BBX CAPITAL CORPORATION BBX
November 17, 2017 - 3:29pm EST by
hkup881
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

Sign up for free guest access to view investment idea with a 45 days delay.

 

Description

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
wild.
 
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.

Catalyst

Stub closes

    sort by    

    Description

    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
    wild.
     
    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.

    Catalyst

    Stub closes

    Messages


    SubjectRe: Management pillaging
    Entry11/19/2017 11:35 AM
    Memberhkup881

    "...and has historically existed to enrich management and provide employment to the Levan family."

    I 100% get what you're saying, but when you look at the 2 subsidiaries now, BXG is the cash flow and BBX is the holdco that needs cash to pay salaries and has no real cashflow except proceeds of liquidating real estate and loans. Wouldn't some of that money siphoning almost have to shift over to BXG over time as they have the cash to pay?

    Historically, salaries were funded by BXG dividends. Will it still get funded by BXG dividends? If so, won't BBX cash flow still be positive and you can simply look at it as a dysfunctional stub (with a Willy Wonka Jr. division), preserving the positive value of the stub? As it won't be selling off assets to fund salaries and assets should grow over time from cash inflows minus silly chocolate investments and there are likely to be more BXG secondary sales over time as well.

    I mean, if I was trying to maximize the ability to extract capital as a vampire overlord, I'd probably ensure that BXG trades to a bigger multiple by keeping leakage there to a minimum and paying a healthy dividend, then do a few more secondary offerings to get ownership down to 51% and get more cash into BBX (tax free b/c of NOLs), then go and shift leakage to the sub (BXG) with the cash flow (which would collapse the stub value over 2-3 years). I don't think the Levans are quite vampire overlords either.

    Basically, I'm not saying that I want to own either of these turds. Just that on Wednesday, you can short out BBX at a negative stub value and it shouldn't be negative (especially keeping money leakage somewhat constant between subs over time). I've seen this play out many times with negative stub values and they tend to correct over time. Or you can not short out the BXG stub and just assume that BXG appreciates closer to market multiples and BBX is dragged higher as a result. For better or worse, these guys have tried to show the market the value of their BXG sub, yet you can buy BBX for a few % higher than the price it was at before they started this process.


    SubjectRe: why'd they IPO
    Entry11/19/2017 02:55 PM
    Memberhkup881

    I wonder the same thing. I think they took it public with a small float on purpose to get a mark on it that would be higher than they deserve (due to small float) so that they can raise more money at BXG/do M&A and ultimately sell another 40% and effectively bring more cash into the BBX galaxy as BBX itself is too tarnished in investor eyes to raise capital accretively (so they needed a new vehicle)

    Why else list less than 10% when you could easily sell a much bigger piece and get a proper liquid market going?


    SubjectRe: Re: Re: why'd they IPO
    Entry11/19/2017 05:15 PM
    Memberhkup881

    Maybe the i-bankers promised them something else? Initial range was $16-18.

    Then again, BBX has to get a mark out there to start the process...


    SubjectExcessive Discount
    Entry11/20/2017 08:13 AM
    MemberNorris

    hkup881,

     

    I agree with the investment case you’ve outlined. BBX has $1.1-$1.3 Bn ($11-$12.30 p.s.) of net asset value before deducting corporate expenses. BBX won’t be burning cash so there is a $3.65-$4.75 p.s. spread (+48%-63%) to the value of BBX’s assets which should narrow. I’ve always deducted BBX corporate expenses capitalized at 7x, a $250m deduction to NAV, so I estimate fair value is in the $8.77-$9.89 range (+16%-31%).

     

    Another way to think about the discount is the implied value for BXG through BBX, which is currently 5x-6x BXG EBITDA (too cheap with comps at 10x-11x). In addition to upside from the current BBX discount to NAV, there is a good case to be made that Bluegreen is undervalued at $13 p.s.

     

    Summary BBX Valuation

     

    Bluegreen is performing well and trades at an inordinate discount.

    • The company has grown topline at a ~4% CAGR for the last three years while EBITDA has grown at an 8% CAGR.
    • Topline growth appears anemic this year due to a strategic decision to eliminate a lower priced product to increase marginal profit. EBITDA is up ~10% y/y while revenue is up 1%-2%.
    • Bluegreen and HGV are the only two public timeshare comps that have grown the number of new owners since 2013 (new owner growth 2013-2016: HGV +8%, BGX +5%, WYN -1%, VAC -2%). A growing base of new customers translates into a more sustainable tail of annual fees and interest.
    • Bluegreen will more than double its retail sales presence through the merger of Bass Pro Shops and Cabela’s (adding ~86 stores to the existing 76 Bass locations). Roughly 15% of revenue is generated through Bass store-in-store locations so doubling the number of distribution points could be a meaningful growth driver.
    • At 7x LTM EBITDA, Bluegreen trades at a 3x-4x discount to comps at 10x-11x (and a discount to transaction comps: DRII acquired for 9x, MYCC for 10x LTM). BXG has good growth prospects, strong recent performance and a 4.6% dividend yield. I wouldn’t be surprised to see BXG trade higher.

