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Jun 5, 2023Liked by Adrian Ford

Thanks for this, as a holder of RLE this is an interesting comp. There seems to be £18m debt proforma all the disposals and selling the remaining flats will only clear £8m of that if they get the same price per flat as they got for the others. So £9m (After central costs but before the small remaining interest) / (100m mcap + 10m debt post flat sales) = 8.2% yield. Which is good but not as exceptional as it looked.

Put another way, it trades on 75% of NAV or 78% of GAV, which isn't terribly discounted. RLE, more levered, is <50% of NAV and c. 67% of GAV.

The admin costs are an intolerable burden on these subscale-and-shrinking REITs, £4m here and over £3m at RLE. They should be taken out or at least merge for some scale.

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Thank you for a very interesting write up. What are the realistic chances that the management will go to an extreme unlevered scenario with the company? I believe that unless that has been directly communicated to shareholders (I am not aware of this) the most likely scenario will be one with some leverage - probably lower than currently which will not help crystalize the undervaluation in this. Worst case they get involved in some development project and all the upside is gone. Interested to hear your thoughts on this. Thanks

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Great question, thanks Lochness. Embarking on another development project is a risk. But given the reduced management team, and no stated plans to replace the CEO function, I think returning to a growth strategy is unlikely. Instead, I expect a multi-year liquidation or a sale. Reducing debt to zero could make sense in both these scenarios given the cost of debt financing.

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