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A couple more tidbits.
I misread the shares outstanding in the letter released last year.
The shares decreased by 23,418 in 2021. Based on the change in the cost of treasury stock, the shares were purchased at $20/share exactly. I wonder who the lucky bastard was that got to sell shares at that price. Any chance they'll buy mine for $20/share if I ask nicely?
It looks like the financials in the letter applied the 7% interest rate from 2017 onwards (even though the change happened on 12/31/20 and was applied retroactively beginning in 2017).
G&A was running at about $7 million back when they were actually filing financials. It's averaged $17 million the last 6 years. That's $60 million down the tubes (without including what are sure to be astronomical fees in 2022). And to top it off, I didn't receive a thank you card from a single damn lawyer.
They have no shame regarding the advisory fees. Still apparently paying themselves 1.5% of the equity per year plus miscellaneous expenses. You'd think for $6 million per year they could at least get an audit done.
The interest restructure happened after 2015. I think the 2015 loan losses were due to the Bass attack and having to sell the loans to repay their debt.
In looking at the 10-Q, issued shares have no impact on Treasury Stock.
So they bought some # of shares for $468,360.
I don't think we have enough information to determine how many they bought and how many they issued.
If you look at the change in equity from 2020 to 2021, and assume all changes in shares happened @ year-end 2021, you get the following:
2020 YE equity - $440,507,917
2021 loss - $(43,546,534)
2021 dividends paid - $(7,974,883) (26 cents on 30,672,626 shares)
Calculated ending equity $388,986,500
Actual ending equity $389,291,545
Whatever shares they issued would increase the equity. If they bought back the shares at the beginning of the year, that would decrease the dividends paid and thus, also increase the equity.
Like I think I said earlier, the net effect is that it cost them $46.24/share to retire a net 10,129 shares. So they obviously bought back shares at a much higher price than what they valued the issued shares at. I suppose that's really all we need to know. Shareholders get hosed again.
That's my point...they shouldn't be. After all, they've worked diligently to protect shareholder value. What do they have to worry about?
The change in Treasury stock is odd.
The number of shares outstanding didn't change from 11/4/15 (date of last 10-Q) to 12/31/20 (date of previous shareholder letter).
In 2021, the number of shares outstanding dropped 10,129 shares. The change in the cost of Treasury stock was $468,360....which equates to $46.24/share.
The only explanation that makes sense (although, I suppose buying some of Hollis's shares for $46.24 each might make sense with this management team) is that they bought back more than 10,129 shares and issued shares to management at minimal cost ($1.10 per share?).
Now, just for fun (I don't really believe this, but I suppose it's as good an explanation as any....or maybe it's getting the accounting treatment completely wrong. Someone who wants to waste their time & breath talking to IR can ask them):
According to his last Form 4, Hollis owned 34,662 shares. According to the last proxy, UMTH owned 10,000 shares (which were included in Hollis' shares beneficially owned).
34,662 + 10,000 = 44,662
44,662 x $11.33 (book value at 12/31/21) = $506,020
44,662 (repurchase of Hollis shares) - 10,129 (decrease in shares outstanding) = 34,533 shares issued.
$468,360 (change in cost of Treasury Stock) - $506,020 (cost of buying out Hollis @ bv) = $37,660.
$37,660 (cost of shares issued) / 34,533 (shares issued) = $1.0905 ...suspiciously close to the price of NexPoint's tender offer. Maybe UDF applied a 0.8% "lack of marketability" discount to NexPoint's offer when valuing the shares... ;)
Did UDF issue any 8-ks regarding 2015 loan losses? $81 of losses on a ~$600 loan book would seem to be material…
This “valued shareholder” wonders if Captain Jim cut UMTH’s management fee when he cut Centurion’s interest rate. If you can loan @ 13% without incurring write-offs, then maybe you deserve a 2% fee. Loaning at 7% is another story…any half-assed banker can do that.
I’m aware of that. Who’s responsible for getting the audit done?
As far as I know, it’s not illegal to hold an annual meeting without audited financials. For Christ’s sake, hold a damn informational meeting where shareholders can ask questions and confront the execs.
Some more comments.
They engaged yet another audit firm. What happened to the prior firm? How much money was wasted on that audit process, which was presumably dropped when the auditors wouldn’t do what Hollis, etc wanted on the related party disclosures?
They seem awfully proud of their quarterly 6.5 cent dividend. $2 million to shareholders, $65 million to convicted fucking criminals. Seems fair to me.
How many of the “talented UMTH employee base” were involved in the Ponzi scheme and/or saw nothing wrong with the way UDF was run?
How do you increase your loan loss reserves in the 2021 real estate market? How do you sue Bass (and waste how much money?) while knowing Centurion can’t pay its loans (as evidenced by cutting its interest rate to 7%)?
I’m really tired of hearing “since inception this” and “since inception that.”
