|Shares Out. (in M):||0||P/E|
|Market Cap (in M):||880||P/FCF|
|Net Debt (in M):||0||EBIT||0||0|
|Entry||09/30/2004 01:23 PM|
|How did you get 2xBook Value for the land NAV?|
Any impending event that might make unlock this land value?
|Entry||09/30/2004 07:30 PM|
|Your EBITDA Multiple of 7.8X compares favorable to the multiple you cited. What is your multiple on |
EBITDA Less Maintenance Capex? I like to get a sense of the true cost of D&A.
What is the FCF yield?
|Subject||RE: IDR EBITDA Multiple & FCF|
|Entry||10/01/2004 10:55 AM|
|EBITDA Multiple (after adjusting for maintenance cap-ex) is 6.8x FYE2004. This is almost half the multiple of the average lodging owner/operator.|
The company is shifting its business model away from a real estate owner/operator into a high-end leisure service company. As such, they will continue to monetize their land and real estate holdings through joint ventures (e.g. sale of 80% of commercial property to CNL, while maintaining equity interest and earning a management fee), use the cash to reduce debt, and capture increasingly more management fees and incentive fees from their partners (which boosts their ROIC to +25%).
As IDR completes this transformation, look for multiple expansion and strong earnings growth. When this happens, IDR should trade at a premium to NAV of $24-27. Intrawest can be worth over $30/share further down the road.
FCF for FYE2004 was $293M, $6/share. At $21.99, the FCF yield is 28%.
|Subject||RE: Unlocking Land NAV|
|Entry||10/01/2004 11:14 AM|
|It's been taking place for a few quarters now! With the Leisura structure. The Leisura Partnerships Decreases IDR’s Capital requirements and helps offset seasonalities of IDR’s. |
The increasing success of its real estate business has led to increasing level of construction debt (as the scale of the developments increase and capital gets tied up for longer periods) and negative free cash flow (as working capital is increased to support real estate projects). In order to offset these challenges, Intrawest developed two joint venture partnerships:
JV with ManuLife (Canada, IDR keeps 30% interest)
JV with JP Morgan and Ledcor Properties (U.S., IDR keeps 35% interest)
The partnerships will own and finance the largest, most capital intensive real estate projects through construction and sale. IDR will sell land parcels to Leisura at fair market value once the particular project is 50% pre-sold and construction financing is in-placed.
This structure removes IDR’s working capital financing requirements while allowing the company (and its shareholders) to retain a significant proportion of a project’s economics in the following ways:
• The sale of land to the Leisura partnership captures the initial value created through land appreciation, the design approval, and pre-sale stages up to the time of sale.
• IDR removes construction risks off its books.
• Development fees (6-7% of total development costs) and commissions (2% of sales revenue) are paid to IDR from Leisura for development management and overseeing sales activities.
• IDR retains an interest in the profit earned by the partnerships as well as additional incentive participation (i.e. promotes) for each project, based on a sliding scale.
This arrangement reduces the capital requirements for IDR as it builds out its land holdings (approximately 10-year supply) and removes the debt from its balance sheet. The initial land sales to Leisura helped IDR to significantly reduce its debt by $200M. IDR went from -$101M cash drain in FYE2003 to +$293M FCF in FYE2004.
The joint venture debt will reside in Leisura as non-recourse to the Intrawest. Each project is levered 70% and IDR will contribute equity, 10% of the development costs.
As a result, IDR minimizes its equity contribution, while increases its total return on the development as development fees, sales commissions and incentive fees are factored into its ROE (of low to mid-twenty percent). The return on the land is (4-8x) multiples of book. So just valuing the land NAV at just 2x book will prove to be too conservative overtime. At 4x book for land, IDR NAV is over $40/share, compared to my stated NAV of $24-27.
