Any good values out there?

[Daytripper]

< HALL actually looks really good. Flat 08, discount to book of 25% or more, and 92% combined ratio. Plus a buyback program. This is a 2 minute review of there last release but, why so cheap. There has to be something going on. Time to dig a bit deeper. >

 

There is a high level of internal ownership, which can be viewed as either a positive or negative.  I think the numbers are good and management seems to be doing a good job, but I'm neither an accountant or an insurance executive.  I don't sell why management would want to sell the business.

 

 

[Myth465]

Personally I like HALL, just overweight on insurers. Its definitely going on the watch list.

 

Canuks what do you all think of Royal Host. Tough to really get my arms around the business but, it looks like there is value. It also looks like they have a gain in there marketable securities which isnt in the stock. I am also trying to figure out if the debentures are a better buy then the common.

[twacowfca]

I beleive that Royal Host is safe and cheap based on the below analysis. Depressed RevPar/earnings and a cut in distributions have likely caused sell off. Any thoughts/comments?

 

 

Royal Host REIT (RYL on TSX)

$2.50

 

Business Owner/operator of 31 hotels primarily in eastern Canada

 

Margin of Safety

-Assets are flexible and marketable

-Major upgrades to properties over last 3 years

- Stable cash flow

- Aggressively repurchasing shares (tender to purchase approx. 1/4 of outstanding)

- 12% yield

- activist Chairman (George Armoyan) has a 27% interest via holding company. Reputation for unlocking s/h value.

-Selling at 50-70% discount to estimated NAV (GBV of properties, working capital and market securities net of all debt). Travelodge franchise rights and management business for free.

 

 

Please comment on my observations after a brief look at their filings and financials.

 

Their CFO left in Sept, generally not a good sign.

 

Their Chairman sold half his holdings of trust units in Dec., again not a good sign.  However this may be a very small % of his total interest in the REIT through the holding Co.  Is this correct?

 

They apparently did something very smart in 08, selling most of their best hotels for a nice gain. But they used about all of these funds that remained after their large special distribution and buybacks to buy units in other hospitality REITs that promptly tanked.  Is this a fair description of what happened?

 

It looks like this could be a multibagger if they survive, but this may be a BIG IFF.  Did they take advantage of the option to extend the maturity of their mortgages due in Oct 09 for 6more months?  What then, also with their debt due this year?  Have the other REITs they hold rebounded?  How much if any are they still under water?

 

Any clarification would be most helpful. :)

[Myth465]

Thats what I dont get. I like just about everything about the company, except for management leaving, the REIT securities, and the increasing leverage. It seems like they have very little equity in the business and that the buybacks will add quite a bit of value for very little costs. A REIT that owns other REITs at high prices is a slight turn off, this doesnt seem like FUR. It looks like all the REIT securities have unrealized gains but, I am not sure why they were bought at the high prices or when they will be sold. If you saw a REIT crisis why would you sell hotels and buy REIT securities. I would prefer a sell of the REITs at a reasonable price, and a repurchase of the convertible debt at 70 cents on the dollar.

 

 

[Myth465]

HALL seems like Sardar's SNS without the hamburgers.

 

NEWCASTLE PARTNERS L P took it over and now uses some to assist in some control investments. Looks like Pizza Inn is the next target. I like the looks of it and it seems like a great owner manager company, VIC has a writeup which comes public in about 5 days.

[Daytripper]

HALL struck me also as an investment company that hiding inside an insurance company.  What is the VIC report that you mentioned?

 

So, given the numbers,s is HALL the kind of stock that you buy  based on the numbers, or would you wait for a favorable catalyst to emerge (although possibly missing the move)?

 

Thanks......Tom

[lennie_88]

I beleive that Royal Host is safe and cheap based on the below analysis. Depressed RevPar/earnings and a cut in distributions have likely caused sell off. Any thoughts/comments?

 

 

Royal Host REIT (RYL on TSX)

$2.50

 

Business Owner/operator of 31 hotels primarily in eastern Canada

 

Margin of Safety

-Assets are flexible and marketable

-Major upgrades to properties over last 3 years

- Stable cash flow

- Aggressively repurchasing shares (tender to purchase approx. 1/4 of outstanding)

- 12% yield

- activist Chairman (George Armoyan) has a 27% interest via holding company. Reputation for unlocking s/h value.

-Selling at 50-70% discount to estimated NAV (GBV of properties, working capital and market securities net of all debt). Travelodge franchise rights and management business for free.

