Update on US Masters Residential (URF) – vote AGAINST all resolutions at prospective Keybridge meeting

(Please note given the importance of getting the word out and short timeline before the prospective Keybridge meeting, this note is open access, ie not behind the normal paywall. Please feel free to share widely).

Yesterday Keybridge Capital, an entity associated with an Australian ‘activist’, Nicholas Bolton, filed a substantial shareholder notice with a 9.2% diluted shareholding in URF, most all of which is held through the prefs (URFPA). Included in the shareholder filing is a Notice of Meeting, purporting to call a meeting of all members at the Keybridge offices for December 30th – that is, just 17 days from now. Apparently this Notice of Meeting was called on December 9th, thus meeting the statutory minimum according to Australian rules (though I didn’t, and still haven’t received, any direct Notice).

Putting aside this and other questionable aspects of the Notice, which shall be discussed, if said meeting goes ahead, Mr Bolton will be soliciting unitholder and Prefholder votes on the following resolutions:

There is no subterfuge to what is going on here. Mr Bolton’s group is overwhelmingly long the prefs, which are slated to be converted – as has been announced by the Responsible Entity – on January 3, 2023, thus equalizing the capital structure with the equity and providing for lower interest burden and a smoother path towards positive free cash flow for the Fund. The reasoning was explained, at length, by the RE, here – but in any case there is no dispute that the RE has the right to force conversion of the Prefs, as said terms are specifically outlined in the Pref prospectus:

Thus while Mr Bolton and his group portrays this delay, and selection of a new RE, as being the most equitable outcome for all shareholders, in reality it completely favors the Prefholders at the total detriment of common unitholders. This is because the Pref claim, if unconverted, will remain a Par claim – a claim that Mr Bolton would ideally preserve through a near-term if not immediate liquidation or formal wind-up of the Fund. Such a wind-up is not only totally unnecessary, it would act counter to the mid-term value creation now being engendered by the current RE, through the ongoing accretive buyback program; the externalization of management of the fund by credible professionals, who themselves are buying equity in the Fund; and of course via the equalization of the capital structure through the Pref Conversion.

Moreover I believe Mr Bolton may be wilfully misleading unitholders when he claims says the following:

Note that NO replacement RE has yet been proposed, and there is NO guarantee that Mr Bolton will put one forward (or that said RE will be any better than the current one). As it is, however, there is a particular clause in the Corporations Act that allows for a registered scheme to be forcibly wound up – obviously solely to the Prefholders benefit – if a Meeting votes out the current RE without simultaneously voting in a new RE:

Mr Bolton has quite a checkered history as a corporate operator and previously served a 3 year director and management ban, as imposed by ASIC, for his involvement in the failure of 13 corporations (see here). I will not speculate as to his character but I am not about to let him, or his group, call the shots here.

Luckily even if this spurious meeting is deemed legal and occurs we have the run of the numbers. The Bolton group would need simple majorities of the votes on any given resolution; since the diluted sharecount is split basically 50/50 between units and Prefs (I believe 373mm fully diluted shares from the Prefs, and 383 fully diluted units are outstanding), you would need to see very low participation of voting unitholders and very high, and uniform support, from voting Prefholders. As it stands, a number of large Pref and unitholders – such as Samuel Terry Asset Management, the largest look-through shareholder at 11% diluted ownership – has already denounced the plan, thus:

So, I would advise all those involved in this situation following my work – who I believe would most entirely own the common units, the security that would be totally disenfranchised should these resolutions pass – to VOTE AGAINST ALL THREE RESOLUTIONS via submitting proxy forms, preferably to the Responsible Entity (to avoid any counting/trust issues if sent to Keybridge), 48 HOURS BEFORE THE VOTE, that is, by December 28, 3pm Melbourne time.

I intend to vote all my shares against in this manner. Join me in defeating this injurious proposal and allowing the RE to continue closing the valuation gap in the common units, over time.

Disclosure: long URF.AX

16 thoughts on “Update on US Masters Residential (URF) – vote AGAINST all resolutions at prospective Keybridge meeting

  1. Thanks for highlighting this.

    It seems that Interactive brokers does not show this corporate action, which means that one has to submit it manually via Help > Secure Message Center and then Compose > New Ticket > Category = Account Services > Topic = Corporate Actions/Dividends.

