Friday, March 7, 2014

BFC Financial - A Timeshare Business & some other assets

I took a 10% position in BFC Financial in early December and classified it as "Reserved" in the tracking portfolio. It was an idea too good for me to have found on my own and was suggested to me by a far better investor than I am. My cost basis was $2.60.

It has since been written up on VIC and, today, at Seeking Alpha. I would add to the latter write up that I'd subtract $50 million (plus or minus) from the NAV estimate to account for the costs of litigating and settling the charges that the SEC has leveled at Levan, the CEO.

I'd add also that an alternative method of estimating Bluegreen's value is one suggested by Michael Burry in this post.

Disclosure: I am, for my sins, long BFCF 


  1. Well I'll be damned, look at you, Red, citing a 15yr old Burry post :). Thought only I was neurotic enough to remember this crap. H/T goes to 17th.

    The lesson I had taken away from reading the old SVR filings is you want to be about a mile away from this stuff before the onset of a recession -- stock basically bagel'd out in 2001. This is basically a finance business in drag, and when the securitization market shuts down, you shut down with it.

  2. Buffett, Greenblatt frere, Burry -- three underrated, if famous, names.

    I agree even though one would like to think that the operators of these businesses learn from one recession to the next.

  3. One would like to think that...but I wonder (and I do wonder; this is just thinking out loud) whether businesses like this, where the economics are alternately compelling and devastating, attract middling capital allocators. BFC's past holdings (Office Depot!) gave me pause, though the overall asset story was and possibly still is compelling (I have a cost basis of $1.30, though with a far longer holding period than yours). As almost always, I wish I'd taken a larger stake than 2%...


  4. On the other hand, his handing of FAR suggests that he may be sharper operator than it may seem at first glance.

    Of course,the cat risk is that he may be sharp AND untrustworthy.

  5. Absolutely, but I wonder how much of an assist can be given to BB&T on that (though they're of course smart operators themselves).

    As for the rest of, that's a cat of another tail entirely...

  6. I'm sure I'll learn soon enough that South Florida is a frontier market :)

  7. i thought pg.31 + 33 of the 8-k they put out on bluegreen in Jan were interesting

    delinquency performance remarkably resilient thru 08/09 downturn - also according to pg 33 they have never missed an interest or principal repayment on their securitizations (1998 - present)

    cash flows from their customers remarkably resilient.

  8. and that's before they cared about customer's FICO score.

  9. Hey offtopic, but I would love to read a blog post about your thoughts on Keck seng.

    Looks like there are alot of interesting opportunities in the asian market!

  10. Hi,

    It's 2016/7 and the Macao-HK bridge is complete.

    Keck Seng sells off its inventory of held-for-sale apartments at 6x carrying value (427k/sq ft x $6K/sq ft)

    It usually pays out 55% of cash earnings in dividends (90% in fat years).

    The dividend yield in 2016/7 will be untenable, especially since (1) sustainable FCF yield from the remaining hotels & rental properties will be 15%; and (2) there will be HK$2bn in net cash on the books even after the dividend.

    That's the elevator pitch and reconstructing it from the ARs is relatively straightforward, imo.

    Sure, there are quite a few opportunities in Asia. The trick, in my view, is to not get seduced by low multiples alone (or at all)but to focus on the likelihood and size of the cash return you'll receive.

  11. The article that you refer to has gone behind a paywall. Wonder if there are other links (not to the same article, but other sources)?

    Also rain has come up with a comprehensive annual report. It does not mention anything about the US listing of the carbon business. Has the company mentioned it somewhere?

    Thanks for the great work!

  12. The VIC BFCF write up will be viewable in a few days. basic thesis: timeshare business generating $80m in FCF + real estate and other distressed assets that may be grossly undervalued offset by mgmt with a history of getting into scrapes and a potentially eye-popping fine from the SEC.

    If all goes well, SEC matter is settled, BFCF and BBX merge, the combined entity uplists on the NASDAQ and the stock re-rates, eventually hitting $8 to $10.

    If things don't go well..