 

 

Please comment on my observations after a brief look at their filings and financials.

 

Their CFO left in Sept, generally not a good sign.

 

Their Chairman sold half his holdings of trust units in Dec., again not a good sign.  However this may be a very small % of his total interest in the REIT through the holding Co.  Is this correct?

 

They apparently did something very smart in 08, selling most of their best hotels for a nice gain. But they used about all of these funds that remained after their large special distribution and buybacks to buy units in other hospitality REITs that promptly tanked.  Is this a fair description of what happened?

 

It looks like this could be a multibagger if they survive, but this may be a BIG IFF.  Did they take advantage of the option to extend the maturity of their mortgages due in Oct 09 for 6more months?  What then, also with their debt due this year?  Have the other REITs they hold rebounded?  How much if any are they still under water?

 

Any clarification would be most helpful. :)

 

You have made some very good points-- thank you. In response to your questions:

 

1. Yes, the Chairman owns most of his units via Clarke Inc. (in which he has approx. 25% interest). As a side note Fairholme Funds owns about 5% of Clarke (which gives me added confidence in the Chairman because they are essentially going long his money management ability).

2. They did purchase units of Holloway and Innvest shortly before they tanked (using funds from the sale of hotels). From what I gather their cost base per share for Innvest is 8.88. As of Dec 2008 they traded at 3.84 and when I last checked they were at 5.85. Although the short term results from these investments were not good, the process/logic used by the management was fair—sell overvalued assets (hotels) and by undervalued assets (trust units). So yes the timing was bad but that is not the yardstick in which I think they should be measured.

3. Yes, they extended Oct mtg. for 6 months. They have secured a $20 million credit line and appear to be selling off some of their trust units to fund share repurchases (and maybe debt maturities?). They also have 5 hotels with no mortgage.

4. The CFO departure and high debt to cash flow is what concerns me most. I believe there is a high probability that they can meet their debt obligations (if not via operating and investment cash then through asset sales) without default. In the worst case that they default I believe common unit holders would still be made whole at the current price.

 

[Crip1]

 

 

Lol, I think any airline, lumber mill, steel mill can be shorted. Peter Drucker explains the reasons pretty well for it in Innovation and Entrepreneurship: Practice and Principles.

 

The problem lies that any increase in demand over capacity, asks for huge capital expenditures to supply the demand. But the return on the added asset are very small at the beginning, with a slow growth. If a company does not expand to accommodate the demand then it loses irrecoverable market shares.

 

BTW. I recommend Peter Drucker to any person that wants to understand management. This guy must have written the 5 out of the 10 best articles on management ever.

 

BeerBaron

 

BeerBaron, you are spot on regarding Peter Drucker. I've heard him called the "Warren Buffett of management" and that's not a bad description. The only issue which I have with him is that his books are not a "light read". He's brilliant to be sure but his writing style is more easily digested by folks waaaaay smarter than me. I remember on several occasions needing to read the same sentence 3 or more times to understand what he was saying. To be clear, that is more a criticizm of me than of him, but there is a higher level of challenge in reading his stuff than the vast majority of what else is out there.

 

-Crip

[Crip1]

A quick look at HALL and it seems to me that this would be a nice little bolt-on acquisition for Markel or Fairfax, but with 70% insider ownership, any buyout would need to be "friendly".

 

Will need to read more to see if I am interested, but it looks compelling on the surface.

 

-Crip

[beerbaron]

 

BeerBaron, you are spot on regarding Peter Drucker. I've heard him called the "Warren Buffett of management" and that's not a bad description. The only issue which I have with him is that his books are not a "light read". He's brilliant to be sure but his writing style is more easily digested by folks waaaaay smarter than me. I remember on several occasions needing to read the same sentence 3 or more times to understand what he was saying. To be clear, that is more a criticizm of me than of him, but there is a higher level of challenge in reading his stuff than the vast majority of what else is out there.

 

-Crip

 

Yes indeed he is one of those writer that writes in a hard to understand way. Nothing close to Buffett's annual letters.

 

BeerBaron

[JEast]

WINN

 

From someone who has shopped at Winn Dixie stores throughout the southeast for over twenty years, a few consumer points.

