After 18 months of disappointments, it’s nice to get a positive announcement from RCU. Yesterday the trust announced the sale of RSA Bedford Woods for a 6% discount to book value. That mightn’t sound great – it is RCU’s best asset – but when you’re trading at less than half book, a 6% discount is seriously good news.
The proceeds enable it to repay US$87.4m of debt and add a little to the cash balance. RCU will be left with two unencumbered assets (US$0.39 of book value), US$0.39 of net assets in the Saban joint venture (a portfolio of government leased properties), US$0.14 of cash and two highly leveraged assets that could be worthless. With no pressing debt to be refinanced and cash in the bank, RCU is no longer distressed.
The manager also announced the receipt of an indicative non-binding bid for all of RCU’s assets from joint venture partner Saban Group. This is further good news. The details announced today – $US61.2m for all of the assets – suggest a price that is not appealing. If you subtract the US$14m cash from both sides of the equation, Saban would be buying US$84m of property assets for just US$47m. Not even I, after 18 months of trauma, am that desperate.
But, given it already owns 65% of the government properties joint venture, Saban is the logical owner of the assets. And the initial bid was made before the sale of RSA Bedford Woods and presumably incorporated a discount on that asset larger than the 6% it has been sold for. Given a logical buyer and willing sellers, we’re hopeful something sensible can be worked out over the next few weeks.
Accordingly, we have withdrawn our requisition for a meeting while this process runs its course. If we get offered an acceptable price, we’ll vote in favour and go our separate ways. If not, we’ll revisit the process of instituting an appropriate structure and management arrangement down the track. With a rock solid balance sheet and cash in the bank, time is finally on our side.
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Forager Funds is a boutique fund manager specialising in a value investing approach. We offer an ASX listed Australian Shares Fund as well as an International Shares Fund both aimed at delivering returns for long term investors.