Vivion - What really matters.
All,
Please find our updated analysis here.
We continue to hold our 5% NAV position in the Vivion 2024 SUNs. We have run through the short seller report and the rebuttal from Vivion, and whilst we think there are some areas where the report raises some fair questions, our analysis doesn’t support its more lurid conclusions. It is irritating that the deferred payment of €161m relating to the Fuerst deal looks like it may have been by way of an asset transfer rather than cash. The sooner Vivion extracts itself from the Aggregate saga the better. Vivion will be suffering from negative revaluations. However, with >€500m of headroom in its LTV, we do not foresee forced sales. Our estimate is that around €230m cash is held at Golden Partners and we will keep a close eye on this when assessing the liquidity position of Vivion.
Investment Rationale:
We hold 5% of NAV in the 2024 SUNs on the anticipation that Vivion will be refinancing these bonds later this year and are therefore expecting at least a 10-point uplift and some coupon in under a year. Despite questions around the valuation of the UK assets and the somewhat theoretical debate raging about exactly how high vacancies have been in some Berlin commercial buildings, we are confident that the quality of the assets and the modest LTV will allow Vivion to refinance in an ordinary manner to leave us with an exit at - or a lot closer to par.
The bonds are trading at 84c/€, down 4 points from immediately before the short seller report. Our analysis supports Vivion’s claim that there is sufficient LTV headroom that the company will not be required to sell assets. Vivion may prefer to sell UK assets to get IG status, but we do not expect sudden movement on this.
Short Seller Report:
We were a little underwhelmed with the report, so here are the three points we are focusing on:
- UK Hotels:
- How much has the Dayan family supported the OpCo’s cost and are the hotels now generating enough cash to cover their rent? The level of performance in the UK hotels and who is providing the support (not to mention how much) is unclear. Further detail from management is required, particularly given the interlinking of the Dayan family at various levels.
- Refinance of UK bank debt supports our UK LTV concerns. The rationale for refinancing the loans secured on Vivion’s Crowne Plaza assets in December is puzzling. The LTV is c35% of the Jun 22 valuation of £550.
- Vivion may have been trying to reduce the negative carry of its cash balances vs. the cost of debt. Or is it a reflection of lower valuations due to poor cash flow generation at the hotels to cover rents?
- It is also possible that Vivion is planning to sell these assets and has secured a loan at a level that will make it easy for the bank to staple for a buyer.
Void Rates:
- Void rates are higher than we thought, if not nearly as bad as alleged: The void rates are higher than the headlines, although not as bad as recently alleged. Vivion needs to do a better job of communicating this.
Cash at Golden:
- Cash at Golden Partners is rising: Whilst the short seller didn’t address the level of cash at Golden, we expect this to be around €230m. Vivion will be reluctant to do anything to repatriate this cash as it will not want to impact its proportionate shareholding. If the shareholders all agree, then money can flow but with a near 50% leakage from Vivion’s consolidated accounts.
- The company had previously communicated that most of the cash is held at Vivion. We think that in 2021 that was the case but following the sale of the Fürst project a fair share of that cash is likely down at the 51.5% held Golden subsidiary and when reported this may come as a disappointment.
I look forward to discussing this with you all,
Regards
Aengus
Aengus
T: +44 203 744 7055