What happened to the just-in-time financing that the felons were so proud of?
Why not give us a balance sheet as of 6/30/22 or some date AFTER the felons’ legal expenses were incurred?
The trust spent $468,360 buying back shares in 2021. I wonder whose shares they repurchased and at what price. It wouldn’t shock me if they bought back shares held by related parties at book value. Hollis owned around 34k shares according to his last Form 4.
All in all, this letter feels like the new execs expect shareholders to be happy because at least they aren’t convicted felons. It reminds me of a little kid bringing home a report card full of Ds and expecting his parents to be proud that at least he didn’t fail.
If the new guys think they’re doing such a good job, then why not hold an annual meeting and let shareholders vote on new trustees? If they’ve been so diligent about protecting shareholder value, they should win in a landslide. Time for them to put up or shut up.
I've just scanned it so far, but my feeling in reading that letter is that management is still clueless. It sure sounds like they expect to continue as a going concern.
They modified Centurion's rate to 7%. 34 of the 39 loans are with Centurion. They still blame Bass. They make no comment on NexPoint's claim of $65 million of legal fees spent on the convicted execs.
They say to contact IR for more information. Every time I've contacted IR, I've basically received a "no comment."
Also no mention of an annual meeting or election of new trustees.
The clown show continues.
Same website as the Bass case.
The Nexpoint case number is DC-22-09833.
You read that article and you start to realize how laughable all of UDF’s claims of being an innocent victim were. And still, nothing changes.
Different prison. I doubt death row is at a medium security prison. And I assume Hollis is at the minimum security satellite camp.
Nexpoint’s lawsuit shows Hollis at El Reno prison.
https://www.bop.gov/locations/institutions/ere/
It doesn’t look like his citation has been served yet.
It will be interesting to see what UDFI says in its answer to NexPoint's lawsuit. I'm guessing that if they spent $64,999,999 on legal fees for the criminals, they'll deny NexPoint's claim that they spent $65 million.
The company is treating shareholders as if we were all part of the short attack, when we were the innocent victims (unlike Hollis & co).
I simply don't understand why they won't provide financials, admit that they f*!ked up, and hold an annual meeting to elect new trustees. It seems to be the least they could do for us.
On a somewhat related note, Hauppauge Digital was recently forced by a judge to release financial information to a shareholder that sued the company. It hasn't provided information since 2014, so I guess UDFI investors should feel lucky....we have information from 2015...
https://news.bloombergtax.com/financial-accounting/hauppauge-digital-must-divulge-financial-info-after-going-dark
45 days from July 21 (when Phantom Phlyer spoke with IR) is Sunday. So either they plan on issuing it today, or they missed another deadline.
I bet Bass intimidated all of the wordsmiths in DFW, so poor UDFI couldn't hire anyone to write their letter for them.
Another 6.5 cent dividend was announced today.
Silly me thought that they might provide some financial info along with the dividend announcement. You know, since they were going to provide us with info in 45 days (ie by Sept 4th) and all.
If NXPT’s claim of $65 million spent on the criminal defense is correct, the Trustees should go to jail too.
It bought back 3.7 million shares in July @ $2.00.
There are two 5% shareholders, one of whom owns some of the convertible debt. It’s possible she converted the debt and sold the shares back to the company.
I guess we’ll find out next quarter.
Edit: The number of shares listed on the cover sheet of the Q implies that the note wasn’t converted. The selling shareholder must be the entity that owned 3 million shares (shown in the recent proxy).
Plus 500 million shares that the preferred shares can convert to.
So it’s basically valuing an empty shell at $25 million + non-preferred liabilities.
Those 500 million shares were issued in exchange for 10 thousand bucks. Now they’re worth $25 million?
It’s even worse than that. The distributions in 2021 were all “return of capital,” which means UDF lost money last year.
Of course, we have no idea how much money was paid to attorneys last year…although the criminal proceedings didn’t kick into high gear until this year.
I find it funny that they are touting the new CEO’s capabilities. He’s been an exec since 2016. Shareholders have been treated like absolute garbage during his time with the company. So, either he agreed with the way we were treated, or he remained in a job for 6+ years while his input was ignored.
Truthwins,
I’m curious if/how you defend the fact that the company has shared basically no information with shareholders in 7 years, has not held an annual meeting, has not allowed shareholders to elect trustees, has entrenched the current trustees via a staggered board and had “paused” the audit while responding to thecWells notices?
Kyle Bass, not the shareholders, put out a short thesis (which has proven to be true). Why does UDF punish its own shareholders? What does it have to gain by releasing no information?
The execs’ motions to remain free pending appeal were denied. Greenlaw reports to prison on July 5. I assume the others will also be reporting around that date.
