German Residential Property – An Update

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Adler Real Estate, BIW, Conwert Immobilien Invest, Deutsche Annington Immobilien, Deutsche Wohnen, Estavis, Gagfah, German property, Grand City Properties, GSW Immobilien, KWG Kommunale Wohnen, LEG Immobilien, NAV discount, Patrizia Immobilien, REIT, residential property, Stavros Efremidis, TAG Immobilien, Taliesin Property Fund, Youniq

It’s a year now since I completed my German residential property series (Parts I, II, III, IV & V, and the first part of this post offers a brief recap) so it’s a good time to take another look. With winter drawing in fast, why not whip up a plate of sauerbraten & pour a (very) large stein of beer, and we’ll begin:

I’m ignoring companies with non-English IR websites. This may be a personal prejudice, but sometimes it can be hard enough to decipher a company’s communications & (underlying) performance without suffering a language barrier too! For practical reasons, I’m also ignoring sub-10 million market caps, plus companies with a relatively minor German property allocation. [But here’s a fairly comprehensive list of these companies]. I’m kicking out Youniq (YOU:GR) (see comments below), plus Speymill (SYG:LN) which has disposed of its German property to Jim Mellon. However, I’ve added two big IPOs from earlier this year (Deutsche Annington & LEG), plus Adler who ramped up its residential portfolio this year (& added an English IR website). Finally, I’ll still treat Deutsche Wohnen & GSW as separate companies, even though the takeover of GSW’s now a done deal. [GSW may well remain a separately listed company]. This leaves us with 13 companies, a baker’s dozen – the vast majority of which are residential pure plays. They should serve as a good proxy for the entire sector:

Adler Real Estate (ADL:GR)

Conwert Immobilien Invest (CWI:AV)

Deutsche Annington Immobilien (ANN:GR)

Deutsche Wohnen (DWNI:GR)

Estavis (E7S:GR)

Gagfah (GFJ:GR)

Grand City Properties (GYC:GR)

GSW Immobilien (GIB:GR)

KWG Kommunale Wohnen (BIW:GR)

LEG Immobilien (LEG:GR)

Patrizia Immobilien (P1Z:GR)

TAG Immobilien (TEG:GR)

Taliesin Property Fund (TPF:LN)

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Sirius Real Estate – I’m Out

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commercial property, German property, Karoo Investment Funds, KWG Kommunale Wohnen, Laxey, Margin of Safety, NAV discount, Net LTV, Principle Capital, residential property, Sirius Real Estate, special situations, SRE, Weiss

I’ve completely disposed of my remaining Sirius Real Estate (SRE:LN) holding. [I previously noted a small sale in August, reducing my portfolio stake to 2.8%]. This is a rare event – in the past year, my selling’s been mostly limited to top-slicing as certain stocks neared/exceeded my price target(s). Crikey, I must sound like a bloody buy & hold investor!? Rarer still, I think it’s only my second disposal of an investment that clearly hasn’t been working out. [Cresud (CRESY:US) was the first – a v different macro decision. Fortunately, the right decision…the stock’s down nearly 25% since!]

I actually managed to avoid a loss in both instances – not what you’d expect from stocks that haven’t worked out..! Obviously, there was plenty of luck involved – but I’d definitely credit a good entry price as a key saving grace. Having the discipline to demand an adequate margin of safety for each purchase isn’t just about increasing your potential upside – it can also save your bloody ass when things go wrong. Let’s take a closer look (using my original Sirius post for reference) & see if there’s anything to learn here:

Investment Opportunity & Crisis Hedge:   My investment thesis identified German property as a secular investment opportunity – it’s cheap in absolute terms, the German economy’s perhaps the most resilient in Europe, and Bund yields remain incredibly supportive. I continue to believe this thesis is correct, but actual property & share price gains to date have been mostly enjoyed by the residential sector. [Check out my German property series: Parts I to V]. I also suggested German property might be a good hedge against any further unraveling of the European sovereign debt crisis. Fortunately, sentiment’s improved dramatically this year – it’s interesting to see German residential share prices peak & then trade sideways/lower for much of the year, as investors migrated back into higher risk European exposure.

