Author Topic: QFDI - Fondo Delta  (Read 5182 times)

writser

  • Hero Member
  • *****
  • Posts: 1550
QFDI - Fondo Delta
« on: June 28, 2017, 04:06:46 AM »
Another idea, mostly for PA's.

In Italy quite a few REIF's (real estate investment funds) are listed. A few bloggers have been writing about them the past few years, most notably WertArtCapital and AlphaVulture. Basically, these funds raised money during the boom years (early 2000's), mostly from retail investors. Of course the Italian real estate market blew up during the great financial crisis and the euro crisis. Fast forward to 2017 and the general picture for these funds is: low liquidity, years of losses, off-the-radar (annual reports only in Italian), marginal management and a discouraged investor base. All these funds have a fixed maturity and a lot of them are expiring in this decade. Result: forced selling of real estate and investors get shafted even more. QFDI had an expiry date of December 31, 2014.  Most of these funds have the possibility to ask the Bank of Italy for a 'grace period' to get some more time to wind down. QFDI did so and entered a three-year grace period ending this year. So, they're supposed to wind down in a few months. I'm skeptical they will succeed with that but they can probably apply for a second grace period.

Now, the upside. Last year, no less than three vulture investors launched tender offers for QFDI (sloppy translation from AR follows):

Quote
GSF has promoted public offer to buy the 60% of the Delta Fund quotas to a post recovery value of 58 euro per share plus a variable fee calculated on amounts in excess of 75 Euros. On July 1, 2016, the asset management company's Board of Directors considered the price not appropriate for the recipients of the offer;

Navona has promoted a takeover bid on 60% of the units of the Delta Fund to a value of EUR 56 per share plus a variable fee calculated on amounts exceeding 75 Euros. On July 21, 2016, the Board of Directors of SGR held the consideration not appropriate for the recipients of the offer;

Mars has promoted a public offer of shares issued by the Fund to a Delta basic fee of 65 euro for each share. On July 28, 2016, the Board of Directors of SGR held the consideration is not appropriate for the recipients of the offer.

On 29 September 2016, given the acceptance of the Offer Mars n. 403 946 shares, corresponding to 19.19% some of the units issued by the Fund, Mars communicated to waive the condition precedent relating to the Offer Mars that the Warning A.1.1 (a) of the Offer Document Mars. Therefore, on 30 September 2016, Mars has taken steps to pay those accepting the Offer the amount due for each share tendered, for the simultaneous transfer of ownership of the shares.

So, in the end only ~20% of shares were tendered. Maybe the retail base simply didn't now how to tender. Maybe they are very sophisticated and thought the offer was too low. Who knows .. The CVR's indicate that some of these funds did see quite a bit of upside in a liquidation scenario.

As of their most recent annual report the QFDI balance sheet is:

+ 193m in real estate
+ 7m in other assets
- 5m in liabilities.

With 2.1m shares outstanding. No leverage. Income statement is not that important as they are in liquidation, but they managed to make a profit in 2016 despite 7m in writedowns and only a small loss in 2015 despite 10m in writedowns. Quite nice actually.

This year, QFDI accepted an irrevocable bid of 105.25m for 110m of their portfolio. A final contract is expected to be signed in October. Since they are in liquidation this amount will be paid out to shareholders, probably late this year or (more likely) early 2018.  The bid is exactly E50 per share, seems like a nice amount to pay out to shareholders. Taxes should not be an issue as this is just a return of capital.

So, you can buy today for E70, I expect an E50 dividend within a year and you are left with ~E40 of real estate per share. Yes, this real estate probably deserves a haircut but there is quite a margin of safety, appraisals are done by third parties, they have been vigorously writing down assets the past few years and the bid for the other real estate was only at a ~5% discount to book value (though the bidders probably cherry-picked the best assets). I'm personally assuming I can sell the stub at a ~25% discount to NAV next year (roughly in line with where it has been trading the past months) implying a 20%+ IRR.

My confidence level in this trade is not extremely high because I am not Italian, have a hard time understanding the Italian reports and this is all mostly armchair research (I haven't seen their actual properties). However, I think Italian REIF's are a pocket of the market where some inefficiencies are likely to appear, as was demonstrated by the sudden interest of vulture investors in multiple Italian REIF's last year and the subsequent price action. I think the best approach is to buy a basket and I'm also long: QFAL, QFARE, QFARI, QFATL2, QFID, QFIMM, QFSEC, QFSOC, QFUNO, QFVIG.

In this specific case I think the market underreacted to the QFDI news and bought more shares.
« Last Edit: December 20, 2017, 07:24:26 PM by Parsad »
When you are dead, you do not know you are dead. It's only painful and difficult for others. The same applies when you are stupid.


constala

  • Jr. Member
  • **
  • Posts: 57
Re: QFDI - Fondo Delta (Italian real estate)
« Reply #1 on: June 28, 2017, 04:17:22 AM »
Excellent hunting ground indeed... QFATL1 is the bomb. Massive  NOI/FCF so NAV accretive. Very big discount. Prime tenants (ENI, Carrefour. Mac Donald) . Some trophy assets. Trades at 220, NAV 511, and Blackstone bought 40% at 335. How did you miss that one?!
Everything in moderation, including moderation.

writser

  • Hero Member
  • *****
  • Posts: 1550
Re: QFDI - Fondo Delta (Italian real estate)
« Reply #2 on: June 28, 2017, 04:44:28 AM »
I took a very conservative (lazy?) approach and discarded QFATL1 quickly because of their leverage. I was mostly looking for stuff with a huge margin of safety. Also, they're in their second grace period already if I am correct and they still have a very large portfolio and didn't seem close to liquidation. At least, those were my notes from the start of this year. Maybe I should take another look, thanks! Do you only own that one?
« Last Edit: June 28, 2017, 04:47:14 AM by writser »
When you are dead, you do not know you are dead. It's only painful and difficult for others. The same applies when you are stupid.

