Post by
babybunny on Feb 26, 2024 3:35pm
Strategic Review
I suspect a lot of MR.Un unitholders haven't been paying much attention to the REIT industry woes. The announcement of the strategic review may have spurred them to take a look under the hood, and what they saw was an over-leveraged REIT with way too much Alberta office exposure. I would not be surprised to see further weakness until MR.UN announces significant asset dispositions close to IFRS NAV. The current $3 unit price represents just a 20% discount of assets from IFRS NAV, so there is plenty of downside potential remaining.
I don't hold MR.UN directly, but I have a full position in MRD, so that is my concern. IMO the worst thing that could happen would be for MRD to make a generous offer (perhaps $4) for the portion of the REIT it does not already own. The taint of even a tiny amount of Alberta office causes investors to take a hard pass on any REIT, and MRD would be no exception. One might even argue that the taint is so bad, MRD would not want the rest of the REIT even if it came for free.
The best thing that could happen would be an orderly disposition of the whole REIT. Ideally this would be an outright sale to a third party: this would bring immediate cash to the MRD mothership and would reduce the Alberta office taint. The next best disposition would be a merger with one or more existing REITs such as Morguard REIT, DREAM Office, etc.: this would not bring in immediate cash, but it would create a marketable security that MRD could sell over a one-year period, and it would reduce the Alberta office taint. The least exciting option is a piece-by-piece sale of the bulk of the REIT holdings: this never seems to go well even if the REIT pulls off a string of sales at full IFRS NAV, as investors always assume the worst assets are the last to be sold and are virtually worthless; as a result, the proper value is not recognized until the very last of the assets are sold.
I worry that we may see real weakness in MRD until the review is complete and significant dispositions are announced. If we back out the REIT assets and liabilities from the MRD balance sheet, the MRD book value per share is reduced by over 20%. So it would not surprise me if we test the $10 level, even if Q4 earnings are rock solid.
Just my opinions, as always,
Baby Bunny