United Development Funding IV fka UDFI

[Jh5142]

As of Sept, 2015 (last filed 10Q), UDF IV had:

Loans. Secured by
$82 mm Finished Lots
$37 mm Model and single family homes

So, they had $120 million of loans that would either get repaid as SF homes are sold, or finished lots are taken down. These loans should have been able to get paid off or sold with minimal losses.

All the other loans are against parcels of land under development or to be developed. The borrowers would have to either find another lender and refinance, or sell the deals at would could be a loss to UDI.

Moyoadi said he sold 6 deals to DR Horton. Those could have generated losses for UDF IV.

Let’s assume the above $120 million was sold at an 80% recovery. So that is a loss of $24 million.

That would leave still $68 million to be paid (assuming debt was paid down from $170mm to $6mm as disclosed).

Let’s assume they sold $100 mm of loans at 68% on the dollar to pay the remaining $68 million.

That means the loan portfolio went down from $625 million down to $405 million in order to pay off the bank debt. That’s $13 a share right there.

In addition to those loans, there were $59 million of other assets on the balance sheet. That’s another $2 per share.

My optimistic case valuation is $15 per share. Could be even higher if they didn’t have to take such high discounts. Plus we have the loan portfolio earning interest for the last 3 years since the last statement. If the above scenario is right and the loan portfolio had a value of $400 mm, then it has been earning $52 mm per year in interest.

Even taking a more conservative approach, it’s hard for me to get to a loan portfolio near where we are trading today.

Of course, there could still be further losses in the portfolio.