"...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.

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?

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...

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.

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

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.

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.

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.

Can't figure out what percent of the company Ridgedale owns or who these guys are.  They don't show up as a large institutional owner that I can see.

Thanks.  Have to say that's one of the more amusing and harsh letters to management I've ever read.

So, they're going to buy back the 10% of BXG they don't own at $16 after IPOing it at $14. 

What a disaster for everyone in the capital markets. They've found a way to destroy even more capital by closing a negative stub...

This is comical. I guess the Levans were embarrassed by the extreme discount of BBX so rather than spin off BXG to shareholders, they simply get rid of the daily evidence that the market thinks they are crooks. It does not change much else and the fact that they are paying $2 more on the 10% position after 18 months is de minimis (esp for the Levans).

BBX has a value about twice its current stock price but the discount seems about appropriate given the stewards here. There is no end in sight. The market was not surprised and has had this priced in for long time.

This company is truly hilarious and sad.