QFDI - Fondo Delta

[writser]

Kudos to Constala: QFATL sold one of their flagship properties for ~175m or a ~45m premium to book value. Shares are up ~20% over the past few hours.

 

Pro forma the fund is now effectively debt-free with ~240m in remaining real estate and ~50m in net current assets versus a ~175m market cap (excluding rental income for H1 2019). In other words, the market still applies a ~50% discount to the appraised value of the remaining real estate. I think that's too much and managed to pick up a few shares around E330 today. Might buy a bit more.

 

At this point I think you could make a case for owning pretty much all of the QF funds with a nearby maturity date. Some pretty solid sales lately yet most of these funds trade at a ~35%+ haircut to appraised values with solid balance sheets and they are winding down and distributing proceeds. I own QFAL, QFARE, QFARI, QFATL, QFID, QFPOL and QFSOC.

 

QFIMM I don't like that they are gonna spend E19m on renovating their last property (construction in Italy: cost overruns? delays?) on a E41m market cap. QFVIG is trading at a similar discount to other funds but has one last property that has been empty for a while and has still not been sold yet - might be a decent bet but I think the other options are relatively better. QFSEC might be a decent opportunity but haven't had a good look lately. I sold QFUNO after the portfolio sale was announced (see previous post). It is now trading at a ~7% discount to pro-forma NAV. Given that they probably make a significant distribution in a few months the expected IRR is actually ok. I had to sell anyway at some point to avoid idiotic Italian taxes, I had a largish position and it was trading at a pretty optimistic valuation (especially given the peer group!) so I sold opportunistically. Might buy back at some point.

[constala]

Thank you Writser for the mention. QFATL1 upside case now depends on the Saipem headquarters negotiation.A break-clause exists on Palazzo Terzo, (half of the bloc) giving Saipem leverage-they are exploring another site in Santa Giulia.

[Spekulatius]

Anybody else owns QFSOC (Fondo Socrates)? I bought a few shares recently. NAV is ~484€ (and slowly falling) with liquidation planned in 2020, I believe. No dividend this year and their assets don’t look that great.

http://www.fondosocrate.it/ita/materiali/CS_semestrale300619.pdf

 

The discount to NAV is huge with shares trading at 255€, but Management stinks.

[Hielko]

I own it, just like almost every other Italian real-estate fund :)

[writser]

Same here. Main risk seems to be that they neither sold a lot of real estate so far nor wrote down their portfolio while they are supposed to liquidate in 2020. Market is already pricing in big writedowns. Probably rightly so, however 50% is _a lot_.

 

Last few weeks most of these funds released their H1 2019 statements. Always interesting to see all the writedowns, delays, and all kinds of other crap. QFPOL in particular was great: they managed to write down their remaining two buildings an additional 3.5m (or 22%) in 6 months and adjusted the sales price of a building they had already signed a contract for downwards by 3m from 24m to 21m and disclosed some lawsuits. And QFSEC wrote down their remaining building 40% in H1 2019. The managers of these funds are horribly incompetent.

 

To repeat, these funds are crap but they are so cheap that I still think they are attractive (and I have done quite well so far in this space).

[rukawa]

How do you get annual statements for these funds?

[DW1234]

Some of them are a bit hard to find. Usually googling the fund name (not the ticker) will get you somewhere. Google translate is also very helpful here. For translating the report I use: https://www.onlinedoctranslator.com/en/translationform. Send me a PM if you can't find them.

[rukawa]

Is anyone expected to liquidate at the end of this year? I have QFARI.MI, QFARE with liquidiations on Dec 31, 2019. Is this right?

 

 

[DW1234]

No, as far as I understand they got an extension to 2021. This also makes sense, because they have way too many assets to divest < 2 months.

[writser]

No, as far as I understand they got an extension to 2021. This also makes sense, because they have way too many assets to divest < 2 months.

 

Yep. QFSEC has one asset left, I think that one is scheduled to liquidate this year. Same for QFVIG. In both cases I'm not sure they will manage.

[DW1234]

QFSEC is ideally closing their fund soon. Do you have any idea what the cost of closing a fund historically have been? Do they just distribute the entire proceeds of the last sale + cash, or do we need to pay an extra cut + lawyers + ???.

[Hielko]

I think with some of the other funds that have been closed there were no significant additional costs to close them. Have to check the details, but I think what happens is that the fund is not immediately liquidated and ceases to exist in a legal way, but that the management company sort of takes over.

[writser]

Time for a modest 2019 y/e update. Not too much has happened the past few months and I have not significantly altered my basket composition.

 

QFATL traded as high as E344 after the sale of one of their flagship properties was announced in July. In November some people were selling enthousiastically and shares dropped as low as E285. The property sale has been finalized and shares are now trading around E315. I bought a bit in July, bought more in November and am still happy with my position. Pro forma the fund is debt-free and you are buying the remaining property at a 50% discount.

 

QFID traded up significantly this year. I bought a bit more in April around E115 as I thought it was attractive after the announced the 'two towers' sale. Shares are now trading at the same price despite a E35.5 return of capital and not much happening since. I trimmed my position a little bit a few weeks ago.

 

QFPOL was a bit of a disappointment. H1 report 2019 was bad, as described in this thread. Huge writedowns and they adjusted the sales price of a building they had under contract by ~15%. Still, I bought a bit more the past few months. One small asset left and the fund is basically a cash box trading at a juicy discount.

