Answers in ReplyDear Readers,
In reply to HLDalongtime's previous post:
The third paragraph of my letter clearly states: "While acceptance of this offer is recommended by the Board of the General Partner, I serve as the property manager. I am not an officer or director of HLD. I didn’t make the offer. I have no vote on accepting or rejecting it."
Note that HLDalongtime misquotes this. He swapped 'Partner' with 'Manager' when he wrote "acceptance of the offer is recommended by the Board of the General Manager". He then compounds his mistake by claiming I am "already on public record for recommending acceptance of The Offer" through my "position as a director and officer of DiGiT". As you can see in the actual quote above (or from reading the Information Circular or all the Financial Statements or other material posted at www.sedar.com) I am not a director, nor am I an officer of DiGiT.
These are material misquotes that speak volumes on the ability of the person writing them, and/or on the intention behind his words. He is either incapable of understanding the facts, or he chooses to distort them and make false accusations in pursuit of his agenda.
HLDalongtime then incorrectly claims that I'm getting a third of Aquireco for free. He’s omitting to disclose that part of the Information Circular where I must forego all claims to future profit sharing. He promotes the unimaginable premise that 1/3rd of all the assets would somehow magically become profit, which he calculates as $4 million in his closing paragraph!
I only wish he was right! But anyone who understands business knows that before equity in Acquireco would be worth anything:
1. First the $7M paid in Cash for Units plus an estimated $2M in interest would have to be paid back.
2. Then another $7M plus $3.43M in interest (at 7% for 7 years) would have to be paid back on the Debentures.
Therefore $19.43 million would need to be subtracted from Acquireco's $14M asset value. (That is before operating costs and before subtracting a return that would be paid to the other Acquireco directors for their pledged minimum 'preferred share' investment of another $4M.)
HLDalongtime based his numbers on a $14M valuation of the HLD assets. After subtracting $19.43 million I would have one-third of a $5.43M debt, or equity worth minus $1.81 million!
That’s why I explained in my letter that "I believe that for me, personally, the existing profit-sharing arrangement with HLD is a much safer bet. After more than a decade of work, at the very least I’d earn something from any property that proves profitable, even if there’s an overall loss from everything combined.
But if I refuse to accept the proposal, this offer to all HLD Partners will be reduced or withdrawn. That’s because the potential purchasers know there are still many difficult issues to resolve before all the HLD lands can be converted into saleable lots. They want someone on their team that knows the lands in detail, understands the process, and has rapport with local decision-makers."
HLDalongtime seems to be misunderstanding or misrepresenting all this. He's supposedly upset with the idea that someone could make money while he does not. Well given what's just happened at The Falls, the odds of that happening are far greater with the existing HLD deal. For example, if Silver Spray made say $3 million and The Falls lost $6 million, I'd get $600,000 under the existing 20% profit-sharing, but zero from Acquireco.
That's why I accurately stated "for me, personally, the existing profit-sharing agreement with HLD is a much safer bet."
But how do you think the majority of Partners would feel if I refused to continue managing the property if it meant the offer from Acquireco was reduced from $1.02 in cash to $0.85? (That's what I believe would've happened.)
So is Longtime now going to get upset that I agreed to take a bigger personal risk in order to get more money for Partners? (Probably, just watch!)
To cast negative aspersions Longtime then suggests that an officer or director of the General Partner may face charges for some inappropriate pledge of security under the Partnership Act.
Not only will I vouch for the integrity of all concerned, we have some of the finest legal council in the securities and real estate industry. I am confident everything has been done honourably and properly.
However, as we can see from previous posts on this bullboard, some people have been asking others to join them in filing accusations with various authorities. Because HLD has been unable to obtain Directors' and Officers' Insurance, prior to obtaining a public listing HLD had to indemnify each and every board member that acts honestly and in good faith. If there are any legal costs associated with defending against frivolous accusations, the HLD Partnership must pay for them all, which leaves Partners with even less equity still.
Next Longtime rants about financing Acquireco may be able to obtain in order to pay Partners cash. Isn't it good if they have the financial strength to borrow more money than HLD can?! The objective is to help Partners that want cash to get it.
HLD Units that are redeemed for cash are cancelled, so the exact same proportion of assets remains as security behind the debentures. (In fact, the security behind the debentures is increased when you consider the $4M cash infusion from Acquireco directors.)
Then Longtime confirms that he is indeed an opponent - of me or the HLD Partnership I am not certain. I do know that we had at least 2 HLD Partners that opposed Silver Spray so much that they immediately passed along all our strategy and newsletters to opponents seeking to bankrupt us at the time. Given that anyone can post on this bullboard there is no certainty that Longtime is even a legitimate HLD Partner (however we may soon find out exactly who he is from his IP address if his posts are deemed in breach of violations, as that may prove important if the HLD Partnership seeks to recover costs that we suffer due to his actions).
Based on all the communications I’ve had, I predict that a majority of Partners will vote FOR selling the HLD assets in order to secure two-thirds to three-quarters of their original investment without exposing it all to further risk. (Returns greater than $1.02 net can be achieved by either taking debentures that pay $1.39 to $1.51, or by applying a capital loss against a future capital gain, or by employing both strategies together.)
Nevertheless, I am not sure if the Vote will result in a sale for 2 reasons:
1) The 2/3rd super-majority required to Vote FOR may not be achieved. (In my opinion it will be very close.)
2) Give the problems at The Falls even Acquireco may be unable to proceed.
At all the meetings I said that if I had Units and could afford to be patient, I would vote to hang on as long as it takes, even if it takes another 10 or 15 years. I also explained that I would not try to remain neutral if I thought HLD could not survive and be ultimately profitable.
While writing this response I have come to a new realization. I am now of the view that Partners should reconsider the safer course of action and accept the offer.
My change in position is primarily due to our recent discovery of the extensive debt at The Falls, which continues to compound at rates in the 12% range.
While this may prove solvable through outside intervention from a company like Acquireco or others, I seriously doubt that HLD will be able to raise enough money to protect our investment. And even if it could, unless HLD Partners invested almost all of that money, there would be massive dilution to the value of the HLD Units.
Given the tone of some posts on this bullboard, I must also go on public record FOR selling the HLD assets so that no one can later complain that I tried to sway the vote AGAINST the sale in order to protect my own self-interest in profit-sharing that could pay off on one property even if others sustained a loss.
In closing, I remain available to answer any and all questions to the best of my ability. I do so from my own perspective. These are my views and opinions, not those of the HLD Board.
As you know the Votes will be tabulated on March 30th at 2PM. I urge you to send in your Proxy before the extended deadline of 2PM on March 28th. You can always retract it and vote in person, so it’s safer to make sure your vote counts even if you suddenly find you can’t make it.
Best Regards,
Michael Thornton