Vic Properties - Blast From The Past - Initiation
All,
Please find our initiation here.
Sometimes assets come back to the market long after they left. The usual route is a marginal, pain-avoiding refinancing on a steep business plan that must fail in the first place. But that is not the case here. This is a story of taking the pain first (Aggregate’s spectacular downfall), followed by a longer-than-anticipated battle to actually bring them to execution. Entering a structure by providing a Div Deal to the funds that run it is not straightforward, but we should learn about the success on the ground soon enough, and if so, we expect it could be structured reasonably. This is not an opportunity right now, but rather a preview for one we expect to come soon.
Investment Rationale:
- There is nothing to do in the name yet. The leading bondholders will be giving this company a new legal and financial structure from the end of this month. However, we like the assets and gated on only a few positive signals (outlined below) and provided the new bond is both: market standard and contains rock-solid minority protection, we would be ready to hold some of that paper as soon as H226.
- The company has been making progress towards a plausibly transformative 2026, and the political stars have aligned. However, since inception, the entire malaise of the company has been to anticipate licensing too early. Assuming licenses can be obtained and six senses can start construction (signature no longer "practically"), the risk mostly declines into the execution phase. The business plan is fair and there is more upside at Matinha. So we are anticipating a great valuation uplift at holdco once assets enter this next phase. We expect the new holding and financing structure to fully reflect this bullish stance, as anything else would be a red flag.
Key Conclusions:
- The underlying asset base has scarcity value that is hard to replicate today. Matinha is the last undeveloped waterfront site in Lisbon, and Pinheirinho's full master plan permit comes from a 2010 to 2014 approval window the municipality has not reopened. The licences themselves are an irreplaceable component of value, struck during a period of market dislocation. (Industry, Company)
- Bondholders have visibly accelerated both assets since taking control in May 2023. The clubhouse at Pinheirinho is nearly complete, golf is set to start in 2026, plot sales are running slightly above the business plan base case, Joyful Terrace was added, and Six Senses is signed with external financing in place. The strategic recuts at both projects read as pragmatic, the realistic path through a slow administrative environment for Matinha and the offloading of some of the development risk at Pinheirinho. (Recent Trading)
- Plot sales at Pinheirinho are the main cash generator ahead of further construction, alongside the Prata management and brokerage tail. They have funded the operating cycle and taken Novo Banco from c.€100m in early 2023 to near zero on Pinheirinho, leaving the bank with only a €23m residual exposure on Matinha that is due to clear in February 2026. (Recent Trading, Model)
- The Matinha construction permit has not materialised despite years of effort, and Allotment B has yet to start decontamination. The failed bulk sale is telling: no investor in Lisbon was prepared to carry the risk at a workable price. The pivot to smaller plots is realistic, but until the land is clean and the permit is secured, we discount Matinha B heavily. (Recent Trading, Valuation)
- We value Pinheirinho above its book value at cost, because the pivot to selling villa plots removes permitting and construction risk on half the project and the Six Senses commitment carries the rest with external financing. We value Matinha below book, because the absence of a permit and the half-finished decontamination keep the larger site out of the market until both clear. (Valuation)
- PREV V2 is the fulcrum and recovers near par on the central case. The New Money group holds this layer as a stapled bundle with the propco 18% PIK 2026 bonds, capturing both senior consent over every meaningful decision and most of the value the assets produce. The Holdco €400m stub is left with only a thin residual on the same numbers and hardly any say. (Waterfall, Legal)
- We understand the New Money group holds the entire Prev V2 issue (more than the 66⅔% voting threshold), and more than the 60% threshold required at HoldCo (formerly VIC Properties S.A.). So the reorganisation underway should be consensual to the extent that the same four parties will consent to minimising recovery on the HoldCo bond that they own less of, then issuing a new bond out of a clean structure that should take most of their original chips off the table (Legal)
- The 2026 business plan relies on plot sales to fund roughly half of the construction at Six Senses and Matinha, with the other half due from new asset level facilities from local Portuguese banks. We expect New Money holders to take over the entire company, simplify the structure and sell a standard new TopCo bond to recover their investments and hold the upside from here. (Waterfall, Model, Legal).
Key Value Drivers:
- Six Senses construction starts in Q2 2026 as planned and opens the €311m 2029 branded residence sale event. A discount rate compression could add c.€60-80m of PV to Pinheirinho.
- Matinha A construction permit lands during 2026, unlocking €238m of net plot revenue from 2027 and rerating the asset from below to at or above book value (c.€30-40m PV uplift on Matinha).
- The conservative PSD party has regained power in Lisbon per late 2025. This raises the chance that the municipal vote on Allotment A could allow Matinha to progress towards construction this year.
- So the HoldCo Bonds have some 15 points of upside in 2026.
- Once permits are secured, both assets would vastly benefit from significant development financing, instead of selling plots. We have not yet calculated the upside to the holdco.
Key Risks:
- Matinha permit slips into 2027 or beyond, with no scheduled meeting on the record. Each year of delay knocks c.€30m off the combined Matinha PV at the 18% to 20% discount rates we apply.
- Six Senses construction slips past Q2 2026, and the 2029 sale event moves to 2030 or later. Each year of slip costs c.€25m of PV at the 20% discount, plus the risk of the senior and junior financing pulling.
- Prata revenues dry up without replacement, leaving VIC with significant cash burn it has to fund from villa plot sales in Pinheirinho. With some cost savings, that would cost 10 villas per annum.
- We assume the Novo Banco facility has been repaid, but the maturity of the June '26 maturities will trigger a restructuring. Low recoveries at HoldCo are not a risk, but the overwhelming base case.
Keen to discuss this name with you,
Wolfgang
T: +44 203 744 7003
www.sarria.co.uk