Vivion: Tidying up

All,

Please find our updated analysis of Vivion here.

As part of its H122 call, Vivion gave an update on its dealings with Aggregate Holdings. The company has disentangled itself from Aggregate holdings through an asset swap. The process for selling Fuerst has been torturous, but it is nearly complete. Vivion’s remaining exposure to the Fuerst project is now EUR221m due from a European asset manager in December 22 (secured on Fuerst project bonds). We also expect Aggregate received around EUR106m of cash related to QH Spring, albeit not from Vivion.

Exiting Aggregate exposure:

- In September, Vivion acquired two completed buildings in the QH project (QH Core and QH Spring) in exchange for EUR220m 2025 Aggregate bonds it held (the bonds are currently trading at 39c/EUR). No cash changed hands.

- The Gross Asset Value of the acquired QH assets has been given as EUR456m. The buildings are complete and occupied (although we do not know the exact percentage). QH Core comes with EUR130m of senior debt (8.5year maturity), QH Spring doesn’t have senior debt, but we expect it to have had EUR106m of bank debt when sold. GAV EUR456m – EUR130m (senior debt at Core) – EUR106m of bank debt at Spring) = EUR220m. Vivion may have already repaid this unsecured debt.

- Vivion is still exposed to a financial receivable. Due in December 22 and secured by a charge of Fuerst project bonds this will complete the payment for this high-profile asset.

Still EUR70m in potential bond buybacks:

- Management has completed EUR66m of it’s up to EUR150m bond buyback. The promise of more purchases will soften some of the downward pressure on the bonds.

- The purchases favoured the 3.0% 2024 bonds (EUR40m nominal purchased) over the 3.5% 2025 (EUR25m purchased.

- Debt bought back has not been cancelled.

Potential private placement puts EUR2.5bn value on the business:

- If Vivion can obtain a EUR2.1bn value for the business via a private placement, the previously discussed IPO would not be needed. We think the value is high. Our estimate of gross asset value is EUR3.5bn with debt of EUR1.7bn => an equity value of EUR1.8bn.

-According to a press report in Israel ( https://www.calcalist.co.il/market/article/b17kadalc ) Vivion is negotiating a private placement of shares which would value Vivion’s equity at EUR2.1bn, talks are said to be advanced.

- The British-based investors would invest EUR375m for 15% with an option to invest a further EUR150m to take the share up to 25%.

Investment Considerations:

- We see the bonds as fairly safe and while we have cash lying on the book, we may consider taking some of the 3% 24s. Vivion are however not alone in yielding 8% to maturity and in such choppy times we would prefer bonds with a higher cash coupon.

- The bonds offer a yield of 8% for what is a cash-rich real estate play with plenty of liquidity and EUR3.2bn in unencumbered assets, which would provide breathing room if a straight refinancing were difficult.

- With the QH assets, Vivion have replaced a stricken receivable with strong yielding assets, which should become visible in future earnings and further facilitate the refinancing of the August 2024 bonds in 18 months’ time.

- A prolonged recession also characterised by inflation could lead to a jump in voids, but this must be balanced against the strong brand names in the UK hotel portfolio and the governmental and blue-chip clients that are the backbone of the German real estate portfolio.

I look forward to discussing this with you all.

Aengus
E: amcmahon@sarria.co.uk

T: +44 203 744 7055
www.sarria.co.uk