On the one hand you say 70% LVR is death in this market, and then you say that NTA and LVR mean nothing (given that if you don't pay your loans you get wound up).
The LVR has been reduced to 67.3% and importantly the LVR on the 3 CBA loans (the only ones with covenants) down to 64%.
You are dead right though, it is important that loans are serviced and this is the case with RCU. With accounting impacts on NTA from currency and marking to market in a bad market, it is important to understand the underlying cash flow. With quality tenants in place, your income is at worst flat, or at best will ratchet up over time, depending on the lease. This is while the LVR is being reduced over time. The NTA can jump around in either direction on the back of currency and property valuations.
What's important is when capital actually moves from the US structure to the Australian structure and the number is "actual" and not just accounting. For that to happen, an asset would be need to be sold AND the capital not used to retire debt or otherwise re-deployed at the US structure level, but instead returned to the Australian structure. Let me remind you that RCU is in the business of paying distributions from income (sourced from the US and paid in Australia) and managing property assets/debt in the US.
In terms of currency, there is a hedge on income but not on capital.
Might I suggest that you look at the cash flows for RCU and the quality of the tenants and income streams. The portfolio is 94.9% leased as at 31 December 09.
In terms of your reference to distributions not coming from cash flow, let me take you through the half year results. The core earnings number on the income statement is $A 3.6 million. This number includes escrow payments and accruals and assumes an exchange rate of approx AUD/USD 0.88. The note to this number refers to the income being hedged at 0.725. This means that on a cash basis the core earnings are closer to $A 5.0m.
The distributions come from operating cash flow.
RCU Price at posting:
12.0¢ Sentiment: LT Buy Disclosure: Held
