RE:Due Diligence - Input RequestedWelcome to this board, LR. For the record, I hold an oversize position in MRD in my portfolio, and have been an investor, off and on, since the mid-nineties. The share price has languished since the 2014 energy crash, but if you go back further you will see some heady times where share price vaulted from 40% of book value to well above book value. I think such a sea change lies before us once again, but not until the current panic over interest rates, recession, and stagflation is resolved.
In reply to your queries:
1) I think holding a 50% interest in the REIT (rather than 100%) is beneficial to MRD. It allows the corporation to continue profitably developing commercial properties without having to borrow or issue stock (god forbid!) to raise the necesary capital. It has been tricky to make transactions with the REIT in recent years, with asset values and the REIT unit price distressed; but I think the REIT will come in handy when these values recover somewhat - particularly if the REIT can once again raise new capital.
The REIT unit price is typically less distressed than the MRD share price. So I would welcome any move by MRD to REDUCE its ownership stake in the REIT ... so long as MRD mainatins effective control so they can still use the REIT for asset transfers.
2) I am pretty happy with the current dividend ... it is enough to force the option holders to overcome a bit of a hurdle to make a profit, but not so high as to lay crippling taxes on those of us who hold shares in taxable accounts. As my previous posts make clear, I am strongly in favour of aggressive repurchases. This is the more tax-efficient way to return capital to shareholders. I would not want the NCIB or SIB to increase the share price, at least in the short term; rather, its purpose is to gobble up cheap shares and thereby ncrease intrinsic value per share -- and after a few years of this, investors will suddenly wake up and the share price will go through the roof.
3) The Melton family's lack of interest in share buybacks suggests they are not eager to privatize the company. If they wished to privatize, the smart way would be a series of annual SIBs, each retiring about 10% of the company's shares at a tiny premium to the prevailing share price. After retiring shares at bargain prices in this manner for five years, there would remain just a tiny rump of shares held by minority shareholders, and this rump could be bought out for next to nothing (even if they had to pay a fair price per share to wrest these remaining shares from the likes of me).
With that said, I have no idea whether the Meltons would entertain offers from outside investors to take over the company. It goes without saying that such an event would cause the share price to rocket upward, considering that shares are trading at 1/3 of NAV.
Plenty of deep value investors have kicked Melcor's tires recently, but it seems everyone wants a catalyst. I would love one too, but unfortunately Melcor does not come with one. The only attractions are competently-run operations, valuable real estate, and a bargain share price. That is enough for me.
My opinions only, as always