Strata Investment Holdings PLC T.SRT.UN

RE:RE:RE:RE:RE:RE:RE:Lots of liquidity!

[AvInvestor]

Hi Daniel & thx for the good question. I believe they will post their 20 Q1 results in a few weeks. Will get updated figures shortly. 

In terms of working capital, the company has increased fair value of their assets consistently over the years. We can most certainly expect adjustments on their property valuations and a complete write off on their $1.7M in interest rate swap assets for 2020. This will subsequently affect their debt/gbv & NAV. Should  management seek to leverage more assets, lenders will require either:

a) a dividend cut, which will have a huge implications on the stock.

b) dispositions of more assets, which is recommended.

c) Combination of a) & b), if CF is severely affected. 

From a liquidity stand point, they had $2.4M in cash + a revolving credit of $286M available. $362.5M comes due in FEB 2021. So much like the assets sales that were completed in 2019 in to cover the debt that matured in 2020, we could expect that management will do the same to cover the nearly 47% of the companies debt that comes due soon! So even if they max out the revolving credit, which can be reduced by the FI, they would need to generate ~$75 just to cover the debt, status quo! 

In all fairness, I do like Slate’s assets which are focused on groceries stores and retail consumer staple properties. I just don’t agree with mangement’s “rocket ship” style growth of leveraging the company for the sake of increaseing CF in order to pay themselves bonuses, leaving investors vulnerable to crises and interest rates increases, if it ever comes.