Lets compare MOF with some of the other funds not getting creamed anywhere near what MOF is copping.
1. The fund is simple in that it holds only quality office towers. It doesn't engage in construction, developments, subdivision or funds management. The business model is pretty low risk.
2. The Fund manager, Macquarie itself contributed fresh capital at 20 cents being fully informed about what is known on the inside.
3. The balance sheet is straightforward relative to many other funds which some are almost impossible to get your mind around.
4. Cashflow is good quality and robust. Distributions are pegged at 70% of reoccurring earnings.
5. Gearing is about 40% which compared to many other major funds is still manageable.
6. Its debt has been restructure and their are no short term issues there now assuming gearing doesn't crater from here.
7. Maquarie are working on a exit strategy because the fund devaluation is proving to be an anchor around their necks. One should not unestimate Macquarie's proven ability to restore value out of their current situation. Unlike your standard fund manager founder who wont even consider a wholesale takeover or sale of assets, Macquarie are not married to any of their businesses and will extract what they can given the market and the need to bolster their own balance sheet. I believe they will do a deal that gives a buyer a bargain but also gives them a reasonable cash return albeit at a loss. Shareholders in at current levels will likely find themselves banking a quick 25 cents if a deal gets done. I'm not sure Macquarie will commit further funds to another capital raising and certainly would be standing by and get diluted at current prices. Their only two strategies are to guts it out and wait for the market to improve or engineer a slae of the portfolio. If they guts it out, I think you will see an acceleration of asset sales inside the fund to improve the gearing and thus the falling unit price but that takes time and clearly Macquarie dont have loads of that to play with. If they weren't under capital issue themslves I would suggest they would partcipate in a privatisation of the Fund themselves. A logical investment banker deal. Buyout unit holders at bargain basement prices using a syndicate of hedge funds to fund most of it and house it for a 2-5 years before relisting it or while you liquidate each assey for a huge capital gain. Theit holding costs would be fully funded by the income off the portfolio.
8. The gressiveness of the selling over the last few days does not fit the fundamentals relative to other funds that are decending at a much slower pace with much worse fundamentals. Its hard not to come to the conclusion that the trust has been targeted for other reasons.
At the end of the day you have to remind yourself what numbers on the balance sheet are and try and block out the carnage. As some stage (lets hope its real soon) this stock may well do a ripsaw back up.
MOF Price at posting:
7.5¢ Sentiment: Buy Disclosure: Held
