Privatization of TLG IMMOBILIEN GmbH 2012 - 2015 Lone Star

Facts & Circumstances:

TLG IMMOBILIEN GmbH (TLG) is a German commercial real estate company which was founded in 1991 after the unification of Germany took over formerly GDR state owned real estate assets. Effective as of December 31, 2012 TLG was taken private in a tender won by Lone Star (LS) for a purchase price of EUR 1.1bln. 

German Ministry of Finance Source 

Fact Sheet TLG IMMOBILIEN as of before privatization 

 In a difficult environment LS managed to get TLG IPOed in October 2014 at a price of €10.75, all shareholding was sold off until July 2015.

Since then TLG developed quite well, did grow organically and via M&A and was control over TLG was acquired by competitor Aroundtown in late 2019. The COVID-19 restrictions are hitting commercial (break and mortar) businessses really hard, yet the recovery since the initial shock has been very step. This phenomenon can be overserved throughout the industry and is not TLG specific.

Question:

As a citizen I am always quite sceptical about the benefits of privatizations. So I wanted to find out: How much return did Lone Star make with this transaction.

Analyis:

I analysed the annual report 2013 - 2015 for transactions of/with shareholders and stock prices for share prices. All following values are in kEUR, except stated otherwise

The transaction between TLG and LS amount to the following:

The sale of share by LS in the open market I calculated as follows:

This makes a total calculated gain of EUR 1,216,072k vs. intital investment of EUR 1,100,000k, not taking into account discounting.

The return of EUR 116,072k sounds impressive at first, but if you consider it is equivalent to 10.6% based on capital invested for a holding period of 2.5 yrs and the risks involved is worse than I would have expected. I expect they have loaded up on debt to leverage but at 4.2% ROI p.a. I am not sure if they could debt finance at a much lower rate (back in 2012).

Concusion:

The € 1.1bln sales prices of the Ministry of Finance seems to have been quite a fair price at the point in time and certainly no steal/bargain for LS.

Links for the last November weekend in 2013

Some links for interested parties:

• Bronte Capital - Google+ will get your children murdered: About the automatic linking of different Google functions. I try to avoid this by: a) Not using too many services b) If yes using, not being logged in with an account c) Not accepting 3rd party cookies d) clear temporary browser files regularly (at least twice a week!)

• Howard Marks (Oaktree Capital): Latest Memo: Rising risk level due to external pressure, however risk level still below pre-financial crises levels. Low financial product "innovations" via derivatives etc. "Orange risk zone".
• Aswath Damodaran on valuations and uncertainty arguing that investors should embrace uncertainty in market and stocks instead of trying for the x-thousand time to value blue chip stocks. I think he is right to some extend but a) Valuation with higher uncertainty requires higher knowledge (micro/macro) and skill b) Small caps are sometimes receive low attention are easy to value and have attractive features, i.e. uncertainty is not always necessary for a seminal valuation exercise.

Asian Bamboo [AB5]: Fair Value Valuation of biological assets

Asian Bamboo AG (AB) is a holding company listed in Germany. Its assets are located in China, operations consist of bamboo farms. The farms produce:

• Bamboo Trees
• Spring shoots (sold fresh or canned)
• Winter shoots 

As AB is a company listed on a European Stock market it has to report for its group accounts according to IFRS. For biological assets, being the main purpose of the group, IAS 41 is applicable.
IAS 41 is a full fair value standard, it requires assets being valued at Fair Value less cost to sell (FVLTCS).

I compiled all the information given about the valuation process in their annual reports from 2007-2012 in the following table:

As it can be seen (yellow) an important changed happened in 2010. AB5 restated a lot of figures, most importantly the way they account for biol. assets:

• Now they included more comprehensive costs (land lease, recultivation)
• For the first time the fair value of biol. assets decreases (by around 30 Mil. Due to IAS 8 this doesn't show up in the p/l, only mentioned in notes)
• At the same time they increase the count of trees/ha by around 4 times. Potentially decreasing the loss connected with increased costs.
• Furthermore in the corresponding section of the notes there is no mention of their "independent" valuer anymore. Also later the display of the auditor is only a side notice outside the core report.

