Aurora Funds Management Limited (Aurora), in its capacity as responsible entity for the Aurora Absolute Return Fund (ABW), Aurora Dividend Income Trust (ADIT), Aurora Fortitude Absolute Return Fund (AFARF), Aurora Global Income Trust (AIB), Aurora Property Buy-Write Income Trust (AUP) and HHY Fund (HHY) (collectively the Funds) provides the following market update, where applicable, in relation to the Funds’ investments in RNY Property Trust (RNY) and Molopo Energy Limited (Molopo).
This Fund Update is supplementary to, and should be read in conjunction with, the earlier Fund update provided on 23 February 2023.
RNY Property Trust update
RNY Property Trust (RNY) is an Australian unlisted property trust with five (5) commercial property assets located in the tri-state area of New York, USA, with 3 properties located in Long Island and 2 properties located in Westchester County, collectively having 830,000 sq feet of lettable office space. Huntley Management Limited is the responsible entity for RNY and Aurora Funds Management Limited is the investment manager.
In August 2021, RNY’s US lender to RNY Australia Operating Company (US LLC), ACORE Capital (‘the Lender’), advised that it would not extend the Loan facility through to October 2022, as contracted, as the Lender considered that documents relating to the net worth test were not administratively executed to its satisfaction and constituted an event of default. Aurora refutes the position adopted by the Lender and notes that the Lender nonetheless continues to rely upon the documents.
In late 2022, the Lender took steps to enforce its security by seeking to commence foreclosure action, seeking to appoint a receiver, and selling the mezzanine debt in the US properties through a Uniform Commercial Code (UCC) auction process. ACORE also advised that default interest of circa US$11 million was due under the loan, however provided no formal paperwork to support this was claim. The UCC auction process was ultimately cancelled after RNY’s related entity, RAOC, acquired the mezzanine debt and paid the associated fees (circa US$1 million).
In March 2023, the Supreme Court of the State of New York County of Nassau (in Long Island) appointed a Rent Receiver over the five RNY properties, being a party independent of the party nominated by the Lender. The Rent Receiver posted a bond and filed an Oath with the Court around 11 April 2023, thereby formalising his appointment. Notwithstanding this appointment, CBRE continues to manage the RNY properties.
Based on recent discussions with the Rent Receiver:
The strong leasing activity and Letters of Leasing Intent at Tarrytown prior to the Rent Receivers appointment, as mentioned in the last Fund Update of 23 February 2023, have not materialised and no new leases have been executed since March 2023; and
The Rent Receiver’s remuneration is based on a % of cash receipts and expenditures (including operating costs and capital expenditure) rather than a time-based arrangement.
Aurora denies that the Group was in breach of the loan obligations and continues to defend the enforcement actions taken by the Lender. In the meantime, the additional expenses associated with the Rent Receiver represent a permanent diminution in value for RNY unitholders.
RNY owns 100% of RNY Australia LPT Corp (Maryland REIT) which in turn owns 75% of RNY Australia Operating Company LC (US LLC), which in turn owns the five RNY properties in separately held subsidiaries. Aurora and parties associated with it, including its Funds, own 79.9% of the units in RNY, with Keybridge Capital Limited (ASX: KBC) holding 17.3% and the remaining unitholders holding 2.8%.
Since the last Fund Update, attempts have been made to resolve the deadlock situation with the Lender. Until this matter is satisfactorily resolved, and a new debt facility can be agreed, there is significant uncertainty regarding the valuation of the subordinated loans and equity interests in RNY.
The Lender has, on several occasions, expressed interest in taking over ownership of the RNY properties, however, has stated that it would only be prepared to offer token consideration.
Based on the uncertainty created by the Lenders actions as outlined above, including unsupported claims for default interest, the Aurora Board considers it appropriate to fully impair to nil the carrying value of its equity investments in RNY and the subordinated loans it has advanced to RAOC, until such time as the impasse with the Lender can be resolved.
The fair value of the RNY equity investments and subordinated loans is based on significant estimates and judgements adopted by the Board of Aurora based on all available information about RNY as at the current date. The Aurora Board is aware of the material impact this decision will have on Aurora and its Funds.
Further, Aurora notes that RNY’s second largest unitholder, Keybridge, has fully impaired the carrying values of its 17.3% equity investment in RNY as well as the subordinated loan it advanced to RAOC (which was used to acquire the mezzanine debt in the US properties). Keybridge has stated that the recoverability of its interests in RNY is dependent upon the prevailing market value of the underlying US properties less the senior debt. Further, given the state of the broader market, expectations on property values and the status of the dispute with RNY’s Lender, Keybridge considers its subjective valuation to be appropriate.
The Aurora Board considered the range of possible values and determined that the fair value of the RNY equity investments and subordinated loans held by Aurora and its Funds should now be valued at nil.
Aurora will continue to pursue its options to resolve the deadlock with the Lender.
Molopo Energy update
In a letter to shareholders, dated 2 May 2023, Molopo Energy Limited (Molopo) advised “the Company has approximately AUD$16.9 million in cash and a debt owing to Molopo from a subsidiary of Renergen Limited of approximately AUD4.2 million which has preconditions to its payment and, from 1 January 2023, now accrues interest.”
Further, it added that “as foreshadowed at last year’s Annual General Meeting the Board’s focus has been concentrated on defending the long running Canadian proceedings against the Company’s subsidiary Molopo Energy Canada Limited (MECL) which were commenced in 2011. Since our meeting last year those proceedings are continuing and have now progressed through the discovery process and interrogation of witnesses which has been both detailed and time consuming.
The proceedings involve the claim for damages by 3105682 Nova Scotia ULC (310) against MECL and Crescent Point Holdings Inc and Crescent Point Energy Corp (Crescent Point) arising from the sale of the Company’s subsidiary’s oil and gas assets in 2011. Crescent Point has cross claimed against MECL in relation to potential losses it may incur. The claims for damages by 310 are significant and complex and are being strongly defended by both MECL and Crescent Point but again at significant expense to shareholders. It was anticipated that a court directed mediation would take place in April this year, however, the mediation has now been scheduled for the 5th and 6th December 2023 in Calgary.
The Board will continue to vigorously defend the proceedings.”
Aurora notes that the value of the Funds (AFARF/ABW and AIB) investment in Molopo was written down to nil during the year ended 30 June 2021. The Funds have not adjusted the carrying value of its investment as it is waiting on the outcome of other litigation matters that Molopo is involved in.
The Funds continue to adopt a carrying value of $nil per Molopo share. Aurora will re-assess the carrying value of its investment in Molopo based on further information being released by Molopo regarding its financial position.
Given the uncertainty created by the abovementioned matters, where applicable, Aurora considerers it prudent to maintain a temporary hold on Redemptions until the outcome of the above two (2) matters is known.