So Corestate did end up releasing a horrific set of financials for FY20, I wish I could say its only given me a black eye but that’s not true, have sold the stock and have not paid much attention since.
I did not bother updating the blog since I thought nobody cared anyways, but have recently been contacted by an investor on Twitter asking for my thoughts. So actually someone read what I posted! Just wish it would have been a happier story.
Anyways, my thoughts – off the top of my head and in a hurry:
Going into the FY20 results release, market expectations have been c€50-70m EBITDA and Net debt some €400m. They put up €17m in adj EBITDA and €500m in net debt. I felt sick in my stomach when I saw the news release (including reversal of initiated projects).
My first question to you: How in the world did they not have to warn the market they will miss expectations so badly? And what does this tell you about their regard for shareholders? Do you think they will tell you timely and truthfully in case stuff is hitting the fan?
EBITDA now does not matter anymore, it is all about the debt, 500 million of it.
They knew this is the key focus of the market, and they knew in particular investors do not want them to commit more capital to mezzanine bridge financing. In the capital markets day late 2020, they accordingly showed a slide (no longer on their website) how they intend to reduce this portion of their debt load, starting in H2 2020.
Instead the mezz bridge financing went up?? Are you kidding me??
Second question to you: Does this look to you like they voluntarily committed more capital (which they do not have) to the mezz stuff and risk their credit rating, investor trust????
So the acquisition of AFS, which was really the inhouse trading arm of Aggregate. When Ketterer sold his 6.5m shares in CCAP, Corestate did not disclose the buyer, only 1, Vestigo, who bought 2.5m. The remaining 4m are undisclosed, I like to call it the ‘black bloc’. (no bank was involved to spread the shares). Now in the AFS m&a call (transcript no longer on their website), the guy from PIMCO asked Schnidrig, whether Aggregate already bought from Ketterer. Schnidrig said no. Then the PIMCO guy asked the same question again…. incredible mistrust.
So after the AFS acquisition, Vestigo holds 2.5m shares, aggregate 6m (any info on lockup?), afs managers 2.6m, the ‘black bloc’ 4m, union investment 0.6m, rest free float. A couple of days ago I am seeing PPF holdings is now in the mix as well? Well, I do not know what is being played here, I do not even know who is playing.
Interestingly, the last two days the stock is flashing red lights, on heavy volume…and what is really concerning to me is the news releases about acquisitions or disposals (for customers) have all but dried up…
So just to recap what is the problem? Well the problem is they need to repay the €200m convertible in 1.5 years and they currently only have €90m in cash and need to refinance the €300m bond in 2.5 years. How much cash is really needed to run their operations and therefore trapped? I would think a good portion of the €90m. Where would the money to repay the convertible come from? Can they call PIMCO to refinance?
How did they get in this position? Instead of saving some money for a rainy day or to repay their bonds, they literally spent all their money including all their FCF on subprime assets, to desperately generate EBITDA. And now the tide on the subprime assets has turned.
Zooming out, look, Patrizia and Corestate are in the same business. Corona comes, Patrizia’s results are unchanged, Corestate … what would have happened without the €70m cash infusion by Ketterer last year? What more do we need to know?
So last question: Interest rates are literally negative, and have been so for some time now, hence asset values have been inflating, including real estate prices have only gone up. How can you corner (would like to use a different word) a real estate asset manager in such an environment?? Seriously, I mean how???
As I said there are levels and levels to this stuff, above is written in a hurry and off the top of my head. Have not looked at their FY20 annual report yet.
What would change my mind on the stock? Look this is an interesting business with a lot of money going around. I was hoping for a fresh start with a new CEO such as Schmitt who has credibility and integrity. But the guys who now control the company …. control the company.
Watch the placement of their Giessener Stadttor warehousing asset, its in their books valued at €60m, a retail asset, but generating €6m in rental income pa, it will be very interesting for much much they will be able to sell it.