IDR has a strong backlog of land sales.
|Subject||capex & land val|
|Entry||10/04/2004 12:15 PM|
|On the resort side of the biz, what is real capex requirement? 10K says $30 million is maintenance but they have been spending more than double that without growing that part of the biz much|
In terms of land val, I see the $368 on the balance sheet for resort properties, but where is the RE U/C? Also, what about the resort properties under current assets? Finally, is there a way to estimate the value of real estate in terms of future management fees that they will generate?
|Subject||RE: Land Value and Cap-Ex|
|Entry||10/04/2004 07:08 PM|
|Land value & Balance Sheet:|
The balance sheet has two line items for resort properties. Under current assets, this reflects the book value of real estate under-construction ($277.3M) and the commercial properties ($135M) of which 80% interest were sold to CNL.
Under long-term resort properties, $368M, represents the book value of IDR's land holdings. To date, IDR has approximately 19k units entitled. My analysis of land value (and NAV) only includes the value of the entitled land and do not account for land that is not entitled.
To that end, 600 units at Copper are currently entitled. The company is trying to get an incremental 800-900 units entitled, and recently lost the first round. This does not impact my current NAV value of $24-27/share. However, please note that this entitlement process is still work-in-progress. Developers typically go through rounds of rejection before they are given final approval to build on the land. The initial rejection was a result of local politics and timing of one local council member retiring. Therefore, when the Copper entitlement comes through, this will increase land value (NAV) by approximately $1/share.
Total cap-ex for IDR’s operating business is about $70-80M (of which $30M is maintenance cap-ex) for FY05. Please remember that, while it doesn’t not appear that IDR is growing its resort business, management typically expects to earn a return on expansion cap-ex (i.e. additional lifts, etc.), investment not earmarked as “maintenance cap-ex”. Return on investment cap-ex should help increase the top line (higher revenues) and improve overall performance of the portfolio (operating income).
Industry standard for management fee is typically two percent of revenue. In my NAV calculation, I do not account for future management fee revenue growth. To be conservative I valued the current management fee as 5x EBITDA. However, we expect management fees to grow as IDR divests its real estate holdings and maintains a minority interest and a long term management contract for the assets (e.g. CNL transaction).
The easiest way to estimate the value of the real estate to account for future management fees is to use a higher multiple in valuing the land. My NAV ($24-27/share) is valuing the land at 2x book (approximately $39k/unit). This proves to be conservative since IDR sold land into Leisura at $167k per unit in FY04.
|Subject||RE: Land Value & Leisura Struc|
|Entry||10/11/2004 01:32 PM|
|Intrawest's latest audited financial statement (FYE2004) is filed on www.sedar.com. http://www.sedar.com/csfsprod/data49/filings/00691581/00000001/w%3A%5C3w_out%5C29306%5Cafs.pdf|
or Form 40-F on Edgar.com.
Intrawest financial position has changed dramatically since June 2003. IDR went from carrying $1.13B of net debt and negative free cash flow (-$21M) to net debt levels of $849MM and FCF of $293MM.
1) Please remember that land value on the balance sheet, $368M, represent the BOOK value. This number decreased from $405MM in 2003, reflecting some land sales into Leisura.
Also, in FYE2003, IDR had 16k (approximate book value of $25.3k/unit) units entitled. At FYE2004, the number of units entitled increased by 3k, totaling 19k units (approximate book value of $19.4k/unit). This VALUE creation process is NOT reflected in Book, and is grossly understated. IDR sold entitled land at Fair Marktet Value into Leisura. That means in 2003, average price of land sold into Leisura was $160k, far above two times book value.
2) I am not concern about any potential agency problems between Intrawest and their Leisura partners. Shareholders benefit from this structure. This allows the company to operate with lower debt levels, generate significant free cash flow, and earn higher margins (lower COGS) from land sales.
Profit margins in Leisura is 10% because the profit on the sales to Leisura is initially deferred and is realized based on percentage of completion basis in accordance to Canadian GAAP. Therefore, this does not reflect the cash profits and does not capture the profits made by IDR when they sell their pre-sold lots into Leisura at FMV. In addition, IDR earns a development fee (6-7% of total development costs), management fee (2% sales commission) and promotes that determined by a specific formula for related to each project.