Mid-Year 2013 – Performance Update

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Alternative Asset Opportunities, Avangardco, checklists, CLOs, correlation, European Islamic Investment Bank, FBD Holdings, Fortress Investment Group, German property, home bias investing, KWG Kommunale Wohnen, Petroneft Resources, portfolio allocation, portfolio performance, quantitative easing, Richland Resources, risk aversion, Sirius Real Estate, Tetragon Financial Group

I remain (somewhat) uncomfortable with performance reviews. Inevitably, they produce a pretty meaningless snapshot…but we just can’t help ourselves, eh? 😉 [I covered this whole topic in greater depth here, in my 2012 Performance Review, so that may be worth another look]. OK, once more unto the breach, dear friends, once more…

Let’s first check how the indices performed in H1-2013:

The performance of Ireland & the UK nicely supports my theory that the northern periphery (inc. Scandinavia – lots of interesting stocks there right now) offers some of the best (& lower-risk) plays on Europe. Then we have the US, which continues to demonstrate how much further along it is (vs. Europe) in the cycle – as Bernanke reminded the market recently, to its (feigned?) consternation! [And to the genuine consternation of the ECB & BoE – oh boy, there’s going to be plenty of playing chicken, on all sides, in the months & year to come]. I’m profoundly suspicious of the US market now – it’s not that rising bond yields can cause much damage, they’ll obviously remain low in absolute terms for a v long time. But the market’s a discounting machine – when buying stocks gets easy & the economic outlook starts to look rosy for the average investor, that’s when things turn dangerous: Because how much of that’s already been priced in? Too many times, this scenario leaves you at break-even for a couple of years (if you’re lucky), or much worse…

And if you think this time is different – well, I actually agree, but not in a good way! There’s no free lunch – you can’t just print your way to prosperity & expect to escape scot-free, there are always (unpredictable) consequences. So, has that been priced in also..?

Portfolio Allocation (XIV – Emerging & Frontier Markets)

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agri-business, correlation, corruption, developed markets, Donegal Creameries, emerging markets, Europe, financial crisis, frontier markets, German property, Japan, portfolio allocation, portfolio performance, QE, US, volatility

Continued from here. Wow, it’s been a leisurely journey – spanning a full year – is this really my last post of the series?! Hmmm, we’ll see… Here’s my portfolio allocation pie chart one more time:

[NB: This is from Jun-2012, but since then the only major changes (funded mostly from my Hedge Fund allocation) are: a) an increase in Property from 10% to 13%, as I continue to scale up my German property exposure (see Parts I to V – also here), and b) a large jump in Agri from 5% to 11%, due to my purchase of Donegal Creameries (DCP:ID) & its subsequent hefty appreciation. Note I don’t classify DCP as an Irish stock – after all, the company feeds people (potatoes, mushrooms & yogurt) and animals, what could offer a more ideal uncorrelated exposure?!]

Wexboy – A Birthday Post!

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Argo Group, birthday, blog traffic, bloggers, Blogroll, Fifty Shades of Grey, German property, Google, Hitler video, Interactive Investor, Kim Kardashian, Livermore Investments, meme, Millenials, pdosullivan, Petroneft Resources, pretty panties, Richard Beddard, sincere thanks, Sirius Real Estate, TGISVP, The Great Irish Share Valuation Project, Trinity Biotech, UK Value Investor, US Oil & Gas, USOP, valueandopportunity

Wexboy reached the grand old age of one last Friday! I’m so excited I might just sick up over your shoulder! So – where were the birthday wishes? The birthday cards (c’mon, they need the biz)? The birthday gifts? Most of all, where was my bloody birthday stripper?!

Not a bad little milestone to reach. I’ve heard the average blog never makes it past the first post or two, let alone hurdle that major 3-4 month hump. Welcome to the Millenial generation, I guess. Investment (& finance) blogs appear to last a little longer, but it seems like a majority of them still go dark within a year. Blogging is definitely a pretty relentless pursuit:

It demands time, sometimes a lot of it… But most people have an actual life. Blogging will ultimately fall by the wayside, unless you figure out how to embed it into your life in a way that’s personally useful, interesting & (most of all) rewarding. Of course, most web blogs offer nothing of the sort! But that’s the beauty of investment blogs (and likely explains their longer lifespan) – they actually possess the potential to be genuinely rewarding for both writer & readers.

