|Shares Out. (in M):||24||P/E||0||0|
|Market Cap (in $M):||252||P/FCF||0||0|
|Net Debt (in $M):||56||EBIT||0||0|
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|Share price ($)||$10.67|
|Fully diluted shares (M)||23.7|
|+ Debt (@ Sep 30 2014)||160|
|- Cash (@ Sep 30 2014)||41|
|- Moonee Ponds sale proceeds (to be received April 2015)||18|
|- Burwood sale proceeds (discounted, to be received by latest 2017)||45|
We think RDI is as attractive today as it was when we wrote it up in 2011 even though the stock has more than doubled. The situation has changed: the risks are materially reduced, a few core assets are worth as much as the entire EV of the Company, the operating businesses (cinema and real estate) are steady cash generators, and the catalysts (including recent management changes) appear in place for the significant value to be realized. Currently trading at $10.67 per share, we arrive at a fair value of approx. $23 to $26 per share.
In summary, the valuation build is as follows:
Value of Operating Business = $371M (see above) – $56M (adj. net debt) = $315M (equity) or $13.30 per share
Near-Term Redevelopment/sale opportunities (not included in Operating Business above):
Value of Near-Term Redevelopment Opportunities = $7.45 to $10.30 per share
Long-Term Asset Monetization Opportunities (Manukau, Coachella, etc.): ~$2 per share
Total value per share:
Operating Businesses: $13.30
Near-Term Redevelopment: $7.45 to $10.30
Long-Term Asset Monetization: $2.00
Total = ~$23 to ~$25 per share
The shares offer upside to reasonable value with a strong balance sheet that could easily handle incremental debt.
Key factors in this investment (addressing what has changed):
Risk of permanent loss of capital is very low due to asset values and the recent sales of non-productive assets
Before laying out RDI’s upside and catalysts, we wanted to highlight why RDI’s recent sales of its two large undeveloped parcels in Melbourne, Australia for ~$80M are so meaningful. In essence, these sales materially reduced the key risks that we highlighted in our 2011 write-up (and also reduced annual carrying costs by $1M). Management has shown a willingness to monetize large assets and also reduced its exposure to undeveloped Australian property. In addition, at its annual meeting, management announced a $10M (~5% of shares) buyback and indicated increasingly returning value to shareholders over time.
Since most of the cash from RDI’s sales of its two large undeveloped parcels in Melbourne has not yet been received, RDI’s true net debt is much lower than it appears on the balance sheet. The Company’s EV (adjusted for the guaranteed cash it will receive from the sales) is approximately $307 million, not $370 million as it appears on screens.
The solid operating businesses (cinema and real estate segments) are alone worth as much as the EV. More surprisingly, these operating profits do not incorporate assets in redevelopment, assets likely to be redeveloped in the near future, net income from JVs, and undeveloped parcels. For example, by the end of 2013 the Company will generate approx. $3M in additional annual cash flow from the redevelopment of Courtenay Central in Wellington, NZ. Moreover, two of these soon-to-be-redeveloped assets (Cinema 123 and Union Square properties in New York City) are together perhaps worth as much as RDI’s current market cap.
Cinema 123 in New York City
Union Square Theater in New York City
In summary, RDI is a cash generating business that is materially undervalued based on its underlying operating business and its collection of quality assets. It seems that we are on the precipice of realizing the significant value that the Cotter family has accumulated over the past 20 years.
- Transaction announcements on Union Square and/or Cinemas 123
- Further monetization and unlocking the value of the Company's other assets
- Returning capital to shareholders (Company repurchases significant stock and over time also initiates a dividend)
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