Author Topic: UDFI - United Development Funding IV  (Read 7524 times)

Maple Fun

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UDFI - United Development Funding IV
« on: April 18, 2020, 03:31:30 PM »
I am struggling with this one. Any comments welcome. Below are some of my notes:

1. UDFI is a dark REIT: the most recent unaudited FS is as of Sep 30, 2015 (very out-dated): $684 m total assets, $510 m common share equity, 30.7 m S/O, $16.6 BVPS. Most of assets were notes receivables in real estate projects in Dallas/Austin, Texas. See page 45-49 of Form 10Q filed on Nov 9, 2015.

2. UDFI was targeted/shorted by Kyle Bass in 2015/2016: the most recent update here: https://www.globenewswire.com/news-release/2020/01/22/1973613/0/en/UDF-Files-Brief-to-Oppose-Kyle-Bass-and-Hayman-Capital-Appeal-to-Texas-Supreme-Court.html

3. Paid two dividends in 2019: $0.065 per share each, $0.13 total. The current share price was $1.6 as of 4/17/2020.

4. NexPoint Advisors/James D. Dondero were accumulating shares: they filed SC13G in 2019 (6.7%) and SC13G/A in 2020 (9.6%)
« Last Edit: April 18, 2020, 03:34:04 PM by Maple Fun »


writser

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Re: UDFI - United Development Funding IV
« Reply #1 on: April 20, 2020, 08:05:06 AM »
The bull case is pretty well articulated in a 2019 VIC pitch. If you haven't read that piece I suggest you do. It's actually one of my larger positions. Lots of uncertainty and unknowns but barring some disasters I think you can make a pretty convincing case it is worth multiples of its current market cap.
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Maple Fun

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Re: UDFI - United Development Funding IV
« Reply #2 on: April 20, 2020, 01:28:12 PM »
The bull case is pretty well articulated in a 2019 VIC pitch. If you haven't read that piece I suggest you do. It's actually one of my larger positions. Lots of uncertainty and unknowns but barring some disasters I think you can make a pretty convincing case it is worth multiples of its current market cap.

Thanks. It's a very bullish post.

Foreign Tuffett

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Re: UDFI - United Development Funding IV
« Reply #3 on: April 21, 2020, 12:25:33 PM »
Doing some work on this today. I would appreciate if writser or anyone else familiar with the situation could weigh in on the following questions:

1) Has management made any statements regarding why no financials have been released since the Q that ended Sept 30th 2015? What is stopping them from filing the 10-K for 2016? In other extended filings deliquencies situations discussed on this board (SMCI, Solitron Devices, and TLF), the reasons for the deliquencies have involved laborious inventory restatements, but that clearly isn't the case here.

2) Does the lawsuit against Hayman have much merit? While some of the Hayman claims were hyperbolic, and possibly in bad faith, United Development settled with the SEC for millions of dollars, PCAOB disciplined its former auditor, and the it has been unable to file financials for years.

3) I would characterize some of the actions reported by the PCAOB as ponzi like:

"During the 2013 audits, the engagement teams learned that UDF IV transferred $1.2 million to UDF III in January 2014 so that UDF III, which otherwise lacked sufficient cash, could make distributions to its investors that same day. The engagement teams also understood that the transfer had been recorded as loans by UDF IV to third-party borrowers and paydowns of loans by those same borrowers to UDF III, even though: (a) UDF IV and UDF III's joint management had initiated the transfer, without the prior request or approval of any third-party borrower; (b) the transfer flowed directly from UDF IV to UDF III without notice to any third-party borrower; and (c) UDF IV and UDF III's joint management had unilaterally selected which third-party borrower and loans it would use to record the transfer, and did not finalize that selection until after the transfer had already been completed."

https://udfexposed.com/assets/content/105-2020-002-Whitley-Penn.pdf

4) With the exception of the former Chief Accounting Officer, the entire management team appears to be unchanged. Given all that has transpired I find that disturbing.

5) Any thoughts on the two distributions in 2H 2019? Why those amounts? Why those dates (four months apart?)? The company used to pay $0.1367 per month.

6) From the 3/2019 VIC article: "UDF IV has been repaying its debt down from $170.9 to $7.5m, per 5 August 2017, as per 8-K filings." I can't locate a 8-K that states this.


