Aggregate: From glitter to gold?
All,
Please find our unchanged analysis of Aggregate here.
If a market turns illiquid and assets can’t be monetised, it takes deep connections and high financial structuring expertise to barter with the underlying assets instead. Cevdet Caner has both and that’s Aggregate’s asset. Still, all that glitters is not gold and below we reason through the information to understand just how far the deal goes to address Agregate’’s long list of to-dos. Meanwhile, bondholders have received their annual coupon.
The Price:
- The implied cap rate for the three assets is an astonishing 3.07%. This is not to say that the QH assets are not top quality, Agregate’’s press release rattles down an impressive array of stats and tenants. But in today’s market it is a very tight deal. 3-month Euribor is at 1.8%.
- The tight price keeps book values intact and even reduces Aggregate’s leverage ratio by 4%age points.
Is it Cevdet Caner through the backdoor?
- The short answer is: We don’t know. Imfarr is the prolific Viennese family office of Nemat Farrokhnia, son of Nematollah Farrokhnia who was 30 years at Strabag. It has made numerous investments in German and Austrian RE. It counts decorated Austrian ex-politicians among its team. It seems therefore that Imfarr manages its own capital and not Cevdet Caner’s. Whether the reverse is the case is more difficult to say, but again, it does not seem so.
- The Farrokhnia family (49%) and Cevdet Caner via Mezzanine IX (51%) have been invested in Pruß GmbH since 2011, which held 8% in Adler and held a 1000 unit East German portfolio in Eberswalde. Pruß was managed by Wolfgang Hahn, already implicated in an investigation by the Austrian Takeover Commission together with Cevdet Caner and others, although it must be said that beyond a cash fine the trial did not find the parties guilty. Interestingly, according to Companies House Hahn was previously an Analyst at Caner Capital Limited and lives in Monaco - like his (former?) boss.
- The above, however, does not mean much other than that the parties know each other, which is not surprising, given the prominence of both actors among Viennese property investors.
- One possibility that we cannot rule out is that the buyer might be a JV with some form of o.o.money participation of Caner’s or Walcher or similar. After all, the release states that the assets are sold to “a consortium led by” Imfarr.
Consideration:
- As regards the project debt, some of it will apparently be “repaid” and the overall reduction of “gross debt" at QH level will be € 360m, suggesting an equity valuation of the three assets (apparently including QH Spring, which would subsequently be split off and travel to Vivion) of € 128m.
- As usual, Aggregate’s press release does not mention what consideration it will receive for the sale. We assume that if it were cash, we’d have heard of it.
- Aggregate are selling the QH, however, in order to address the VIC situation, which would be best solved with cash. AS with Vivion however, VIC investors might prefer receiving a claim on or equity in a well-advancing Berlin asset over foreclosing on a Portuguese set of early-stage developments.
- So we must assume it's a receivable with some cash element or option to receive cash or similar. But even if the deal is not for cash, we must assume that Aggregate would not have sold the assets in early November without a clear path to solving - or again postponing - its solution to the VIC converts.
- For all we know, holders of the VIC convertibles might already be in the consortium but the fact that the transaction will reduce leverage at QH suggests that it won’t also reduce leverage at VIC. We have reached out to Aggregate, but have not yet had a response.
Positioning:
- We remain long Aggregate bonds for 2.8% of NAV, although we have a confession to make. When we initially took the position, we took it in the 24s. Those turn out to have been effectively unavailable (at Vivion) and so we have had to exchange for the 2026s retroactively. Regardless, we’d be sitting on the same loss position today and we’d be holding either bond. We have not added the incremental coupon for that time.
- Aggregate bonds are clearly not for the faint-hearted. The opacity in the information is unsettling and the illiquid underlying development market are not meant to be financed by exchange-traded bonds.
- Increasingly however we are becoming convinced that Aggregate can develop and barter its way out of its problems, notably the VIC refinancing and possibly raising sufficient extra CapEx funds to address any shortfalls, now that we have inflation too.
Happy to discuss,
Wolfgang
E: wfelix@sarria.co.uk
T: +44 203 744 7003
www.sarria.co.uk