Tchenguiz Tries To Restructure Listed Property Lender

It was a strategy that went spectacularly wrong during the financial crisis. But entrepreneur Robert Tchenguiz has once again built up a big stake in a listed company with property assets with a view to restructuring it and turning a profit.

Tchenguiz’s R20 group revealed it had put a restructuring proposal to listed residential development lender Urban Exposure, which he said would improve the company’s share price. Tchenguiz has built up a 12% stake in the company in the past six months, which is likely to have cost about £11M to amass, given Urban Exposure’s share price over that period.

Urban Exposure makes residential development loans, mainly in London, using its own balance sheet and also funds from investors, including KKR. The company had a loan book of £564M at the end of June, which it said it expected to grow to as much as £1B by the end of the year.

In a letter to the company, Tchenguiz pointed out that the company’s shares were trading at a 25% discount to the company’s net asset value. In order to narrow this discount, he proposed that the company be managed by an external firm, rather than having an internal management as it does today. He said this would save it up to £13M a year, and align with similar listed debt funds like those externally managed by Starwood and Cheyne Capital.

Those companies do not have such big discounts to NAV, he said. He said his company would have a minority stake in that management company.

Tchenguiz also proposed that the company pay a special dividend of 30p a share, which would mean a £45M payment, and also issue £35M of new shares. He said he would underwrite the share issue up to an amount which gave him just less than a 30% stake in the company.

“R20’s view is that [Urban Exposure’s] underperformance is driven in a large part by the current structure of the company including high management costs which sit on the company’s bottom line,” R20 said in a preface to its proposal.

“The board of Urban Exposure will evaluate the proposal from R20 and will issue a further statement if and when appropriate,” Urban Exposure said.

Tchenguiz has a long history of trying to influence the strategy of companies with big real estate holdings, which cost him huge losses during the financial crisis.

He built up big stakes in supermarket chain Sainsbury’s and pub company Mitchells & Butler in 2006 and 2007. He pushed the companies to become REITs, arguing that the value of their property holdings was greater than the value of the rest of their business, and so the conversion would unlock value.

But he built the stakes using money borrowed from Icelandic bank Kaupthing and using contracts for difference, a financial instrument that allows investors to borrow shares and pay the full price later.

When the financial crisis hit, the value of the shares fell below the amount he had borrowed to pay for them, and in 2008 the bank — itself facing bankruptcy — called in its loans, meaning Tchenguiz lost more than £800M in a single day.

The structure of the borrowings he and his brother Vincent took from Kaupthing was investigated by the Serious Fraud Office, leading to the high-profile arrest of the brothers as they were about to depart for the Mipim property conference.

But the investigation was dropped and the brothers sued the SFO, receiving £4.5M in damages.

Tchenguiz has made a much smaller bet in his activist strategies this time around. But he has clearly not lost his appetite to push companies to change.