    Could somebody with experience (Jeremy?) please share the TEXT to submit such that the novices among us do not screw up?

    Thanks a ton in advance.

      • I got instructions from IB on how to submit a ticket for proxy votes. It seemed easier than submitting to RE but anyone feel free to correct me if I’m mistaken. I included information which is the same for all of us where necessary, to make it easier. See below for IB instructions:

        ASX shares are held in direct nominee custody, and corporate actions/votes are all submitted via our custodian, BNP Paribas.

        In order to participate in shareholder meetings for ASX listed companies, you will need to submit a ticket via Message Center and indicate your responses to the resolutions and the number of shares you would like to submit as part of the vote. Log in to Client Portal and navigate to Help followed by Secure Message Center. Click Compose followed by New Ticket to launch a new Inquiry Ticket. Select Account Services as the Category followed by Proxy/Shareholder Meetings, then type “ASX (Stock Ticker) Proxy Vote Submission” as the subject.

        Please provide your instructions at least 8 business days prior to the meeting for IBKR Australia and our agent to have sufficient time for processing. We will process your instructions on a best effort basis. Please do not contact BNP directly.

        Please ensure you create a ticket under the category Account Services / Proxy/Shareholder Meetings on the Message Center with all of the following information to avoid any delays:

        Ticket Subject ASX (URF.ASX) Proxy Vote Submission
        30 Dec 2022
        Confirm the IBKR Australia account number to vote
        Number of shares to vote
        EACH resolution item vote direction (FOR/AGAINST/ABSTAIN)
        AGAINST – Resolution 1 Delay of CPU Conversion*
        AGAINST – Resolution 2 Removal of Responsible Entity AGAINST
        AGAINST – Resolution 3 Appointment of new Responsible Entity
        I agree this ticket submission is final and irrevocable and the shares will not be sold prior to the meeting date
        I agree to the AUD 20 processing fee

      • Concerning IB proxy vote submission – they say to submit 8 biz days prior so get on it asap if you can!

    • updates:

      1) STAM is now up to 13% look through ownership. it appears they in-housed a block of shares from their custodian (ie, moved them from owning in street name to their own name), likely specifically so they could vote these shares. this is obviously a huge stake in the pro-forma entity and will be voting against the Keybridge agenda.

      2) the company/RE filed a court case alleging the meeting is basically illegal on numerous fronts. I agree with much of the content, and even if the vote goes ahead, it seems reasonably likely that a court will throw out the result (and make Keybridge pay costs). the biggest violation appears to be the lack of relevant notice for a meeting, and also the timing of the meeting (being held in a window the Corporations Act specifically suggests should not really be used due to holidays, etc).

      The issue of whether the pref conversion could even validly be paused, given it has already been validly executed/ordered under URF’s constitution, is also inviolate, in my view.

      All in all this should be a temporary sideshow and i expect to move past this towards better and more fruitful uses of our time and energy in the near future.

      • Can you give your view on why you think the URFs are trading at approximately a 54% discount to the fully diluted (after tax) NAV?
        Is the true liquidation value of the property portfolio that much lower? I hold prefs, and held them for the distributions, and the fact that ostensibly they ranked ahead of ords in a liquidation scenario. What the RE is doing is converting them, effectively transferring value to the ordinary units, and THEN liquidating. Is that truly “in the interests of all unit holders?” Did they truly look at all plausible options? If they are worried about cash flow, as they claim in the response to the NoM, why are they spending tens of millions of dollars buying back units?

    • Interestingly, it looks like on Dec 16 Keybridge sold 1.6M shares of URF (63% of their holdings) and 19k shares of URFPA (11% of their holdings) taking them a little under the 5% reporting threshold.

      No idea what shenanigans are afoot.

      • actually one of the owners in their group just pulled out of the group (no shares were sold). its all a moot point now as the meeting will not happen since it was deemed illegal. but thank you all for your focus on this and making sure we got the right outcome.

        we can now allow the CPUs to be converted, and the value accretion from the buyback should restart shortly.

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