Post by
JungleB on May 23, 2005 1:29am
OK Here's How I See It:
According to page 35 of the Joint Information Circular distributed prior to the amalgamation vote on December 8th and 9th, 2003 the Original Capitalization of the 5 Partnerships totaled $28,777,944.
Since there are now 13,597,281 units issued and outstanding (page 2 of the information circular) that means that our original investment was worth $2.12 per unit.
Having held this investment for 10 years it seems reasonable to me to expect a 7% annual return on my investment, which would have doubled my original investment to a value of $4.24 per unit. I still think that this is reasonable and that it is attainable through this partnership.
We bought at a relative peak in the market and saw the value of our assets dwindle to a low of about $16,000,000 in mid-2003 (add up the asset values of the 5 partnership units prior to amalgamation), despite having spent significant funds to improve their value.
Fortunately real estate values always rise in the long term and the 2004 asset value is $27,086,184, almost back to the value of our original investment! However, we have accumulated $8,101,681 in liabilities so our Equity is now only $18,984,503, making each unit worth only $0.716. We are obviously not out of the woods yet.
I believe the partnership amalgamation was a very wise undertaking. There is now still a good chance for our investment to be a profitable one. The structure of the partnership and its management seemed appropriate and I am puzzled now at most of the resolutions put forth by DIGIT Development, our General Partner.
1. Approval of Appointment of Auditors – I have no problem with this one.
2. Reduction of Quorum Requirements from 2 partners/20% of the units to 2 partners/5% of the units—although it is stated in the distributed information that no partner holds more than 10%, if resolution #4, The Incentive Plan, is approved, up to 10% of the units can be granted to directors through options. I see no reason for this and it makes me a bit uncomfortable.
3. Removal of Requirement for Limited Partners (us) to Approve the Appointment of the Auditors—although this seems insignificant on the surface, removing this requirement also eliminates the requirement to prepare an information circular and submit proxies. Instead, an annual information meeting would be held. I prefer the more formal process.
4. Approval of Incentive Limited Partnership Unit Option Plan—I am concerned about dilution of the units. This plan would allow the General Partner to issue up to 10% of the partnership ownership to directors or other affiliates. They have already issued 260,000 options exercisable at $1.00 per unit to Messrs Ross and Erdman, independent directors. It is pointed out that if exercised, these represent cash to the partnership of $260,000 but if exercised at any market value over $1.00/share (and gosh, I hope they are) it will be a net loss to the partnership. We are legally bound to have 2 independent directors and we have to pay them something, maybe we should say OK to this one time only grant and leave it at that. In addition they are entitled to have their expenses paid and to receive $250 to attend each meeting. They can also accumulate units at the current low market price. If they did, that would be encouraging to the rest of us.
All things considered, I think management has been hard working and diligent and is deserving of our support. The bumps in the road were unforeseeable and have been handled as well as can be expected. I think the worst is behind us and look forward to better prospects in the near future.
I welcome any remarks on the foregoing. My research was by no means exhaustive and I am no financial professional so there may well be oversights or incorrect calculations.
I am hoping that this will spark an informative dialogue that will help us make the best decisions with respect to the resolutions put before us by the General Partner. BE SURE TO VOTE.