Dinar
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1 minute ago, Luca said:
Also dont get why you would say they live under communism there, they have as much capitalism as other developed countries like germany etc
You do not understand a very simple concept. Capitalism cannot function without rule of law. You do not have a rule of law in China. Oh, and the article is talking about tens of thousands. When I mentioned it to my friends from high school who are Chinese and live in an area with a lot of Chinese people, they stated that there has been a flood of people recently out of China in their neighborhood.
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13 minutes ago, Luca said:
Agree with me on what, the CCP is working on exactly these problems
As opposed to you, the masses have zero faith that CCP is either working or will solve these problems. Man, I wish you had spent thirteen years of your life living under communism, like I did. You'd have a different perspective on CCP.
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AIV, BELFB, BTI, CI, CLPR, Evolution AB - EVO SS, GHC, Heineken Holding, JOE, Keck Seng Investments, MCEM, Melrose PLC - MRO LN, NEN, PM, Tel Aviv Stock Exchange, VSTS
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@Luca, Chinese do not seem to agree with you. https://www.bloomberg.com/features/2023-chinese-migrants-us-border/?srnd=premium
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@Luca, the difference between those who have money and those who do not mostly comes from personal choices - some people are hard working, some are not, some are diligent savers and some are spendrifts. I know plenty of people who have accumulated millions of dollars in wealth while never making more than $100K per annum, and I know plenty of people with $200k+ annual salaries and zero savings. The difference is: one vacation per year vs four, treadmill at home vs personal trainer at the gym, new car every three years vs driving a car for ten years, having a dog and not having one, bringing breakfast and lunch to work and cooking dinner at home vs buying breakfast, lunch, dinner & getting coffee at Starbucks in the afternoon.
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@Xerxes, thank you, very interesting
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@Xerxes, Gaza is NOT a slaughterhouse. Had Israel done what Assad did in Syria ten to twenty times more people in Gaza would be dead and Gaza would not exist anymore. How do you propose fighting a war when terrorists are hiding among "civilian" population and hospitals are used as Hamas command centers?
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@dealraker, Charlie does WFC have an EPS estimate 5 & 10 years out?
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35 minutes ago, Gregmal said:
Long la liquidityless litigation liquidation. Bought $30k worth of GYRO. Might buy more if I feel lively and can get some stock.
Good grief, I looked at it in 2004. Is it still around? I will take a look again, thank you for the remainder.
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1 hour ago, KPO said:
(Re)starter in BTI after a year hiatus. Kind of surprising to see this yielding 10%.
Pro-forma for December dividend and increase in March closer to 10.7-11%
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@Luca, if China's prospects are so bright, why are millions are so eager to flee?
US and the West has massive problems (unchecked immigration, Islamic terrorism, welfare culture, terrible education system, political correctness run amok - everything is the fault of whites, males, heterosexuals, universities that preach Marxism and destruction of Western civilization, demographics, and the list goes on.)
Yes, China handles many problems much better than the West - Uighyr problem, infrastructure, no teaching in schools to lowest common denominator - unlike California algebra is not considered racist.
However, nobody in their right mind who can escape China stays there - all the entrepreneurs, and successful professionals who can gladly flee at the first choice they get. This does not bode well for China's future. China's demographics are incredibly bad.
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On 11/22/2023 at 12:42 PM, CorpRaider said:
Yeah, I mean shit new york apartments at sort of the same values as Cleveland class C SFH rentals.
Why do you say shit NY apartments? A very substantial portion of the value is the Tribeca House, Brooklyn Heights property, 1010 Pacific, Dean Street property, the Upper West Side property and the Aspen, none of which I would call garbage. Sure, the Flatbush property is in that category, but how much value net of mortgage do you assign to it?
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Vestis a couple of weeks ago. While the stock is up around 10% from my purchase price, I think that the upside is tremendous and it may as much as a three bagger over the next 5 year if the company hits the targets that it mentioned at its investor day.
