Buying real assets denominated in Euros

[Red Lion]

Is anyone looking into this right now. With the euro trading now below parity with the dollar, is anyone finding any special bargains in Euros? It seems like buying real estate might be an interesting play, but this is not something I've researched at all. 

[realassetsvalue]

I think there are potentially interesting opportunities in this area as you have falling currency plus weak public market prices in general creating a double whammy.

 

Big issues are that yields are low (private market yields for virtually everything Class A are in the 3s or lower) and while I'm macro-ignorant, the European economy is clearly worse off than the US. For example, Capital Economics have continued to say their house view for the US is no recession but very high chance of European recession.

 

Then there are idiosyncratic issues - especially around energy - which are much publicized, but one should think how those will impact landlords and tenants. For example, Vonovia's CEO said that the hike in energy prices they will need to pass through to their tenants will be on the order of 2 months of rent - that sort of thing can really impact affordability.

 

All that being said, sectors that look most interesting to me are unsurprisingly apartments and industrial / logistics. Office yields are super low and while market fundamentals seem to be doing better than the US, I by and large the risk reward doesn't look great. Starwood and Brookfield have taken out a couple office REITs in the last couple years (Alstria, CA Immo) so clearly they see some value / opportunity to put capital to work. Retail tends to be heavily mall centric so I haven't found anything terribly interesting there and faces the giant sucking sound of e-commerce penetration gains.

 

In multifamily - Vonovia and LEG in Germany (with some Swedish and Austrian exposure) seem worth researching. There are a couple REITs managed by CAPREIT, the Canadian REIT, focused on Ireland and the Netherlands to check out.

 

In industrial - I think Segro (mostly UK but some European exposure as well) and VGP are interesting for different reasons. Segro due to infill / urban heavy portfolio and VGP due to a really attractive development model.

 

Not exactly real estate but speaking of European exposure, I think Radius Global is very interesting. Large European exposure but USD denominated so currency moves is a negative, albeit hedged to a degree by debt. What makes it interesting is ground lease to cell tower REITs and operators represent secure, long-duration income stream and their indexation terms are favorable with the majority being linked to CPI and uncapped. Have to get comfortable with what you own (land or long-term lease interests in rooftops, distributed antenna systems, edge DCs, etc.) but pretty interesting and supposedly running a takeout process. Deutsche Telekom's tower business just sold 51% at a ~27x EBITDA multiple and Radius trades much cheaper than that. Not an exact comp (Radius is senior to TowerCo CFs but doesn't have the same ability to add tenants to their towers, which has very attractive ROIICs) but a reference point.

 

Would love to hear what other ideas people find interesting. Happy hunting!

[Dinar]

Exporters look interesting - Remy Cointreau and Hermes come to mind, also Safran.

[CafeB]

5 hours ago, Dinar said:

Remy Cointreau

 

Any opinion on Pernod Ricard? Thanks

[Dinar]

9 minutes ago, CafeB said:

 

Any opinion on Pernod Ricard? Thanks

It is cheap.  I prefer Remy.  Remy is 20% more expensive on a multiple basis, but I think cognac will grow much faster than the spirits industry as a whole, so growth will probably be 1-3% per annum faster than Pernod.  Too me, that is worth a 20% P/E premium.  I also have owned L'Oreal and Dior for years and think that they are quite cheap here.

[Spekulatius]

European stocks are very cheap right now and many have sizable business in the rest of the world. They also benefit from low Euro if they export in the US. I think there are great opportunities investing in Europe right now, similar to the Greek debt crisis back on the day.

 

The risk of recession is real but a lot this is priced in. I would look at exporters and those with world wide business as well as some local champions.

[Dinar]

11 hours ago, Spekulatius said:

European stocks are very cheap right now and many have sizable business in the rest of the world. They also benefit from low Euro if they export in the US. I think there are great opportunities investing in Europe right now, similar to the Greek debt crisis back on the day.

 

The risk of recession is real but a lot this is priced in. I would look at exporters and those with world wide business as well as some local champions.

Spek, which names do you like and why?  Thank you very much. 

[Spekulatius]

On 7/16/2022 at 11:15 PM, Dinar said:

Spek, which names do you like and why?  Thank you very much. 

I think AKZA (paint) looks interesting and I own some shares. Exor has been mentioned before here. Porsche Holding has an interesting even / unlock as thry want to float Porsche ( as a business). DPW (Deutsche Post) is also very cheap and well run. Then there is Poland where there are a bunch of secular growers that look very cheap.

 

If you  drill down to smaller and microcaps , there should be way more opportunities.

Edited July 24, 2022 by Spekulatius

[Red Lion]

These are some excellent ideas which I will start researching, most of which are new to me. How exciting. 

[Dinar]

On 7/17/2022 at 8:26 AM, Spekulatius said:

I think AKZA (paint) looks interesting and I own some shares. Exor has been mentioned before here. Porsche Holding has an interesting even / unlock as thry want to float Porsche ( as a business). DPW (Deutsche Post) is also very cheap and well run. Then there is Poland where there are a bunch of secular growers that look very cheap.

 

Air you  drill doen to smaller and microcaps , there should be way more opportunities.