 

QFUNO I added quite a bit last week. Some encouraging developments lately. They have settled the tax dispute in their Stremmata sub if I understand the semi correctly and have sold all their real estate (http://www.torresgr.com/media/Comunicato_UIU_12%20dicembre%202019.pdf). As of now they should be a cash box with ~E247 cash / share yet it is trading at E207. Best case they decide to wind down this calendar year and you receive a healthy distribution early 2020. However, they have a mandate until 31 December 2020 so worst case they squander some money and you have to wait a little bit longer. Still, looks very attractive to me and is now my largest position in my basket. Less than 2% of my total portfolio though.

 

Still holding QFAL, QFARI, QFARE, QFSOC.

 

My conviction in individual single funds isn't very high. Management is often terrible and/or I might be missing important stuff in translation or because I am not following local news. Still, my experience the past few years has been that a portfolio of these things is cheap and generates satisfactory returns.

 

My basket is in a bit of a run-down mode. Most of these funds are selling assets and distributing cash. I'm a little bit worried about reinvesting all that cash back into these funds as you might end up bagholding the worst assets. Also, as these funds get smaller and smaller they get riskier. For example, QFSEC now only has a ~E2.6m market cap on a E3.2m NAV. In relative terms that is a juicy discount but in absolute terms it means that if they get into a tax dispute or have a nice Christmas dinner the discount evaporates. I somewhat prefer the larger funds: if a fund has $40m in cash management can burn $1m on stupid shit without the investment thesis blowing up.

[Spekulatius]

I owned a bit of QFSOC in the past  (had two roundtrips with small gains) but the H1 report looks bad and the buildings they own (some of which are empty for quite some time) are giving me the willies.. They also don’t really generate any cash despite having no debt and quite a bit of net cash. It’s been a real dog.

[DW1234]

I recently added a bit to my QFSOC position. Yes, book value of RE looks iffy, it's hardly discounted. OTOH, if the buildings bought (and discounted) in 2010 are a bit closer to fair value than the rest of their portfolio there still is some safety there. In the end there is a 50%+ discount to NAV, which is enough for me to take this bet.

[writser]

Ok, I lied, I also bought a tiny chunk extra QFSOC this summer. Size not really noteworthy. It looks cheap. But in 2016 they extended the duration of the fund by 3 years to December 2020 to complete the liquidation of the fund. That's not that unusual, but after selling 3 of their 15 properties in 2017 they haven't sold anything since .. And the remainder of their portfolio has only been written down from ~E104.3m in December 2016 to E99.4m in June 2019. Make of that what you want but to me it basically seems they are giving shareholders the finger. I think it is very unlikely properties can be sold at book value and I think it is very likely that there will be another 2 or 3 year grace period. It does not look like these guys are even trying to wind down the fund .. Of course the discount already more or less reflects that but in terms of management behavior I think this one looks suspicious compared to the rest. And it's not like the rest is very good either!

[writser]

For example, QFSEC now only has a ~E2.6m market cap on a E3.2m NAV. In relative terms that is a juicy discount but in absolute terms it means that if they get into a tax dispute or have a nice Christmas dinner the discount evaporates. I somewhat prefer the larger funds: if a fund has $40m in cash management can burn $1m on stupid shit without the investment thesis blowing up.

 

Of course QFSEC announced today that they have sold all their real estate and will liquidate in a few months. Shares are up 8%. I'm a great contra.

[writser]

Just a small update, so nobody can accuse me of silently retreating when my garbage stocks go down the drain. Obviously these Italian real estate funds were a terrible place to be during Q1 and prices have not recovered yet. I wish I was smart enough to sell before the panic in March, but I wasn't. Over the board these funds declined ~20% in value. Given that most of them are not leveraged and/or even have net cash positions that implies huge drops in the prices of Italian real estate. Is that too pessimistic or too optimistic? I'm not sure. I basically stayed put.

 

A large pending asset sale in QFARE / QFARI did actually go through despite Covid-19. QFARE is now a cash box that should liquidate quickly but is still trading at a double digit discount (to be fair there are some theoretical tax issues). QFARI has delevered substantially. I bought a bit more of both. QFID had a huge run-up last year, I was lucky enough to sell all my shares around E117. I've been buying back some shares around E66. I don't see any significant news - crazy move. Apart from that basically not much happened. Due to Covid-19 there haven't been many transactions.

 

Despite the bad results this year I still like my positioning here (maybe I am too stubborn to change my mind!). Over the board these funds are trading at a 50% - 70% discount to their appraised property values. Yes, Italy was hit by Corona, yes, the economy will get hit, yes, these funds are badly managed. But, just as an example, QFSOC owns ~100m in real estate and ~12m in net cash. Yet it is trading at a ~42m market cap, implying the real estate is worth 30m or 30 cents on the euro, despite rental income of 6m in 2019. That's just crazy cheap. It is my experience in this space that yes: the real estate is valued too high on the balance sheet, but also valued too low by the market. If QFSOC manages to sell their portfolio at a terrible 40% of appraised value the stock should still go up ~25%. And my experience in this space the past 5-6 years suggests that, in broad strokes, that is about what happens every now and then. And 60% is really an amazing discount: imagine selling your house for 120k when it was appraised a few months ago at 300k.

 

At current discounts it wouldn't surprise me if you would do reasonably well owning a bunch of these funds, especially if you track the news a little bit and make some opportunistic trades. So a basket of these clown funds is currently about 6% of my portfolio.