Mr A Dixon Exits, page-39

This is the simple bear case for why equity is worth close to zero.

URF is a property REIT that owns 100’s of primarily single dwelling properties in the New York region worth a total of circa $1bn. Like other listed REITS & LIC’s, they do not always trade at NTA. Investors look at the underlying holdings along with the fee structure/managers to decide whether they want to pay a premium or discount.

By way of example, Vicinity a shopping centre REIT on the ASX is trading at a circa 50% discount to its book enterprise value (note – it is important to understand discounts to enterprise value are how assets should be compared) because investors have looked at the underlying holdings and believe the valuations are probably too high and the long term prospects poor.

If you look at the LIC world, discounts for good fund managers have stretched to even 25% of enterprise value at the moment.

URF by way of comparison has an unethical manager with a very poor track record and even with the reduced overheads still extracts huge fees from this vehicle. In addition, New York property has very high risks attached it at the moment. Yet, at today’s prices, URF only trades at a sub 15% discount to enterprise value even though it’s discount to NTA is ~60%. This is due to the huge amount of gearing they’ve put into this vehicle.

URF should probably be trading at a circa 30%+ discount to enterprise value, which makes equity worthless….although if it gets to 1-3c range it’s probably worth picking up some as a bit of option value.

Anyone who thinks this should be trading at or close to it’s book enterprise value are unfortunately naïve and probably being confused by the large discount to NTA, believing that’s the most relevant way to value this.