Spek, what broker do you use to trade Poland?  Any Polish names you'd care to share?  What is the thesis on Deutsche Post?  I would be careful with Porsche, after 2008 saga, I do not trust the families/management.  Do you think that Akza can grow volumes?

[CafeB]

On 7/15/2022 at 8:11 PM, Dinar said:

I prefer Remy.  Remy is 20% more expensive on a multiple basis, but I think cognac will grow much faster than the spirits industry as a whole, so growth will probably be 1-3% per annum faster than Pernod. 

 

Interesting. Thank you. Do you have an opinion on Campari? Thanks again

[Spekulatius]

On 7/19/2022 at 2:51 AM, Dinar said:

Spek, what broker do you use to trade Poland?  Any Polish names you'd care to share?  What is the thesis on Deutsche Post?  I would be careful with Porsche, after 2008 saga, I do not trust the families/management.  Do you think that Akza can grow volumes?

IBKR works well. I own a bit of TIM (distributor). APR (Auto Partner, car part distribution) also looks interesting, but I don’t own it yet. PKO (largest Polish bank) might be a good one, but I haven’t researched it at all. They all look statistically very cheap,  but keep in mind that their raised the interest rates in Poland to 6% , I believe.

 

The Ukraine war could be a huge LT benefit as millions of Ukrainian came to Poland to escape the war and some will likely stay.

[Dinar]

10 hours ago, CafeB said:

 

Interesting. Thank you. Do you have an opinion on Campari? Thanks again

I own it and love it.  In my opinion, the best management team in the business.  Really smart buyers of assets and then able to grow them.   It is less of an exporter though than Diageo or Pernord Ricard or Remy.  

[Dinar]

4 hours ago, Spekulatius said:

IBKR works well. I own a bit of TIM (distributor). APR (Auto Partner, car part distribution) also looks interesting, but I don’t own it yet. PKO (largest Polish bank) might be a good one, but I haven’t researched it at all. They all look statistically very cheap,  but keep in mind that their raised the interest rates in Poland to 6% , I believe.

 

The Ukraine war could be a huge LT benefit as millions of Ukrainian came to Poland to escape the war and some will likely stay.

Thank you very much.  Have you looked at Warsaw stock exchange?  I own Tel-Aviv stock exchange and like exchanges in general.  

[Spekulatius]

6 minutes ago, Dinar said:

Thank you very much.  Have you looked at Warsaw stock exchange?  I own Tel-Aviv stock exchange and like exchanges in general.  

I have not looked too closely at Warsaw stock exchange. While stock exchanges are great business, they seem to become less great over time and that’s why I put this aside.

 

Just another thing to point out is that polish stocks don’t trade in Euros, but in their local currency (  Zloty) The polish currency is sort of loosely pegged to the Euro, but has been even weaker than the Euro itself.

 

Owning financials when the currency is weakening and the central bank is tightening (from almost zero to 6.5%) can be iffy and I personally don’t know enough about polish banking to determine what it money good and what is not. Better to go with anti fragile business like distributors or similar as a “tourist”.

 

 

Edited July 24, 2022 by Spekulatius

[elliott]

most answers refer to financial assets, but unless one expects the exchange rate to revert, there is no benefit in buying after the us dollar strengthened

 

if one buys real estate as the OP mentioned, thats another story.

[Paarslaars]

On 7/24/2022 at 3:02 PM, Spekulatius said:

The Ukraine war could be a huge LT benefit as millions of Ukrainian came to Poland to escape the war and some will likely stay.

Some, but a small % I believe.

Don't forget on the contrary to economic immigrants, most Ukrainian immigrants are wives & children who want to get back to their husbands/fathers.

 

The problem is the Ukrainian war might still last a while and further drag down the value of the euro as it does.

As a european, the majority of my stocks are still in USD which is going quite well for me so far.  

Edited July 27, 2022 by Paarslaars

[Aurel]

Some euro-stuff i hold, FWIW:

MBB SE:

Small family-holding with a value-investing approach. I like the management a lot and they're holding a lot of the stock, too.

 

Erlebnis Akademie AG:

Small Cap. They build and run treetop-walks. It’s not dirty cheap, but I like their market position.

 

Deutsche Euroshop AG:

Bought it because it was cheap. Now there is an offer from the owner + Oaktree (BAM?). +40% up in a few months. But I still hold the shares.

 

Bayer AG:

I think you've heard about it.

 

[CafeB]

On 7/24/2022 at 1:55 PM, Dinar said:

I own it and love it.  In my opinion, the best management team in the business.  Really smart buyers of assets and then able to grow them.   It is less of an exporter though than Diageo or Pernord Ricard or Remy.  

 

It seems to benefit from family control. Thank you once again.

[meiroy]

 

Croatia is going to join the EU, Albania might follow in a few years. Rental yields there are still far higher than western Europe. Anyone been looking to buy RE there?

[JAK]

32 minutes ago, meiroy said:

 

Croatia is going to join the EU, Albania might follow in a few years. Rental yields there are still far higher than western Europe. Anyone been looking to buy RE there?

Doesn’t answer your question, but Croatia is actually already in the EU, and will adopt the Euro next year.

[meiroy]

22 hours ago, JAK said:

Doesn’t answer your question, but Croatia is actually already in the EU, and will adopt the Euro next year.

 

Yeah, they are technically in the EU but without the currency and not part of the Schengen.