Here are some latest thoughts- taking any one on its own isn’t that revealing, but when considered together, I think it gives reason to believe there’s value in the portfolio well above current trading prices. I remain optimistic we will see gains in the stock once financials are reported. I would appreciate any thoughts in response. I own UDFI.
1. Greenlaw stated in his affidavit that UDF total loan assets went from $1.25 mm down to $900 million from the end of 2015 through Sept 2016. Presumably, most bank lines were paid down by then. UDF IV had $170 mm of bank lines. Throughout 2016, UDF IV paid $.16 in dividends in three different months. The last one was Nov 2016. So, we can assume that UDFI paid down the bank lines, absorbing some loan losses, while still being profitable and able to payout a dividend.
2. The Buffington loan release was signed December 2016. Greenlaw disclosed that Buffington owed UDF funds $195 million and they sold that portfolio for $40 million. UDF III took $122 million of those losses. UDF I took the majority of the rest. UDF IV released under $500k of loans to Buffington.
3. UDF IV didn’t pay any dividends in 2017. It could mean there weren’t any profits, and thus, no distributions needed. However, according to REIT regulations, there are provisions where a REIT can pay dividends in one year that apply to previous years dividends requirements. It is possible that 2017 dividends will still be paid.
4. Greenlaw stated that UDF didn’t originate any new loans for over a year after he attack and they have originalted $31 million new loans since. That means UDF funds have originated $31 million in new loans in the last year, or so. It is another sign that the portfolios have value. We don’t know which funds originated those loans.
5. Greenlaw stated that there are 40 employees now working for the entity that manages the funds. The only source of cash is fees charged to the funds they manage. That payroll/benefits would likely cost at least $4 million a year. That’s real cash coming in, which can only happen if there is enough asset value from the funds.
6. The SEC thoroughly reviewed the books. They documented very little of the Bass allegations. The fine represented about 6 months of fees. The SEC noted problems with the timing of realizing the Buffington losses. They didn’t even have any claims that there was anything wrong with the Buffington deals. They also said that, while UDF had the right to use funds from one fund to another, they dind’t represent that in the offerings. I am interpreting this as an ‘all-clear’ signal.
7. Apparently, UDf IV survived the process of raising money to pay down the bank lines while still paying a dividend. There was likely some level of losses incurred during this process. We also know that most of the Buffington losses were concentrated in UDF III. It’s possible that losses were under $100 million in the portfolio in total. In addition, the loans have been earning 13% over the last 3 years since we last saw financials. This could be a material amount of money. Of course, offset by higher legal and audit fees.
8. It’s hard to handicap the odds of winning the case against Bass, but it does represent potential longer term upside.
9. There were $684 million in total assets in the last filing with $170 mm of debt. In a optimistic case scenario, assume the portfolio took $100 million in losses, that puts value around $13 per share. You can run your own worst case scenario, but it’s hard to see a scenario where losses are large enough the get us down to current levels.
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