 19%
8% 82% 6.51 184.26 18%
9% 80% 6.40 181.09 16%
10% 79% 6.29 178.02 15%

So now, the discounts to intrinsic value are somewhat lower than before (about ~33%), why is that ? The main reason is that I only assumed less than 50% of cashflows by the end of the first year in contrast to 75% in my first try. One can clearly see that for a “risky” investments, especially in a liquidation scenario, the timing of the cashflows has a significant impact on valuation.

Howver, discount to intrinsic value is only one dimension. The second dimension would be the break even IRR at current prices. Due to the relatively short time horizon, the simulated cashflow pattern equals an IRR of 20% for the period, which is quite nice.

So if we compare this “liquidation” with a risky bond rather than a share investment, the expected yield of 20% p.a. seems to be quite “juicy”.

A few more “qualitative” points on the DJE fund:

– DJE is a family owned mid-size German Asset Management company with many retail investors. For reputation purposes they will most likely treat fund investors relatively fairly
– due to the lock up, I guess some foreced selling might go on in the moment
– however one has to be aware that if CS Euroreal and SEB really close in June, than there might be additional pressure on prices of open ended funds and corresponding fund of funds

Summary: Based on the refined valuation approach, this liquidation scenario offers an expected yield of 20% p.a. with acceptable risk. Compared to distressed bondswith the same yield (hedeilberger Druck, or Praktiker), the risks in this structure should be lower. I will therefore add the fund in the coming days to the portfolio with a limitof 5,40 EUR.


  • Hi,

    I wouldn’t bet on the SEB opening.the fund would be liquidated,you should not forget to consider the addtional costs (early termination fees,taxes etc).

    For the moment, I think the DJE is the “safer” bet.


  • have you also looked at the SEB Immoinvest? The SEB Immoinvest got a very transparent portfolio screen and you can see all objects, by the way 45,5% in Germany. The last sales are always above the NAV. Mostly 1,5 up to 3%.
    At the moment you can buy it with a discount of over 30% of the NAV. The Managment will open the fund this year.
    I think this is perhaps an also interesting buy and much transparent.
    What do you think?
    LG Nils

  • hey memyselfandi! i updated some parts of my analysis and wrote it into another board:

    I expect that the repayments will be higher in 2012 and 2013 as you stated in your CF Analysis. This will boost the intrinsic value calculation… Maybe mid of 2012 there could be an repayment of up to 40% of the current NAV and at the end of 2012 an additional 10-15% payment!

  • in the latest factsheet the AXA REIM European Real Estate portion is reduced from 11,54% (end of november) to 7,92% (end of december) therefor redemptions should be possible.

    The funds AUM sunk in december by 3% which is nearly the cash equivalent end of november. They still must be invested in 9% stocks/cash. The UBS Euroinvest can be redeemed in 3 months without a discount to NAV: 4,59%. The AXA REIM European Real Estate seems to be redeemable as well: 7,92%. in total this sums to rd. 21,5% of potential repayments in the coming months.

    The ABN NV-CW19 INDEX BASKET “Henderson” certificate matures in 2012: 7,92%.

    The Warburg Fonds is in desinvestment mode. He plans to sell all real estates until mid of 2012: 18,49%. The mortgages on their real estates also mature in mid of 2012 – there will be no charge for early repayment of their credits. The Warburg Multinational plans to sell all buildings in the next 2-3 years (10,85%).

    In 2012 there could be a liquidation payment of the DJE of 21,5%+7,92%+18,49% = 48% of NAV without the inclusion of repayments of the funds in liquidation. This covers ~ 4 Eur per share. If it is possible to sell the European Hotel Real Estate fund, the repayment would amount to 4,80 EUR per share…

    Because of the high repayments of the DJE which covers roundabout 85% of the current market price the fund has a one of the best risk/return profile under the closed real estate funds in germany.

