Polski Holding Nieruchomosci $PHN – Polish Property 1/4 book

Bought a small portfolio weight in PHN at 11.63 PLN, a 3.4% portfolio weight.  I somewhat tempered the weight as the price was a little more than I wanted to pay.  I will add if it falls back to sub 10 PLN.

I have watched this one for quite a while.  It is a Polish office developer / trust.  A stake was floated by the Polish government in 2013 at 25 PLN per share and it’s fallen ever since.  They have little debt – approximately 710m PLN liabilities vs 2748m worth of assets.  Or a book value of 41 PLN per share.

Now there are reasons for the low valuation.  Primarily I suspect local investors don’t like holdings with big government stakes – they see them as wasteful and slightly corrupt.  The government holds 70% of this. I wouldn’t disagree – costs here seem out of control.  Having said that I like investing in companies with a large government stake.  Yes they may be flabby and wasteful, but I am much less likely to be robbed by a government than I am a private company / business minded individual. There is the possibility for political interference / non-economic decision making, but a discount this large allows a quite considerable margin.

They did have a very high vacancy rate – 8.4% in at the last count (Sep 2018) and it could be viewed as far higher depending on exactly is counted potentially up to 22%.  It doesn’t worry me.  It is coming down, slowly. The properties have been valued by CBRE in the past and are currently valued by Cushman and Wakefield – providing a measure of assurance the value is more or less right. Anecdotally they have some nice property in good areas – I have never been to Warsaw or Poland so really don’t know!

Dividend last year was 0.27 per share – so a gross yield of  2.3% (exc 17% Polish withholding tax (depending on your tax position)). I have noticed governments use holdings like this to raise money – selling stakes when funds are running low.  They wanted to sell more back in 2013.

I recon the properties throw off c35-40m pln every year in free cash- so about 7% of the market cap.  Not too exciting, but they are very inefficient – administrative costs are 20%+ of the rent received! (2017 AR – Administrative costs and sales / Rental Income).  You can cut this a bit differently – as this includes some development expenses, either way they are not terribly efficient.  They don’t provide (or I haven’t found) much information on lease length – there is a bit which is on P33 of the 2017 annual report.  To me the leases seem short – which has it’s risks, but also opportunity, as there is potential to raise rents.  Their disclosure on this is pretty poor and they stopped reporting in English – understandable as there seems to be little non-Polish investment, but annoying for me!

The reason why I didn’t invest in them earlier was their strategy, which was basically acknowledging there was lots of supply in the Warsaw office market and then deciding to supply even more !  This report analyses supply – it’s actually near impossible to predict supply / demand dynamics but it doesn’t look crazy to me. Looking at 2017 Q4 results they seem to have moved away from the gear-up / build more strategy but it’s very difficult to determine, 2018Q3 is slightly more geared. Even if they do what they said they are going to – and I doubt it, then it isn’t disastrous.  Though it is pretty much the exact opposite of what I think they should be doing – i.e. closing the discount to NAV. If every 1 PLN of additional property on your BS adds 0.25 PLN to your share price why build anything at all ?

There has been gradual, slow improvement in this across a number of measures – falls in costs, decreasing vacancy rates and incrementally, over time this will all help lower the discount. Poland’s economy is growing strongly and as a result rents will tend to rise over time – the economy is roughly 17% bigger than it was when this IPO’d, yet the price is lower.

This is one for the patient – weakness to my thesis is that there isn’t too much of a catalyst to get this moving any time soon.  Yet, big value discrepancies like this, without needing to engage with unsavoury people / take big risks are few and far between, particularly now, so I can’t imagine the share price falling too heavily. In addition – when there is this much value things tend to happen if you are prepared to wait.

Another way to look at it is, if someone offered you a Polish office building, with a  zero yield at a 1/4 of appraised value and you had to wait 10 years to sell at NAV – that gives you 15% PA CAGR.  Not bad in the current environment.  Here you do get a yield and I don’t think it will take 10 years to get closer to NAV.

As ever, comments are welcomed.



8 thoughts on “Polski Holding Nieruchomosci $PHN – Polish Property 1/4 book”

  1. Interesting find as usual, thank you!
    Where on earth did you find this, just trolling through screeners?

    I wonder how it’s possible that they produce so little earnings/growth in (what I imagine must be) a growing market – surely housing in the big cities must be in demand. I haven’t looked into it but could it be that they value real estate at historical cost/value and thus actually their value grows more than it seems?
    If not, I must be missing something. Book value per share grows at like 1%/year, plus a dividend yield of 2-3%, strangely low for a real estate club in big cities – even for a very inefficient one 🙂

    1. There is decent supply in the market – explaining quite a bit of the small level of capital growth.

      No they dont value at cost – but the valuations will be affected by the rents they are getting which will be reviewed over time – in the notes there is quite a range. Could be a catalyst for rises in NAV but it isn’t really needed here.

  2. Like this idea, but the demographics in Poland are terrible. According to this week’s Economist the population will fall by 40% in the next 60 years. That can’t be good for property values.

    1. That’s fascinating, I had no idea. There is likely a rural – urban movement which will counter it a bit – as PHN’s property is mostly in Warsaw.

      I looked for the article in the Economist but couldn’t see it – maybe you saw it somewhere else – a link would be appreciated.

      Projections I have found are -15% by 2050 (from the UN via).

      Also they are trying to do something about it – possibly ineffectively.

      There are almost 1 million Poles in the UK – some may well leave post Brexit and countries with lots of emigration can have volatile flows – look at Ireland for an example.

      Still a valid point I will keep my eye on.

  3. Sorry, here’s the link :


    Deceptively the headline is about Hungry, but the graph has Poland on it.

    I agree that Brexit will probably be a (small) demographic post to Poland (and loss to the UK, but that’s another story).

    I do think that particularly with Real-Estate type investments one does have to keep the demographics in mind along with all the other factors, depopulation can’t be good for property prices!

    This leads one inevitably to US real-estate as the only really robust property rights place with good demographics (assuming the current anti-immigration tone passes).
    Otherwise it’s urban Africa (GR1T.L only way I’ve found to play this), and India (Any suggestions?) both of which are obviously less robust form the rule-of-law perspective.

    1. Thanks, sorry I didnt reply earlier. You may well have a point though I am less sure.

      I think longer run things like basic incomes will come in – making life less grueling for those at the bottom, perhaps raising the birth rate.

      Not sure about Africa / Indian property but I will bear in mind.

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