Progress on growth plans
Fair Value Reit AG Inh. On (XETRA:FVIG) has announced further progress in its growth strategy, with the acquisition of a majority stake (c 52.8%) in a closed-end real estate fund (BBV08). The €8.4m cash investment uses proceeds from the €34.7m (net) equity increase in May. The terms of the acquisition add immediate value to FVI shareholders, enhancing EPRA NAV and underlying EPRA (or FFO) earnings per share. We estimate that leveraged investment of the remaining proceeds of the equity increase could lift annualised adjusted earnings by a further 41%.
Investment enhances NAV and earnings per share
This is FVI’s first major step towards achieving its growth ambitions since raising €34.7m (net of expenses) in an equity issue in May. Significant work had already been undertaken to position the company for growth, with non-core properties representing c 19% of the end-2012 total disposed of. The controlling stake in BBV08 has been acquired at a c 22% discount to NAV (enhancing NAV per share by c 16c per share), while the annualised c €1m increase in FFO (a c 12% return on the investment) enhances EPRA EPS per share. We illustrate how investing the proceeds of the remaining capital increase could lift EPRA EPS by a further 41% on an annualised basis (see Exhibit 2).
Attractive yields and fragmented market
German commercial property offers attractive yields relative to current funding costs in a robust economy. The secondary locations that FVI targets (gross yields of c 8%) have historically shown above-average rental growth and lower volatility. Over the past 10 years, large quoted residential property players have emerged, offering liquid, efficient investment opportunities giving attractive yields. The commercial property market is more fragmented, and quoted players are smaller, but it has similar potential for scale efficiencies.
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