Newsletters - Asset Value Investors

AGT

Dolphin Capital • Newsletter December 2016

After a very painful 2015 for Dolphin Capital, poor performance continued
throughout the majority of 2016 as the share price fell 41%. In March
2016, with the support of shareholders, Andrew Coppell replaced
Laurence Geller as Chairman. Upon taking on the role, Andrew instructed
a robust review of all assets which eventually led to the company being
put into an orderly wind up with a view to returning all capital to
shareholders by the end of 2019. We began to see the fruits of the
Board’s efforts over this period as their Aristo stake and Playa Grande
project in the Dominican Republic were sold. These transactions saw
cash inflows and cancellation of debt, but also further reduction of cash
outflows alongside reduced base management fees. These changes saw
the share price rise 50% in the last six weeks of the year, as optimism
grew that the company is now on the right path.

AGT

Dolphin Capital • Newsletter November 2016

Dolphin Capital Investors (DCI), the AIM-listed luxury hotel and resort
developer, was our third largest contributor during the month after
announcing the sale of their Playa Grande resort in the Dominican Republic
for €140m, 10% below the project’s carrying gross asset value. The acquirer,
Third Point, will assume all Playa Grande’s debts which amounted to €75m,
releasing DCI from senior project loan guarantees and project mezzanine
financing, which totalled €53m of the €75m. The removal of this €53m means
DCI itself does not have any further recourse loans or guarantees, with all
remaining debt at the project levels. The consideration of €64m will be paid
through €4.7m of cash, and the retirement of all the Company’s €50m and
US$9.17m 2018 convertible bonds, most of which were held by Third Point.
This sale follows on from the September announcement of DCI’s sale of its
49.75% stake in Aristo Developments, the Cypriot villa developer.

After month end, the Company posted notice of an EGM at which a
resolution would be proposed to determine the future of the company, which
was part of the Company’s admission document on initial listing. The
Company proposes shareholders vote against the continuation of the
Company in the current form and vote to implement a revised strategy in
which the Company will look to sell all remaining assets in a controlled,
orderly manner and to return proceeds from asset sales as realisations
progress, with an aim to complete this by no later than the end of 2019. A
new Investment Management Agreement has also been proposed which
reduces base fees significantly (from current €8.5m to €4m by 2019) and
resets performance fees so as to incentivise the current managers to return
cash to shareholders as quickly as possible at realistic valuations. When
factoring in new incentive fees and modelling large haircuts to official
valuations to achieve sales, we still believe the company is trading on a near
50% discount to NAV and thus are fully supportive of the Directors’
proposals.

AGT

Dolphin Capital • Newsletter September 2016

Dolphin Capital – the high
end resort and hotel developer – announced a sale of their 49% stake in
Aristo, a Cypriot villa developer, for €45m, and a €7.5m credit facility agreed
in principle. Although Aristo was sold at a large discount to carrying value,
the price achieved provides much needed liquidity, and also more
accurately reflects what the company is worth when selling today, versus a
protracted realisation via selling plot by plot. The share price has continued
to disappoint over the course of the year but this shores up the cash
position of the company and reduces significantly the need for extra capital
in the short to medium term. Before the end of 2016, the company has a
continuation vote at which shareholders will vote on whether to wind up the
company. In effect the company is already in realisation mode, but
importantly we believe the Board will propose further changes to the
management contract which will align management’s interests with those of
shareholders and reduce the operating cash burden on the company.

AGT

Dolphin Capital • Newsletter Mar 2015

Dolphin Capital’s share price deteriorated further over March as
tensions rose between Greece and their creditors. At the end of
February a new Board was put in place with a mandate to review all
assets and reassess capital requirements for each individual project.
We believe the new Board has the relevant skill set to assess these
projects and formulate a new and clear strategy for the company going
forward, which we believe will contribute to a positive outcome.

AGT

Dolphin Capital • Newsletter Oct 2014

In addition to Aker, there was a weak performance from Dolphin
Capital whose share price fell by 20% over the month. The exposure to
Greek assets hit sentiment and being a relatively small and illiquid company it can suffer from large moves in its share price. There are also
concerns that the company may need to raise new capital after the sale
of an asset in Cyprus fell through. Management have not confirmed
whether this is the case or not, and we are keeping a close eye on
developments here.

AGT

Dolphin Capital • Newsletter Mar 2014

Dolphin Capital is an AIM listed property developer of assets
principally located in the coastal areas of Greece and Cyprus. Its
market capitalisation today of c £250m is significantly lower than
the capital it raised on launch in the mid-2000s. The onset of the
financial crisis hit this company hard and in late 2012 it was forced
to raise additional capital from several hedge funds. Today, with
many of its projects well on the way to being developed and
markets such as Greece once again attracting interest from foreign
investors, the future looks a lot brighter for Dolphin Capital and
having acquired our stake on a discount to NAV of 45% we see a lot
of upside. Management recently reported the first increase in NAV
since 2008. This is a positive indicator of the changing fortunes for
its asset base. The intention is to sell off the developments that are
completed and to return capital to shareholders. The pace of
capital returns is dependent of course on the timing of asset sales.
We think it is possible that one or two larger schemes are sold in the
not too distant future which will allow for a swifter re-rating of the
shares and of course capital return.