DWS Real Estate Fund II: Expect Shareholders to Succeed with Liquidation at Full NAV 15 comments
an article to
-
Font Size:
-
Print
- TweetThis
Seeking Alpha has published a number of articles on DWS RREEF Real Estate Fund (SRQ) and DWS RREEF Real Estate Fund II (SRO). I'll reflect on a timely financial opportunity apparent thanks to newly public information, which has not been publicized.
SRO currently trades at less than 80 cents per dollar of NAV and I believe shareholders' second opportunity to liquidate the fund at NAV will be successful. On the afternoon of Thursday, August 20th, 2009, DWS made public with little publicity the actual voting results from the earlier liquidation votes.
In the case of SRO, voting polled more than 2-to-1 in favor of liquidation. Thie writing is clearly on the wall, and everybody can now read it. Those who desired reassigning advisory fees to liquidation were never foolish; they were acting in their own unique interests. All shareholders will now recognize that SRO's contracts will never be reassigned. Even the uniquely motivated shareholders who wanted to redirect assets under management fees to certain related private companies are not so foolish to vote against liquidation this time.
The actual results released yesterday are in sharp contrast to market prior assumptions reflected in "Voters Have Spoken". The new public information will inherently create a more logical shareholder base as intelligent market participants buy SRO at even narrow discounts with full confidence in a successful liquidation.
Its easy to criticize DWS given 2008's NAV performance of both SRQ and SRO. But those with savvy and market maturity have to applaud their governance -- DWS is sacrificing both total assets under management and its management fee rate for shareholder benefit. DWS is not choosing to hold their shareholders captive with only the option of selling their shares below NAV.
DWS is in the assets under management business does not want to generally lose assets under management in general. DWS does want to do what is right for their shareholders given what already occurred. Every shareholder can move on and choose any portfolio manager they wish (including the opportunity to invest in the alternate management's existing funds at a huge discount).
Much as $1 is better than 80 cents, a liquidity event is a better alternative than no liquidity event. It appauls me to read propaganda designed to influence average shareholders into ignoring common sense.
Disclosure: Long both SRO and SRQ.
Related Articles
|
-
The Seeking Alpha 100
See allThe top 100 stock
market authors
selected for publication
Seeking Alpha 100 » -
Fastest Climbers
Authors with the largestSee all
increase in followers
in the last 7 days
Fastest Climbers » -
Top Commenters
Top commenters,See all
as ranked by their peers
Top Commenters » -
Top Instabloggers
The 100 most active
Instabloggers.-
1
David Fry
-
2
TraderMark
-
3
Don Dion
-
4
Cliff Wachtel
-
5
Joseph L. Sha...
Top Instabloggers » -
1
-
Top StockTalkers
TopSee all
StockTalkers.
Top StockTalkers »
Does the portfolio risk of SRO and SRQ concern you? SRO is hard to get into because of the value... is the prospect of SRQ liquidating as good as SRO?
Is SRO a better or worse idea than BIF?
On Aug 21 01:16 PM oldfisherman wrote:
> Nice to read something intelligent in the Closed-End Fund Space that
> isn't just bogus propaganda again... Very thankful to have you writing
> here again, Dan! Some of the garbage that gets published on SA in
> the Closed-End Fund space is obvious propaganda... worse than having
> no information at all.
>
> Does the portfolio risk of SRO and SRQ concern you? SRO is hard to
> get into because of the value... is the prospect of SRQ liquidating
> as good as SRO?
>
> Is SRO a better or worse idea than BIF?
No, the prospect of liquidation is not nearly as strong for SRQ as SRO. As even Gwailo noted in his piece... DWS did not really employ a significant solicitation strategy for either fund last time. As you probably know, there is a block shareholder who wants to assign assets under management fee contracts to Private Companies beneficially owned by the same family. In my view, the prior results' "votes against" show that block shareholders' voting power (possibly including its sphere of influence). That voting power certainly is inclined to vote against SRQ liquidating if it thinks that in time it can obtain a voting majority itself. That same voting block is just not significant in SRO, and thanks to constraints dictated in the SRO Rights Announcement, it never will be. There are more details which would be less easy for a novice to understand which contribute to the same ultimate conclusion. Put simply, nearly anything could happen SRQ.
Comparing to the other "idea" you mentioned... BIF. I would best characterize each of these as "special situations" than "ideas". Having said that, I know things about the BIF situation that you don't, and which I'm not in a position to write about right now. I expect a much greater financial performance for all shareholders of BIF, and thus my financial position in BIF is much, much larger. Published NAV of BIF ignores much of what public shareholders are entitled to and will ultimately receive, in my view. In the case of SRO, the pie only gets bigger based on portfolio performance.
On Aug 21 01:16 PM oldfisherman wrote:
> Nice to read something intelligent in the Closed-End Fund Space that
> isn't just bogus propaganda again... Very thankful to have you writing
> here again, Dan! Some of the garbage that gets published on SA in
> the Closed-End Fund space is obvious propaganda... worse than having
> no information at all.
>
> Does the portfolio risk of SRO and SRQ concern you? SRO is hard to
> get into because of the value... is the prospect of SRQ liquidating
> as good as SRO?
>
> Is SRO a better or worse idea than BIF?
You are a "interesting" or "funny" guy... distributions are not being paid by the funds managed by the alternate group either... and management fees are far higher. Of course many may assume otherwise if they read statements from an opposing control group's spokesperson. Gee, what were you trying to imply?
I haven't seen anyone at DWS make misleading statements intended to take advantage of an unsophisticated and emotionally-tarnished public.
