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Markus Sterling

Markus Sterling
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  • NTS Realty Holdings: Merger Termination Leads To Significant Downside Risks [View article]

    Thanks for your comment. I am intrigued.

    What were the plans NTS discussed that impressed you? Living in Maine, I am not able to travel to Louisville. Would appreciate your thoughts. Which good properties have you visited? What impressed you?

    On valuation for the company standalone, I agree with you. I think $2.50 - $3.00 is a low - high range for current fair value.

    By any chance, have you already looked at the NTS Realty relationship with NTS Development?

    My first impression is that the whole construct looks like a red flag as in
    2012, for example, out of 57m revenue, 6.2m + 1.9m was paid to NTS
    Development (the affiliate) and another 2.9m was paid in management fees. And on top of this, they booked another 15.6m in operating expenses.

    There is no way for shareholders like me to evaluate whether these huge fees and reimbursements were justified or just went straight to Mr Nichols pocket because the 10-k just states some arbitrary percentage fees that are charged but doesn't explain why so much value goes to NTS Development. As a result, full disclosure, I will sell all my shares owned this week at the current market price of $4.20.

    For instance, out of $100 of rental income the company spends $47 in operating expenses and professional and administrative expenses (excluding insurance, management fee, depreciation, interest etc). I mean how can it cost almost half the rent to just maintain and "operate" an apartment. One would have to assume that they constantly waste money on all kinds of staff such as gardeners, security personnel, building managers, cleaning services etc. or, what I suspect, just put the money in their own pockets.
    Oct 22, 2013. 10:15 PM | 1 Like Like |Link to Comment
  • NTS Realty Running Out The Clock [View article]
    October 18, 2013 (after market-close): NLP announces termination of merger agreement:

    1) Merger offer price was $7.50

    2) Current price is $4.75

    3) Unaffected price (from August 31, 2012, before a merger offer was made) was $2.94 (adjusted for dividends paid)

    4) Expected trading price on or after October 21, 2013 (when markets re-open): $2.94 or less

    => This implied a share price decline of ~38% or more

    Owing to the transaction offer price of $7.50 no longer being offered and valid, market participants are likely to reduce / sell their stock such that NLP will decline below $2.94 on high volume and as everyone rushes out the door and there is unfortunately only one door and no natural buyer.
    Oct 19, 2013. 10:01 AM | Likes Like |Link to Comment
  • NTS Realty Running Out The Clock [View article]
    Well done Celeste!

    Your in-depth analysis of the legal and timing-related red flags complements nicely the previous write-up that was more general and outlined the key risks.

    I had initially underestimated the litigation risks. I see now I was wrong as you note that the lawsuits are likely to stay for a while, raise the risks of deal delay and/or adverse deal termination. Handicapping the legal outcome, it is hard to conceive that the lawsuits will be dismissed at an immaterial cost (of time/money) to the Buyer Group.

    At the same time, the Buyer Group risks losing its only financing source as time passes and as financing costs continue to rise at an accelerated path. Note that the benchmark 10-year US interest rate is now at 3.00% vs. 1.75% in December 2012, feeding negatively into the interest rates paid by consumer, homeowners, and current and prospective borrowers.

    Lastly, I would be interested in your thoughts of the standalone value of NLP if the merger deal at $7.50 were to break. Have you done more work on the downside? Is it ~$3.07 or lower? Is the future looking good for the company? Is the company well-positioned to ride higher financing costs going forward?
    Sep 12, 2013. 02:59 PM | Likes Like |Link to Comment
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