As we saw the effect of the restatement was balanced by an increase in (assumed) output of trees per ha. However if we take a look on the historical output on the following table 2 this assumption seems questionable:

Bamboo trees per ha sold in 2012 was 115 compared to 2.369 according to the FVLCTS calculation.
That is about 25 times actual//planned.
Apart from bamboo trees however the estimations of 2012 for spring/winter shoots seem more realistic.
This leads to the following conclusion:

1. Inputs (allmost all lvl 3 FVs, btw.) used seem overly (grotesque?) optimistic.
2. Inputs are realistic, however demand for trees is so low that the produced amount of trees cannot be sold.
3. inputs are realistic, demand is out there however AB has troubles with harvesting all the mature bamboo trees.
4. Mix of 1., 2. and/or 3.

The Management Report 2012 (p. 46) states negative impact on housing and construction. Also p. 63 stats AB think they can sell all shoots they harvest, that also means they can not do the with the trees.
However it seems mainly the reduced sells to Zhongzhu, a bamboo fiber manufacturer, a responsible for the shortfall. AB sees demand for fiber as key driver for tree sells (p. 63.
The business relations are like this:

•  Zhongzhu as OEM manufacturer buys bamboo trees from AB
• AB then purchases processed bamboo fibers back from  Zhongzhu . 
•  Zhongzhu is "strategic partner" since 2009 (loan from AB, non-interest bearing: 2,1 Mil. EUR)
•  Zhongzhu only need younger, low quality trees (=lower price?) 
•  Zhongzhu seems extremly sensitive to changes in business  environment ("minimal production volumes" in 2012)  

A similar investment (40% stake) in Xinlifeng (plywood) already failed, stake sold in 2013 at "about book value".
To me the theme seems recurring. Invest in "strategic partner" via equity/non interest bearing debt injection. First 1/2 years high tree sale volume, then decrease and exit.

It appears there is barely demand for bamboo tree based products. Initiatives to increase demand from AB are short-lived and initialized by capital injections.
Massive decrease of biological assets due to revaluation can be expected.
On the positive side estimations and sales for shoots seem fair (in 2012). However as of Q3.13 sales of shoots also fell drastically (more than - 60%).

Might make a follow-up on this with my own DCF valuation of biological assets, so i can compare it when the annual report 2013 gets released (no date of release yet).

Analyst Recommendation and Stock Performance: Performance June 2013 (Pt. 10)

June 2013 shattered all hopes of outrunning the markets with either of the both baskets, see for yourself:
Monthly performance:

In a slightly negative market the baskets lost far more. Esp. the Worst-Basket barley had only 2 stocks with a positive monthly performance, while all others declined.

On a total basis both baskets will have a hard time catching up:

Asian Bamboo (5AB): Most recent Directors Dealings

This and last week Lin Zuojon CEO of Asian Bamboo bought via his  Green Resources Enterprise Holding Ltd. some shares and revived the bombed out chart.
I just added up his purchases until now, as you can see its not all that much and my guess is that it wont have a lasting effect on the stock price:

Day of purchase Day of reporting Nr. of shares Price per share Total volume
21.06.2013          25.06.2013           1.000           2,75              2.750
20.06.2013          25.06.2013           5.000           2,41              12.055
19.06.2013          20.06.2013           2.000           2,37               4.740
18.06.2013          20.06.2013           2.000           2,05               4.092
17.06.2013          18.06.2013           10.000         2,05               20.497
14.06.2013          18.06.2013           37.876         2,03               76.767
13.06.2013          18.06.2013           12.124         1,95               23.631


Total shares bought: 70.000
Total volume: 144.531

As of 25.06.2013 17:00 GMT+1

Update 01.7.2013, 09:30:
Since the first post  Lin Zuojon bought more shares on two days:

Day of purchase Day of reporting Nr. of shares Price per share Total volume
25.06.2013          28.06.2013           3.000           2,40              7.200
24.06.2013          26.06.2013           5.000           2,55              12.731

That makes a total of 78.000 new shares bought, a total of 5.836.000 shares (incl. treasury shares) now belonging to Mr.  Zuojon. That is a 37,83% of total shares, an increase by 0,51% of all shares.
If one doesnt take the treasury shares into account, shares outstanding would be lower.

Now the buying spree seems to have come to a halt, stock price is at 2,23. Interesstingly there is no significant increase in share price since the start of the CEOs purchases, what is just another prove how low confidence is in German-Chinese stocks.
For most other stocks purchases of the CEO of 0,51% of total shares would be a kick-starter.