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Operates Profitably...but true value is in the Real Estate owned


Fat Pitch
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Hello Team CoBF!

 

I want to undertake a research project in which I run due diligence on a select few companies (3-5) that are operationally PROFITABLE publicly traded companies whose true value stems from the real estate that they own.

 

My prime example is RICKS cabaret. A 200m market cap company that has an EPS of 8-9...and trades at 90% of book value. The big ticket item on this is that they own about 80% of the properties that their business operates.

 

I wanted to reach out to the group and open a discussion on other companies that fit this bill.

 

FatPitch

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The real question you have to ask with the RE is there a higher a better use that someone is willing to pay for that will not degrade the existing business.  Then you need to able to see a catalyst or the RE will remain trapped in the firm.  You also need to see what assumptions are being used to value the RE.  If you are using sub 5% cap rates then the RE value may too aggressive.  If these conditions are met then you may have an investable thesis.  Alot of business have owned RE but they need it to generate the CFs they are producing.

 

An example of a RE non-operating asset company is GenCorp (Rocket Engine firm) who has a large piece of RE in Northern CA. 

 

Packer

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QUCT, obscure company that runs a trust business, owns a huge ranch in central CA, commercial RE and a bunch of cash and bonds. Trades in appointment only.

The folks running it are the same folks that own and run FMBL, a southern CA business bank.

 

Spek, do you still hold QUCT?

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My prime example is RICKS cabaret. A 200m market cap company that has an EPS of 8-9...and trades at 90% of book value. The big ticket item on this is that they own about 80% of the properties that their business operates.

For some reason Rick's Hospitality (RICK / formerly Rick's Cabaret) put a lot of effort into stock promotion.

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My prime example is RICKS cabaret. A 200m market cap company that has an EPS of 8-9...and trades at 90% of book value. The big ticket item on this is that they own about 80% of the properties that their business operates.

For some reason Rick's Hospitality (RICK / formerly Rick's Cabaret) put a lot of effort into stock promotion.

 

Not sure if they still do these but tgeir  IR events on site took stock promotion to a whole new level!

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I'm surprised Packer didn't mention Shun Ho Resources. If you're willing to waltz through the maze of holding companies, it's worth a look. It's profitable and if you apply the cap rate exercise he mentions above, you will still see that it's very undervalued even at a 5% cap rate -- still undervalued at a 7% cap rate last I looked, though it's appreciated lately.

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QUCT, obscure company that runs a trust business, owns a huge ranch in central CA, commercial RE and a bunch of cash and bonds. Trades in appointment only.

The folks running it are the same folks that own and run FMBL, a southern CA business bank.

 

Spek, do you still hold QUCT?

 

Yes, and I added a chunk at 1080$ a few days ago. They only publish number since a year and that is it. Last years profit was down, because the costs in the trust business were growing faster than revenues, supposedly a result of a branch expansion. QUCT bought a decent chunk of commercial RE last year for 8M$ (~160M$/ share), but I don't think that this increase GAAP earnings although it my improve intrinsic value over time. They still should have a decent amount of net cash even after this investment.

OK, this is probably a value trap, but I don't think I will lose money on that one. I estimate the asset value at least twice the current market value and maybe more, if they indeed would find a buyer for their ranch (I don't think they are looking to sell the ranch actually at this point). Overall, the assets are getting more valuable, the trust business throws of cash and the insiders as far as I know don't rob the company, so I think this illiquid, but safe.

 

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I've never seen the appeal of this kind of investment. Firstly the business may operate from the RE so selling it off in the long term will just increase their costs.

 

Secondly even if the company wants to sell the RE and rent it back, this can take many years to actually complete so a discount to book value is warranted.

 

I think Sears is a good example of this, where I don't really see the appeal and it is taking a long time to realise all the RE value.

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QUCT, obscure company that runs a trust business, owns a huge ranch in central CA, commercial RE and a bunch of cash and bonds. Trades in appointment only.

