
nwoodman
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nwoodman last won the day on November 11 2024
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Corrected in V3 above, it should have read Vacatia contribute their business model to the Vacatia Blizzard JV. Vacatia is definitely still a stand-alone. I also corrected the EV/Owner table on the basis that Berkley got done at $835m (Fairfax) and $25m (Vacatia)=$860m. We don't know this for sure (chance of financing outside of Fairfax), but on face value it does seem like a decent margin on safety. However I know SFA about the the timeshare industry so take it with a pinch of salt. The Vacatia business model of timeshare plus overnight rentals isn't unique but might make a real difference to legacy assets like Berkley. I guess that's Vacatia's bet and if it doesn't turn out well Fairfax flips the underlying assets. Each year Fairfaxearns $80+m so the margin of safety improves. I would love to know how this deal orginated, perhaps yet another question for the AGM. Wade Burton from the CC " Second, I wanted to discuss an investment that closed just after year-end 2024. We invested in the largest independent timeshare company in America called the Berkeley Group. Caroline Shin and her team at Vacatia are Fairfax partners here. The investment is underpinned by asset value, where we directly own 4,950 full-service vacation units mostly located in Las Vegas, Orlando, and other high-traffic vacation areas in the U.S. The opportunity here is for Caroline and her team to generate overnight rental income from the huge stock of nightly vacancies. Her experience designing Hotwire online booking software and then as an executive at Starwood is perfect for what Vacatia is trying to do with Berkeley. In fact, prior to this acquisition, her group at Vacatia made investments in five smaller timeshare assets from 2019 to 2024, and in each case, they were very successful at significantly growing EBITDA in a short period of time. The total deal was $835 million, which we funded with a $275 million five-year preferred note at 13.5%, a $365 million seven-year senior secured note at 9.5%, and $170 million mortgage warehouse loan with a five-year maturity at SOFR plus 400. The $50 million equity is funded 50% by Fairfax and 50% by Caroline and her partners. We are absolutely thrilled to be her partner on this."
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Hopefully it plays out something like this: “1. PVC Price Recovery and Demand Growth (Mid-to-Late 2025 Onward) • The PVC market is showing early signs of stabilization, with prices bottoming out in late 2023. • Industry experts predict higher global PVC demand in late 2025 and 2026, driven by a rebound in construction and infrastructure spending, particularly in India and Southeast Asia. • India’s PVC consumption is expected to grow at 8% CAGR, creating a structural demand tailwind for Sanmar’s Chemplast Sanmar unit. • Timing: Expect a gradual price recovery from mid-2025, with stronger margins by 2026. 2. Anti-Dumping Measures in India to Support Domestic Pricing (Q2 2025 Onward) • The Indian government is advancing anti-dumping duties on paste PVC and suspension PVC imports, particularly from China, South Korea, and the EU. • If finalized, these duties would reduce import pressure and improve pricing power for domestic producers like Chemplast Sanmar. • The PVC Quality Control Order (QCO), set to take effect by June 2025, will further limit low-quality imports, benefiting domestic manufacturers. • Timing: Once anti-dumping measures are officially imposed (likely Q2-Q3 2025), expect price support and margin recovery for Sanmar. 3. Full Utilization of Expanded Capacity and Operational Efficiency Gains (Q3 2025 Onward) • Sanmar has completed major capacity expansions (e.g., 41,000 TPA specialty PVC addition and full ramp-up of TCI Sanmar’s 400,000 TPA Egypt plant). • Efficiency improvements and higher utilization at TCI Sanmar (Egypt) should significantly boost profitability once PVC prices stabilize. • Timing: Efficiency-driven profitability improvement from Q3 2025, with full impact in 2026. 4. Diversification into Higher-Margin Specialty Chemicals (Late 2025–2026) • Sanmar is expanding its Custom Manufactured Chemicals Division (CMCD) to cater to high-value agrochemical and pharma markets. • Five new contracts signed for specialty chemical intermediates, with a second-phase expansion of the new plant planned in 2025. • This shifts revenue mix away from commodity PVC toward less cyclical, higher-margin products. • Timing: Specialty chemicals’ revenue contribution will increase meaningfully from late 2025. 5. Stronger Financial Position and Lower Debt Burden (Q4 2025 Onward) • After the 2021 IPO and debt repayments, Sanmar significantly reduced its financial leverage, lowering interest costs. • Fairfax India remains a long-term supportive investor, providing stability. • Recent cost control measures and cash preservation efforts position the company for profitability in the next market upturn. • Timing: Lower financial costs and improved cash flows from Q4 2025, supporting sustained profitability. Expected Timing for Sanmar’s Return to Profitability • Short-Term (H1 2025): Limited profitability improvement, awaiting pricing recovery and regulatory actions. • Mid-Term (H2 2025): Anti-dumping duties, demand recovery, and full plant utilization start boosting margins. • Long-Term (2026): Stronger profitability driven by higher PVC prices, specialty chemicals growth, and cost efficiencies.” We shall see. Fairfax seems happy to wait it out, so that’s good enough for me.
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Love your work. Didn’t realise or had forgotten that there was a sunrise on that deal. I always figured that they would buy this in first. That color explains it.
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Don’t disagree but the thesis is the airport. Sanmar is going to be a drag for the next year but should start working from 2026 onwards.
