Transactions Costs, Amortization Disguising Earnings Power at Alerus Financial – ALRS

Note: Last chance to sign up for The MicroCap Conference in Philadelphia on October 24 and 25. It’s a great place to network and hear from some interesting small companies. Sign up here. If you’re going, please let me know. I’d like to meet you.



Alerus Financial is one of my favorite little financial services firms. Despite being a bank, the majority of Alerus’ value actually derives from its non-banking segments like retirement plan administration, wealth management and mortgage origination. Alerus is one of the nation’s fastest-growing retirement plan administrators.

When I originally wrote about the company in 2013, Alerus was suffering from mis-classification. Investors were focused on the banking operations and assigned the business a conservative multiple, when the company’s fast-growing non-bank segments were producing the majority of revenues and earnings. Three years later, this remains the case. Since my original post, retirement plan and wealth management revenues are up 57% while net interest income from traditional banking is up 22%. (Revenues at the  company’s other significant segment, mortgage origination, are down. This is to be expected from a cyclical, interest rate-driven business like mortgage origination.)

The market did eventually catch on and Alerus’ shares rallied nearly 90% in the 2 years following my write-up. However, shares now trade more than 20% off the highs reached one year ago. What gives? In short, Alerus’ value proposition is once again obscured. Earnings per share have declined as a result of significant one-time expenses related to acquisitions, high on-going expenses related to amortization of intangibles, elevated personnel expenses due to hiring for growth, and declining contribution from the mortgage unit. Reported EPS has declined to $0.92 per share for the twelve trailing months, after peaking at $1.46 per share in 2013. Not too many companies are going to see stock appreciation in the face of a 37% decrease in reported earnings.

Alerus appears to trade at around 17x trailing earnings, probably a defensible valuation for this sort of banking/non-bank financial services hybrid business. However, normalized earnings power is substantially greater on a forward basis because of one-time costs in the trailing earnings figure and future earnings contributions from some recent acquisitions, such as:

  • The addition of $350 million in banking assets via the acquisition of Beacon Bank in Minnesota. The acquisition, which saw Alerus expand into the Duluth market, closed in January. A full year’s earnings contribution from Beacon Bank is not yet reflected in Alerus’ results, but one-time costs associated with the acquisition are. Additionally, the acquisition created an amortizable deposit premium asset which has reduced Alerus’ earnings, but not its cash flows.
  • The acquisition of Alliance Benefit Group North Central States, a retirement plan administration overseeing accounts for over 75,000 participants and $6 billion in plan assets. The purchase also closed in January, creating one-time expenses and an amortizable asset.

For the second quarter of 2016, Alerus reported net income of $2.94 million and EPS of $0.21. Let’s take a crack at normalizing this figure. In the quarter, Alerus recorded $2.1 million in one-time costs related to conversion and integration expenses for the newly-acquired Beacon and Alliance assets. Alerus also recorded $414,000 in one-time expenses related to extinguishing FHLB borrowings.

Most interestingly, Alerus recorded $1.78 million in intangible amortization expense for the quarter. This expense is intended to represent the declining value of acquired bank deposits from Beacon Bank and customer lists at Alliance Benefit Group North Central States. This expense has no cash impact on Alerus beyond reducing its taxable income, yet intangible amortization has become a very meaningful income statement item for Alerus as it continues to be an enthusiastic acquirer. The increasing levels of amortization have had a seriously negative impact on reported earnings without impacting cash flow.

Here is a look at Q2 earnings with the one-time expenses and non-cash charges stripped out. Alerus’ tax expense has hovered around 36% of pre-tax income for some time, so I am using that to estimate the tax shield from one-time expenses.


After adjusting for the acquisition-related and debt extinguishment expenses, Alerus’ net income look substantially better at $4.5 million, 55% higher than the reported figure. Things get even better when we adjust for the substantial non-cash amortization expense. Alerus’ adjusted cash EPS is more than twice the reported figure at $0.45 for the second quarter.

I wish computing Alerus’ P/E ratio were as easy as annualizing this adjusted Q2 figure, but it is not so. While the company’s banking, retirement plan administration and wealth management segments show minimal seasonality, the mortgage origination unit performs substantially better in the second and third quarters. We can compensate for this factor by adjusting Alerus’ Q2 mortgage income down to the average figure for the twelve trailing months, which happens to be $6.26 million. We’ll also have to make an assumption on the segment’s operating margin. I think 20% is appropriate, given that Alerus as a whole has an efficiency ratio of around 80%.


