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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Hitting The Century (IX – Property)

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Asia, BIW, catalyst, China, commercial property, de-leveraging, emerging markets, Germany, Joel Greenblatt, KWG Kommunale Wohnen, NAV, Net LTV, Price/Book, residential property, Russia, Sirius Real Estate, special situations, SRE, Stockopedia, Ukraine

Continued from here.

Property (10%):

As with Agri, some of my recent posts will overlap. I should obviously point you to my series on German Residential Property, Post I to Post V – it offers an in-depth look at my allocation & stock selection approach to Property. This culminated in a recent stock-pick I’m v pleased with: KWG Kommunale Wohnen (BIW:GR), a 5.1% portfolio holding.

At EUR 5.475, it’s up +6% since my write-up a month ago (and +9% from my actual avg. entry price). It’s clearly left resistance at EUR 5.25-32 trailing in the dust, and the next EUR 5.60-80 resistance now beckons. A possible break of EUR 6.10-20 in due course may suggest the share’s ready to muscle its way far higher. It’s fascinating to note that price level corresponds to a KWG market cap of about EUR 100 mio: Which is precisely the level I highlighted as a possible sweet spot for the market to award KWG a significantly higher price/book valuation!

You know, I’m not much of a stock screener – I mean why ruin a day of reading annual reports instead?! 😉 But I do think property stocks lend themselves v nicely to a stock screening approach (Stockopedia, of course!) – there’s only a couple of key variables on which you really need to focus. In fact, let me suggest a stock selection strategy, a la Joel Greenblatt:

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!]