RE:Coopers words from conferenceAppears as though the pay down debt option vs the share buy back is a bit more art than science. So, in order for all of us to be as up to date and as clear as possible, here are all the times the debt vs buy back was discussed during the conference call:
Effectively, we’ll plan start using the proceeds to pay down debt, but as we make more progress we’re open to buying back stock quite aggressively.
In addition, we’re cancelling the DRIP so that we’re not issuing any unit at a big discount and we don’t have to buy units in the market to maintain the same outstanding units.
Sam Damiani
Just one more and I’ll turn it back. On the NCIB, I understand the first priority is debt repayment which makes sense. But what is left under the current NCIB in terms of what you’re allowed to do and more of the take for you to go beyond NCIB limits to more aggressively repurchase shares?
Michael Cooper
I think we have about $7 million left. And I’m not sure when it comes up, but I think $7 million is a pretty good shot. I think what we’re trying to say is the priority is to get the business metrics in place, so that we have a wider audience of investors. Our company has been very active in share buyback from time to time and I could see a time where it’s just being very aggressive to buy back stock.
But we want to make sure we have more certainty within the business and get investors come along. So hopefully the stock price will be at a place where it doesn’t make sense to buy back stock, but we want to work on the plan first and then we’ll buy back stock.
If the opportunity is there. Look, if we can get through $1.2 billion of assets and have $1.3 billion of firepower and buy back stock at $15, there is going to be a lot of arm wrestling as it was in the last year. And what we’re saying on this plan is we’re going to do the $1.2 billion. If that doesn’t do it, we’ll keep going. But what we’re saying is we’re looking at the fundamentals of the business first, not the financial engineering with the buyback, but we’re totally in favor of a buyback if it’s really accretive.
On the buyback and I guess you know what, since your questions are so excellent, we’ll get the best answers. What we modeled was if we sold $1.2 billion of assets and we have $700 million of proceeds, if we use $350 million to pay down debt and $350 million to buy back stock at the range that the stock is in now, we’d end up with 43% debt level and we’d end up with a significant increase in both AFFO and NAV. Anybody can do the numbers if you want to, but I think the numbers turned out to be about a 6% increase in AFFO and a 14% increase in NAV. And that would be a wonderful position to be in.
But I guess, Mark had asked a question about will we buy back stock early and I think that that’s something we had a discussion at the Board yesterday. And if there was tremendous selling next week, we would start to buy back stock and it’s a draw. We would love to be aggressive on the buyback, but I think we want to make sure that we execute the plan as well.
Mario Saric
Just maybe coming back to the priorities of delevering versus buying back stock, I think Michael you’ve addressed it quite well just now. Does that priority change at all depending on the magnitude of the discount to NAV? We’re getting a sense that you want to pay down debt before you look at NCIB, but hypothetically if you’re trading at a 60% discount to NAV as opposed to 50% or 40%, does that change things or are you fairly confident in your desire to pay down debt first before getting to NCIB?
Michael Cooper
I appreciate the opportunity to clarify the answer. Yes, we will have a trigger finger to buy back stock, if the stock price stays where it is after this plan is released. So your example was – and I’m going to stick to your example. If the stock was trading at 60% discount to value and we’re proceeding on some of the sales, we’d actually be paying down some of the debt. And I think in that case, we’ll be very aggressive.