    RAIN: US listing put off until 2015 or 2016. I figure RAIN's worth 150-180 so I don't mind waiting in this case

  13. to come back to keck seng, isn't the increase in book value already accounted for? Under IFRS rules real estate needs to be reappraised each year. That would mean only 43% discount to book value.

  14. If you follow the cash flows & segment reporting in the ARs you'll see that it has been selling its Macau properties at an average of 5.5x book. That implies that book is not fair value.

    If you follow sales transactions per sq ft in Macau (or, specifically, in the area north of the Cotai Strip) you'll see that %4500 to $5000 per sq ft is not unusual.

  15. Is there any reason I should not accumulate BBX instead of BFCF? Is there more margin of safety in BFCF given that it trades at a premium with the merger ratio?

  16. What do you think of this in light of the verdict?

  17. Discount to NAV is wider now than it was when I posted this. What matters here is not the substance of the verdict so much as the time it takes to reach final resolution of the matter. If Levan's appeal fails maybe he cashes out via sale, take under, or dividends. Or maybe Abdo takes over and we go on as before. As I say, the quicker the mist clears the better.

  18. Sorry to see you out of this one. Any particular reason why?

  19. Been looking around some and have more ideas than I can shake a stick at. So trying to chase down some of the more volatile names on the list while we wait for BFC to sort itself out. Chances are that I'll miss out on the move before I manage to get back in it :)

  20. Fair enough. Mind sharing your expectations for PERY? MBO? Just curious why you've gone with OTM calls versus stock.

    I am glad to see you in Flybe-been worried I had missed some glaring weakness given you were obviously aware of the opportunity. I don't know if you follow Steven Wood, but he has covered the stock at gwinvestors and does some fairly impressive research.

  21. The problem with PERY is that if the family doesn't want to behave then there's no bottom to the stock so I'm using OTM calls to limit the downside.

    It's not a proper investment, really. One can imagine several different paths via which the stock goes to $30-$35 in the near term
    -- sale
    -- MBO
    -- margins
    -- expectations/multiple
    etc but nothing is guaranteed in the loose sense of the term.

    So it's 12 to 1 bet with better than 50% chance that I lose the bet. That's why it's segregated in the basket section.

    Greenwood name rings a bell (ah, I see -- because of Fiat). I'll read their take on it..Thanks for the tip.

  22. Read it & didn't much like it to be honest. It's a mediocre business on the mend with Project Blackbird, white label, and growth in ancillaries as free options -- that's it. Attempting to portray it as having no competition is unconvincing and unnecessary.

  23. It seems difficult for most to avoid wearing rose coloured glasses when pitching investment ideas. I have found myself falling into this trap when trying to describe ideas to relatively uneducated audiences. Certainly an argument against sharing research, plus the issues related to commitment and consistency bias. Part of what makes your blog so interesting is the lack of gloss.

    What are your thoughts on valuation? GW points to 10-20x upside, whereas I'm seeing EBITDAR out a few years in the 150-200 region, which at peers multiples is a 5x or so. My view has been that the combination of 5x upside and a discount to tangible assets yields an attractive risk-reward.

    Do you think they are in a worse competitive position than other regional airlines eg Dart, or even Republic? I admit I am very new to analyzing airlines-hopefully you don't mind educating an ignorant retail investor.


  24. Well I guess I'm thinking of it in terms of milestones or steps so that one can evaluate what remains as each step is achieved.

    UK EBITDAR x 5 ==> 120p
    Blackbird ==> 170p
    Remaining cost cuts ==> 240p
    White label ==> ?

    No need to do it all at once, imo, since more time means more information and one has to be cognizant of the where we are in the business cycle as these thing do or don't play out.

    There's some analysis of competitive position etc here

    Flybe is not quite comparable to Jet2 or to RJET 9and the latter two are not comparable to each other).

    Flybe's competition is essentially rail and highways.

    If/as white label becomes a material share of revenues then the think to do would be to look at length of contract, terms,effect on Flybe's own efficiencies of scale etc.

    But again, that's down the road. The immediate issues are the cost structure, the disposal of the grounded planes, load factor, and ancillary revenues.

    Hope that helps a little.


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