bizaro86

Great point, but careful again here. The figures you quote are the average for NYC residential, not super luxury. For example it shows the current number (2010s) as $1,070/sq ft. That would be $3.2 million for a 3,000 sq ft apartment. The truly high end apartments (the ones that might cost $47 million) are more like $5,000 per sq ft. So the comparable number in 1976 might have been $250/sq ft or something. That might imply closer to 50 luxury apartments - for current earning power in the area of perhaps $100 million. Regardless, I think the order of magnitude is what’s important. And that was buying during a time of near depression in NYC real estate, as you mentioned. coc, Are you an accountant? [ : - ) ] -I ask because you think about this exactly like I do. - - - o 0 o - - - Edit: Geico - Financial Information. There was here on CoBF a similar discussion about NICO a few years back [for NICO, similar information is available at the NICO website], with some very good elaborations and explanations provided by gfp about how to interpret the numbers - they must still be laying around here in the Berkshire forum somewhere. How dare you accuse me of being an accountant. :D No, no. Good points, although I wonder about the assumption that the multiple between regular and super luxury apartments has remained constant. My guess would be that from a NYC real estate depression until now the super luxury has done better than the pedestrian in appreciation (perhaps at the expense of cash flow). I recalled a passage in a book about the near give away of luxury apartments in the mid 70s. I'm pretty sure it was 740 Park Avenue. That's a top tier address, and I found some comps in the press. Saul Steinberg paid $275k for a 34 room triplex in 740 Park in 1971, which he sold in 2001 for $37 MM. https://www-vanityfair-com.cdn.ampproject.org/v/s/www.vanityfair.com/news/2001/01/saul-gayfryd-steinberg-200101/amp?amp_js_v=a2&amp_gsa=1&usqp=mq331AQA#aoh=15588315521740&csi=1&referrer=https%3A%2F%2Fwww.google.com&amp_tf=From%20%251%24s&ampshare=https%3A%2F%2Fwww.vanityfair.com%2Fnews%2F2001%2F01%2Fsaul-gayfryd-steinberg-200101 By the end of the decade the French government paid $600,000 for a 18 room place in the same building, which they sold for $70 MM in 2014. I think 500k for a super luxury apartment in 1975 is a very generous number, implying Buffett could have gotten 100 or so of them for his money. It's all hypothetical of course, because I doubt there were 100 apartments of that nature for sale at the time. But if it was possible, using that same French comp from 2014 would get you to approximately $7 B.

I don't disagree with you particularly, but I would note that 20 luxury apartments isn't the right comparison. New York City nearly went bankrupt in 1975. In 1976, luxury apartments were selling for peanuts because the monthly fees were approximately equal to or even exceeded the rental value. I think its very likely that a clever buyer could have bought more like 235 luxury apartments in New York City at the time, which closes the gap considerably. I couldn't find a source for luxury apartment prices in 1976, but I did find a source for an average price per square foot by decade. The 1970s was $45. https://web.archive.org/web/20130509123604/http://matrix.millersamuel.com/?p=12300 That implies $47 MM would have bought just over a million square feet of NYC residential real estate. I suspect someone who had done that with their money would be pretty happy with the outcome today as well, although it may only be worth a few billion.

I wrote 197.50 BRK.B puts for the first Friday in June. I used the premium to buy September 220 calls

I have as big of a short as I am comfortable with right now, but if it gets down to $0.43 I'll definitely use some of those profits to take a long position.

Down 7.5% on a multiple of the usual volume. I'd expect Monday to be down as well as retail holders notice the new shares on the weekend.

Why isn't breaking up BRK an option eventually? It wouldn't be possible until WEB dies, as he would never do so and has control. But once his stock gets sold by the foundations however many years after his death it could happen. It would require a huge discount to IV, because of the huge amount of capital required. The structure around the assets being held in insurance companies would also make it take a long time. Although if the insurance commissioner is letting them use $X for the value of a railroad in their statutory accounts, presumably they'd still be fine if they sold the railroad for $X in cash... Spinoffs would be much less likely.

I'm tempted to try leap puts in stocks that are highly valued and highly exposed to economic conditions. One example would be VAC. It was down ~40% from its 52 week high to its Dec 2018 low, and has made that up again. Super cyclical industry. I feel like there should be some industrials that would be good macro hedges as well. I also have a very small % in IWM puts well out of the money. I think it makes sense for me to be fully invested, and having a percent or two in hedges after a long bull run helps me sleep better.

I wonder who the new partner is. My guesses would be either Brookfield or Morguard, but could be someone private.

