ADO Group: Pure-Berlin Residential Real Estate Operator at Discount

Omri Velvart of Legacy Value Partners presented his in-depth investment thesis on ADO Group (Israel: ADO) at Wide-Moat Investing Summit 2018.

Thesis summary:

ADO Group, an Israeli company, offers a unique, risk-averse opportunity — a ~30% discount to NAV in one of the better-positioned residential markets in the world — Berlin, Germany.

The company controls Frankfurt-listed ADO Properties (Germany: ADJ), a one-of-a-kind among public markets, pure-Berlin residential play that owns a portfolio of 23,000+ residential and street-commercial units and operates these assets superbly on its more than a decade-long built platform. ADO Properties has combined an excellent management team with favorable demand trends in Berlin’s residential market to grow like-for like rents at 5+% for many years.

Berlin rent prices still being the lowest among German peers and major urban hubs in Europe and North America, alongside a 40+% gap between recently signed contracts and legacy tenants, suggest this like-for-like growth rate will continue for years to come. ADJ has developed a platform that allows it to keep expanding the residential portfolio in an efficient manner, consistently growing EPRA NAV per share, while maintaining a conservative LTV ratio of ~40%.

Through ADO, we get ADJ shares at a ~30% discount to NAV. A proxy fight in Israel (Apollo Group is involved with a ~22% stake) may be a catalyst for minority shareholders.

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About the instructor:

Omri Velvart runs Legacy Value Partners L.P, a Tel-Aviv based research-oriented hedge fund, focused on Israeli and Global publicly listed equities. His main investment philosophy involves identifying investment opportunities in quality businesses with durable competitive advantages, which present an asymmetric risk-reward profiles that will benefit a patient investor, aiming to compound capital through long periods of time.