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Hielko

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Re: UDFI - United Development Funding IV
« Reply #4 on: April 21, 2020, 12:53:12 PM »
1) No, haven't really heard a good explanation why this is taking so long.

2) I'm not a lawyer, but if you read this: http://www.udfonline.com/litigation/ then it seems that it is not without merit. And while settling for a couple of millions with the SEC isn't exactly good news, you're also not able to do that if they think you're a massive fraud.

3) It's certainly sketchy.

4) True

5) Whatever the reason, I think it can only be a positive right?

6) https://www.sec.gov/Archives/edgar/data/1440292/000114420417024992/v466294_ex99-1.htm

writser

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Re: UDFI - United Development Funding IV
« Reply #5 on: April 21, 2020, 01:13:45 PM »
Was typing some stuff but Hielko was faster .. I'd add:

1: Some info in this letter to the SEC from late 2018: https://www.sec.gov/litigation/apdocuments/3-18832-event-5.pdf . Summary: UDFI had to find a new auditor - auditor wasn't able to get any work done during legal proceedings. Document is an interesting read, gives you some insight in the whole mess and it offers AN explanation for the delayed filings. Whether it is a GOOD explanation ..  Also, of course there they stated they expected to file 2018 financials before July 2019 - again 9 months overdue.

2: Hard to judge. Definitely there were some shady things going on at UDFI. On the other hand, Bass was marketing a distressed opportunity fund to try and buy the UDFI assets in a fire sale during his campaign (details in here: https://www.sec.gov/litigation/apdocuments/3-18832-event-12.pdf). Not exactly a class act and a bit strange if your short pitch is 'it's a Ponzi'. Also, after an extensive SEC investigation UDFI insiders had to pay a fine, yes, but nobody is in jail and in fact nobody was even barred from continuing to manage UDF. That doesn't exactly suggest a Ponzi scheme nor gross criminal conduct. Also, so far the court rulings suggest the UDFI case isn't completely without merit.
« Last Edit: April 21, 2020, 01:26:47 PM by writser »
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Foreign Tuffett

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Re: UDFI - United Development Funding IV
« Reply #6 on: June 15, 2020, 08:42:52 AM »
Thanks for the extensive responses, very helpful. I did end up buying a little bit of UDFI -- tough to pass up the possibly of tremendous (multiples of current stock price) latent value. It is the epitome of a deep value type investment.

News out yesterday that SEC is apparently investigating Bass over his short attack on the company. I may have been much too quick to write off UDFI's lawsuit against Bass/Hayman.

https://www.bloomberg.com/news/articles/2020-06-14/sec-probing-kyle-bass-s-statements-over-udf-short-position-dj
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writser

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Re: UDFI - United Development Funding IV
« Reply #7 on: June 15, 2020, 08:57:37 AM »
The following snippet caught my attention:
Quote
The U.S. attorney’s office in Dallas is continuing a criminal investigation into UDF, according to people familiar with the matter.

Is this a new investigation?
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Maple Fun

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Re: UDFI - United Development Funding IV
« Reply #8 on: June 15, 2020, 10:27:49 AM »
Thanks for the extensive responses, very helpful. I did end up buying a little bit of UDFI -- tough to pass up the possibly of tremendous (multiples of current stock price) latent value. It is the epitome of a deep value type investment.

News out yesterday that SEC is apparently investigating Bass over his short attack on the company. I may have been much too quick to write off UDFI's lawsuit against Bass/Hayman.

https://www.bloomberg.com/news/articles/2020-06-14/sec-probing-kyle-bass-s-statements-over-udf-short-position-dj

Surprised no price jump on the news.....

Foreign Tuffett

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Re: UDFI - United Development Funding IV
« Reply #9 on: June 15, 2020, 11:31:56 AM »
The following snippet caught my attention:
Quote
The U.S. attorney’s office in Dallas is continuing a criminal investigation into UDF, according to people familiar with the matter.

Is this a new investigation?

Surely it's a continuation of the same investigation that resulted in the February 2016 FBI raid? It has been well over four years, I think an argument can be made that, if charges were going to be brought, we already would have seen it.

The MiMedx situation is probably a more typical timeline: Justice Department opened investigation in 2018, and charges were brought in late 2019.
Former Teldar Paper Vice President