New Valley Corporation nval
May 23, 2005 - 4:08pm EST by
2005 2006
Price: 6.75 EPS
Shares Out. (in M): 0 P/E
Market Cap (in $M): 158 P/FCF
Net Debt (in $M): 0 EBIT 0 0

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New Valley Corporation is the remains of Western Union Corporation. At the present time 55.1% of its 23,332,036 shares are held by Vector Group, a/k/a the Liggett Tobacco Company. In turn, 34.9% of the shares of the Vector Group are owned by Bennett LeBow, giving him effective control of both entities. Although sometimes controversial and not unerring, Mr. LeBow has proven himself to be an astute investor.

At the present time, NVAL has no operations. Until early this year, it had directly owned real estate - two office buildings in Princeton, NJ. The Company diposed of them in March and is left with cash, securities and two attractive 50% partnership interests.

In a series of transactions between 2000 through 2002, NVAL acquired a 50% interest in the real estate brokerage firms of Douglas Elliman and Prudential Douglas Elliman, francisees of Prudential Real Estate Affiliates. New Valley paid $3.1 mil for its 50% equity interest and lent the acquiring entity $9.5 mil at 9.5%. This loan is due in 2013. The Douglas Elliman entities are large real estate brokerage companies in the Greater NYC Metropolitan Area. They have 2,800 agents working out of 54 offices. From 2002 through 2004 their sales were $59.3 mil, $179.9 mil, and $286.8 mil. In 2004 the Company earned $20.6 mil pre-tax and dividended $5.8 mil upto NVAL. This appears to be a very successful investment. At 6.5 - 10x pre-tax income, NVAL's 50% partnership interest should be worth $65 - $100 mil.

In 2001, NVAL along with others purchased the Kona Surf Hotel in Kailua-Kona, Hawaii at a foreclosure sale. NVAL's 50% interest in the property cost
$12.5 mil. The hotel has 525 rooms. It has undergone a $57 mil renovation using borrowed funds. In late 2004 it reopened as the Sheraton Keauhou Bay Resort & Spa. Their web-site claims that the renovation cost $70 mil. It is difficult for me to value the hotel. A fancy hotel on the other side of the island, the Fairmont Kea Lani Maui, sold for $789,000 a room in June of 2004. At that heady price, NVAL's interest would be worth $177 mil. At $300,000 a room, their interest is worth ~$50 mil.

In addition to the partnership interests, NVAL has:
$103 mil cash
$11 mil in marketable securities and partnership interests
$9.5 mil Douglas Elliman loan
$9 mil lawsuit recovery
= hard value of $132.5 mil = $5.68 / share plus
$50 - $177 mil for Hotel partnership interest
$65 - $100 mil for Douglas Elliman interest =
$247.5 - $409.5 mil = $10.60 - $17.55 / share

The pros are pretty obvious. The cons are that management has not batted 1,000%. They, along with their partner in the venture, lost money investing in Russian real estate. They also lost money buying Ladenburg Thalman. Overall, however, they have been highly successful. At a 35 - 60% discount, you are well paid to see what comes next.


There are no catalysts except for a $160 mil NOL which begins to run off in 2006.
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