Just came here to post this. Must not be material to Dundee given no PR from them. Back of the envelope from the very limited data provided I would guess a high single digits millions price. They paid ~$50 MM for vox360, although I think some other stuff came with that. They paid in shares though, so the shares that they paid out are only worth ~$3MM now.

Bear in mind the unpaid dividends would accumulate on the BS and impair the value of the common. At some point there’d be significant pressure to pay, if things go well. And if they don’t both classes are f***ed anyway. I do agree however that there is a risk, however small - they clearly and rightly prioritise the common over the prefs. I seem to remember the prefs have votes under some circumstances. That may include when they’re not being paid. Don’t imagine it’s enough to wrest control from the Goodmans though. My bigger objection to your theory is: why bother? The convertible series was a real problem for liquidity. The remaining dividends aren’t. It would wreck their last shred of credibility for no benefit. Still, interesting thought & discussion. Those are all completely reasonable points, and I don't disagree with any of them.

The arguments for a buy of the prefs right now seem very similar to me to the arguments in favor of buying the common at the start of the thread. There is a big sum of the parts discount on a bunch of low quality assets. The company is controlled by multiple voting shares, and the track record of investments is poor. The reason for the poor track record is visible (they keep buying highly speculative stuff). The DPM stake covers the prefs, sure, but I wouldn't want to be in the business of giving non-recourse margin loans on junior mining shares... None of that has changed. I actually think from a long term bull position the common makes more sense than the prefs. If they keep destroying value at their current rate both will be zeros eventually. But if the oil in Chad comes in the common is probably a multi-bagger, but the prefs have capped upside. That potential had also capped the size of my DC.A short...

Anythings possible I guess, but are you aware of other companies that have done this? That is, cut off dividends to preferred shares while they have ample liquidity? No. But I'm also not aware of any other company that converted prefs to common when they had "ample liquidity" I'm not saying they will do this, just that it's a risk worth considering before taking a position in the prefs. I think the market will consider it and keep the pref prices relatively low.

I think the difference between now and every other time during the last five years is that now they've converted an issue of prefs to common. So prior to that there was a chance they could have issued new prefs later, whereas now I'd say they will never be able to issue prefs again. That brings me to some of the major differences between them and most other pref issuers, and why I think my logic above applies to them moreso than most other pref issuers -Most pref issuers in Canada pay a significant common dividend as part of their strategy to attract capital. If they stop the pref dividend, they can't do that anymore. -Most pref issuers in Canada are capital intensive businesses (banks, utilities, insurers, brookfield, etc). They have a constant appetite for more capital, and will want to issue more prefs. If they stop a dividend, they can't issue new prefs. Dundee won't be able to issue new prefs anyway (after converting to the E to common) so this doesn't apply to them. -Dundee's reputation is already shot, imo, and I don't think suspending the other prefs would change much. As for legal challenges, I can't see why there would be one. The ability to suspend dividends is expressly included in the indentures for those prefs. They're allowed to stop paying. If someone challenged it, they could pretty easily point to the fact that their net loss over the last two years is a combined $279 MM (~4X their market cap!) and it wouldn't be an issue.

Another way to look at this - what rate/LTV would you charge me on capital secured by a portfolio of Canadian juniors and illiquid private stakes? The terms would be the capital is permanent, and if I miss payments you can't call it, but I promise to eventually make any payments I miss. I have the option to repay my the money at two times the initial value, but no obligation to ever do so. Assume for the purposes of this exercise that my recent track record of investing in companies like that is very poor. That at least rhymes with the current circumstances around the DC prefs. I think people anchor on the par value, which is risky in this case. The prefs are likely way better than the common, but at current prices I think the risk-reward is still poor.

Just to be different I'm going to bet the stock goes up next week ;) I think the best buying opportunity may be later in the year, or even in 2020. The big stock overhang may keep a lid on the price for a long time even if the company's value is clearly rising. If I can be confident the net assets are worth at least $3 without resort to hopes and dreams regarding some of the speculative stuff like Chad, I'd be a buyer. The preferreds may see a large rise in the interim. I've got to think their recent history of an arguable coercive exchange offer and then a mandatory coversion to common at a huge discount will weigh on the prices of the prefs. Also, I think there is a good chance that they suspend the dividend on the remaining pref issues after a tender. After they tender, it is really unlikely they'll return money to the common (dividend, etc). In that scenario, what is the upside to the Goodmans of paying pref dividends? -they won't need to pay common dividends -they won't be able to issue new prefs anyway -the longer they don't pay the lower the effective interest rate on the prefs -every dollar paid out to the prefs is no longer available for corporate priorities or executive compensation. IMO, the logical thing for them to do is buy back some of the dilution in a tender and then stop paying the prefs. If they suspend the dividends on the prefs I think the price will tank.