The criminal trial transcripts were posted in the Bass case, so they're available for free to anyone that wants to read them. I spent the last couple of nights reading them. I didn't glean much new information, but just some random thoughts:
1) UDF kept talking about "just in time financing" like it was some big, new idea. I can understand "just in time inventory" because you know when the inventory is going to be delivered and you know how much inventory you run through in a day. It seems that only an idiot (or criminal) would use "just in time financing" when you don't know when your receivables are going to be collected.
2) UDF pointed out that the 12/31/14 (?) balance sheet had $30 million of cash, so how could the FBI claim that the an interfund transfer was made to pay the 12/22 distribution? I'd like to know what happened to the "just in time financing" at 12/31/14. As an investor, I guess I should be pissed that they had $30 million just sitting there that could have been earning 15%! Is it too late to ask for my money back? ;)
3) UDF's argument that the banks weren't harmed because they didn't lose money is bullshit. Try telling your insurance company that you don't owe your premium for the last 6 months because you didn't file any claims (using UDF's argument, the insurance company was never "harmed" because you never filed a claim, so there's no reason you should have to pay them).
4) A very simple question could've been asked to determine if UDF was a ponzi scheme...at that is, "If UDF IV didn't exist, would UDF III have been able to fund all of the monthly distributions that it paid?" Or, to put it another way, "If UDF needed money to pay a distribution, why didn't it sell a loan to a 3rd party instead of selling it to a related party?"
5) UDF had a lot more control over Buffington than I realized.
6) How in the world does a developer expect to make money when it's borrowing at 30% (Buffington) and presumably using very little equity? Do 30% returns just grow on trees? Why wouldn't someone with deep pockets fund the investment with 100% equity and pocket the 30% return?
7) Both sides' experts left something to be desired. UDF paid $1.5 million for Dale Kitchens...they definitely did not get their money's worth. They also paid $300k or something for the E&Y guy and $3 million for the Knight Thompson report. I think I'm remembering all of those correctly. Plus, of course, $7.2 million for the SEC fine and who-knows-how-much for the attorney fees. I feel poorer after typing that.
8) I don't understand UDF's attorney's point about the UDF employee (ex-football player) getting a $25k loan from Centurion. He brought it up again in his closing argument too.
9) In the hearing to determine if the defendants would be released pending sentencing, the prosecutor brought up the fact that UDF IV paid $7.2 million of the SEC fine. She asked if UDF IV also paid the criminal defense fees, but Pelletier objected and it was sustained (which makes me think UDF did pay them).
10) Greenlaw danced around the Buffington claim that he wanted them to refi all of their loans using UDF V money. The prosecutor emphasized that if they admitted Buffington's claim was true, they'd basically be admitting they were guilty of the charges.
11) The UDF execs were playing stupid, or truly don't understand the additional risks involved in related party transactions.
12) The due diligence lady that recommended NOT selling UDF V on its platform had some guts (perhaps I'm confused, but I think Kahane (the UDF V board member that resigned), was an owner of RCS, which was either related to, or owned the company she worked for...and she recommended that her company not sell UDF V). She probably also had the least amount of formal education of any witness (2 years of college, iirc).
13) After reading the transcript, I think I would have voted "guilty" if I was on the jury.
14) I know it's par for the course, and each defendant wants a lawyer solely dedicated to defending their interests, but I really didn't see any benefit to UDF having so many attorneys.
15) I find it hard to believe they wasted so much time, energy & money on the Bass case. Bass was going to get all the records, which clearly showed the funds were transferring money between themselves solely to pay distributions. I don't really see how they could win the Bass case, even if they were found innocent on the criminal case. Maybe there's some legal technicality they thought they could exploit (Bass originally posting his research anonymously, for example).
16) I wonder who was responsible for setting up all of the loan documents. UDF obviously felt like the loan documents, which gave them the authority to initiate draws, made them invulnerable. Just because a document says you can do something, doesn't mean you should do it (or that it's legal). If it was Greenlaw's idea to put that clause in there, then he outsmarted himself.
17) Finally, I had to laugh when the prosecutor apparently got fed up with listening to everyone say what a great business UDF was. As she said, if it was such a great business, then why couldn't they make their measly $1.25 quarterly loan payment on time?
1) No. I believe they're supposed to report in July. They have asked to remain free on bail until the appeal is denied, but I don't think that's been ruled on yet.
2) Still pending as far as I know. I assume it won't be heard for quite a while.
3) UDFI appointed an "acting" CEO and CFO, so presumably all four are no longer performing their job functions, but I'd have to think that Greenlaw still exerts considerable influence on operations. I'd bet we're at least still paying their legal fees...
Right. Nexpoint keeps extending the offer. They’ll never actually close on it (unless something changes and UDF removes the ownership cap it put in place).
Nexpoint can’t buy any more shares. The tender offer is/was just a way to obtain information about shareholders. REIT Investor explained it in one of his posts on this board.
