The Ottoman Fund (OTM) Limited is a closed-ended, investment company that was created in December 2005 with the objective of providing shareholders with long term capital appreciation from investments in the Turkish property market through an AIM listed vehicle. The fund’s declared strategy was to focus on new-build residential properties in major cities and coastal destinations popular with both local and tourist markets. The AIM floatation raised £150m through the placing of 150m shares of £1 each with subscribers.
The initial beneficiary of the floatation proceeds were four apartment blocks in Alanya measuring approximately 15,000 square meters with a scheduled completion date of 2006 and a price tag of EUR 11.2m. Alanya was described in the floatation documents as one of the most popular coastal resort areas patronized by the Germans, Dutch and Austrians buyers. In 2006, the company invested $34.4m in 167,000 square metres of seafront development land on the Bodrum peninsula located 50km from Bodrum airport. This was followed by the acquisition of 99 parcels of Riva land for $110m in September 2006. A further investment was made in Kazikli before the shareholder announcement on 1st November 2007 that “the Board of the Ottoman Fund announced that the Company’s real estate projects (located in Alanya, Golturkbuku/Bodrum, Kazikli and Riva) were to be progressively realised in a managed way over eighteen to twenty-four months.” This announcement caused Oodutty forager’s radar to lock onto OTM as a potential value stripping target.
It can be said that throughout its existence, the management of OTM can be credited with not holding back when it came to explaining the hurdles and issues of managing their Turkish assets whether it be geopolitical, lackadaisical property maintenance and management, currency exchange or other operational risks. Further, since inception, the company’s reported property valuations have been based on the opinions of two independent appraisers, Savills and TSKB and more recently BNP Paribas and TSKB. So, given that all the right boxes appear to have been ticked, is there still value left to be stripped out of OTM?
In April 2011, the company had disposed of its Kazikli investment and more recently, in May 2014, the remaining Riva land parcels were disposed of for a total consideration of $32,210,482.67 which approximated to the Company’s latest reported book value for the investment. A distribution of the Riva land proceeds plus proceeds from its subsidiary in Turkey is expected to be distributed in August 2014.
OTM’s basic value Analysis
| Shares in issue | 134,764,709 |
| Market Capitalisation | £37,734,119 |
| Share price (18-Jul-14) | £0.2800 |
| £ Premium/(Discount) | (£0.2260) |
| % Premium/(Discount) | (44.66%) |
| Reported NAV (28-Feb-2014) | £0.5060 |
As shown in the basic value analysis above, the current OTM share price of 28p is trading at a 44.66% discount to the reported NAV of 50.60p which is equivalent to paying 28p for every 50.60p of OTM assets. However, the reported NAV needs to be updated to account for the 8 May 2014 capital distribution to shareholders of 20p per share and the proceeds from the final disposal of Riva land equivalent to 14p per share received on 15 May 2014. Further, on 25 July 2014, the company announced that Bodrum was realised for $28.5m which crystallises a 12.5p contribution to the NAV. The revised NAV calculation is now estimated below as 33.38p using an exchange rate of £1 = $1.70. Without factoring any potential net proceeds from the impending capital reduction at OTM’s Turkish subsidiary, the revised NAV changes the share price discount to NAV to 5.38p or 16.13%.
| Investment | BV (USD) | BV (GBP) | BV ps (cent) | BV ps (p) |
| Realised | ||||
| Cash and cash equivalents (Feb’14) | $64,300,742 | £37,877,440 | 47.7133 | 28.1063 |
| Capital distribution (08-May-14) | ($45,835,200) | (£27,000,000) | (34.0113) | (20.0349) |
| Riva proceeds (15-May-14) | $32,200,000 | £18,967,955 | 23.8935 | 14.0749 |
| Bodrum proceeds (25-Jul-14) | $28,500,000 | £16,788,407 | 21.1480 | 12.4576 |
| Realised total | $79,165,542 | £46,633,802 | 58.7435 | 34.6039 |
| Unrealised | ||||
| Alanya | $3,416,500 | £2,012,547 | 2.5352 | 1.4934 |
| Net Receivables/(Payables) | ($6,205,234) | (£3,655,298) | (4.6045) | (2.7124) |
| Unrealised total | ($2,788,734) | (£1,642,751) | (2.0693) | (1.2190) |
| Total revised NAV | $76,376,808 | £44,991,051 | 56.6742 | 33.3849 |
The revised NAV of 33.38p above is split between a realised element of 34.6p and an unrealised element of approximately (1.22p). The negative unrealised element is the result of offsetting net payables of (£3.7m) against the Alanya investment book value of £2.0m.
In conclusion, there is a fair chance that Alanya may be realised for its current book value, based on the Riva land and Bodrum precedence. A further upside may result from the impending capital reduction at the Turkish subsidiary generating positive cash flows. However, the downsides are: (a) the Alanya plot being realised for less than book value, and (b) a strengthening of sterling resulting in exchange losses on transactions executed in Turkey. Based on the previously reported difficulties with the Alanya investment, the estimated 16.13% discount to NAV may serve as a well needed buffer to protect any potential value stripping operation. Nevertheless, even if one assumes nil return from Alanya, investors are paying 28p for every 33.38p of value.
Oodutty
OODUTTY 