The woes at RUN Corp, the listed property management company previously chaired by former NAB boss Frank Cicutto, continue.

This week, an independent expert claimed that the company faces liquidation if shareholders don’t accept a $10 million cash infusion from Futuris (owner of the Elders property group).

Similarly, RUN chairman, Nathan Cher, told RUN shareholders that “in the event that the Elders proposal is not implemented, the RUN board will need to assess the ability of the company to meet its financial obligations and is likely to be in breach of its banking covenants.”

The grave assessment contrasts with RUN’s relatively upbeat forecasts earlier this year where the company stated that it “had overcome the operational hurdles it had faced last year” and had completed a “customer stabilisation program [which] resulted in high customer satisfaction levels, increased branding in the marketplace and major cost reductions.”

Long-time Crikey readers will be familiar with the RUN saga, with Crikey being the first to point out potential problems associated with the company, beginning with the vendors spending more than $6 million to float the company in 2005, despite the IPO only raising a total of $25 million.

Things got even worse after listing, with RUN announcing a $17.9 million loss for the year ending December 2006 (compared with a prospectus forecast of a $6 million loss).

The bloodletting was stemmed somewhat last year, with the company losing just $3.1 million (although RUN’s result would have been worse had the company not been able to claim income tax benefits). In total, since listing, RUN has lost more than $23 million.

It would be fair to question just how dire the situation would have been had rentals not increased in certain areas by upwards of 30%. As a property manager, RUN earns commission as a percentage of rental received on the properties it manages – the “rental crisis”, which has pushed up rental rates would have boosted RUN’s sales by around 30%.

In addition, the sea of demand would have allowed RUN to employ fewer property managers, as re-letting properties is pretty easy work when there are fifty applicants for each premises.

Apart from racking up significant losses, RUN’s other serious problem is that its balance sheet is loaded with under-performing intangible assets (specifically, rent rolls).

Rent rolls are different from intangibles (like brand names or trademarks) in that rent rolls can be slowly eaten away by other agents. That is because a rent roll is a collection of property management rights assigned by landlords — those landlords can quite easily switch to another property manager (usually without penalty).

As such, unlike say a trademark or masthead, RUN could feasibly lose a large portion of their major asset (rent roll) and receive no compensation for it.

The market and Elders are clearly are aware of this – with Elders’ offer valuing RUN at around $14 million – far less than the book value of its rent rolls (more than $68 million).

RUN shareholders will vote on the Elders deal on 28 August 2007.