Originally published at seekingalpha.com on May 11, 2011.
With no analyst coverage and a market cap hovering around $100 million, Huntingdon Real Estate Investment Trust (HURSF.PK) is quietly building up its net asset value.
The company announced the completion of its substantial issuer bid(pdf) last week, buying back about 5.5 percent of its outstanding shares. The buyback increased pro-forma book value under IFRS to $14.57 a unit. With the units trading at $6.90, a normal course issuer bid set to resume and no real need to go to the market for financing, the shares seem like a safe bet even if the C-series debenture are fairly valued at this point.
Of course, that’s cold comfort to anyone who bought this name in 2005 after its debut via reverse takeover at an adjusted share price above $25 a unit. In 2008, with Huntingdon heading towards bankruptcy, hedge fund FrontFour Capital kicked out the old management team and has spent the last three years selling assets, reducing debt and generally bringing the REIT back from the dead.
Even with the financial situation stabilized, it’s still not clear what Huntingdon will eventually become.
- The remaining assets are a collection of third-rate malls mostly in smaller Ontario towns, ground leased airport facilities, and smaller office and industrial properties.
- Almost 10% of Huntingdon’s leases expire before the end of the year, and a lot of that space may be renewed at lower rates if it is renewed at all. The leasing outlook is particularly ugly for the Ontario retail portfolio and an industrial property in Chatham, Ontario that has been sitting empty for close to one year.
- A FrontFour-led attempt to upgrade Huntingdon’s property portfolio through a hostile takeover of Fisher Communications failed earlier this year.
Huntingdon is planning a corporate conversion to take advantage of tax losses. But the company’s focus on share buybacks, debt repayment and the leasing outlook suggests dividends won’t be coming anytime soon. Without a dividend to support the stock price and attract income investors, Huntingdon is an experiment in financial engineering. There is a very real possibility the REIT has already sold its best assets to fix the balance sheet and what’s left isn’t attractive to any institutional buyer.
Shareholders will have to hope management can provide a catalyst to surface value — and that the remaining collection of type B and C properties are worth as much as the IFRS value suggests.