The folks running it are the same folks that own and run FMBL, a southern CA business bank.

 

Spek, do you still hold QUCT?

 

Yes, and I added a chunk at 1080$ a few days ago. They only publish number since a year and that is it. Last years profit was down, because the costs in the trust business were growing faster than revenues, supposedly a result of a branch expansion. QUCT bought a decent chunk of commercial RE last year for 8M$ (~160M$/ share), but I don't think that this increase GAAP earnings although it my improve intrinsic value over time. They still should have a decent amount of net cash even after this investment.

OK, this is probably a value trap, but I don't think I will lose money on that one. I estimate the asset value at least twice the current market value and maybe more, if they indeed would find a buyer for their ranch (I don't think they are looking to sell the ranch actually at this point). Overall, the assets are getting more valuable, the trust business throws of cash and the insiders as far as I know don't rob the company, so I think this illiquid, but safe.

 

Talked with someone a few months ago (you maybe? who knows) who went up to the ranch and got it valued.  It is worth more than their market cap at least, potentially a few times over.  QUCT is interesting and I think highlights the attraction to some of these companies.  They have a valuable asset that could be sold for most of their market cap while the business (trust management) remains untouched.

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RAFI

Regency Affiliates will re-lease 700k SF building in Maryland in 2018 and refi mortgage and may be able to pay a dividend roughly equal to market cap (or more likely retain the proceeds for reinvestment).

Government building on a 9 cap rate worth 100 millionish - but if re-leased long term to social security why couldn't it be sold at a 6 cap (150 million) to somebody? It is backed by US Treasury.

On VIC 2 months ago.

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Pardee's timber is carried at $30mm, worth $136mm according to survey. See the thread on PDER; stock is off lately on declining coal royalties and falling oil and gas prices. All the earnings are from coal and natural gas royalties but a big portion of asst value is in the timber.

 

 

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Talked with someone a few months ago (you maybe? who knows) who went up to the ranch and got it valued.  It is worth more than their market cap at least, potentially a few times over.  QUCT is interesting and I think highlights the attraction to some of these companies.  They have a valuable asset that could be sold for most of their market cap while the business (trust management) remains untouched.

 

No it wasn't me. However, it is clear that the value of the ranch exceeds the book value by far. I also think that based on the rent income (roughly 2.1M$), the value of the RE exceeds the book value of ~16M$ as well. If and when the value is realized remains a big question, but I think as long as the assets are well managed and appreciate in value, the stock price should just appreciate likewise, plus there is a chance of a huge payoff, if the company decides to monetize some assets.

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Talked with someone a few months ago (you maybe? who knows) who went up to the ranch and got it valued.

 

i've spent a little time in that general area.  unless the land is subject to severe zoning restrictions or is burdened with easements, it is worth much more than $1500 an acre.  it's not easy to get a permit to develop anything in SLO county, but still.

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I'm familiar with the bank's website, but is there accessible information on QUCT?  Thanks....

 

+1 cant find much.

 

Looking at what I can find with google search very asset rich company. Have nightmares though of holding it for years/decades with value never being monetized.

 

Here is an older annual report. https://www.amstock.com/proxyservices/Files/AR16728.pdf

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I'm familiar with the bank's website, but is there accessible information on QUCT?  Thanks....

 

+1 cant find much.

 

Looking at what I can find with google search very asset rich company. Have nightmares though of holding it for years/decades with value never being monetized.

 

Here is an older annual report. https://www.amstock.com/proxyservices/Files/AR16728.pdf

 

I have concerns about fraud and companies imploding because changing business environment, but never about a company/stock just sitting there and doing nothing. If  company is doing nothing, I just sell the stock at a somewhat opportune time and move on. Other than opportunity cost, I should not have lost money.

No investment is worth having nightmares about it. If I were to have nightmares about and investment, it's a sure sign that I own either too much of it, or the stock is not suitable for my situation. Better to sell down the position or sell it out entirely and get the sound sleep back.

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