After taking too much time crunching the numbers here is an investment thesis of the kind "a part of the business already has a price tag, but the rest, what is it worth?". Equity of interest: the commons of Wereldhave nv.
Okay, let's try to clarify the situation. Wereldhave nv ( WHA) is a Dutch REIT operating in France (FR), Belgium (BE), and the Netherlands (NL) where is lets and maintains "second-tier" commercial real estate properties with a strong focus on "convenience", i.e. their shopping centers house a mixed group of tenants. Think about supermarkets, fashion retailers, restaurants, health clubs, etc. WHA also lets Belgian offices which are good for only a small percentage the total portfolio. Over the years the company has increased its focus by decreasing the number of countries it operating from from seven (USA, UK, Spain, Finland, Spain, Netherlands, Belgium, France) in 2011 to just the aforementioned three after the most recent divestment from Finland at the end of December 2018.
The important thing to know now is that the BE operations of WHA are represented by a 66% stake in another public company, to wit Wereldhave Belgium ( WEHB), the thinly traded shares of which are listed on the Belgian stock market. The BE operations are thus already valued by the market, so we can use this to determine the current price of the non-BE operations, i.e. the operations in NL and FR.
In their books WHA consolidates WEHB at 100% ownership, hence:
EV(WHA consol) = EV(WEHB) + EV(ex-BE ops)
EV(WEHB)= 290 mln in debt + 710 mln market cap (ignoring their small cash position) = 1000 mln.
EV(WHA consol) = 1320 mln in debt + 830 mln market cap - 10 mln excess cash = 2140 mln.
So how much do I pay for the non-BE ops?
EV(ex-BE ops) = EV(WHA consol) - EV(WEHB) = 2140 mln - 1000 mln = 1140 mln.
What do I get for 1140 mln? Well, the yearly average ex-BE FCF produced in the period '14- H1 of '19 is about 115 mln, so EV(ex-BE)/FCF = 10x, not bad. But at what multiple are the BE ops selling? The average BE FCF produced in the same period is about 40 mln, hence EV(BE)/FCF = 25x. If you ask me "richly priced".
Okay, we have this difference in valuation for the BE and non-BE EV/FCF of more than a factor 2. What are comparable West-EU REITS going for? Their EV/EBITDA = 18-22x. If we now assume that the non-BE ops deserve a valuation in the lower end of the range, lets say EV(ex-BR)/FCF = 15-20x we get a fair non-BE EV between:
EV(ex-BE fair) = 15 * 115 mln = 1725 mln.
EV(ex-BE fair) = 20 * 115 mln = 2300 mln.
Using this gives the following fair value range for WHA consolidated:
EV(WHA consol fair) = EV(ex-BE fair) + EV(WEHB) = 1725 mln + 1000 mln = 2725 mln.
EV(WHA consol fair) = EV(ex-BE fair) + EV(WEHB) = 2300 mln + 1000 mln = 3300 mln.
The current price of the company implies a 20-35% discount from this fair value range: not great but certainly decent. We can now calculate the range of fair market cap of WHA by:
market cap WHA fair = 2725 mln of EV(WHA consol fair) - 34% * 710 mln market cap WEHB - 1320 mln in debt + 10 mln excess cash = 1180 mln
market cap WHA fair = 3300 mln of EV(WHA consol fair) - 34% * 710 mln market cap WEHB - 1320 mln in debt + 10 mln excess cash = 1750 mln
Ultimately using that WHA has about 40.3 million shares outstanding: fair share price WHA: €29-€43, let's say €35. What are the commons going for as of today? €21 and change, while providing shareholders of an annual dividend of about €2.50. If you ask me a reasonable deal...
Why is the stock on sale?
- A dividend cut from €3.08 to €2.52 announced in February 2018 in order to afford the increase in capex to modernize and improve competitiveness of their assets.
- Impending bankruptcies of Dutch retailers, but most of them have reorganized already and are paying rent.
- Disappointing occupancy rates in France and French yellow vests strikes: only something temporary. Moreover, the current occupancy rates do not deviate much from the historical average.
Potential catalysts?
- Normalization of occupancy rates in France and mean reversion of rental income in general.
- A short squeeze after positive results: WHA is apparently the 3rd most shorted Dutch stock with a short volume of only 12% but 21.5 days to cover short due to daily volume being about 0.6% of total float.
- Some activist aiming to unlock the €40+ of assets value per share. This value is determined twice a year by an independent appraiser, so it is the closest thing we have to a current market value of the assets.
- Some Dutch QUOTE 500 investor has bought 15% of all shares in June 2018 in the low 30s. So that pretty much locks those shares up, perhaps he will 'invite' management to do something about his paper loss.
I bought some shares at an average price of about €25 per share 6 months ago or so.
Nya
P.S. As WEHB is kind of expensive you could additionally short 0.13 WEHB shares for every WHA share you buy. |