Call the $0.43 adjusted adjusted quarterly cash EPS. (I am aware we’re getting deep into adjusted territory and the dangers of such. Still, I don’t believe I have committed any unjustifiable logical leaps.)

Annualizing that figure yields estimated forward cash EPS of $1.74 without assuming any growth. Looks like Alerus’ earning power has continued to increase, only now it is being disguised by the rising non-cash amortization expenses and transactions costs.

On today’s price of $16.60 or so, Alerus is trading at a normalized forward P/E of 9.5. In my opinion, this is far too cheap a price for a company with a history of strong growth in its non-bank operations, and stability and profitability in its banking segment. It is possible that income from mortgage operations will decline further in the face of rising interest rates, but I believe the current valuation more than compensates investors for this possibility.

Alluvial Capital Management, LLC is launching a private investment partnership. If you are an accredited investor and are interested in learning more, please contact us at

Alluvial Capital Management, LLC holds shares of Alerus Financial for client accounts. Alluvial may buy or sell shares of Alerus Financial at any time. 

Alluvial Capital Management, LLC may buy or sell securities mentioned on this blog for client accounts or for the accounts of principals. For a full accounting of Alluvial’s and Alluvial personnel’s holdings in any securities mentioned, contact Alluvial Capital Management, LLC at

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Flughafen Wien AG

Shares of Flughafen Wien AG offer the chance to invest in critical world-class infrastructure at a singularly low valuation. Flughafen Wien is insulated from competition, only modestly leveraged, and its services are critical to the modern economy.


Long-time readers may know I have an affinity for businesses that are insulated from competition and enjoy at least a degree of pricing power. Past examples include Jungfraubahn AG (nobody’s constructing major new tourist railways in the environmentally-sensitive Swiss Alps) and Logistec Inc. (Cargo needs to be loaded and unloaded at a specific port. There are few alternatives.) Shares in companies like these exhibit highly desirable “equity bond” characteristics where long-term shareholder returns will approximate the current earnings yield plus organic unit demand growth plus inflation. The best of these companies rarely experience declining or stagnant earnings due to the critical nature of their operations and their strong competitive positions.

Because of the stability and strong long-term outlooks that these businesses typically enjoy, they often trade at bond-like earnings yields. Not so for Flughafen Wien. While competitors offer free cash flow yields as low as 3%, Flughafen Wien offers a free cash flow yield of nearly 8%, despite a strong outlook.

So what does Flughafen Wien actually do? Simple. The company owns and operates the Vienna International Airport along the Danube River to the south-east of Vienna, Austria. Additionally, the company owns a 48% interest in Malta International Airport and a 66% interest in Slovakia’s Košice Airport. The Vienna Airport is, of course, the company’s major asset. The airport was originally built in 1938 as a military facility, then taken over by the British following World War II. The Austrian government expanded and improved the airport over the following five decades, and privatized it in 1992. Today, just 11.8% of the company’s shares are freely floating. 50% are owned by local governments and an employee ownership plan, and 38.2% are owned by a major Australian infrastructure investment group, IFM Global Infrastructure Fund. IFM has expanded its ownership aggressively in recent years, but more on that later.

About 55% of the company’s revenues are its airport operations: collecting income from passengers and airlines who use the airport facilities. The next biggest segment is “Handling” at 23% of revenues. Handling refers to a variety of activities including prepping aircraft between flights, loading and unloading cargo, security services, and other services that ease the movement of passengers and aircraft. A further 20% of revenues consists of retail and property revenues associated with parking, rents on commercial storefronts and restaurant spaces within the airport, advertising space, and more. While it is the smallest of the three major revenue segments, Retail and Properties actually accounts for 48% of the company’s operating income. Airport operations are the second most profitable segment, making up 37% of EBIT, while Handling contributes less than 10%. The graphic below from the 2015 annual report illustrates this more clearly.


Recent years have been good for the Vienna Airport with steady passenger growth and rapid improvement in financial results. This is despite weak economies and instability in destinations to Vienna’s east, especially in Russia and Ukraine. From 2010 to 2015, annual passenger movement at Vienna International Airport rose at an annual rate of 3.0%. Strong operating leverage (a high percentage of fixed costs vs. variable costs) allowed operating income to rise by 6.9% annually over the same period. Meanwhile, net debt has been cut in half.

Things were not always so rosy at Flughafen Wien. As recently as 2011, the firm was troubled by massive cost over-runs in the construction of its Skylink addition to Terminal 2. But a new management team and a scaled-back capex program righted the ship and the company is now on solid operational and financial footing. At Eur 22 per share, Flughafen Wien trades at less than 8x EBITDA and a P/E of 17.2, with a free cash flow yield of 7.8%. This represents a very large discount to the valuations of other major European airports and airport groups.

