Description

Newly spun out BBX Capital, Inc. (ticker: BBXIA) trades for at least a 100% discount to its fair value, possibly more.

BBXIA will be a controversial value idea for some, given its connections to the colorful character, Alan Levan.  For those unfamiliar with Mr. Levan, he is a south Florida businessman that has held stakes in several public companies over the years, including BancAtlantic Bancorp, Levitt Homes, Bluegreen, and Benihanna Restaurants.

Levan has crossed quite a few folks, from Benihana founder Rocky Aoki’s widow…

https://bit.ly/30UHbEz

...to the shareholders of Levitt homes

From a 2007 WSJ article:

Concerns about his judgment go back a few years, when, dressed as Indiana Jones, Mr. Levan announced a plan to build 10,000 homes by 2010. (The announcement came amid signs the housing market was overheated, leaving many employees to quip at the time that he was leading them into a "Temple of Doom," a reference to an Indiana Jones movie.)

Fast forward to today, and the Levan controlled BBX Capital decided to separate into two companies: BBX Capital (former ticker: BBX) and New BBX Capital

PR on the spin:  https://bwnews.pr/3jQzaYQ

Post spin, the two entities became Bluegreen Vacations Holding Corporation (ticker: BXG) and BBX Capital Corporation (publicly traded under ticker: BBXIA and BBXIB).

This write-up focuses on BBXIA, which trades at an extreme discount to an already heavily discounted set of assumptions and haircuts.

So what does BBXIA hold?

• ·        Note Payable
• ·        Cash
• ·        A collection of assets
• ·        Real Estate Holdings

$96m Cash

BBXIA was spun out with $96m in cash.

$75m Note that pays 6% per annum

In connection with the spin-off, BXG issued a $75.0 million note payable to New BBX Capital that accrues interest at a rate of 6% per annum and require payments of interest on a quarterly basis. Under the expected terms of the note, the Company will have the option in its discretion to defer payments under the note, with amounts deferred to accrue interest at a cumulative, compounded rate of 8% per annum, and all outstanding amounts will become due and payable in five years or earlier upon certain other events.

Collection of Assets

A report by B Riley pegged the asset value of BBXIA’s holdings at $187m.

Here is the breakdown:

Renin  (a maker of pivot, barn and bi-fold doors)

Valued at 6x EBITDA, or $18m

***

It’s Sugar (100 location candy store)

Note that this company recent filed for BK:

https://bit.ly/3iS8tSm

We will ascribe zero value for this asset and assume that the equity is wiped out.

***

Real Estate Holdings 

($140m in Book Value + $12m in expected gains)

• ·        9 JV investments (2017-2019) in various multifamily apartment projects. The total invested amount is $27m, while most of the projects are expected to be finished in 2020-2021.
• ·        3 single family projects. $8.3m was reportedly invested in the two of them.
• ·        2 mixed-use projects with $4.6m investments.
• ·        Other assets - certain investments in real estate joint ventures in which a majority of the assets have been sold. Also holds various legacy assets, including loan receivable and real assets with an aggregate carrying amount of $21.8m.

Liabilities – Notes Payable

BBXIA will show $41m of Notes Payable however the majority of these notes are Community Development Bonds for their real estate projects.

Why does this opportunity exist?

Funds that held the parent company (NYSE listed) are generally unable to hold shares of over the counter securities.  As a result, a fair amount of forced selling is expected to take place.  Investors may also favor owning shares of the more liquid (ticker: BXG).

Putting it all together

Item                     Discount Factor or valuation        Result

Cash                     0%                                              $96m

Note                     0%                                              $75m

Renin                    4x EBITDA                                    $12m

It’s Sugar             100%                                              $0

Real Estate           65% of book                                  $90m

Liabilities              0%                                               ($41m)

Total                                                                         $232m

Shares outstanding                                                     19.3m

Value per share                                                          $12.00

“Levan discount”                                                          40%

Value post discount                                                     $7.20

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Upside from current                                                   100%

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Catalyst

- institions clear out their spin holdings of the OTC stock

- possibility of a dividend or buyback