Agreed. I did well on MFCB (bought at $5, sold at $8.50) but felt at that time the margin of safety wasn't there anymore. Obviously sold way too soon. Completely agree on management here, although they do seem to be doing the right things right now - simplifying balance sheet, paying off debt, focusing on the iron ore royalty. I actually think the name change they announced (to "scully incorporated") is potentially a big deal. Its stupid that matters, but I think Canadian mining investors will be more comfortable buying it if the royalty is right in the name. If they made it a pass through (like LIF) there would still be big upside from here.

The first Parq reference in Dundee's filings is in their March 2015 AIF. It must have taken some really impressive talent to lose dramatic amounts of money in a real estate development located in Vancouver over the past 4 years... You'd think so, but Parq is not just a condo building. The size, complexity and uniqueness raise the uncertainty level dramatically. I think the mistake was doing something so far outside their circle of competence. These guys are not developers. They had no business getting involved. Parq has the fingerprint of Ned Goodman's later stage "Master of the Universe" persona that led to so much capital destruction. It's pretty sad that he succumbed to hubris after such a long and successful career and blew everything up. I just think it's funny/sad that they could have bought into just about any other RE development in Vancouver and their $140 MM would be $200 MM+ instead of taking a big loss.

The first Parq reference in Dundee's filings is in their March 2015 AIF. It must have taken some really impressive talent to lose dramatic amounts of money in a real estate development located in Vancouver over the past 4 years...

Super helpful, thanks very much!

Would you mind sharing (even generally) the timeframe and strikes you're looking at here. I like this idea, but man some of those options are expensive. Be curious to hear how you're thinking about in the money/at the money/out of the money.

LOL. That's hilarious, and has more than a kernel of truth to it. Although how do you compute a net worth when you have significant illiquid assets. A material portion of my net worth is in real estate and my own business. You could value those things at cost/book, but at least in my case that would be absurdly conservative. The real estate at least has comparables... Computing a net worth statement isn't something I bother doing except for getting new mortgages, so I've never really thought about it.

Large means different things to different people, naturally, and I meant relative to how I would normally size a naked short, not large compared to the size of AUM some have on here. That said, I got the borrow from interactive brokers, which had quite a bit of availability. It's been trickling down the last few days, and they only have 85k shares left now. You can check their availability online, which is one of the many reasons they're my favorite broker. (And why I have an IBKR long position).

I think the question was why do that before the exchange was announced, as there would be a predictable drop after the announcement. Then you could lock in an even lower price for the deemed disposition. I think it's possible that the answer is that Ned has a loss on his shares. Given the size of the position and Canadian tax law, realizing a larger loss may not make sense. So doing it earlier might eliminate a tax loss he can't use while giving the trust a higher coat basis. That's just speculation, but the furthest back I could find a DC.A chart was 1995, when it traded at $1.86. I know there have been some distributions that would have split a cost basis since then (Dream née Dundee Realty for example) but it's also possible he's got some high cost shares added along the way. That's just idle speculation, but it seems to fit the fact pattern. They would have definitely know the exchange offer was coming and that it would hurt the price of the common...

If you're going to value it as a sum-of-the-parts you should take an NPV of the cost of their management team/G&A out. A collection of investments that comes with a cost in perpetuity along with it is worth less than the value of those investments. I'm not that concerned about "good news" risk in the short term. While I think the terminal value here is more likely to be zero than a double from here, I don't think their incentives are to release any good news now. I do think they'll do a tender for some of the common at some point here, probably not until the post-exchange capitulation. So it doesn't make sense for them to talk up the stock until then. You can analyze all their actions with "what is the best for the Goodman's" and you'll come to the right conclusion 100% of the time, and if they are going to do a buyback (to keep their stake up) a lower price in the interim is better for them. Earlier in the thread folks were asking why there was no management buying if management thought it was cheap, and the answer is they knew this was coming. As mentioned, trading $1.35 in stock (or $1.15, or less...) when you can get $2 in prefs in exchange for it is a good deal, but you wouldn't want to put your capital in front of the dilution. I think its likely there will be a buying opportunity, but probably not until after the exchange offer shares have cleared.

I took a pretty good short position this AM. The huge selling pressure from the prefs is likely to hurt the stock dramatically after the exchange takes place. Also, new buyers can buy the prefs at a discount which will lower demand for the shares. I actually think the terminal value for minorities here is zero. Their strategic plan is to invest their incoming funds into merchant bank deals in the junior mining sector. I expect all incoming funds to go to crappy juniors and exec comp. They will probably do a tender after the deal closes, but I bet it's at <$1.