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27 minutes ago, ValueArb said:
My calculation is that the 15% withholding tax will work out to $7, so really only $300 gain for odd-lotters.
Correct. I would caveat it though that it may not apply to IRA account, but check with your tax accountant to be sure.
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2 hours ago, KJP said:
There's likely $1000 lying around in this odd-lot tender (note Section 7(d)(v) of the Offer to Purchase), but you do have to go through the effort of picking it up: https://www.sec.gov/Archives/edgar/data/1829959/000119312523282534/d559699dsc13e4f.htm
Be careful of withholding taxes! They are very high in this tender offer.
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3 hours ago, KCLarkin said:
There are two mistakes. Net income is after both SBC and maintenance capex. So you have a 4-5% Earnings Yield, cash on the balance sheet, growing mid-teens. With plenty of opportunities to run more efficiently.
It is true that "real FCF" is less than Net Income. But that should be the case when you are reinvesting for growth. If growth slows, they should get close to 100% "real FCF" conversion so you don't need to assume a constant "real FCF" multiple as long at P/E doesn't compress too much.
Net income is NOT after maintenance cap ex. It is after depreciation, which is almost never = to maintenance cap ex.
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4 hours ago, Luca said:
Do you know how much? Yeah, it has to be deducted at FCF but is included in net income by how much?
You can figure out the difference between how much the company reported and how much it actually cost the company via the tax footnote.
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1 hour ago, Luca said:
IMO the earnings multiples are overstating how much cashflow investors are actually buying. Alphabet pays 20b a year to employees in shares, 20b of EPS power that gets lost every year. The company can be bought for 1.6T, highest earnings have been 76b in 2021. Deduct your 20b in SBC and deduct maintenance capex of some 10-15b, there is maybe 40b FCF coming in every year right now. Thats a 2.5% yield yearly.
YoY growth this year has been what, 5%? Earnings have come down also so the real FCF yield is probably 2%.
To make this work out you have to assume SO much, stable 50x cashflow multiple, continued revenue growth of 15%+, great capital allocation, no attack on moat etc
There is no margin of safety anymore and the chance to get burned very high. Maybe one can make the stretch and say the 40b going into RnD could be sent to shareholders etc but who can really say or know that? And who wants to bet on that?
There is a mistake in your analysis. Some stock compensation expense actually is reflected in net income and EPS. Not all, but quite a bit of it.
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On 11/24/2023 at 8:35 AM, CorpRaider said:
That is an interesting, seemingly reasonable, stress test exercise. I appreciate you sharing it. I'm sure it will be better addressed by others.
Personally, I don't know NEN and put VRE in "no touch" at some point previously due to the portfolio and/or mgmt. I do own some AIV and FRPH. I suppose I believe the rent increases and capital appreciation in NYC will exceed those achieved in Miami and DC over the long term.
I have mentally comped additions here versus EQR and AVB. I guess it did come down to yolo/leverage to the bet a bit. Concentrated bet on the U.S. city I like the best over the next whatever longish period. Also management seems more likely to really swing like a private operator. So, maybe in the 6% interest rate scenario I could see these guys getting as much as possible financed as long as possible at 6% interest only (probably including cashing out from developments in the pipeline once leased up) and then trying to raise rents.
VIC write-up from a few years ago.
Description
Thesis:
I recommend the purchase of shares of New England Realty (NEN), a Boston apartment landlord which I believe has a 200% upside. I think that it is an exceptional opportunity to invest in a very attractive and tax advantaged asset class. The stock is selling at a 55%+ discount to replacement cost, 67% discount to NAV, 7x rent roll and at a 10-11% free cash flow yield. The business is well managed, conservatively financed and should have significant tailwinds to grow rents and cash flows for many years to come, allowing our investment to compound at 15%+ per year for many years. [Since this is a somewhat illiquid small cap security with $198 million market cap, I do not intend to count it against my membership requirements.]