  • just a few observations:

    1) there is a new break-down of the portfolio available at the DJE website (as of 19 Jan.): NAV actually increased somewhat
    2) am I wrong or did you miss the cash item in your cash flow projection?
    3) the ABN CW instrument actually matures in 2012 so distribution should occur by 2013
    4) most importantly: DJE seem to use their own valuation for the closed open end funds which is well below the stated NAV figures of the asset managers but above the secondary market price (see for example the P2 unit price as of June 30); as a result a 20% discount may be on the conservative for the funds in run-off

    Best regards

  • Hi,

    in my opinion cash is a very small position, while stocks are worth considering (why hasn´t management sold these shares?). Let´s just assume that they can be sold at the stated price and no forced selling from other funds-of-funds will take place.
    What really matters is the “correct” NAV. Traditionally, publicly listed real-estate companies traded at an avg. 20% discount to NAV for two reasons:
    – stated portfolio-value by the management was often too high
    – you were not in an owner´s position but left to managements decision how to run the portfolio (often with hidden agenda).

    So, basically subtracting just 20% of the stated NAVs of the illiquid positions gives you no larger margin-of-safety than what investors did during normal times for publicly traded companies (which you could sell any time you wanted). I don´t think this is a risk/reward ratio that is extremely in your favour.
    You are correct in pointing out the probably lower leverage. In fact legislation has now limited debt-financing (only for new funds?) to 30% from 50% until recently. Could be another reason why funds are forced sellers.
    From a real-estate management view these funds are facing a problem since they probably have to accumulate and pay out cash. Therefore they are less able to make necessary investments/capex to bring in new tenants to replace tenants that are leaving. This inability causes a lot of damage to the property-values.

    Well, I think this is just a long way of saying, that without having a list of all the assets (and their financing) the price would have to be a 0.50cent dollar (about € 4) to consider this black-box investment in an illiquid fund, tied up for a few years. I am disappointed that DJE-Management does not make detailed information available.
    However, I really appreciate your work, especially looking into special situations like this.
    Weiter so!

    • Oskar,

      no problem. Of course everyone has his own opinion on value.

      Clearly, the current liquidation situation has its risks.

      I think one thing should be clear: Investing at stated NAVs of Open ended investment funds does not make sense, as this is clearly a “ponzi Scheme”.

      Also, the fund of fund concept is in my opinion an unnecessary second layer of fees without adding value.

      The question now is if the current discounts offer enough yield for the liquidation process.

      In my anaylsys, I assumed an implict discount of > 20% for the underlying fund NAVs (problem funds) and still end up with an interesting risk/return ratio.

      Of course I might be wrong.


  • Just a few thoughts on this topic:
    -the € 7,99 (NAV/share) represent the equity of the actual real estate investments
    -if we assume that these investments are geared in such a way, that the financing amounts to 50% equity and 50% debt, the total property value according to NAV calculation is € 15,98
    -if we assume that the assets themselves (properties) are worth 15% less than the over many years inflated “market-values” suggest, the adjusted property-value/share is € 13,58
    -if we then deduct the costs for the property-sales (including, for example the fees for asset-managers, brokers and costs for paying back debt ahead of maturity) conservatively at 2% of sales-price
    -this leaves us with €13,26
    -paying back the debt (€ 7,99) this corresponds to a NAV/share of € 5,27, exactly at today´s stock-market level

    Ich kann mich täuschen, aber ich denke nicht, dass es sich nur um ein Liquiditätsproblem handelt (sondern auch ein mark-to-market Problem).

    • hi oskar,

      thankyou for the comment.However i think your approach is too simplistic. First,it doesn’tconsiderthath apart of the portfolio (shares, cash, Hotel fund) is not in distress. Secondly,I think your asumption of 100% leverage for all funds is too high. Additionally you have to remember that many of the investments reallycreate income.

      That was the reason, why I really broke down the valuation into the single constituents and cashflows.


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