More than eight years ago I bought a basket of Italian real estate funds based on a simple thesis. As a group the funds were trading at a discount of ~50% to NAV while they were already in the process of liquidating, or were going to liquidate soon, because all the funds had fixed maturity dates. Most of them were supposed to liquidate between 2015 and 2017. Given that I’m still writing about these funds in 2023 shows that the liquidating process hasn’t been the easiest one. Perhaps not too surprising, since these funds were sold to retail investors and sometimes (mostly?) stuffed with crappy assets.
But at the same time, a lot of progress has been made. When I first wrote about these funds there were 24 separate entities with a NAV of more than €4 billion. As you can see above, now only 7 entities remain with a NAV of less than €650 million. Some of that reduction in NAV has been because of write-downs, but most has been achieved by selling assets and distributing cash to shareholders. The average discount to NAV of the remaining funds remains high, almost at the same level as 8 years ago, but I’m less enthusiastic about this investment now than back then. A bit can be attributed to having experienced how long this process is taking, but in general, I’m cautious about what happens in the tail-end of a liquidation. Presumably the properties that are remaining are the least attractive of the whole bunch…
So at this point in time, I have this part of my portfolio in runoff mode, and while I keep an eye on developments, I don’t plan on adding to this basket anymore. Since my initial investment in 2015 I have achieved an IRR of 12% on the basket which I think is quite okay. It’s not a homerun, but anytime you can make a double digit IRR over a long time period I think you should be quite happy. It will probably take many years more before the last fund is liquidated, but because most of the cash has already been returned I expect that the IRR will not change a lot anymore.
Four years ago I bought a basket of various Italian real estate funds because I liked the combination of a 50% discount to NAV and the fact that these funds all have a fixed maturity date. When I started tracking these funds there were 24 different entities with a total NAV of €4.0 billion. Two years ago that number had shrunk to 21 different funds with a NAV of €2.6 billion and now just 14 funds are remaining with a total NAV of €1.5 billion. It’s taking quite some time to sell the assets of these funds, but they are liquidating. At the same time the average discount of the remaining funds has shrunk a little bit, but is still quite high at 41%:
So far my investment in this basket has worked out to my satisfaction. As of today my internal rate of return stands at 14.7% which I think is pretty okay for real estate. While all the funds I bought have appreciated in price, most of the return can be attributed to just two funds that have now been fully liquidated. While things have worked out for me, just blindly buying all these funds would probably have been a bit less successful. Most funds have been quite successful in slowly selling their assets close to NAV, but some have sold them at sizable discounts. The Obelisco fund liquidated this year, writing down their NAV to zero, and without making a single distribution to shareholders…
Another fund that is close to liquidating is Unicredito Immobiliare Uno. In the latest annual report the management company reports that they have received offers from multiple investors to acquire the remaining real-estate portfolio of the fund. I think it’s quite likely they will be able to sell their remaining assets close to NAV, and thus with the discount remaining above 20% I think it’s an attractive bet. It’s my only new position in my basket of Italian real estate funds, all the other ones in the list below have been in my possession for multiple years:
Two years ago I bought a basket of Italian real estate funds with a simple thesis: they are all liquidating (because they all have a fixed end date) and they are trading at a big discount to net asset value. Since then that thesis has been playing out slowly. Back then there were a total of 24 funds with a total net asset value of €4.0 billion. Thanks to asset sales (and also some write-downs) there are now 21 funds remaining with a total asset value of €2.6 billion. The total market valuation is €1.4 billion for an overall discount of 46%, down just slightly compared to the 48% discount two years ago.
While the overall discount has remained roughly constant there have been some significant shifts between individual funds. I bought for example Europa Immobiliare N1 at a 54% discount, but thanks to some successful asset sales the discount is down to 14% (pro-forma for a large liquidation dividend that will be paid next month). Other stocks have seen their discount grow. Two years ago I thought that the Atlantic 1 fund was richly valued at a discount of just 24%, now it’s actually one of the cheapest funds with a 58% discount. I have strongly considered adding this one to my basket, but so far the relative high leverage (50% LTV) has been holding me back.
I did decide to sell Europa Immobiliare N1 though, and added a couple of other positions. A new addition to my basket is Amundi RE Italia. They haven’t made a lot of progress with liquidating so far and incurred some asset write-downs, but the discount is huge at 61%. My other additions are Securfondo and Socrate. Securfondo has been making good progress with liquidating and has only one building remaining, while Socrate also started with selling assets. A great site to keep track of what is happening in this sector of the market is this one. It’s Italian, but it keep track of asset sales, financial reports and other developments related to these funds.
My current basket of Italian REIFs and their performance so far looks as follows:
Elliott Associates announced today that it would accept all shares that were tendered in the offers launched for Fondo Alpha and Immobiliare Dinamico, despite getting less than 50% of the outstanding shares of the two fonds. The tender offer for Fondo Alpha was the biggest success, and Elliott Associates managed to acquire 24.8% of the outstanding shares for a total consideration of €33.5 million. In the Immobiliare Dinamico offer just 2.5% of the outstanding shares were tendered for a total value of €2.8 million, but together with open market purchases they managed to get a total stake of 4.9%. In the offer for the Polis fund that closed a month earlier they acquired 16% of the outstanding shares. I didn’t sell my shares in the offer, and based on today’s market reaction that seems to have been a good choice. Fondo Alpha is now trading 3% above Elliott’s offer while Immobiliare Dinamico is trading 0.2% above the offer.
Elliott Associates launched bids for four different Italian REIFs two months ago, and so far they haven’t been very successful in acquiring shares. They managed to acquire 16% of the shares of the Polis fund, but another hedge fund overbid them on the Mediolanum Real Estate Fund and apparently there was little interest from Fondo Alpha and Immobiliare Dinamico shareholders to tender their shares. As a result Elliott Associates decided to increase their bid for those two funds. They raised the offer for Fondo Alpha by 12.4% from €1156.25 to €1300.00 and the offer for Immobiliare Dinamico was increased by 12.5% from €69.31 to €78.00. I didn’t tender my shares in the previous offers, and I don’t intent to tender them in the new offers, but I do find it very encouraging to see the large interest from hedge funds in Italian REIFs. I bought them last year and no-one was interested, and now everybody tries to get a piece of the action:
Author is long Fondo Alpha and Immobiliare Dinamico