Hi All,
I would tend to agree that the URF portfolio would have been looked over by other players to see could raid it cheaply (e.g 40c/share) and liquidate the portfolio. But I suspect that the management rights for the portfolio make this untenable. Fund Manager do not like to loose their cash cows, and in the instance of a more functional REIT, the manager would be paid 5 - 12 x the annual management rights income as part of the takeover (if you look at some Australian Domestic comparisons). I havent checked the URF management agreemetn, but I would think they would protect themselves with some heavy break fees in the event of a takeover.
Even under the current mgmt (new personnel appointed mid last year) there is some small signs of turnaround - which they are keen to bleat about.
They have made significant inroads into reducing the cash burn and cutting out all of their excessive portfolio mgmt costs, and repaid the notes (7.75%). It would be great if ED could reduce (or Waive) their mgmt fees under the current circumstances, but pigs might fly....
The opportunity on Buybacks
Would like to see some of the buyback directed towards either URF ordination shares (whle shares are <75% of NAV, trading in the 20s - 30's) or perhaps even better would be the preference shares, URFPA. Which currently trade at a huge discount to face value. At approx $45 a share. Given the coupon of 6.25%, this makes the effective yield over 13%. So why doesn't the buyback pick these up on market, before the next interest repayment due in Jun-2020?
Also, there will be a significant dilution to shareholders if these get excerised in 2022,and converted into equity.
The only reason I can think of it, is that Preference shares are treated in accounting as equity. And if all management are interested in is reducing gearing, then buying back preference shares would effectively increase gearing - but still empathically be the best interests of shareholders right now. Gearing would have been reduced with the notes redemption latey.
My takeway
Overall, it is a bit hard to know with this one. It is not a quality business, and highly concentrated portfolio, in low yielding markets, with an eggregious fee structure, and fund manager with a minimal alignment of interests.
But I take the view that everything has its price. And I have some appetite for beaten up shares that have fallen deeply out of favour with the market. Especially with asset-backed businesses - as ultimately you are buying the NTA, more so that the operating earnings. So there may be some upside with the URFPA. But I can't project any valuations etc.
(20min delay)