MAJOR TAKEOVER TARGET!, page-29

I think the likelihood of SGR going bankrupt is very very low and I would be shocked if that were to happen.

However, I think the likelihood of a capital raise at some point in the next 2 years is reasonably possible and would not be surprised if that happened. If it were to happen, it would be because of their debt levels and the raise would be at much lower levels than today.

I understand people's temptation to jump into SGR now, especially newer "value investors". Share price has more than halved from pre covid, it feels very contrarian, the last 10 years has taught us that property always goes up and is a stable asset and this is below NTA!, buy when blood is in the streets etc.

However, this is not insanely cheap when you look at it on an EV / likely EBIT basis. It is at best reasonably cheap for the quality of the business and compared to other asset classes.

More importantly though, because of the large amount of debt and the leverage that brings to both the upside and downside, you have to have a very strong view on where earnings will land because if you're wrong, it will be very messy.

I do have a buy price but it is significantly lower than where we are today and additionally, I could only make this a fairly small position because of the high levels of debt.