Newsletters - Asset Value Investors

AGT

Adler Real Estate • Newsletter March 2018

Adler Real Estate announced the acquisition of a 41% stake in Brack
Capital, an Israeli-listed company which owns almost 12,000 residential
units in Germany, and subsequently completed a tender offer which saw
their stake increase to 70%. The deal should result in a materially-reduced
LTV for Adler (target of 55% by year-end), and its share price responded
well with a +5% increase. Having begun reducing our stake in Adler, we
sold the remainder of our holding in a block trade above then-prevailing
market levels at a discount of 15% to NAV. German residential property has
been a lucrative theme for BTEM over the last decade, and the sale of Adler
marks the last of our holdings in this asset class.

AGT

Adler Real Estate • Newsletter February 2018

Adler Real Estate, Swire Pacific, and Aker all performed well over the month.
The announcement by Adler of its acquisition of 41% of Brack Capital and
tender to take it above 70% was well-received by the market given the
positive impact it will have on Adler’s LTV once fully consolidated. While
Swire Pacific’s B shares were up on the month, their discount to NAV is
above 40% with the B’s share price not even covering the value of the stake
in Swire Properties. At these valuation levels, we see a compelling case for
the company to use partial sales of its Swire Properties stake to fund share
repurchases, and have made our views known to management. In addition,
the Swire family has signalled their increased involvement in the company
by appointing Merlin Swire as Chairman, the first time in two decades a
family member has been appointed to the role. This comes on the back of
changes to the Board last year which we believe will lead to a robust review
of capital allocation going forward. Aker benefitted from a sharply tighter
discount on the back of another increase in its annual dividend.

AGT

Adler Real Estate • Newsletter December 2017

Adler Real Estate’s shares strengthened on hopes for a clearer strategy
following the promotion of its CFO to CEO and renewed M&A activity in the
German residential space; Fondul Proprietatea announced a tender offer for
14% of its shares at an as-yet-undisclosed price; NB Private Equity Partners
benefitted from a narrowing discount (in from 21% to 16%); JPEL Private
Equity completed its mandatory redemption of 17% of its shares at NAV;
and Tetragon completed its tender offer at a level that suggests there are
fewer willing sellers at current levels than the market had perhaps assumed.

AGT

Adler Real Estate • Newsletter May 2017

Adler Real Estate, the owner of 50,000 German residential units, was one of
our largest contributors. The discount narrowed to 12%, still wider than its
peers, as the German real estate sector rose on the back of potential
changes in stamp duty transfer taxes. At present, stamp duty is only
payable in Germany when an acquirer buys more than 95% of a company’s
shares, but it has been proposed that this be reduced to 75%. This brings
forward the prospect of further M&A transactions in the German residential
space, as potential acquirers may look to do deals ahead of this proposed
change (the timing of which is uncertain at this stage).

AGT

Adler Real Estate • Newsletter February 2017

Adler Real Estate moved sharply higher over the month. While much of the
rise was seemingly due to misplaced expectations that a capital raise by
Deutsche Wohnen would be used to fund a bid for Adler, it is still our
contention that the company is a natural takeover target by one of its larger
peers. Adler is one of the few companies of meaningful size in the German
residential sector to trade at a discount to NAV, and much of the justification
for its discount has evaporated as Adler’s LTV is now comfortably below
60% following the receipt of cash from the sale of its stake in conwert to
Vonovia.

AGT

Adler Real Estate • Newsletter December 2016

Our German residential exposure through conwert and Adler contributed
241bps to performance over 2016. We had identified conwert as a
potential takeover target and when Adler agreed to sell their stake in
conwert to Vonovia, a full takeover offer for conwert was launched. We
opted to sell our shares in the market rather than accept a cash offer of
€16.16 and sold our position for an average price of €16.91 (vs the yearend
share price of €16.22). Adler will benefit greatly from over €400m in
cash coming in from this sale in early 2017. Proceeds will be used to pay
down debt, improving its balance sheet significantly. While the listed
German residential sector sold off in Q4 2016 on rising bond yields, we
still believe Adler is undervalued and under-researched compared to its
peers. Importantly we are still very positive on the underlying
fundamentals of German residential property. Trading on a near 20%
discount to NAV, we believe Adler is a great way to access this attractive
sector with potential M&A activity.

AGT

Adler Real Estate • Newsletter September 2016

We commented in last month’s newsletter on the bid for conwert, one of our
two German residential property holdings, by Vonovia, that came in earlySeptember. The share price response allowed us to sell down most of our
holding by the end of the month at a 4% premium to reported NAV, and we
recycled part of the proceeds into Adler, our other German residential
position. Adler owns a 26% stake in conwert (post exercising their option)
and the conversion of this stake into liquid shares in Vonovia will help
substantially improve its balance sheet. On a 17% discount at month-end,
Adler is comfortably the cheapest investible German residential property
company.

AGT

Adler Real Estate • Newsletter July 2016

Our second largest contributor over the month was Adler, the German
residential property company, which was up 17.7% in local currency
during July on two noteworthy developments. The company had
previously announced the intention to issue a convertible bond, but had
to delay in the lead up to the Brexit vote. However, in July they
successfully placed 10m convertible bonds, raising €138m at an
interest rate of 2.5%. This is another step taken to reduce the
company’s cost of financing as proceeds will, in the main, be used to
refinance expensive historical debt. In addition the company
announced they have agreed, via an option, to potentially purchase a
further 6m shares in conwert Immobilien, which we also own. This
would take their stake up to around 28% and we believe gives them
greater flexibility in the future of conwert and any potential M&A activity

AGT

Adler Real Estate • Newsletter March 2016

After a poorly executed move to remove three of the existing directors
from the Supervisory Board of Conwert, Adler now has one seat on the
Board, fairly representing their 22% shareholding. Adler’s share price
recovered by 8% over the month. We own both stocks so were pleased,
after much discussion with both companies, a satisfactory resolution
was found.

AGT

Adler Real Estate • Newsletter February 2016

Adler (German residential) was marked down sharply due to its higher
than average gearing, and its aggressive move to take control of
Conwert’s Board. Alder owns a 22% stake in Conwert, a stock we also
own. We are still strong believers in the German residential sector and
believe the underlying fundamentals will clearly benefit Adler when the
short-term noise currently surrounding the name dissipates.

AGT

Adler Real Estate • Newsletter June 2015

In Germany, the sale of Westgrund to Adler Real Estate completed
and we received a combination of cash and shares in Adler. We
have been using the cash to add to Adler on weakness, and also to
invest further into our German commercial real estate play, DIC,
which is trading on a 38% discount and c. 4.3% dividend yield. We
think this leaves plenty of scope for a re-rating. Some of its peers
such as Alstria and DO Deutsche Office are trading at more
expensive levels.