     

    Of course there is reason to be skeptical of the Levan’s, but recently the family has taken logical steps to drive the revaluation of BBX by consolidating BFCF/BBX, uplisting to the NYSE and setting a market price for Bluegreen. Could they do more? Yes, but the $3.65-$4.75 HoldCo discount (half of the current equity value) is extreme.


    SubjectRe: Excessive Discount
    Entry11/20/2017 09:15 AM
    Memberdd12

    ni Norris:  i am in this, so i agree with the value disconnect -- but how isn't BBX burning cash?


    SubjectRe: Re: Excessive Discount
    Entry11/20/2017 12:28 PM
    MemberNorris

    dd12, the $40.4m dividend from BXG funds most of the corporate expense. This is roughly how I look at it:

    - Real estate is operating profitably.

    - Renin is EBITDA positive with minimal capex.

    - Sweets is EBITDA positive with It'Sugar. There is some capex as the company opens new stores, but there is a good chance that performance of the old Sweets business improves in 2018 (BBX has been restructuring operations to cut costs). Management's aim is to restore profitability of the old Sweets business in 2018.

    - Corporate and interest expense are about $46m annually. Maybe there is modest cash burn ($40.4m < $46m), but continued growth at Renin and Sweets should plug the hole.


    SubjectRe: Re: Re: Tax consequences / Capital Light Inventory
    Entry11/22/2017 08:12 AM
    MemberNorris

    TrustInGravity, in the near-term, I agree it is more likely the Levans would sell or merge BXG than spin it off. The substantial NOLs at the BBX level would limit tax leakage in the event of a sale and the Levans are not averse to a transaction that would infuse BBX with cash while generating upside in BBX shares.

     

    Regarding the sustainability of commisasion-based revenue, timeshare development for use in commission-based sales has been very active since the financial crisis. Blackstone and Och-Ziff did commission-based development deals with Diamond a few years ago. Bluegreen’s partnership with Choice began with 24 properties in 2013 and has expanded to 36 hotels. There is continued demand among developers for these projects. Growth of Bluegreen’s commission-based sales has been strong and there’s no indication that earlier deals were more lucrative (the commission % has been consistently 67%-69%).

     

     

    GCA, regarding corporate expense: I’m adding back stock comp and my $36.5m was low (not adjusting for higher Q4 comp). I take corporate YTD of $44.9m, exclude $2.8m for It’Sugar transaction costs, $3.4m litigation cost and add-back $10.1m of stock comp. With higher compensation in Q4, cash cost is probably $39m-$45m (about $9m-10m quarterly, $14m-$15m in Q4). I still see the corporate burn of $47m-$53m being mostly covered (I estimate corporate interest will be ~$8.4m going forward). Mod Pizza expenses will be offset by revenue in Q4 (the first store opened in October 2017). I'm really focused on cash burn that could degrade the spread over time and I consider it limited.

     

     

    In the last two days, BXG has traded up $0.85, equal to $57m of value to BBX ($0.56 p.s.), while BBX has declined $0.12. There seems to be a disconnect between the value of the entities for the time being (the panicked selling last Friday shook investors that were new to the situation) and the spread has widened. As initiation reports are published over the coming months, I expect BXG will continue to appreciate and it remains an inexpensive target in a consolidating industry. I'm investing for the upside in BBX as it appreciates closer to fair value, but there is also likely upside in BXG.


    SubjectSpread 'Em!!
    Entry11/22/2017 04:11 PM
    Memberhkup881

    At today's closing prices of 14.22 for BXG and 7.39 for BBX, you are now buying BBX for -$1.94 net of BXG value and you get somewhere between $2.24 and $3.47/shr of other net asset value tossed in, along with getting 1 MOD Pizza franchise and 2 Levans for free...

    Total NAV of BBX is now somewhere between $11.57 and $12.80, so we're at a pretty good discount here and with BXG now over IPO pricing, there's a chance that this value increases. I have to think that the spread closes as people become aware of the spread and BBX should have a small positive value net of BXG.

    BBX also updated their website with some more information on the property portfolio.

     

     

      Back to top