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I've attached some notes on Vacatia. I sound like a broken record, but I love these structured deals. I doubt its lost on anyone here but this is such a sweet spot for Fairfax. There seems to be no shortage of deals to be done. Hopefully we hear some more color from the Fairfax team in a few hours time. Caroline Shin Bio: Caroline Shin is a seasoned tech entrepreneur and hospitality executive best known for co-founding Vacatia, a platform modernizing timeshare management. Key highlights of her career: • Built and sold Hotwire: As a founding team member, she helped scale the travel site before its $685 million sale to InterActiveCorp in 2003. • Led Starwood Hotels’ CRM strategy: Boosted market share by 20–40% for top properties through data-driven pricing and loyalty programs. • Founded Vacatia (2015): Created a tech platform serving 750+ resorts, helping owners rent/sell timeshares and manage operations digitally. • Launched Vacatia Partner Services (2023): Expanded into hands-on resort management, now overseeing 4,750+ units across the U.S.. • Co-founded Store Vantage: A SaaS tool optimizing staffing and customer relationships for small businesses. Trained as a nuclear engineer at MIT, she applies analytical rigor to solving hospitality challenges. Outside Vacatia, she runs a pet grooming business and advocates for Korean American community initiatives. Edit: Updated following Q4 24 CC, very good of Wade to break it out *Note: actual interest on the $170M warehouse will vary with SOFR. At a 5% base rate, SOFR+4% = 9% (≈$15.3M/year). If rates decline, interest expense will fall (and vice versa). The Secured Overnight Financing Rate (SOFR) is a benchmark interest rate that reflects the cost of borrowing cash overnight using U.S. Treasury securities as collateral. It is widely used in financial markets as a replacement for LIBOR (London Interbank Offered Rate) for pricing loan bonds and derivatives. Weighted Average Yield: Fairfax's weighted average cash yield is robust based on the structured notes alone (excluding equity). On $810M of combined loan investment, the annual interest of ~$87M equates to roughly a 10.7% blended yield. Including the floating portion at current rates, the overall yield is in the low double-digits, which is very attractive for a secured, asset-backed investment. This reflects the risk profile (timeshare assets are somewhat niche and less liquid), but Fairfax negotiated rich terms. Company Comps Vacatia and Blizzard Vacatia: Company Analysis V3.pdf
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Good pick up. We have a much better idea now
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The way I see it, it doesn’t make much different to IV but does derisk the share price or potential for larger than market type movements. I did wonder last year whether some of those corrections may have been exaggerated due to the perceived TRS implications.
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Personally I am very happy that they have started retiring the TRS. If they can close out roughly 10%/quarter it would be a thing of beauty. It was an asymmetric but highly leveraged bet that has worked out well. In a 50% draw down Fairfax stock would not be immune and there would be a beta amplification because of them. I think any indication of IV that it signals needs to considered together with liquidity and risk/reward considerations.
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we probably need to pin this, but the bank (counterparty) is price agnostic, Fairfax is renting their balance sheet and taking the directional risk.
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While I usually deplore SBC, in the case of Fairfax it was one of the aspects of the comps package that really got me across the line a couple of years back when I was on the fence about purchasing more. It got me thinking about the longevity of their employees and sharing in the upside as well as downside. Perhaps I needed a little convincing back then that it wasn’t some black box scam run by charlatans, the kind of company Muddy Water SHOULD have targeted.
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That's cool. How they unwound was a key question for me. Looks like we may be getting an answer there
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A few articles floating around about the introduction of Aerial View Display (AVD) at KIA. Some notes attached (geeking out) https://www.indianeagle.com/traveldiary/bengaluru-international-airport-aerial-view/ This is far more than just some CCTVs strung around the place. The productivity and safety gains make it a no-brainer, but from my reading, the primary headache is dealing with an individual airport's legacy IT backbone. While there are plans, only 5% of airports globally have made the leap. The fact that BIAL has completed a successful implementation shows class on many levels. I like this asset more and more and you can't help but think it can only further their case for the second airport. From the notes AVD Primer - BIAL.pdf
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2002 in a former investco, then 2011 in personal accounts. First company I really had confidence in buying on the way up. Prior to a large position in BRK,it was mainly industrial cigar buts, and prior to the cigar buts I really had NFI. The evolution in thinking, to buy what you know and take advantage of periods of undervaluation and be wary but not afraid of concentration, was among the best lessons I have learnt. Thanks W & C.
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I wonder if it is also a cleaner arrangement to be out of BIAL if they intend to bid on the 2nd airport.
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Some further notes on the proposed sites for the second airport attached. Some thumb-suck estimates on the new build cost too: 30-50m passengers Land $US1.2bn Airport Construction $2.5bn Total ~$3.7bn Perhaps I need to rethink my lower bound $4bn valuation on KIA Bengalarus second airport: Nelamangala and Kanakpura Rd emerge as top choices (Hindustani Times) "To accelerate the project, the state government is considering inviting Bangalore International Airport Limited (BIAL) to spearhead the development, the report added. This move could help navigate the non-compete clause that restricts the construction of another airport until 2033. Officials believe BIAL, which successfully operates KIA, would be well-equipped to take on the new project." Why is Karnataka racing to finalise its 2nd airport site in Bengalaru? A neighbour is in the fight (The Print) But building the second airport also has its challenges. In its concession agreement signed with the Union government on 5 July2004, BIAL ensured that it remains the sole airport in Bengaluru, at least until 2033. “No new or existing airport shall be permitted by GoI to be developed as, or improved or upgraded into, an International Airport within an aerial distance of 150 km of the airport before the 25th anniversary of the Airport Opening Date,” according to the concession agreement. The only concession is for the development of Mysuru and Hassan airport. The new proposal by Karnataka is likely to complicate matters. “We are exploring if we can give the contract to build the airport to BIAL itself. In this way, they can waive off the non-compete clause,” the official cited above said. As of January 2024, Fairfax has invested approximately $7 billion in the country. Watsa stated, “In the next five years, we are looking at doubling that. We got a few projects already that we’re working on.” Indeed! Notes on Proposed Sites for Bengaluru’s Second Airport.pdf