Description of the business
The company owns apartment buildings in the Boston and the greater Boston area, in towns such as Allston, Andover, Brockton, Brookline, Burlington, Cambridge, Danvers, Framingham, Lexington, Lowell, Newton, Norwood, Watertown, Woburn and Worcester.
These apartment buildings are Class B properties. New England Realty owns 19 residential buildings, 4 mixed use residential, retail and office buildings, 3 commercial buildings and 7 condominium units at two condominiums that it has been selling. These properties total 2,711 apartment units, 7 condominium units, and 108,043 square feet of commercial space. In addition, the company also owns 40-50% interest in 8 residential and mixed use properties consisting of 695 apartment units, 12,500 square feet of commercial space and a 50 car parking lot that will be developed in the next real estate cycle. So in total, the company owns 3017 apartments including our proportional interest in joint ventures, and the 7 condominium units.
Long term prospects
Based on my conversations with the company and participants in the Boston real estate market, I am very optimistic regarding prospects for rent growth in the Class B apartment buildings in the Greater Boston area for the next couple of decades. This optimism is based on two factors: continued increase in demand from renters for Class B apartments and virtually zero construction for non-Class A properties. I do not believe that the situation will change in the future, since based on my conversations with market participants, rents for Class B properties would have to rise by 30% while all costs would have to be unchanged before it would make economic sense to actually build class B apartments. Moreover, even if rents rose by 30%, while all costs remained unchanged, it would still be very difficult to build due to lack of land, difficulty in obtaining permits and tremendous taxpayer and municipal opposition to building apartments in the suburbs.
This article from the WSJ illustrates the projected supply demand imbalance in the greater Boston area for apartments over the next couple of decades.
Family/management
a) Treatment of limited partners
This is a limited partnership. Moreover, there is an external management company owned by the Brown family. So the question is, how do they treat the limited partners?
The Brown family, which is very well known in the Boston real estate circles, owns 46.4% interest in the company (100% of the GP interest that owns 20% of the company and 33% of the LP interest that owns the remaining 80% of the company.) Over the past fifteen years of observing them, I found them shrewd, shareholder oriented, and more than fair to the limited partners.
Here is one example where the family bent over backwards, sacrificing its financial interests for the benefit of the limited partners. In September of 2009, the company and the Brown family formed a 40/60 joint venture to buy Dexter Park, a 409 unit apartment building in Brookline MA. The purchase price was $129.5MM. New England Realty did not have the entire $15.925MM for its share of the down payment, so it borrowed $7.168MM at 6% from the general partner. This property today is supposedly worth $250MM, should generate around $11MM in EBITDA in 2019, and just got refinanced on June 1st 2018 with a 10 year $125MM 3.99% interest only mortgage. When I called up the tax assessor of Brookline immediately after the announcement in 2009 and asked what she thought, she told me that they “stole the building; I cannot buy a one-bedroom here for less than $500K and they paid less than $300K for per unit for a mixture of one and two bedroom units.” We all know that fall of 2009 was a good time to buy assets, and the fact that the general partner lent money at 6% to the company for its share of the down payment rather than buy the entire asset himself speaks volumes about how the family treats the limited partners.
b) Quality of management
Having observed them act over the past fifteen years, talked to them almost every quarter since 2004, met with them a few times, and having read the 10-Ks for the past 23 years, I have two observations: 1) they generally do not do stupid things; b) they are very conservatively financed; c) they tend to buy low rather than high and buy back stock at the bottom rather than sell it.
Financials
Debt, less cash at wholly owned properties = $245MM (projected on 12/31/2018.)
Our share of debt at joint ventures = $71MM (projected on 12/31/2018)
Total debt, including our share of debt at joint ventures = $316MM (projected on 12/31/2018)
Shares outstanding on 12/31/2018 = 3,731,602, market cap at $53 per share = $197.77MM.
