the key is not to be forced sellers

This is the statement made in the annual report

and I feel it is very true!

We know that should REU not be forced sellers then the trust will exist profitably


There are a few reasons where REU would be forced sellers


1. Devaluations of the loan book such that the warehouse provider (credit suisse) required margin calls of cash from REU that REU simply can not meet from other funding souces. Now according the the PDS, cs will provide up to 275m euro for the loan book as long as the loans are of a certain rating, and this figure is no more than 80% the value of the loan, and this is modified by last dollar in values etc of the underlying property.

Now with the underlying property values probably decreasing, the last dollar in will be at a higher percentage, in this credit environment the loans (although performing - as per last release) may well be derated to a lower level, and hence cs will want money back from REU to meet margin requirements. At the time of the last assessment (jan release) cs had knocked $62m off the loans, and hence would probably be asking for a margin call of something like $15m - $30m from REU.

Look at the books, the warehouse facility at something like 6.51% was 190.4mEURO drawn down in the half year result, in the 18Dec update it is 177.1mEURO drawn down, ie 13.3mEURO difference, ie some $21m less. This money has to come from somewhear, and it must come from the NAB corporate facility, as evidenced by 47.1mEURO to 49mEURO draw down.

Now the Jan18 update says the mark to market change has gone from (dec11) 20mEURO to 37mEURO in Jan, ie almost doubled, ie cs warehouse facility has probably been reduced from 177mEURO to 165.8mEURO ( ie 37/20x13.3 reduction from 190). Ie about another 11m euro ie $17m that the company has to put into this loan.

Ie they will/have to extend the NAB corporate facility.

How much is the NAB facility approved to???? who knows (it might be somewhere in the market releases. But surely, it must be getting close to the line.

But what about next month.... will it be $120m mark to market loss on the loans, and REU will get a margin call that they can not cover....

Perhaps someone knows something about the margin call from cs that is shaking the market

They may end up being a forced seller, and this would be disaster. Having said that, if the cop a $120m loss on the loan book this would drop their NTA to 120/500 ie 24c less that the previous valuations ie about $1.10, ie something like 85c

2. So why are they not buying back?
Obvious, they are pushed to the limit of what the NAB will allow. The NAB will not allow them to buy back shares now, by extending the NAB corporate facility, even though at 25c it would be the best buy around town.

3. What about the distribution?
Of course they have to honour the distribution, but this will cost some $12m, which will be drawn down onto the NAB corporate facility, further shortening their cash position.

The trusts have to distribute moneys earnt, they can not withhold.

But REU MUST, absolutely MUST cut the future distributions to improve their cash position and lower debt.

This is unavoidable!

4. What about the ALLCO sale.
Why the hell would the management rights for the trusts be sold to another party.... and all so suddenly..... well think about it

RAML owned about $150m of the rubicons, i guess on margin loan. With the share price sunk, the RAML directors Coe, Cooper and Fell would be getting a margin call that they could not cover.....Or even worse, the Rubicons were going under and Coe/Cooper/Fell knew about it..... Lucky they turfed it to a public company and were paid for it.
This was a related party transaction, to the benefit of Coe, Cooper and Fell. It is all good to own the Rubicon shares when they are going well, but when the price sinks, turf them to another (public) company.
The ASIC really need to see this and act!!!
The market can see this, and punished AFG for it by dumping the stock. Coe/Fell/Cooper have acted in a manner that is criminal and the market will not have anything to do with AFG when AFG is controlled by this bunch.

I feel this transaction should be reversed, and Coe/Cooper/Fell face the music (financially) that they have caused.

5. What about the real estate debt..... Well it would be funded by loans probably fixed at a maximum of 70% of the value of the property underlying it. IF we see significant devaluation of the propertys then the lender will want some money for a margin. At the moment, I understand that the valuation of the properties has some room to move here.

6. What if another entity took over the trust managements... well we might have a more honest chance at running the trusts, but it would really not make a lot of difference

What might fix the problem?
the repayment of the loans gradually will reduce debt if short term funding needs are met.

If the loans of the realestate are increased to fund the loans on the loan book, this would make mark to market changes in loan book valuation irrelevant (within limits). This would run the risk of margin calls on the realestate loans (as in point 5)

Stop Paying out $12m four times a year in distributions

Beg the NAB to provide some security of funding via the corporate facility, should there be significant mark to market changes that drop the funding offered by cs under the warehouse.

Final word, should REU go into liquidation then the administrator would immediate slash the dividends to nothing, and I feel that REU would trade out of this mess. I also feel the net underlying assets would be probably more than 25c that the share is trading at the moment


The BOTTOM LINE

FUNDING HAS TO BE SECURED, INDEPENDANT OF PROPERTY VALUATIONS/LOAN VALUATIONS for the MARKET to have CONFIDENCE IN REU AGAIN


ij