Bass is asking for reimbursement of his legal fees. I hate to say it, but he probably deserves reimbursement.
From one of Bass’ filings this past week:
It seems odd that UDF would put out a PR on the same day the lawsuit was dropped and NOT mention anything about the suit.
I’d talked to Ty Henderson (UDF IR) a few times prior to the TX court of appeals ruling. When that ruling came down (which was a positive for UDF), he called me out of the blue and made sure I was aware of it.
I guess what’s good for the goose isn’t good for the gander. Any investor that simply relies on UDF’s website for info is probably still expecting a windfall from the lawsuit.
I hope Nexpoint is able to put UDF on double-secret probation at some point.
They announced another 6.5 cent dividend today. Interestingly, V’s dividend was reduced from $1.4674 last quarter to $0.9317 this quarter.
In keeping with the Animal House scenarios, I feel like the pledges bending over and getting paddled…Thank you sir, may I have another.
UDF’s website still hasn’t been updated for the lawsuit news (imagine that).
The last distro was announced Feb 28th. Maybe they’ll toss another nickel our way soon.
Maybe mgmt will join the f!@#ing peace corps (after they get out of prison).
I saw they also just paid their $50k fines. I wonder if the shareholders funded those too.
But there was an airplane (according to Bass)!
I'm still waiting to hear about the "cocaine, hookers, Rolls Royce and Iranians" that Bass mentioned in one of his emails.
Nice letter.
I don't know why the Board members think it's worth ruining their reputations to remain on the board of a company that treats shareholders this way. You'd think if any of them had any integrity, they'd have resigned long ago.
I went back to my old messages and came up with the following:
According to a bond prospectus, Centurion owed UDF $836,900 @ 3/31/20.
@ 9/30/15, Centurion owed UDF $679,000. Of that amount, $386,000 (or 57%) was owed to UDF IV.
$836,900 x (386,000 / 679,000) = $475,763.
UDF only had around $40 million of cash at 12/31/20 and a net loan book of ~$300.
I can see the following scenarios:
1) Centurion is paying the UDF IV loans faster than the other UDF loans. BUT, if this was the case, UDF's cash balance should be higher than $40 million. If they recycled Centurion pmts to other borrowers, their loan book should be higher.
2) V loaned a bunch of money to Centurion for new projects (i.e. it wasn't just the felons using V money to repay IV loans...using V money to repay IV is the same net effect as (1) above). That would cause IV's % share of the $836,900 to be much lower than it was in 2015. But, how much money did V raise and how many loans did it fund before Bass put the kibosh on it?
3) UDF IV has reserved quite a bit against Centurion's balance and/or isn't accruing interest. Seems like a positive, but then again, if they've written off this much, who's to say they don't need to write off more.
4) Is IV's loan book basically 100% Centurion now? How did UDF fund an additional $157 million to Centurion after the Bass attack? It couldn't raise any outside capital. It had to repay all of its lines of credit. The obvious answer is that the interest on the loans isn't being repaid and it's just compounding at 13% (or whatever) and Centurion has no hope of repaying. The other answer is that Centurion is their only borrower.
Any other explanations?
The loan balance they gave was net of reserves. They just didn't tell us what the reserves were.
I've forgotten the details, but at one point I tried to calculate the reserves by looking at 1) Centurion's loan balance listed in a municipal bond prospectus, 2) the allocation of Centurion's loans between UDF III, IV, V, etc based on the 2015 financials and 3) the loan balances shown in the 12/31/20 financials.
In simple terms, say Centurion had a balance of $500 million across all UDF entities at 9/30/15 and had $200 million at UDF IV (40% of total).
If the prospectus said its current loan balance was $800 million, then I assumed 40% of that, or $320 was at UDF IV.
I then compared that amount to the total loans on the 12/31/20 bs. If I remember correctly, the implication was that Centurion should have owed UDF IV a lot more than what was on the 12/31/20 bs.
That could mean 1) UDF IV has taken a bunch of reserves, 2) Centurion was paying down IV loans faster than it was paying down III or V loans, 3) the analysis required so many assumptions that it was useless, 4) UDF IV's portfolio is almost 100% Centurion or 5) I screwed something up.
So you guys are basically saying you don’t believe the unaudited financials they put out last year? If they survived the few years after Bass with only a couple dollars per share write down, I find it hard to believe they’d have a massive one in 2021’s market.
Of course, you can’t believe anything coming out of this company, so the recent financials could very well be useless.
Anyone have an idea on the time frame for the appeals process (ie how long before the appeals are heard and a final decision handed down)?
In re-reading UDF’s press release after the conviction, the changes made were “acting” CEO, CFO, etc pending appeal.
God help us, but we’re not done with these clowns just yet.
Edit: It looks like median time in 2015 was just under 9 months. 6.9% of criminal cases were reversed. I wonder how many millions of dollars this process will cost us.