Shares in Dawnay Day property funds have plummeted, but should you catch those falling knives? Padraig O'Hannelly is tempted....
Shares in various AIM-listed property funds related to the Dawnay Day Group have fallen sharply in the past two weeks, and remain very volatile
The falls were caused by the appointment of administrators to several parts of the group, which led to fears of a domino effect in related companies. Fears were fueled by the two main directors of the group having to sell part of their interests in the AIM-listed companies, due to “forced closing of a leveraged position”.
So how risky are these funds, and does the fall in price present us with a buying opportunity?
Answering this question is not made easier by the fact that the Dawnay Day Group consists of dozens of inter-related companies, including holding companies, property management companies, and so on. The three publicly-traded companies hold property portfolios in continental Europe:
Dawnay Day Carpathian (LSE: DDC)
With a current market capitalisation of £107m, DDC's focus is on shopping centres, supermarkets and retail warehousing, in Central and Eastern Europe.
Since its launch just three years ago, the price hit a high of 135p in March '07, and fell as low as 38p last week. At 44p, and with an expected dividend of 8p, the shares trade on a dividend yield of 18%.
The assets were last valued at the end of 2007 at 136.7p per share, so the current price represents a discount of 67%. I'd expect subsequent exchange rate movements to push this figure higher. Note also that there is arguably a risk that Dawnay Day Group may be unable to meet re-investment obligations of approximately £3m on Carpathian.
Property management services and advice were provided to DDC by another Dawnay Day company, Dawnay Day PanTerra, but management have made arrangements to replace PanTerra with a newly-created management company, thus distancing itself from further problems at the Group.
Dawnay Day Sirius (LSE: DDS)
Sirius is focused on business parks, offices, and industrial complexes across Germany, and has a market capitalisation of around €157m. Raising €328m at its launch just over a year ago, the shares initially traded at 110c, but have fallen as low 38c last week.
The fund is managed and advised by Dawnay Day Sirius Real Estate Asset Management, which has confirmed to DDS that it is solvent and is not affected by the problems at the group.
At their current price of 50.75c each, the shares are on a discount to net asset value (NAV) of 47%; this valuation was done at 31st March of this year. Considering this discount, Sirius is buying back shares in the market.
Dawnay Day Treveria (LSE: DTR)
Treveria's remit is retail property in Germany. While consumer spending is under pressure throughout Europe, it is worth remembering that German consumers have not been borrowing to the extent that British consumers have.
Managed by yet another Dawnay Day company, “the Board has not yet been given sufficient reassurance about the current financial stability of the Asset Managers. These discussions are, however, continuing”.
With a 70% discount to NAV, the company has been buying back shares and is considering selling off assets in order to realise the NAV for shareholders. Dividend yield is currently 15%.
Clearly the market is expecting a disaster. All three companies have issued statements confirming that their assets are secure and are held independently of the Dawnay Day Group. Rumours suggest that the companies will re-brand themselves without the Dawnay Day name.
While the risks that I've outlined may seem relatively small in comparison to the valuations, I think the real fear here are the unknown unknowns. I have no feeling for the German or Eastern European property markets, but at first glance I think these valuations look tempting.
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