The Leisura partnerships allow IDR to support the growth of its land development business. Intrawest’s capital requirements to support this growth are limited to its 11% share of new capital, and of this investment only about 55%, i.e. 6% of total capital, is cash equity. This model allows IDR to internally generate sustainable 15-18% return of equity. For that reason, this model is sufficient to support a long-term growth rate in earnings of 15% without a need to access equity or increase debt ratios.
|Subject||Vail Resorts annouces 26% incr|
|Entry||10/13/2004 12:49 PM|
|The Wall Street Journal reported today that Vail Resorts' season-pass sales are running 26% ahead of last year. While I focused my write-up on the overlooked value in IDR's vast land holdings, it now looks like IDR will also get a big boost to EBITDA this year from resort operations. Versus last year (which wasn't very good), IDR should be able to do another $10-15MM in EBITDA from their ski operations. The added EBITDA was not factored into my valuation. Bottom-line, IDR is even cheaper.|
|Subject||RE: Land Value & Leisura|
|Entry||10/14/2004 06:03 PM|
|RE: Land Value & Leisura |
Let’s look at the latest financials (full-year).
These are the economics behind IDR’s land business under the Leisura structure:
FY04 IDR sells land at FMV to Leisura $171.5MM (1,025 units)
Book Value = $126.2MM
Land profit = $45.3MM
Development Fees = $55.7MM (assuming land = 20% of total dev. cost & 6.5% fee)
Sales Commission = $19.1MM (assuming 11.5% return on dev. costs & 2% comm.)
Deferred Land Int. = $4.0MM ($1.006MM booked through June 2004)
Incentive Fees = >$2.1MM (project specific, sliding scale)
Total Fees & Profits = >$126.2MM >= 2x Book
This is how can value the land at 2x Book to get to the NAV $24-27/share. If you just accounting for the land at 2x historical cost, you will not be capturing:
• The value creation executed by IDR by taking raw land and getting it through the entitlement process.
• Land available in a resort village with all its amenities is worth more than
• Accounting for the appreciation of land since the 80’s and 90’s (when IDR bought the bulk of their land holdings). The average house appreciated 210% since 1980 and 42% in the last 5 years in the U.S.
Conclusion: Book value of land is significantly understated. Management’s talent and value creation is not reflected in the stock price. IDR is trading at 21-30% discount to NAV ($24-27).
|Subject||A question on valn|
|Entry||10/19/2004 06:20 PM|
I am trying to tie out some of the numbers between your analysis and the company's filed finls. It appears that all of the corporate overhead ($20mm last year) is rolled into the $136mm of 2004 Real Estate Development EBITDA. Since your NAV analysis uses EBITDA multiples for both Resort Operations and Mgmt Svcs, but a P:BV valn metric for Real Estate Development, aren't you effectively giving the company a free ride on that corporate overhead nut? Seems to me that the overhead is an ongoing operating expense and, as a result, should really have a multiple applied to it and subtracted from the enterprise value. I may be thinking about this wrong, please let me know if you disagree. Thanks in advance.
|Entry||10/19/2004 08:08 PM|
|Valuing the land holdings at 2x Book (please see Reply 13 for Leisura and Land Value economics) is more conservative than using an EBITDA multiple of greater than 6x to get to TEV on IDR. (JOE is trading at TEV/EBITDA 21x)|
At 2x Book, Land Holdings is valued at $737M. This is compared to $816M at 6x EBITDA. As a result, I don't believe in penalizing the company twice (i.e. using lower valuation as 2x Book vs. 6x EBITDA for Real Estate and then taking out its pro-rata share of G&A).
Please note, the $20M of G&A is allocated to three components of Total Company EBITDA (Real Estate, Resort, and Management Services) on a pro-rata basis.
