UpdateThis is the first chance I've had to check this site for awhile. This is not an official communication from the HLD Board, but here are my personal thoughts and opinions in reply to some comments and questions:
1) The extension was done at my request due to many people only just receiving forms and after receiving a commitment from the auditors that the year-end financials will be ready late this week for posting at www.sedar.com.
2) The 2-week extension applies to all Proxy Votes and the Letter of Transmittal & Election Forms. No matter how you vote I'd recommend that you send in the latter form if you would prefer cash instead of debentures if the sale completes.
3) The foreclosure action at The Falls has taken everyone by surprise and I am no longer certain if Acquireco will proceed even if HLD Partners agree to sell. Often one mortgage in default can trigger other mortgage holders to do the same, and/or a Foreclosure Trustee may step in to liquidate assets without concern for our situation.
4) After the Vancouver meeting I tried to come up with a list of assessed values but was stymied. Here's an excerpt from one of my emails responding to the question:
Immediately after the meeting I made a request to provide a list of all our ‘assessed values’. However, I am advised that such a report cannot accurately be provided. No one is willing to publish something that is (or may be deemed to be) misleading. For example, if we hypothetically assumed the 3 Langley properties had a total assessed value of $1,000,000, how could we accurately represent our interest in terms of assessed value? Our share is just under 39% of the Willoughby Joint Venture, which in turn has a 50/50 Joint Venture with BFW, the company that is in charge of installing all the services. 39% of one-half of $1M is $195,000, which is 19.5% of the hypothetical total assessment. But that number is hugely inaccurate because as our part of the deal we invested over 70% of the original purchase price, so our initial payback ratio would be more than 19.5% of assessed value. In similar fashion, our share of potential profits varies significantly yet again, and cannot be represented in terms of assessed value.
We have the same problem at The Falls. How can we state our interest in terms of assessed values when we have contractual agreements for delivery of specific numbers of 3 different type of lots (single-family, townhome and condominium lots) within many un-subdivided parcels that also contain a golf course, commercial centre and many more residential sites? There is no way we can determine what our share of the ‘assessed value’ is. To pick a number out of the sky would just be guessing, and to show no value at The Falls would be not be accurate either.
5) The napkin approach to value estimates that I have seen on this site are wildly inaccurate in large part because they do not take appropriate mortgage, development, subdivision, marketing and sales costs into consideration.
6) Last Monday a group of Financial Planners and a Due Diligence Professional met with Capital West Partners to grill them on the methodology they used to determine the offer is fair from a financial point of view. (The fairness opinion was not based on the trading value of the Units. Obviously anything above the 56 cent average trading price would be fair if it was!)
With one exception these people left feeling that Capital West had done a good job. Only one of the Planners expressed to me that he felt the broad variety of potential outcome scenarios CapWest used created a range of 'fair' that he thought might be too wide. (On the other hand I don't think one of the scenarios used was a foreclosure at The Falls that could affect 558 of our potential 800 lots.)
I continue to reiterate my belief that Capital West honestly believed the offer to be fair at the time they evaluated it. I also suspect an even lower offer would have been deemed fair if the foreclosure action at The Falls had already commenced. In my opinion neither Capital West nor any of the Financial Planners would feel the offer is fair if they really believed the Units were worth much much more, as some anonymous posters at this site speculate.
7) If you invest 60 cents of every dollar in real estate and use the remainder for operating capital, to recover every dollar you need 66% appreciation net of sales costs. Average real estate prices were lower in 2002 than in both 1994 & 1995. We have only had appreciation over the last 3 years. That's why I believe we are essentially in year 3 of a 10 or 15 year plan. And in order to continue we must re-capitalize the company from all the losses we suffered over 8 years of delay and corporate capital tax under the NDP.
If we can re-capitalize, solve the problems at The Falls and sustain ourselves long enough to sell all our lots retail, I maintain my belief that there is the potential to realize an attractive profit. But that is in the future. In my opinion it is not realizable anytime soon.
8) In the interim, here's another way to assess 'Present Value':
If 14 million HLD Partnership Units (before any new issue dilution) have an approximate $17 to $19 million in current equity (depending on receivables due from The Falls), it may be argued that the present value of each Unit is worth between $1.21 and $1.36.
Over the last 52 weeks the Units have traded on the TSX-V exchange between a high of $0.91 and a low of $0.27, at an average of $0.56.
The offer to purchase the HLD assets is $1.02 in Cash or from a minimum of $1.39 to a likely maximum of $1.51 in Debentures.
Those are my thoughts for now folks.
Best Regards,
Michael Thornton