An investment blog also demands brain power, or at least brain engagement. If you want to do it seriously, it requires copious amounts of research, fact-checking, persuasion, debate, cognitive dissonance, and contemplation. A bit like investing itself, really! Most other blogs appear to require the opposite – but perhaps that’s just my jaundiced eye? 😉 I’d certainly be desperate to disengage my brain if I was writing about the likes of Kim Kardashian, and her bikini waxing habits…

German Residential Property V – A Buy!

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Barmer Wohnungsbau, catalyst, commercial property, convergence, correlation, Deutsche Wohnen, EPRA NAV, German bunds, German property, Germany, Karl Ehlerding, KWG Kommunale Wohnen, large cap stocks, marathon, NAV, NAV discount, NAV premium, Net LTV, North Rhine-Westphalia, Price/Book, REIT/MLP sector, rental yield, residential property, Sirius Real Estate, small cap stocks, Stavros Efremidis, Taliesin, value investing

Continued from here. A 5-part series might seem like overkill – hmm, I’ve done worse 😉 – hopefully, you found something useful in each post. And, of course, I wanted to illustrate the research (& contemplation) required for any real investment edge in your stock-picking & portfolio. Peer/sector analysis may perhaps be the most rewarding component – though it drives me to distraction occasionally…

Picture it: You come across a random gem – you suspect it’s best of breed & should be pounced upon asap! Instead you take a breath, step back & force yourself to research it (and its peers) from all conceivable angles. Meanwhile, your gem’s share price begins to ascend rapidly, and you’re totally missing out… I’m suffering that with one idea I want to exploit – the apparent gem of the sector’s jumped 20%+, gahhh!

But investing isn’t a sprint, it’s an (often painful) marathon. We all remember a satisfying quick-fire buy that worked out, but we’re really just trying to forget the pain of misguided duds… Disasters we might perhaps have avoided if we’d researched them a little more, or picked the better horse. Research & patience are ultimately far more profitable than grabbing the first nice stock you see. Also, peer/sector analysis is essential to my preferred approach to investment:

Great Story, Great Stock & Great Price

German Residential Property (IV)

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Adjusted NAV, Austria, Berlin, catalyst, Colonia, commercial property, Conwert, Deutsche Wohnen, distressed assets, diversification, Estavis, Fortress Investment Group, Gagfah, German property, Germany, goodwill, Google Translate, Grand City Properties, GSW Immobilien, JK Wohnbau, MPC Capital, NAV discount, Net LTV, Patrizia, Peach Property Group, Petrus Advisers, Pretty Woman, residential property, risk management, Rolf Elgeti, Sirius Real Estate, Speymill, Strabag, student housing, TAG Immobilien, Taliesin, Unite Group, Youniq

Continued from here.

[btw The residential focus here doesn’t imply a commercial property aversion. Sure, it may be more economically sensitive than residential, but many of the positive factors I’ve highlighted equally apply. In fact, I’ve only one complaint about German commercial property – my exposure to it unfortunately limits my exposure to residential property!

I track listed commercial property companies also – but not as closely, and I’ve no plans to write a similar series. For me, Sirius Real Estate (SRE:LN) (a 3.3% portfolio holding) stands head & shoulders above its peers in terms of its risk vs. reward proposition. Its current property valuation & yield, occupancy rate, colossal 66% discount to NAV, plus the presence of multiple activist investors on its board/register, all offer significant operational & share price upside potential. SRE does have significant debt maturing in the next year, but its latest Net LTV of 61.3% equals the peer average & doesn’t appear to present any real re-financing (or other) threat to shareholders. Fresh news of property sales would quickly push Net LTV to sub-60%, highlight the current NAV discount & attract new investor attention.]

OK, first, it’s goes without saying: Keep an eye on the headlines! As the German land grab continues, and rising property share prices attract increased investor & media attention, you’ll see more companies keen to list. Peach Property Group (Deutschland) AG is currently pricing up its IPO. This is a spin-out from Peach Property Group (PEAN:SW) – Immofinanz (IIA:AV) has talked about something similar. Other stand-alone IPOs (mostly from financial sponsors) are rumoured also – such as Deutsche Annington & LEG.