NAV for IDR is $24-27/share. It's trading at a significant discount to NAV at $19. My NAV method of valuing the company is also very conservative. By valuing the land at 2x Book, I'm effectively using 5.4x EBITDA on Real Estate to get to my TEV, compared to JOE who is trading at 21x EBITDA.
|Subject||I am not arguing that an EV:EB|
|Entry||10/20/2004 08:54 AM|
|I am not arguing that an EV:EBITDA multiple is the appropriate methodology for the Real Estate Development segment, I think that the only area in which we are disagreeing is in relation to corporate G&A.|
I don't think that corporate G&A is being allocated pro-rata to the three segments - 100% of it is dropping by default into Real Estate Development. Hence my concern about it not being properly accounted for in the valuation. Based on my reading of the filings, the company reports EBITDA numbers in the MD&A for the total company ($268.3mm), Resort Operations ($105.1mm), and Management Services ($27.5mm), but not for Real Estate Development. The disclosed numbers for Resort Operations and Management Services match the segment contribution line items on the consolidate financials, which clearly do not include any allocation for corporate G&A (which is listed separately further down the income statement). From my read, there are two ways to get to an EBITDA number for Real Estate Operations: 1) Total company EBITDA less Resort Operations and Management Svcs EBITDA ($268.3 - 105.1 - 27.5 = $135.7mm, which ties to your $136mm number), or 2) Real Estate Development segment contribution from the consolidated income statement ($91.4mm) + interest in real estate costs ($64.7mm) - corporate G&A ($20.4mm) = $135.7mm.
I agree with your valn methodology on Real Estate Development - an EBITDA multiple isn't appropriate. However, I do think that the $20mm of corporate needs to be capitalized and backed out of your enterprise value as this is a real, ongoing cash drain. This knocks a couple of bucks off the NAV.
|Subject||RE: G&A and Valuation|
|Entry||10/20/2004 01:40 PM|
|RE: G&A & Valuation|
I don't believe in applying a multiply to G&A, and then removing it from my NAV. This is not common practice in calculating NAV for a real estate company. You can bring up any sellside NAV model on a real estate company and see this. Valuation is based NOI / Cap Rate, (G&A can vary, depending on the owner and NAV serves as a liquidation value).
We both agree that an EBITDA multiple method of valuing the land holdings is not appropriate. By using 2x Book, which is more conservative than using 6x EBITDA (which includes $20.3M G&A), I get to NAV of $24-27/share. Taking G&A out becomes a moot issue, depending on what multiple you use. So I think taking $2/share hit to my NAV is overly conservative. I don’t want to penalize the company twice in my NAV calculation by using a conservative 2x Book for its land, and then further knock its value down even more per your suggestion.
Furthermore, this is clearly a talented management team with franchise value that is not accounted for in my NAV calculation. By using a conservative 2x Book estimate to get to the land value (and you can see how value is easily created in Reply 13), I am not adding a line item to account for the franchise value and talent of this irreplaceable management team. Therefore, you can infer that I am implicitly accounting for the G&A in my NAV $24-27/share.
I will also argue that applying 5x EBITDA multiple (20% capitalization rate on NOI) on Management Services is also conservative. I have seen other analyst apply 8.25%-12.5% cap rate (8-11x Multiple) to this line item in their NAV calculation for real estate companies. I stand by my NAV of $24-27. You are free create your own model.
|Subject||You may be right on sell-side|
|Entry||10/20/2004 02:52 PM|
|You may be right on sell-side valn methods, although in my experience with lodging stocks (which I consider to generally be R/E plays) EBITDA and/or operating cash flow are generally presented after corporate expense is taken out. I guess we can agree to disagree.|
|Subject||Now that they've reacted...|
|Entry||03/13/2006 04:12 PM|
|...who do you think the most likely buyers are? |
Also, if you don't mind, what have been the major drivers of increased intrinsic value since the $24-27 mentioned in this original posting?