The future of your investment in HarbourEdge
Dec 14, 2019 16:43:08 GMT
maryanne, thebigshort, and 1 more like this
Post by Moderator on Dec 14, 2019 16:43:08 GMT
The current volume of redemption requests is estimated by HE management at $80M. With the dividend plummeting, failed reorganization plans and with two key managers planning to retire in less than 3 years, this list is expected to grow.
How did we get here and what does HE want to accomplish through the reorganization?
In the last 4 years redemptions were "temporary" suspended while 45% of our investments have been transformed in illiquid real estate assets. In 2019 HE had 3 versions of reorganization plans (now their lawyers are working on the 4th) with the objective of revamping the fund at the expense of the current investors that would have 45% of their funds exchanged for ownership in the real estate assets taken as settlement of debt between 2014 and 2019. This would work well for HE, as the "bad bank" (real estate assets) would be separated by the "good bank" and make the fund attractive to new investors.
HE Chairman feels that the investors should find this exchange fair as they should have expected to take back some properties after enjoying dividend of 12% for 10 years. The problem with this logic is that more than half of the investors entered the fund in 2013 – 2015 attracted by its excellent performance. As a result:
1. They cannot be made "responsible" for the defaults that were a result of consistent high returns over a period of 10 years, simply because they were not invested in the fund at the time (a massive influx of investment happened in 2014 and 2015 right prior to the dividend plummeting in November 2015)
2. They did not take benefit of high dividends for long enough to offset the losses they would experience by this reorganization. These investors made mediocre returns that would not offset much from the loss that is now expected. For example an investor who entered the fund in 2014 received dividends representing 36% of the initial investment (before tax) and an investor who entered the fund in 2015 received dividends representing 26% of their initial investment.
Is this plan fair to all investors?
1. Essentially HE reorganization plan favors the investors that want to stay in the fund and have exposure to real estate development, but it has devastating consequences on others such as older investors who looked for a solid investment for their retirement and do not have the time to wait for returns from real estate business.
2. The plan is also fundamentally unfair for the Investors who did not take advantage of high dividends, such as those who invested in 2014 - 2015. For these investors to only have the option of dissent at liquidation value is simply not fair, especially when they repeatedly asked for redemption long time ago. It can be successfully argued that HE did have enough time to dispose assets at market value (in fact they sold properties on the market – not in liquidation mode - to be prepared to pay dissent rights).
3. Last but not least, none of the reorganization plans made a firm commitment for redemptions and selling the real estate properties. If the investors would be given a redemption schedule that makes clear the timeline of recovering their investment, maybe more would be open to accepting the reorganization plan. All the investors are given in this plans is the uncertainty of vague promises made by the actual Directors that plan to retire in 2-3 years.
What would be a fair plan for ALL INVESTORS?
The main reason of HE failure to reorganize the fund is that they are looking for a solution that fits all. Such a solution does not exist.
The solution is to offer the investors options and let them decide what's best to their needs, risk tolerance, and personal circumstances. For example:
How did we get here and what does HE want to accomplish through the reorganization?
In the last 4 years redemptions were "temporary" suspended while 45% of our investments have been transformed in illiquid real estate assets. In 2019 HE had 3 versions of reorganization plans (now their lawyers are working on the 4th) with the objective of revamping the fund at the expense of the current investors that would have 45% of their funds exchanged for ownership in the real estate assets taken as settlement of debt between 2014 and 2019. This would work well for HE, as the "bad bank" (real estate assets) would be separated by the "good bank" and make the fund attractive to new investors.
HE Chairman feels that the investors should find this exchange fair as they should have expected to take back some properties after enjoying dividend of 12% for 10 years. The problem with this logic is that more than half of the investors entered the fund in 2013 – 2015 attracted by its excellent performance. As a result:
1. They cannot be made "responsible" for the defaults that were a result of consistent high returns over a period of 10 years, simply because they were not invested in the fund at the time (a massive influx of investment happened in 2014 and 2015 right prior to the dividend plummeting in November 2015)
2. They did not take benefit of high dividends for long enough to offset the losses they would experience by this reorganization. These investors made mediocre returns that would not offset much from the loss that is now expected. For example an investor who entered the fund in 2014 received dividends representing 36% of the initial investment (before tax) and an investor who entered the fund in 2015 received dividends representing 26% of their initial investment.
Is this plan fair to all investors?
1. Essentially HE reorganization plan favors the investors that want to stay in the fund and have exposure to real estate development, but it has devastating consequences on others such as older investors who looked for a solid investment for their retirement and do not have the time to wait for returns from real estate business.
2. The plan is also fundamentally unfair for the Investors who did not take advantage of high dividends, such as those who invested in 2014 - 2015. For these investors to only have the option of dissent at liquidation value is simply not fair, especially when they repeatedly asked for redemption long time ago. It can be successfully argued that HE did have enough time to dispose assets at market value (in fact they sold properties on the market – not in liquidation mode - to be prepared to pay dissent rights).
3. Last but not least, none of the reorganization plans made a firm commitment for redemptions and selling the real estate properties. If the investors would be given a redemption schedule that makes clear the timeline of recovering their investment, maybe more would be open to accepting the reorganization plan. All the investors are given in this plans is the uncertainty of vague promises made by the actual Directors that plan to retire in 2-3 years.
What would be a fair plan for ALL INVESTORS?
The main reason of HE failure to reorganize the fund is that they are looking for a solution that fits all. Such a solution does not exist.
The solution is to offer the investors options and let them decide what's best to their needs, risk tolerance, and personal circumstances. For example:
- Offer an exit option for the Investors who want to liquidate their position at Fair Market Value (similar to the ELO offered in 2016) and proceed then with the reorganization as desired or
- Wind-up the fund in an orderly manner by selling on the market the real estate assets without additional development and redeeming investors shares at mortgage maturities. The current investors who wish to stay invested with HE will receive shares in a new MIC that would be part of HMIC or another fund structure, which can also accept funds from new investors or
- brad1 solution to split Shareholders in Opt-in and Opt-out Investors