I project EBITDA (NOI) at wholly owned properties to = $32.25MM in 2019, and our proportionate interest in joint ventures EBITDA to = $6.75MM in 2019, for a total of $39MM EBITDA attributable to our interest. In addition, according to my research which I confirmed with the company, a number of their apartment leases are under market, and they will bring them up to market over the next couple of years. That should add another $2MM to annual EBITDA. So pro-forma EBITDA would be $41MM per annum.
I estimate maintenance cap ex to be around $3MM per annum, and annual interest bill = $16MM, including our pro-rata share of interest expense at the joint ventures.
So free cash flow, attributable to equity holders = $20MM per annum, or roughly $5.36 per share in 2019. Assuming that the company re-prices under market leases to market, that should boost free cash flow to $22MM per annum and per share free cash flow to $5.90.
Debt, including our share of joint venture indebtedness, to total 2019 EBITDA = $316/39 = 8.1x (7.7x pro-forma) or less than 40% LTV. Quite low for apartment buildings.
Valuation
Sam Zell states that you should buy real estate at a discount to replacement cost, not based on cash flows. At a stock price of $53 per share, enterprise value is: $316MM of debt + $198MM equity market cap = $514MM EV.
Ignoring for the moment the value of commercial space, parking lot, and 7 condominium units, we have 3017 apartments in Boston and the greater Boston area, hence we are creating them at roughly $170,368 per unit. Based on my conversations with a number of Boston real estate players, replacement cost is around $400k per Class B unit on average. ($300K is hard construction costs, $100K is for land and permits. This of course varies depending on the size of the apartment, and location.)
So we are creating the assets at roughly 42.7% of replacement cost, or a 57.3% discount to replacement cost, ignoring the value of the commercial properties and 7 condominium units.
As mentioned in the financials section, I expect $39MM of EBITDA in 2019 from the company including our pro-rata share of joint ventures, hence cap rate (EBITDA/EV) = 7.6% based on my 2019 forecast. If one gives the company credit for additional $2MM of EBITDA that it will gain from repricing under market leases, then cap rate rise to 8% (41MM/514MM). It is my understanding that Class B apartment buildings are being bought at 4.5% cap rates in the greater Boston area, although Dexter Park (the company’s 409 unit building owned by a 40% owned joint venture is probably a 4% cap rate asset.)
Thus, at a 4.5% cap rate, the real estate assets are worth $41MM / 0.045 = $911MM, less $316MM of debt, leaves $595MM to the equity or $159 per share value. If one wanted to be more conservative, and use $39MM EBITDA and a 5% cap rate, then the value = $39MM / 0.05 less $316MM of debt = $124 per share.
For those who prefer to look at free cash flow, levered free cash flow (post interest payments and maintenance capital expenditures) should be = $20MM in 2019 or $5.36 per share, for a 10% leveraged free cash flow yield assuming a stock price of $53.0. If one gives the company credit for the EBITDA increase associated with repricing under market leases to market, then free cash flow = $22MM or $5.90 per share, an 11% free cash flow yield. I expect this figure to grow at around 8% per annum assuming that rents and expenses grow at 4% per annum on a same store basis. This assumes no value creating acquisitions or share buy-backs, which have created enormous increases in NAV in the past.
So you are paying 7.1x rent roll, 12.5x EBITDA, or 9 times leveraged free cash flow yield to the equity.
Capital allocation
Historically, the company’s preference has been to acquire buildings and grow the portfolio, however the company is not averse to buying back stock. For instance, from August 2007 through December 31st 2018, the company has repurchased 1,365,306 shares or roughly 26.8% of shares outstanding, and 30% of shares outstanding since 1995. Most of the share repurchases happened in 2008 and 2009, although the company paid as much as $62 per share in the first half of 2017.
The company was a very active buyer of assets in the 2008/2009 downturn.
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Tax treatment
This is a partnership, so tax treatment is a pass through. Distributions are considered a return of capital, and any taxable income is taxed at the partner level. Recent tax reform should help, excluding 20% of taxable income from taxation.