constala

  • Jr. Member
  • **
  • Posts: 57
Re: QFDI - Fondo Delta (Italian real estate)
« Reply #3 on: June 28, 2017, 06:08:12 AM »
Still own QFSOC, QFAL; both excellent and diverse profiles I believe. I sold the others I had (QFEI, QFDI, QFVIG,QPOL) after a good ride.
Everything in moderation, including moderation.

writser

  • Hero Member
  • *****
  • Posts: 1550
Re: QFDI - Fondo Delta (Italian real estate)
« Reply #4 on: September 13, 2017, 02:21:34 AM »
Good news today: QFDI has received a E60M bid for their three hotels (link), an ~18% discount to book value as of the latest annual. They have now received bids for almost all their real estate for a total amount of E165m. That money should be returned to shareholders tax-free (again, just a return of capital). They only have one office building left on their balance sheet at E8m, cash and receivables of ~E13m and liabilities of E5.5M. They will have some liquidation costs but will still receive rental income for a few months so I'd say net asset value is a pretty good estimation of liquidation value. Should be around ~E85 / share.

The bad thing is: shares are up significantly today. Now trading around E81 for an estimated remaining upside of ~5%. Moderately attractive depending on how fast you think the liquidation will be completed. I sold some of the shares I bought a few months ago but still have a position.
« Last Edit: September 13, 2017, 02:38:52 AM by writser »
When you are dead, you do not know you are dead. It's only painful and difficult for others. The same applies when you are stupid.

writser

  • Hero Member
  • *****
  • Posts: 1550
Re: QFDI - Fondo Delta (Italian real estate)
« Reply #5 on: October 05, 2017, 12:42:41 PM »
Last building sold per 11/30 at E6.5m (link). Nav should be around E85.

Quote
With this sale the fund completed the disposal of the entire portfolio. Considering that the fund will receive part of the rentals this semester, the final value of the units, except for the facts currently not disclosed, will be around the value at 30 June 2017.

Not sure what they mean with the bolded part, my Italian is not that good. I'm assuming it is boilerplate language, not aware of any hair.
When you are dead, you do not know you are dead. It's only painful and difficult for others. The same applies when you are stupid.

writser

  • Hero Member
  • *****
  • Posts: 1550
Re: QFDI - Fondo Delta (Italian real estate)
« Reply #6 on: November 14, 2017, 06:38:46 AM »
Excellent hunting ground indeed... QFATL1 is the bomb. Massive  NOI/FCF so NAV accretive. Very big discount. Prime tenants (ENI, Carrefour. Mac Donald) . Some trophy assets. Trades at 220, NAV 511, and Blackstone bought 40% at 335. How did you miss that one?!

Writeup on VIC (yours?): https://www.valueinvestorsclub.com/idea/Atlantic_1/141022
When you are dead, you do not know you are dead. It's only painful and difficult for others. The same applies when you are stupid.

writser

  • Hero Member
  • *****
  • Posts: 1550
Re: QFDI - Fondo Delta (Italian real estate)
« Reply #7 on: November 30, 2017, 08:25:54 AM »
I have been buying more QFDI over the past few weeks. Price has been dropping while time to liquidation has shortened. No significant news afaik. Currently expecting a ~5% return in a few months.
When you are dead, you do not know you are dead. It's only painful and difficult for others. The same applies when you are stupid.

writser

  • Hero Member
  • *****
  • Posts: 1550
Re: QFDI - Fondo Delta (Italian real estate)
« Reply #8 on: December 20, 2017, 08:25:18 AM »
Last building sold per 11/30 at E6.5m (link). Nav should be around E85.

Announcement today: liquidation of 85.18 / share, payment date 29 December. Amount in line with my expectations but payout is way faster than I expected. Shares up ~5% today. I've been buying even more after discussing this with a fellow forum member - thanks for that. Was a ~6% position or something.
When you are dead, you do not know you are dead. It's only painful and difficult for others. The same applies when you are stupid.

writser

  • Hero Member
  • *****
  • Posts: 1550
Re: QFDI - Fondo Delta
« Reply #9 on: August 07, 2018, 03:39:53 AM »
Back from vacation, spent a fun morning plowing through a few semi-annual reports from Italian real estate funds. I still believe these are good hunting grounds. I was lucky enough to own a decent position in QFATL2 which went up ~30% up last week or so after they sold their last building at a small premium to book (fwiw I think it is still trading at a ~14% discount to net cash even though it should liquidate within a year). Just to show these things are priced for disaster.

QFAL is now trading at a mcap of ~150m, has a pro forma net cash position of ~65m and 200m in real estate. Shares are trading slightly above the price Elliott launched a tender offer in 2016 even though real estate has been doing good in Italy and the balance sheet has de-risked. QFID is in a similar situation.

A basket of these funds with the highest MoS is still one of my largest positions and I expect it to perform well. As a fellow forum member pointed out: one of the risks is that these funds have been slowly liquidating over the past few years as their end-date comes closer, so it might be the case that they already sold all their marketable assets and are left with the bad ones. That's one of the reasons I keep this portfolio mostly in run-down mode. However, occasionally one of these funds sells a pile of assets and then it looks so cheap / risk-free on a pro-forma basis that I can't resist buying a few shares.

Curious if anybody else has some thoughts about this area.
When you are dead, you do not know you are dead. It's only painful and difficult for others. The same applies when you are stupid.