Description

Trading at a 25% discount to NAV, 1.1X book value with an equity cap of $800MM, this is an overlooked value play poised for significant share appreciation. Intrawest Corporation is a “land play” much like St. Joe (ticker: JOE) and Kmart (ticker: KMRT) which has largely been ignored by value investors. While the stock has come off its $15 low to around $18 per share, the stock’s NAV is easily $24-27 or higher. Trading at just 1.1X book, the land holdings on IDR’s balance sheet are substantially undervalued. This isn’t a wait and see what they do with the assets story, IDR is actively turning its land bank into cash.


Company Description: (from company filings)

Intrawest Corporation engages in the development and operation of village-centered resorts across North America. The company’s operations can be classified in to three sources of revenue: Mountain Resort Operations, Warm-Weather Resort Operations, and Real Estate Operations. Intrawest conducts its ski and resort operations through the Mountain Resort Operations and Warm-Weather Resort Operations segments.

The Mountain Resort Operations comprise all of the operating activities at its 10 mountain resorts, as well as the operations of Resort Reservations, Alpine Helicopters, and Breeze/Max Retail. The Warm-Weather Resort Operations comprise all the operating activities at Sandestin, as well as operations at its five stand-alone golf courses.

The company conducts its Real Estate Operations through the Resort Development Group and the Resort Club Group. The Resort Development Group develops and sells condo-hotel units, town-house units, and single-family lots. The Resort Club Group’s business is a timeshare business where owners purchase points that entitle them to use accommodations at different resorts.

As of June 30, 2003, the company had 10 mountain resorts; one warm-weather resort in Sandestin, Florida; 29 golf courses under management; a vacation ownership business – Club Intrawest; and six resort villages at other locations, including one in France. Its resorts include Whistler Blackcomb and Panorama in British Columbia; Blue Mountain in Ontario; Tremblant in Quebec; Stratton in Vermont; Snowshoe in west Virginia; Copper and Winter Park in Colorado; Mammoth in California; and Mountain Creek in New Jersey.


EBITDA:

EBITDA totaled $268M for FY2004, up 17% year-over-year. Resort operations EBITDA was $105M (39%), real estate operations were $136M (51%) and management services $28M (10%).

Resort operations LTM EBITDA was negatively impacted by a relatively warm winter last year in the Northeast. A normal snowfall/temperature year would produce another $5-15MM in EBITDA vs. last year.

Real estate operations EBITDA continues to benefit from low interest rates and very strong demand for high-end second-homes, timeshares and resort properties. IDR is one of those companies you hear about that once they release inventory (land or units) there is a bidding frenzy and multiple offers come in for each available property. EBITDA should continue to grow in this segment.


IDR Trading at Book, Value in Land Holdings Not Reflected in Share Price:

Book value per share is $16.33 (excluding $25M cash gain from the CNL transaction). The majority of the land was purchased in the 1980’s and 1990’s. IDR has over a 10-year supply of land, 19k units (equivalent to approximately 47.5k hotel rooms), which includes phase 2 and phase 3 of Tremblant that was recently approved. The land profit per unit ranges from $44k-84k/unit. At 2.0x BV, the land is valued at $39k/unit (11% discount to the low-end of estimated profit per unit).


Trading at Significant Discounts to Net Asset Value:

Vail Resorts (ticker: MTN) is trading at 7.8x EV/EBITDA. Its ski and resort business is comparable to IDR, but not as geographically diverse. There are rumors that MTN rejected a bid of $19.50 from KKR (8.3x EBITDA) in August of this year. Using the same multiple for IDR’s resort business (7.8x EBITDA), land holdings at 2.0x book, and $309M value for real estate under-construction, I calculate an NAV of over $25 per share (assuming average ski & resort EBITDA of $110M). Using Bear Stearn’s estimate of EBITDA for FY2005, NAV is $26.43.