 

1) They usually have the lowest prices in town and why I shop there when I am allowed too :)  <positive>

2) Their stores are usually located in the poorer sections of towns <negative>

3) Their stores are usually the most unclean of any other branded chain <negative>

4) Their stores are usually so under staffed, boxes are always out on the floor <negative>

5) And locally for me, I could not get my wife to go there even if someone actually paid her to go <big demographic negative>

 

I have looked at these guys for sometime, but passed as they are so behind the curve for remodeling, I can not see that they have enough capital to make the turnaround. With competitors such as Ruddick, Food Lion, Publix, Kroger, Albertson, and the plethora of new Latino chains in place, the road to success looks bleak for WINN. <<Side note: the remodels I have seen look nice and management says they have the capital to continue the remodel plan>>

 

That was then, this is now as the price sometimes removes several negatives. Anyone else have any comments.

 

Cheers

JEast

[turar]

Regarding WINN, I am not impressed with the stores at all either. I wish Publix was traded publicly, one of the best run grocers, IMO. :)

[Guest kawikaho]

Just saw a Publix for the first time today.  Never even heard of them before.  I'm down in Miami.  By the way, it's DAMN cold here.  I'm with two Canadians who are saying it's colder here than Vancouver. 

[twacowfca]

Just saw a Publix for the first time today.  Never even heard of them before.  I'm down in Miami.  By the way, it's DAMN cold here.  I'm with two Canadians who are saying it's colder here than Vancouver. 

 

17F in Gainesville. Low 30s in Miami. 42F in Key West.  Brrrr!

 

FYI Publix is hands down the best run supermarket chain in US.  It's privately owned and likely the most profitable too.  There are @ 300-500K Canadian snowbirds in Fla this time of year.  You can run, but you can' t hide from Ol' Man Winter. :)

[Myth465]

Houston is cold also. Dark and gray and cold. I dont see how people live in London or Scandinavia.

[oldye]

It is about 60 degrees here right now in Southern California, should be a high of 71 tomorrow  ;D

[ERICOPOLY]

Just saw a Publix for the first time today.  Never even heard of them before.  I'm down in Miami.  By the way, it's DAMN cold here.  I'm with two Canadians who are saying it's colder here than Vancouver. 

 

17F in Gainesville. Low 30s in Miami. 42F in Key West.  Brrrr!

 

FYI Publix is hands down the best run supermarket chain in US.  It's privately owned and likely the most profitable too.   There are @ 300-500K Canadian snowbirds in Fla this time of year.  You can run, but you can' t hide from Ol' Man Winter. :)

 

Your snowbirds are just going to the wrong place.  It is stinking hot here in Sydney today.

 

[Daytripper]

Freezing here in Central Florida

 

Publix stores are the cleanest, have the friendliest help, and generally have the highest prices. Albertsons has very good prices but the stores are somewhat dirty.  Ditto for Winn Dixie, although sometimes they have the best prices on beer.

[twacowfca]

I'm a 'net net'. My FDBV/share is @ $33, PPS @ $27.  Est Q4 FDBV/share @$35/sh. Assets are almost entirely financial.  Assets avg AA+ duration avg 2 yrs.  Very strong FCF generator -- a very good business.  Oh, by the way I'm buying back @ 9% of my shares, intending to complete most of the buyback in Q1 of 2010.

 

Who am I?

[Sullivcd]

I'm a 'net net'. My FDBV/share is @ $33, PPS @ $27.  Est Q4 FDBV/share @$35/sh. Assets are almost entirely financial.  Assets avg AA+ duration avg 2 yrs.  Very strong FCF generator -- a very good business.  Oh, by the way I'm buying back @ 9% of my shares, intending to complete most of the buyback in Q1 of 2010.

 

Who am I?

 

AHL

[Guest Bronco]

AHL going to $30 over the next few months.  Just hope Aspen didn't insure any Haitian property.

 

Real tragedy down there...unbelievable and very sad.

[twacowfca]

Sullivcd & Bronco, you get gold stars.  My question for other members of the board is this:  Why would anyone think twice about buying a crappy net net when there are many fine Bermuda insurers that have outstanding records with excellent growth in FDBV/share and long term competitive advantages such as no Corp taxes and light regulation without rate caps-- that are available at or less than NAV?

[Myth465]

Thats a good point.

 

Also the HALL VIC writeup provides details as to why the share price is in the tank. HALL looks like a buy in my opinion.

[Guest Bronco]

TWA - I am removing my gold star.  I bought some of the AHL preferreds during the March 2009 crisis yielding an insane amount and sold way too early.

 

 

[beerbaron]

What's a VIC?

 

BeerBaron