Vivion Investments - Completing the deal
All,
Please find our unchanged analysis here.
Following the Fuerst transaction, the biggest value risk at Vivion has shifted from asset based speculation to Aggregate holding corporate risk, as well as any covenants within the deal that may not have been disclosed.
Aggregate Risk:
- A note is not cash. Vivion have not provided us with either the precise identity of the purchaser or any other detail on the note. For all we know, payment may be subject to conditions subsequent or reps and warranties that may yet reduce the principle to be received.
- Aggregate Holdings as the buyer of the asset may be either directly the issuer of the note, or it may even be backed by a 3rd party. On their balance sheet, Aggregate show a significantly increased €447m of bank and 3rd Party loans <12 months.
Focus on German Real Estate:
- Going forward Vivion will be primarily investing further in German real estate (mainly offices). It is also likely to increase leverage on the German portfolio (currently 22%) through further debt financed acquisitions. The pace of acquisition will be slowed by the structure of the Fuerst disposal. However we expect purchases over H221 and H122.
- Leverage at Vivion is understated due to the full consolidation of Golden Partners, despite only a 51% ownership stake. Given the confirmation that Germany will be the focus for future growth this issue is going to become starker.
- Risk to Vivion investors comes primarily from a potential management decision to buy out its co-investors in Golden at dilutive prices.
Slower Asset Purchases:
- We were disappointed that much of the sale proceeds from Fuerst will only arrive in June 2022.
- This may result in a slower pace of new office acquisitions and therefore slow down the anticipated increase in leverage at the German level.
The Fuerst Deal:
- Net Assets disposed €1,020m - €58m Net Liabilities - €53m minority interest (8.89%) = €909m. Split as:
- Cash Payment to Vivion €185m
- Liquid securities €220m (of which a “material” amount has been sold already)
- a €487m note payable in June 2022
- Interest on the note of €17m (rate of 3.5%)
Investment Considerations:
- We chose not to short the Vivion SUNs and that has not changed. We have been unable to confirm the thesis that property valuations would be materially inflated because of the pandemic and certain sales of assets and operations over the last two years. In fact tightening yields pushed valuations marginally higher. Moreover, we are still unable to identify a tangible trigger that would send valuations tumbling in the foreseeable future.
- Risk to the SUNs continues to come primarily from a potential management decision to buy out its co-investors in Golden at dilutive prices, using cash on balance sheet and thereby leveraging up Vivion and with that the SUNs. However, the wait for the Fuerst cash is likely to delay the process of levering up Golden, or of Vivion buying out the partners .
We look forward to discussing this and exchanging ideas with you
Regards,
Aengus