Accentro – Peering through a dirty window.
All,
Please find our unchanged analysis here.
We have disliked the governance structure at Accentro from before the bond rescheduling, which has changed little in terms of the opaque nature of the business. Accentro needs to communicate its investment rationales to its debt and equity investors. The Full Year results shed little light on portfolio developments, and we hope the relationship between the company and its debt investors becomes more transparent. The cleansing presentation covered most, but not all, of what we would expect to see in the financial results, but there was no forum for questioning management. Suspicions over the rationale for the East Portfolio Acquisition still hang over the company. Letting some light in can only help.
Investment considerations:
- At 63c/€, the SUNs now look expensive to us. We expect to be back at the restructuring table again within 12 months.
- The governance at Accentro has been terrible, and the restructuring left most of the existing board and board structure in place. The double luxco structure terms will progressively improve bondholders' position. As properties are sold and replaced, a greater proportion of the assets will be financed out of the Luxcos, capturing them within the security package. We suspected the shareholder would put disposals off as long as possible to maintain more control of sales proceeds, hoping for a recovery in the German RE market. So far, we see no evidence that management behaviour has changed, we are continuing to avoid Accentro.
- Also, we didn’t believe in the valuations of the Investment portfolio, and we are still sceptical even with Accentro having more time to try and extract value.
- For a business that has barely avoided an insolvency event we are not fans of the continued opacity around the origins of the second portfolio and the junior financing arrangements.
- From a macro perspective, however, we think the German market is at a trough. The Adler crisis remains in full swing, Eastern Europe remains at war, the energy supply is not yet fully under control and inflation has not come down. But in particular, Berlin and Saxony had fundamental demand overhang before 1m Ukrainians arrived and the space does not yet reflect the widespread expectation that rates will rise more slowly now.
- In the end, however, we are playing that same trade at Adler and Aggregate already, and in both cases, we feel we have far more clarity on company history, governance and asset base. We are therefore skipping this opportunity.
The company still lacks transparency:
- The near-death experience for Accentro has not improved transparency so far, although we are trying to establish communications with IR.
- Not having an IR call for the Q4 results may feel justified as the significant holders will have been involved in the negotiations on the extension. However, Accentro almost died due to poor governance practices and has had to cede much control to bondholders. A one-paragraph explanation would help soothe nerves.
- There continue to be unexplained movements in assets between the portfolios. Our modelling shows €37m of assets transferred into the inventory portfolio, however, there is also a €42m unexplained difference between what the cash flow has for real estate transactions and what the balance sheet displays as asset changes.
- Investment: The investment portfolio is a black box. We know the assets are terrible, but not much else. The extension agreement with bondholders requires sale proceeds of >€200m from Investment assets by the end of 2024, but we value the entire portfolio at c€150m.
- Inventory: We have fewer problems with this portfolio, but we believe individual condo sales alone will not be enough to see the sales targets hit. Some larger-scale sales of buildings will need to take place. Management plans for €200m of sales between 23-26 (backloaded), with virtually all of that cash spent on acquiring further inventory (again backloaded).
I look forward to discussing this with you all
Aengus
T: +44 203 744 7055