November 17, 2017 - 3:29pm EST by
2017 2018
Price: 7.40 EPS 0 0
Shares Out. (in M): 102 P/E 0 0
Market Cap (in $M): 755 P/FCF 0 0
Net Debt (in $M): -45 EBIT 0 0
TEV ($): 710 TEV/EBIT 0 0

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Let me start with a mea culpa as I wanted to get this out fast while there is still this opportunity and the
accounting here is beyond complex as you pull these 2 businesses apart (not helped at all by pretty
awful disclosures). If I made a mistake somewhere, please correct me in Q&A.
The crux of my thesis is that BBX Capital (BBX) IPO’d Bluegreen Vacations (BXG) today, November 17.
Assuming the over-allotment is exercised, BBX will own 67,261,010 shares of BXG trading at $13 or a
stake worth $874.4 million. This works out to $8.53 per fully diluted share. Since BBX is now trading at
$7.40, you get all of BBX for -$1.13. So, what’s in BBX…? Is it worth more than zero?
BBX is no stranger to these boards. It has now been written up 4 times with 3 different tickers and has
historically existed to enrich management and provide employment to the Levan family. That said; there
are indeed assets here. Unfortunately, they’re confusing to figure out are intertwined with BBX and
chronically mis-marked.
Using Q3/2017 and subtracting the balance sheet of BXG from BBX, I have put together a template
balance sheet for BBX as a standalone
I feel pretty strongly that cash and cash equivalents is $140.4m ($264.4m - $124.0m)
Assuming the full over-allotment was sold in the IPO, you get an additional $52.3m of cash (3,736,722
shares X $14). So total cash is $192.7m.
Now is where it gets complicated. BBX has a division named BBX Capital Real Estate, which is the legacy
real estate assets and loans of Bank Atlantic. They have a carrying value of $166.6m and $20.9m of loans
against them, for net value of $145.7m. However these are all marked at written down values as of the
GFC and property prices in Florida have appreciated substantially since then. Additionally, many of these
assets are now in JVs with professional property developers. It seems likely that these assets are worth
more than carrying value, especially as they keep booking large gains on sales. They were valued by
Keefe, Bruyette & Woods in July 2016 and had appraised value of $225mthough there have been sales
since then, offset by the fact that they’ve likely also appreciated in the past year. I assume they’re worth
$145.7m on the low end and $225m on the high end. This portfolio is slowly being harvested and turned
into cash and may turn out to be a lot more valuable than the high-end estimate after the developer
margin is added into net proceeds.
BBX also has a BBX Capital Middle Market subsidiary which makes doors and chocolate, while selling
sweets (IT’SUGAR stores in 95 locations) mostly at malls. Ohh, and it has one franchised pizza restaurant
with plans to open 50 more. Renin, the door company earned $1m in the first 9 months of 2017 on
$22m of net assets and I value it at somewhere between $0 and $22m. Their chocolate and sweets
division loses a bit of money (it’s in some sort of restructuring) on $52m of net assets. It should be noted
that for better or worse, they paid $58.4m for IT’SUGAR in June and IT’SUGAR did $6.8m of EBITDA on
$78.4m of sales in the TTM. I know their stores and think this one may actually be pretty smart as an
investment. Chocolate and IT’SUGAR is worth somewhere between $50m and $75m. So BBX Capital
Middle Market is worth between $50 and $97m (and you get the pizza store for free).
In total, the asset side is;
                                      Low                 High
Cash                               $192.7           $192.7
BBX Real Estate               $145.7           $225.0
BBX Middle Market           $50.0             $97.0
Total                               $388.4           $514.7
Subtract Debt of $80m owed to BXG and $65m of junior subordinated notes and total assets are
between $243.4m and $369.7m or between $2.37 and $3.61 per share. You also have a pile of NOLs to
utilize here, while dividends from BXG should ensure that the company is cash flow positive (over and
above salaries to management).
I tend to hate these sorts of trades where you can short out one subsidiary and create a stub pretty
cheaply as they don't seem to close quickly, but when you can do it for a negative value and the assets
clearly have a value, it seems like a no-brainer. On Wednesday BXG should become shortable. Then again,
BXG doesn’t seem too overvalued on its own as it was a small IPO that priced below range and then
immediately broke pricing and you may want to just own BBX outright and wait for BXG to revalue to
be in-line with other timeshare companies, which are all suddenly hot on the stock exchange (VAC, HGV,
ILG trade for 10-12x EBITDA. I know I’m comparing apples and tomatoes here, but BXG is at about
7-8x EBITDA (based on estimates).
In any case, I’m happy to try and answer questions in the Q&A but wanted to get this out there into the
Disclosure: Funds I control are long BBX


I do not hold a position with the issuer such as employment, directorship, or consultancy.
I and/or others I advise hold a material investment in the issuer's securities.


Stub closes

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