KWG Kommunale Wohnen AG

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BIW, Conwert Immobilien Invest, CWI, European sovereign debt crisis, German bunds, Germany, Grand City Properties, Hans-Peter Haselsteiner, home ownership, income/dividend bubble, Karl Ehlerding, KWG Kommunale Wohnen, Net LTV, residential property, Sirius Real Estate, Stavros Efremidis, Torsten Hoffmann

It’s six months now since I did a write-up on KWG Kommunale Wohnen AG (BIW:GR) (the ultimate post in a 5-part series). Actually, a recap’s in order here & probably the best introduction for this post:

Part I & II:   German residential property has been (recently) described as:

‘Perhaps one of the safest & most attractive asset classes in Europe, or even the world‘.

Its attractions include:

– Demographics:   German population growth is broadly neutral, but is experiencing pronounced trends in favour of urban migration, smaller households & increasing floor size per capita. Investor horizons are often limited when it comes to property – they’d do well to note Germany has the largest population in Europe, the 16th largest in the world & Berlin is the EU’s 2nd largest city with 3.5 million inhabitants!

– Supply & Demand:   Annual housing demand’s around 250-350 K pa, well ahead of housing completions which are now accelerating but only recently bottomed out at 175 K pa in 2009-10. Germany’s second-hand property also trades at a major discount – e.g. in Berlin, existing housing stock can be purchased at a 30%+ discount to new building costs.

– Home Ownership:   German home ownership is a lowly 46%, in stark contrast to the usual Western market rate of 60-65%+. This reflects the government’s long history of housing provision & rent subsidies/suppression, but in recent years authorities have increasingly opted for privatisation. Couple this with rising prices & rents, plus the desire for a safer long-term investment alternative (vs. equity/bond markets) – I think we can be confident of a slow & steady convergence towards Western home-ownership levels.

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Xmas Trimmings, etc.

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ASFI, Asta Funding, BIW, CLNY, Colony Financial, Conwert, correlation, CWI, distressed assets, FIG, financial crisis, Fortress Investment Group, intrinsic value, Karl Ehlerding, KWG Kommunale Wohnen, Leverage, majority control, Merry Xmas, Price/Book, Stavros Efremidis, TRIB, Trinity Biotech

Asta Funding (ASFI:US) $9.37:   I’ve marginally trimmed my stake from 3.8% to 3.6% – consider this to be purely risk ‘house-keeping‘. This realizes a +22% gain vs. my write-up price on this small slice, and a +31% gain vs. my actual net entry price (which inc. the impact of dividends). I never got around to an Asta follow-up, as the share price (& NAV) just steadily chugged higher. Despite the rising share price, I’ve been bemused (even encouraged) by the general air of neglect still attached to this stock. Even ASFI shareholders have expressed a distinct lack of enthusiasm for the company’s progress in the past year! This is particularly in reaction to the company’s diversification into personal injury & divorce financing. Which puzzles me…

I’d counter this distaste in a number of ways: i) This new direction was prompted by Asta’s reluctance to pay up to acquire new distressed consumer receivable portfolios*. Personally, I’m delighted – how often do you see management take an absolute, rather than a relative, approach to value? [Picking up distressed debt at 9 cts on the dollar, while everybody else pays 10 cts, doesn’t mean you’ve bagged an actual bargain!] And to resist pissing away idle cash burning a hole in their pockets is quite admirable too. Of course, returning capital (via share buybacks) is a great alternative – Asta’s pursued this to a limited degree during the year. However, considering current metrics, I consider the short term return/attraction of a buyback is fairly even balanced against the potentially higher returns on offer from a (gradual) investment of their cash into distressed assets.