The graphic below displays financial statistics for other publicly-traded European airport operators. Figures are in millions USD using today’s exchange rates.


You will see that Flughafen Wien’s valuation compares very favorably to its peer group, despite above average revenue growth and below average leverage. The only area where the company comes up short is its operating margin, which is slightly below its peers. The Copenhagen is the clear superior operator of the group, with excellent revenue growth and margins. But that is fully reflected in its premium valuation. The only other operator with similar figures to Flughafen Wien is Fraport AG. However, Fraport (which operates the Frankfurt airport) suffers from sub-par operating margins and carries a large amount of debt.

So why does Flughafen Wien trade at a material discount to its peer group? The biggest reason is likely the market’s nervousness about the company’s major destinations outside of Western Europe. Departures to Central and Eastern Europe were down 5.3% in 2015 and down 14% from the peak in 2012. Moscow in particular has experienced a serious decline. The market likely fears further declines in departures, which is entirely possible given the threat of Russian aggression and continued sluggish economic conditions.


Then there is the prospect of major capital projects on the horizon. Flughafen has elected to go forward with a project to modernize and expand its facilities, to the tune of Eur 500 million between now and 2023. The company says the project will enhance its profits, especially via the creation of additional shopping and restaurant space, but investors may be justifiably nervous about potential cost over-runs and delays. Investors may have short memories, but their memories are not short enough to forget that a botched expansion nearly brought down the company only five years ago. I believe this risk is mitigated by the new management team and Flughafen Wien’s very reasonable leverage, but the risk remains.

Finally, there is the fact that Flughafen Wien is one of the smallest public European airport operators, with few shares in public hands. The 11.8% of the company held by the public is worth only Eur 218 million at current prices, ruling out investment in the company for most infrastructure funds and other investment companies of size.

And that’s where the opportunity lays. Readers should know I have absolutely no qualms about investing in controlled companies, so long as the controlling shareholders are motivated to increase shareholder returns. This is certainly the case with Flughafen Wien with IFM owning nearly 40% of shares. There is also a meaningful possibility that IFM will take steps to further increase its ownership. IFM’s first tender offer came in November 2014. IFM paid 20.50 Euros (split-adjusted) per share and netted 29.9% of the company. The second tender offer made in April 2016 collected another 8.3% of shares. This time, IFM paid Eur 25.00 (again, split-adjusted) per share. What price might IFM offer in a third round? Whatever that price may be, another holder of Flughafen Wien stock thinks previous offers have been far too low. The UK’s Petrus Advisers put out a presentation supporting its view that Flughafen Wien shares are worth as much as Eur 36.50 per share, after accounting for the 4-for-1 share split that Flughafen Wien recently did.

It honestly concerns me little whether IFM tenders for the rest of the publicly-held shares or not. I am happy to hold a top-quality infrastructure asset at a low-grade valuation for as long as the market allows me.

Alluvial Capital Management, LLC is launching a private investment partnership. If you are an accredited investor and are interested in learning more, please contact us at

Alluvial Capital Management, LLC holds shares of Flughafen Wien AG. for client accounts. Alluvial may buy or sell shares of Flughafen Wien AG at any time. 

Alluvial Capital Management, LLC may buy or sell securities mentioned on this blog for client accounts or for the accounts of principals. For a full accounting of Alluvial’s and Alluvial personnel’s holdings in any securities mentioned, contact Alluvial Capital Management, LLC at

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Brief Update – Announcing Alluvial Fund, LP

I am pleased to announce that my investment management company, Alluvial Capital Management, LLC, will be launching a private investment partnership. Sitestar Corporation will be providing $10 million in seed capital for Alluvial Fund, LP. You can read their press release here.

Details are very preliminary, but we are targeting a January 1, 2017 launch date. If you are an accredited investor and are interested in knowing more, please send me an e-mail at and I will provide additional information as it becomes available.

In other news, I’ll be in Philadelphia on October 24th and 25th for The MicroCap Conference. Previous conferences have been great opportunities to hear from some promising small companies and to network with other investors. I hope to meet some readers there.


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Value in my Own Backyard – Allegheny Valley Bancorp and Standard Financial Corp.

