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Catalyst for releasing shareholder value

A specialist residential development finance firm and asset manager has received a number of unsolicited proposals that would reduce the company’s hefty share price discount to net asset value

I am clearly not the only one who spotted a bargain basement opportunity on offer at specialist residential development finance firm and asset manager Urban Exposure (UEX:68p), a company that listed its shares on London’s junior market in May 2018 when it raised £150m of new equity at 100p a share.

In fact, the company’s share price has rerated by 46 per cent since I covered the half-year results in an online-only article when I highlighted the eye-watering value on offer (High yielding deep value Ben Graham value play’, 11 Sep 2019). However, the shares are still trading on a 29 per cent discount to end of June 2019 book value of 93p a share (net tangible value of 85p a share), even though cash of £46.4m (29p a share) and a high-quality loan portfolio worth £83.6m (53p a share) offer solid asset backing. Moreover, the board is committed to a payout of 5p a share.

Since that article was published it has emerged that property investor Robert Tchenguiz, through his investment vehicle R20 Advisory Limited, has built up a 12.6 per cent stake, controlling 20m of the 158.5m shares in issue. He has also made a proposal to the board to consider implementing the following actions:

■ Pay a special dividend of 30p a share at a cost of £47.5m.

■ Issue 100m new shares at 35p with existing shareholders having the right to subscribe first (pro rata 63 new shares for every 100 held) and R20 underwriting 57.5m of the offer and an independent broker the balance (for an underwriting fee of 1.5 per cent).

■ Carve out the management company so that Urban Exposure’s operating structure mirrors that of other publicly traded debt funds – Starwood European Real Estate Finance (SWEF), Real Estate Credit Investments (RECI) and Honeycomb Investment Trust (HONY) – all of which are being valued at close to net asset value.

The upside from the proposal is that the company’s annual operating costs of £12.5m would no longer be a liability to Urban Exposure plc, but shareholders would still get the benefit from management fee income earned to support the payment of a proposed 1.5p a share annual dividend in addition to any value enhancement resulting from the shares trading closer to tangible book value.

Mr Tchenguiz believes that Urban Exposure’s tangible net asset value would be £120m (45p a share post the dividend of 35p a share) after implementation of all the proposals, of which the company would retain £35m in cash. Urban Exposure’s directors are considering the proposal, but have also announced that they have received a number of additional proposals which they are considering along with other value enhancing opportunities, too.

Either way, I can see Urban Exposure’s share price discount to book value continuing to narrow, one reason why I first highlighted the investment case around the current price in my March 2019 Alpha Report, since when the board has paid out 3.34p a share of dividends. Buy.


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