German Residential Property (Part III)

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absolute return, Austria, dividend yield, financial crisis, financial derivatives, German bunds, German property, Germany, home ownership, income/dividend bubble, intrinsic value, land grab, Leverage, Margin of Safety, Mr. Market, NAV discount, Net LTV, Price/Book, REIT/MLP sector, relative value, rental yield, residential property, safe-havens, special situations

Continued from here.

OK, now we’ve looked at German residential property fundamentals. The current supply/demand & home ownership rate, rental yields, safe-haven status, and particularly the low valuations, certainly appear to offer a persuasive investment case. So, how do we exploit it?!

As I’ve said, I’m perplexed by the general investor obsession over direct property investment. What a hassle! And let’s correct a key misconception: People say they prefer direct investment as they can leverage it up – something you can’t, or shouldn’t, do with an equity investment! Yeah, sounds logical…but it’s complete rubbish! That coveted (?!) leverage is already embedded in listed companies (and far more efficiently/cheaply than you could obtain).

Let’s say you’ve a spare 300 K knockin’ around. You could buy a 1 mio property, with the help of a 70% mortgage (and years/decades of property/tenant headaches to come!). Or you could invest in the equity of a listed property company that owns 1 mio of property (with the same 70% leverage). All at the click of a button & an occasional read of their financial reports. What an easy choice… OK, but who knows where the hell the share price might trade?!

German Residential Property (Part II)

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arbitrage, Berlin, commercial property, correlation, Debt/GDP Ratio, Deutsche Mark, Eurobonds, Europe, European sovereign debt crisis, Eurozone, GDP growth, German bunds, German property, Germany, Highway to Hell, Leverage, Manhattan, Margin of Safety, Net LTV, quantitative easing, rental yield, residential property, safe-havens, unemployment rate

Continued from here.

Economy:

Germany’s by far the largest & strongest (major) economy in Europe, with an average real GDP growth rate in excess of +3.3% in 2010 & 2011. Growth remains positive in 2012, while 2013 GDP growth’s forecast to be +1.7%. Far better than most EU growth rates in the same period…

It’s one of the few countries with a primary budget surplus. Actually bested by Italy, what a surprise! Germany’s Debt/GDP ratio at 81.6% isn’t much better (also surprising) than the EU average of 88.2%. But the majority of citizens (& investors) remain supremely confident in Germany’s ability to manage its own finances – and rightly so, I believe. [An important point to make: Now, really, an 88% Debt/GDP ratio? What crisis..!? I think not. I’d venture we can trace the current market hysteria squarely back to the bumbling & foot-dragging of Europe’s politicians. A clear message for US politicians as they merrily race down their own fiscal/debt Highway to Hell. An inability to learn from history’s unfortunate, but perhaps forgivable – an inability to learn from today’s headlines, however, just makes you a complete f**king idiot,sir!]

German Residential Property (Part I)

Tags

commercial property, developed markets, Europe, Eurozone, German bunds, German property, home ownership, Margin of Safety, real estate agents, residential property, safe-havens, stock tips

German residential property’s been described (particularly recently) as:

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

OK, seems like typical talking-head hyperbole! But in this instance, I’d really have to agree… In fact, I’ve agreed with that thesis for the last couple of years now, and v profitably too! Whenever somebody I meet tugs my sleeve for an investment tip, that’s exactly what I offer up (in all good conscience): German residential property is a safe & compelling long term investment. Hmm…it’s amusing, and extraordinary, how rapidly most people lose interest in such a dull recommendation! Which just goes to show:

i) I guess most people are truly just looking for a tip…in the v worst sense of the word. Perplexing..!? Do they have some bizarre faith I can conjure up, at will, a stock that’s sure to double for them within a week!? Is this really how some people think investing works? In the end, it illustrates how few people walk the talk – they just don’t apply themselves & follow through consistently with their investing. Often, when they actually decide to invest, it seems like their decision may just boil down to the persuasiveness of the ‘tipper’, rather than the merits of the actual stock thesis!