NAV Calculation Trough Yr Avg Yr Good Yr FY05E Bear
Ski & Resort Op. EBITDA 105,000 110,000 115,000 117,179
Less: Minority Interest -15,750 -16,500 -17,250 -17,577
Multiple 7.8x 7.8x 7.8x 7.8x
Value of Ski & Resort Op.699,838 733,163 766,489 781,012

Land(2x BV=$368MM) 736,618 736,618 736,618 736,618

RE U/C (BV + 11.5%) 309,327 309,327 309,327 309,327

Mgt Inc (5x EBITDA) 169,000 169,000 169,000 169,000

Leisura Int.(15% ROIC) 58,534 58,534 58,534 58,534

Add: Cash (+CNL&Refi) 173,816 173,816 173,816 173,816
Add: Accounts Rec. 142,427 142,427 142,427 142,427
Less: Accounts Payable -209,037 -209,037 -209,037 -209,037
Less: Company Debt -887,856 -887,856 -887,856 -887,856

Total Equity Value 1,192,577 1,225,902 1,259,228 1,273,751
Shares Outstanding 48,200 48,200 48,200 48,200

NAV per Share $24.74 $25.43 $26.13 $26.43

Implied Resort EV/EBITDA 5.3x 5.0x 4.8x 4.7x


NAV Sensitivity Analysis
Ski & Resort Book Value of Land ($368MM) Multiple
EBITDA Multiple 1.00x 1.25x 1.50x 1.75x 2.00x 2.25x
4.0x $10.34 $12.25 $14.16 $16.07 $17.98 $19.89
5.3x $12.77 $14.68 $16.59 $18.50 $20.41 $22.32
6.5x $15.19 $17.10 $19.01 $20.92 $22.83 $24.74
7.8x $17.62 $19.53 $21.44 $23.35 $25.26 $27.17
9.0x $20.04 $21.95 $23.86 $25.77 $27.68 $29.59
10.3x $22.46 $24.38 $26.29 $28.20 $30.11 $32.02
11.5x $24.89 $26.80 $28.71 $30.62 $32.53 $34.44


Partnerships:

IDR has two significant partnership arrangements which reduce debt and increase return on equity for Intrawest. Leisura in an entity that purchases real estate developments from IDR once they are at least 50% pre-sold. IDR receives payment for the development work to date and maintains a significant equity partner in the development without having the debt on their balance sheet. In addition, Leisura pays a development fee (6-7% of total project cost), sales commission (2% of sales), and incentive fee to IDR. This boosts the ROIC to mid-twenty percent for IDR.

The other more recent partnership is with CNL where IDR sold an 80% interest in certain commercial properties located at nine of their resorts for $160MM. IDR keeps a 20% equity interest in the properties and collects ongoing management fees.


Interest Savings from Refinancing:

IDR tendered for their 10.5% Bonds due February 2010 for $394MM. The company sold $225MM of 7.5% Senior Notes maturing in 2013 and C$125MM ($98MM) of 6.875% Senior Notes due 2009 to pay for the tender. The company has estimated $16MM of interest savings per year. Overtime, interest savings will work its way to COGS (as interests are capitalized in the development phase of each project).


Ambercrombie & Kent Investment Acquisition:

For less than $10MM, IDR bought 67% of Ambercrombie and Kent (ANK) with annual revenues of $200MM. IDR will benefit from cross marketing and the revenues will help offset the seasonality of its ski business as the peak season for ANK is in the summer.


Management:

Management here is excellent and willing to talk/meet with investors.


Catalysts:

Increased EBITDA from real estate sales and Leisura partnerships
Increased EBITDA from a more normalized ski season in the Northeast and West
Increased EBITDA from marketing efforts with Ambercrombie & Kent
Increased EPS and Real Estate Margins from interest cost savings and lower debt
Possible take-over (rumors abound)
Multiple expansion

Catalyst

Increased EBITDA from real estate sales and Leisura partnerships
Increased EBITDA from a more normalized ski season in the Northeast and West
Increased EBITDA from marketing efforts with Ambercrombie & Kent
Increased EPS and Real Estate Margins from interest cost savings and lower debt
Possible take-over (rumors abound)
Multiple expansion