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%|
|DEGI German Busin||5.96%|
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%|
|DEGI German Busin||6.0%|
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.
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).
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|
|DEGI German Busin||6.0%||13.47||10.78||3.23||2.16||2.16||2.16||1.08||10.8|
Based on different discount rates I get the following “intrinsic” values:
|Discount rate||in% of NAV||in EUR||NAV||Upside to IV|
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.