Vivion – Reappraisal - Positioning
All,
Please find our updated analysis here.
Vivion has taken advantage of the rate cuts and a slightly better outlook for real estate and has had a modest upward revaluation of its assets. The company seeks to reduce LTV to 45%, which will require additional external capital, as we do not see significant upwards revaluations in 2025. We are taking a long position as we like the Yield. We do not expect a capital gain from an early call in the next 18 months.
Investment Rationale:
- We are taking a long position for 5% of NAV in the Vivion 6.5% (+1.5% PIK) 2029 SUN. The current price is 95.5c/€ which is a YTM of >9.5%. We do not expect Vivion to call either the 2027 or 2028 notes anytime soon.
- LTV at Vivion HoldCo is around 54%, and management is targeting 45%. Rising valuations (in UK hotels) may help with the reduction. However, the company may also attract new equity investors.
- We see 8 points of upside if the additional cash is injected or lower rates push valuations higher. We see 6 points of downside if the current Tariff arguments stoke inflation again.
- UK cap rates are falling as the sector is performing well.
- The German portfolio has seen a rise in vacancy rates, but this has been balanced by rate cuts from the ECB.
- Vivion is targeting an investment-grade rating. With no public equity, this would make sense and support the thesis that the company will look to delever.
- The short-selling attacks are likely to be behind the company.
Portfolio Valuations are closer to our assessment:
- The company values its German assets at €1.8bn, our value is €1.7bn (-8%).
- The UK assets are valued at €2.3bn vs our estimate of €2bn (-11%).
- The German assets have suffered from an increase in the Vacancy rate, which Vivion expects to reverse in 2025 (marketing of the recently vacated space is underway). Letting this asset has been baked into the valuation and could represent a downside to our value, but not enough to change our view.
Strong net asset value:
- The gross asset value attributable to Vivion is €2.6bn => 185% coverage for the SUNs.
- Asset Values will be volatile given the fears about the impact of the Tariff war and potential inflation, but we see plenty of room for manoeuvre.
- Vivion has only modest bank maturities over the next two and a half years. Furthermore, most of its bank debt is subject to hedging, reducing the impact of any sudden rise in rates.
The Dayan family may reduce LTV by bringing in outside investors.
- On the investor call, management gave an LTV target of 45% and suggested that cash could come from new investors entering the Vivion Structure.
- We estimate €300m would be needed => 20% stake sale.
- We are not relying on upward asset valuations in 2025.
I look forward to discussing this with you all.
Aengus
T: +44 203 744 7055