Conclusion
We have a unique opportunity to make an investment into a well-managed firm with an aligned management team, in an attractive asset class, with favorable tailwinds and tax characteristics, at a 57% discount to replacement cost, 67% discount to NAV, and one that should be able to compound NAV at double digit rate for a number of years.
Catalyst
Share buy-back. The stock has not always traded at a such wide discount to NAV, and historically the company took advantage of very wide discounts to buy the stock back. For instance, the stock was at $32 (on a split adjusted basis) in early 2005, and was at $75 in December of 2017. I expect that the company will re-start its share buy-back program. The management recognizes that the stock is tremendously undervalued, and that probably the best use of capital is buying back their own shares. The company had to pay off the line of credit, before buying back stock, and now that it is paid off, I expect the share buy-back program to recommence.
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1 hour ago, Gamecock-YT said:
replace Russia and Ukraine with Israel and Hamas and I don't think people would be ok with bombing refugee camps (multiple times!) and The Hague would be busy writing up war crime charges on the heads of the Russian military.....but when Israel does it, "it's just them defending themselves...."
A million Jews were kicked out of places were they lived sometimes for 2,500 years (Iraq) in 1948. Where are the Jewish refugee camps? Oh, wait, they rebuilt their lives. 700K Arabs that lived in the Holy Land in 1948 and their descendants are still unable to do so for some reason... If Arabs are allowed to kick out Jews from places that Jews lived in for 2,500 years, then why can't Jews kick out Arabs from places Arabs invaded 1400 years ago?
As for bombing refugee camps, don't fire rockets from a place that you do not want to get bombed. Would you allow me to shoot at you and your family from a hospital, and if so, will you just stand idly by?
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@changegonnacome, every opinion poll shows that 75% of people in the West Bank approve of Hamas's atrocities on October 7th and Hamas' call to wipe out Israel from the earth. So actually, it is your Arab friends who are genocidal maniacs!
Innocent civilians in Gaza? They elected Hamas knowing that Hamas wanted to kill every Israeli, so how innocent are they?
Is killing someone who wants to kill your family genocidal? To me that's self defense.
As for calling Netayahu a genocidal maniac, you sure as hell have an interesting definition of genocide. Genocide is wiping out a population, not a situation where population is growing at 3%+ per year. However don't let facts get in the way of your lies.
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8 hours ago, TwoCitiesCapital said:
Not even enough to pay the average monthly rent in Manhattan after 40 hours a week
Of course, nothing stopping you from living an hour or two out, but you're still paying transportation/food/taxes/etc. which are unaccounted for.
Only way to make this work is to share a 1-2 bedroom apartment with several other people, live way out in the outer Burroughs or further, and out in overtime hours. Sure - it's doable - but not a particularly attractive existence.
NYC is not just Manhattan. Saying that you cannot live in NYC because you cannot afford Manhattan is like saying that you cannot afford a car because Ferrari is out of your price range.
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16 minutes ago, Luca said:
You surely are aware that you are still taxable in the US even if you leave?
Somebody making 10m a year? The redistribution HAS to be skewed downwards MORE. Who the hell wants to pay 50% tax with making 50k? Paying a very high tax rate with having 50m USD passive income by owning 20000 appartment houses or whatever is acceptable.
in NY maybe, i think you mentioned NYC.
Actually if you give up your US citizenship, then you are not. You can certainly live in NYC on $20 per hour wage, I know people who do.
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33 minutes ago, Luca said:
Yes, tax cuts for the bottom 70% and increases for the super high income earners+more responsibility in spending--> No more unnecessary money for wars, no funding for bullshit projects at unis etc
20$ in NYC? Can you even live of off that lol?
Actually, if you hike tax rates on high earners, they will either work less or leave the country. Who the hell will pay 70% tax rates? Yes, you certainly can live on $20 per hour wage in NY, and sure as hell could have four years ago.
-Your best investments for 2024 and beyond-
in General Discussion
Posted
@Xerxes, thank you for the post. I was only long Campari in the spirits space, and sold it after the CEO announced his retirement. I am still long Dior, but I would not be a buyer here.