DWS has in the last week truly committed SRO and SRQ to corporate governance that truly serves its shareholders, sacrificing DWS' revenues. I believe DWS and parent company Deutsche Bank have actually learned that honoring its Fiduciary Duty is paramount in determining their own long term course.
Deutsche Band and DWS have demonstrated positive character. I believe that in choosing to commit itself to SRO and SRQ shareholders, DWS and parent Deutshe Bank realized that Character is Paramount in the long term. True, their managers did not see last years market challenges coming and the suffered tremendous misfortune as a result. This year certain other managers terribly mispositioned their portfolios. Nobody has a crystal ball for market performance, but governance and ethics are in a category of their own -- and clear Fiduciary Breaches are transparent to experts.
Boy, I've been long-winded here.. you'll have to forgive that I have a great deal of conviction in some details that lead to the simple explanation to the potential concern you have brought up...
There is no meaningful opposing SRO voting block. The reason the first vote failed was not the way votes were being cast, rather how many came in. At the time, DWS had not planned for the possibility of a meaningful challenge to liquidation. I've asked important questions. I've had important conversations with important people. They are committed now. Generally, its the Chairman of the Board that decides whether it is in all shareholders best interest to adjourn a meeting to solicit additional votes. The ability to adjourn a meeting exists because some Chairman might do so in shareholders' interests. Again, Deutshe Bank and DWS are taking a stand here (for shareholder benefit) and frankly I believe the benefit to their reputations will warrant both the lost business and headache's they have accepted to fulfill their Fiduciary Duty.
On Aug 21 05:59 PM ers wrote:
> They are still 5 million votes short of a majority 19mil is 50% of
> 38mm outstanding! How do they get these votes?? No dividends are
> being paid..just to the bored of directors!.these stocks have such
> canine qualities they should be wearing Vic's jersey on them!!<br/>
As the would-be new manager was able to only garner 1/3 of the votes cast it may inspire a reconsideration of the likelhood of acquisition of the management contract and thus from my perch it looks like they'd bite on the next chance. It would would have been cheaper and certainly more effective for them to simply have bought the contracts from DWS. That may well be the route they'll follow in the future for other such situations. This time though all shareholders would seem likely to benefit with a second vote. that should pass.
Closed-End Fund market pricing can be tremendously inefficient. I am not merely referring to general discounts. People like myself often know things that would have tremendous affects on market pricing. Despite obtaining knowledge legally and being able to trade on that knowledge ourselves, we may have limitations discouraging us from ourselves putting some types of market price affecting knowledge into the public domain.
As you may know, I did not anticipate liquidation success in the first go around (and thus did not take any financial position prior to the first liquidation vote). In fairness, please do not assume that my position in SRQ is in any similar size to my position of SRO. SRQ is my smallest position. SRO is my second largest position but itself is a very distant second to my largest position. I have no trading restrictions on anything I do.
Being prudent, the Board must consider the shareholder and do what is prudent for the shareholders. When a fund is trading for a 20% discount to NAV, an immediate 25% return can be realized by liquidating the fund. Of course, 25% returns could be attained via portfolio gains (with risk, as SRO and SRQ shareholders should now well understand).
Liquidating a fund does not inhibit the shareholder from also achieving portfolio gains. Shareholders can take the immediate 25% gain in liquidation and then invest 125% of their prior $ into any portfolio they wish -- possibly even buying a portfolio managed by an alternate manager itself trading around a 20% discount to NAV.
If the Board's interest was for the Advisor and their fee revenues, it would be fighting to prevent liquidation. On the face of it, the Board's interest appears to be for its shareholders. With the fund trading around a 20% discount, they basically are willing to give everybody $125 for each $100 in shareholder market value.
Then, each shareholder can decide for themselves what manager is best suited to aid them from there...
www.dws-investments.co...
www.sec.gov/Archives/e...
Regarding the SEC Filing, why do you think they sold on the secondary market and filed a 13-D amend generically mentioning "liquidating" rather than issuing a press release specifically indicating their intention to vote for liquidation.
As I commented yesterday, my confidence in timely liquidation has decreased significantly since writing this piece -- this is no reflection of any problem with voting challenges.
On Sep 02 11:21 AM Pat Shuff wrote:
> Horejsi bailing out of SRO
>
> www.sec.gov/Archives/e...
On Sep 02 03:43 PM Dan Plettner wrote:
> No question in my mind that a liquidation vote would/will pass...
> that's not my fear.
>
> Regarding the SEC Filing, why do you think they sold on the secondary
> market and filed a 13-D amend generically mentioning "liquidating"
> rather than issuing a press release specifically indicating their
> intention to vote for liquidation.
>
> As I commented yesterday, my confidence in timely liquidation has
> decreased significantly since writing this piece -- this is no reflection
> of any problem with voting challenges.
On Sep 09 01:35 PM cef watcher wrote:
> why has your confidence in a timely liquidation decreased? the board
> has essentially said that they will put this to vote again at the
> next meeting, after which there should be a liquidation.
DWS RREEF Real Estate Fund, Inc and DWS RREEF Real Estate Fund II, Inc. Announce Annual Meeting of Stockholders
"...In the event that stockholders approve the Plan of Liquidation and Dissolution being proposed at each Fund's upcoming Annual Meeting, it is possible that implementation of the Plan of Liquidation and Dissolution could be delayed or otherwise affected if this litigation is still pending at the time, although there is currently no certainty as to whether or how the pending litigation might affect a Plan’s implementation. Further details will be provided in each Fund's proxy statement for the Annual Meeting...."
On Sep 10 09:37 PM Dan Plettner wrote:
> I'm not going to be detailing the new issue in print. I do try and
> make myself pretty available to other shareholders. If you'd like
> to speak to me, simply shoot an e-mail to plettner@fuse.net with
> your contact info.