Post by shark on Oct 17, 2015 20:48:52 GMT
This is going to be a very long, very confusing post. There really can’t be a TL;DR for this either. Fair warning.
The way I would describe BFC Financial is that it’s a stand-up comedy routine with great material but horrible delivery. This company carries great assets at a low valuation due to factors that include impairments, blown mergers, investor lawsuits, a messy corporate structure, and a set of financial statements that look more complicated than they need be.
I’ll get into all of these things, but first, some background. This company originally began as BankAtlantic Bancorp, a Florida based bank that sold mortgages to in-state homeowners. You can imagine what happened in ’08, when the financial crisis took out companies like this on a wide scale. As a result of the financial turmoil, the company as it was previously known now trades as BBX Capital (NYSE:BBX). Our company, BFC Financial (OTCBB:BFCF), is a parent company that owns 80% of BBX. For the purposes of unraveling this ugly bag of snakes, we’ll start our discussion with BBX.
BBX has three components that have value. The first is company level real estate assets. In order to survive, BankAtlantic sold most of its rotten assets to BB&T. Together, the two companies set up FAR, LLC as a containment company in order to resolve these bad loans. The deal was structured so that BB&T was entitled to 95% of distributions from the LLC up to $285 Million dollars. BBX was to receive everything in excess of this amount, and as of July of this year, BB&T has been made whole and is now out of the picture. When we look at BBX’s tangible net assets including the share of what they are due from FAR, LLC, we see that they are worth $236 Million dollars as of June 30th. (Assets minus Liabilities, Investment in Woodbridge, Intangibles). This is very conservative valuation. I’m not an expert in real estate valuation, but I can tell you that because of asset impairments in the past during and after the financial crisis, there is a strong chance that these properties aren’t being carried at fair value.
The second and most complicated aspect of BBX is the “Investment in Woodbridge” line item. Woodbridge is an LLC whose sole purpose is to own 100% of Bluegreen. Bluegreen is a company that operates in one of the least attractive businesses there is: Timeshares. Despite the stigma, the company has historically been very successful. This year however, there has been a one-time charge of 36.5 million dollars made against the company to settle an investor lawsuit concerning the way Bluegreen was originally acquired. Including this accrual, the company has reported a 9 million dollar loss for the year so far, so the entity is still very much cash flow positive. The company also holds $171 million in cash, of which BBX is entitled to $79 million. When you take this into consideration along with the fact that Woodbridge is being held on BBX’s balance sheet at a value of $62 million dollars, you quickly realize just how much of a joke GAAP valuation really is. Even when you take the lawsuit overhang into consideration and value the business conservatively, there is no way that $62 million dollar number is any good. If we reverse BBX’s share of the lawsuit for this year, Bluegreen made BBX $12.4 million as of June 30th. If we apply a conservative multiple to this number, say 11x (only 6 mo.), we get $136.4 million. If we add the $79 million in cash and subtract the $16.7 million share of the lawsuit accrual, we get a final number of $198.7 million dollars in value to BBX.
The final part of BBX’s value is the Net Operating Losses that they have built up via the financial crisis. Im not an expert on the subject, and I don’t know how changes in ownership might effect their value going forward. Instead of trying to do some kind of complicated analysis here, I’m going to say that they are worth zero to be ultra-conservative while saying that they almost certainly have value based on reversals in the valuation allowance on them this year.
So all told, I have BBX at an ultra-conservative value of $434.7 million vs. a current market cap of $272.31 million. However, when we start looking at BFCF, our parent, the real fun begins.
The way I would describe BFC Financial is that it’s a stand-up comedy routine with great material but horrible delivery. This company carries great assets at a low valuation due to factors that include impairments, blown mergers, investor lawsuits, a messy corporate structure, and a set of financial statements that look more complicated than they need be.
I’ll get into all of these things, but first, some background. This company originally began as BankAtlantic Bancorp, a Florida based bank that sold mortgages to in-state homeowners. You can imagine what happened in ’08, when the financial crisis took out companies like this on a wide scale. As a result of the financial turmoil, the company as it was previously known now trades as BBX Capital (NYSE:BBX). Our company, BFC Financial (OTCBB:BFCF), is a parent company that owns 80% of BBX. For the purposes of unraveling this ugly bag of snakes, we’ll start our discussion with BBX.
BBX has three components that have value. The first is company level real estate assets. In order to survive, BankAtlantic sold most of its rotten assets to BB&T. Together, the two companies set up FAR, LLC as a containment company in order to resolve these bad loans. The deal was structured so that BB&T was entitled to 95% of distributions from the LLC up to $285 Million dollars. BBX was to receive everything in excess of this amount, and as of July of this year, BB&T has been made whole and is now out of the picture. When we look at BBX’s tangible net assets including the share of what they are due from FAR, LLC, we see that they are worth $236 Million dollars as of June 30th. (Assets minus Liabilities, Investment in Woodbridge, Intangibles). This is very conservative valuation. I’m not an expert in real estate valuation, but I can tell you that because of asset impairments in the past during and after the financial crisis, there is a strong chance that these properties aren’t being carried at fair value.
The second and most complicated aspect of BBX is the “Investment in Woodbridge” line item. Woodbridge is an LLC whose sole purpose is to own 100% of Bluegreen. Bluegreen is a company that operates in one of the least attractive businesses there is: Timeshares. Despite the stigma, the company has historically been very successful. This year however, there has been a one-time charge of 36.5 million dollars made against the company to settle an investor lawsuit concerning the way Bluegreen was originally acquired. Including this accrual, the company has reported a 9 million dollar loss for the year so far, so the entity is still very much cash flow positive. The company also holds $171 million in cash, of which BBX is entitled to $79 million. When you take this into consideration along with the fact that Woodbridge is being held on BBX’s balance sheet at a value of $62 million dollars, you quickly realize just how much of a joke GAAP valuation really is. Even when you take the lawsuit overhang into consideration and value the business conservatively, there is no way that $62 million dollar number is any good. If we reverse BBX’s share of the lawsuit for this year, Bluegreen made BBX $12.4 million as of June 30th. If we apply a conservative multiple to this number, say 11x (only 6 mo.), we get $136.4 million. If we add the $79 million in cash and subtract the $16.7 million share of the lawsuit accrual, we get a final number of $198.7 million dollars in value to BBX.
The final part of BBX’s value is the Net Operating Losses that they have built up via the financial crisis. Im not an expert on the subject, and I don’t know how changes in ownership might effect their value going forward. Instead of trying to do some kind of complicated analysis here, I’m going to say that they are worth zero to be ultra-conservative while saying that they almost certainly have value based on reversals in the valuation allowance on them this year.
So all told, I have BBX at an ultra-conservative value of $434.7 million vs. a current market cap of $272.31 million. However, when we start looking at BFCF, our parent, the real fun begins.