On Monday, two Pittsburgh banks announced they would combine in a merger of equals. Allegheny Valley Bancorp (AVLY) and Standard Financial Corp. (STND) each have long histories in the city and the surrounding region. Allegheny Valley Bank was founded in 1900 as an alternative to local banks controlled by industrial titans like the Mellon family. The bank stood firm through the Great Depression and the steel industry collapse that rocked Pittsburgh in the later 20th century. Standard Bank is equally venerable, founded in 1913. While Allegheny Valley focused on urban Pittsburgh, Standard Bank grew its base in the suburbs and small cities to Pittsburgh’s east, eventually expanding into Western Maryland. Originally a mutual bank, Standard demutualized in 2010. Following the merger, the surviving entity will be named Standard AVB Financial Corp.

I have followed these banks for some time, observing the business practices of each. Both are well-run, if somewhat unremarkable. For its part, Allegheny Valley has focused on maintaining a conservative balance sheet and paying a robust dividend, while Standard has followed the optimal post-mutual conversion playbook of repurchasing shares and increasing its dividend over time. Still, each bank suffers from the problems facing most small banks: sub-par ROEs from compressed interest spreads and rising compliance costs, and a lack of growth caused by low loan demand and insufficient marketing and technology resources. I believe the proposed merger will do much to alleviate these headwinds, leaving shareholders in the combined entity extremely pleased.

Competitive Position

At present, each bank is only a blip on the local financial radar. Allegheny Valley has a deposit market share of just 0.3% in the Pittsburgh MSA, while Standard’s Pennsylvania operations have just 0.2%. The combined entity will control 0.5%. Still small, but sufficient to vault the combined entity to 15th place among local banks from the current 20th and 25th positions. A higher market share will benefit the combined bank via improved marketing efficiencies and better geographic coverage. Standard AVB will blanket Allegheny County and adjacent Westmoreland County rather than one or the other.



I am always skeptical of projected cost savings in mergers, but bank mergers typically do realize substantial savings. Many duplicated functions can be reduced or eliminated when similar banks combine. Allegheny Valley and Standard are projecting a 16% reduction in non-interest expenses, which comes to $3.5 million pre-tax on a trailing twelve month basis.

Balance Sheet Rationalization

Presently, Allegheny Valley Bancorp is over-capitalized and Standard Financial Corp. is highly over-capitalized. Allegheny Valley’s common equity-to-assets ratio is 11.8% while Standard’s is 15.1%. The combined entity will have a 13.6% equity ratio. This strong capitalization will allow for a better return on equity than Standard currently manages, plus greater capacity for growth investments and/or acquisitions than Allegheny Valley’s balance sheet allows at present.

The proposed merger also strengthens and diversifies the banks’ loan books and deposit bases. Standard’s loan book is dominated by traditional residential real estate lending, while Allegheny Valley is much more involved in commercial lending. Standard relies heavily on CDs and traditional savings accounts, while Allegheny Valley has a much higher percentage of lower-cost (but potentially transient) demand accounts.




Allegheny Valley Bancorp shareholders are to receive 2.083 shares of standard per AVB share, or 46% of the resulting business. The surviving entity will have 4.78 million fully-diluted shares outstanding. The combined bank is projected to have equity capital of $128.5 million at the end of the first quarter of 2017.

Standard’s shares have traded down meaningfully following the merger announcement. I suspect this is because a large number of Standard’s shareholders had expected and desired a buyout by a larger bank, as is common for a recently converted mutual thrift. These shareholders may be displeased at the prospect of Standard remaining independent, even as part of a larger, more efficient organization. Standard’s shares closed at $23.80 on Thursday, down 8% since the merger was announced. But this decline only highlights the prospective value. Pro forma book value following the merger is $26.88, putting shares of Standard at 89% of book value. Earnings will take a temporary hit due to severance and restructuring charges, but forward earnings power will benefit from cost savings. Assuming the stated cost savings projections are met and a 40% tax rate, the combined entity’s annual earnings should increase by $2.1 million, or 44 cents per share. That benefit plus each bank’s trailing earnings would put earnings per share at $1.92 for a pro forma trailing P/E of 12.4. And again, this is for a bank with a very “lazy” balance sheet. Standard AVB Financial has a clear path to earnings growth through balance sheet expansion. The combined bank could expand its asset base by 60% and still maintain an 8% common equity to assets ratio.

While I think shares of either bank are attractive considering the proposed combination, shares of Allegheny Valley are priced at a 2.7% discount to the deal value. (The discount is actually larger once Allegheny Valley’s generous dividend is factored in.) I like both the current discount to book value, the solid earnings yield, and the strong prospects for earnings growth. For anyone interested in beginning due diligence, here’s a direct link to the merger presentation.

There is one more interesting wrinkle. Another Western Pennsylvania Bank, S&T Bancorp, owns 14.2% of Allegheny Valley’s shares. S&T will own about 6.5% of the combined bank, making S&T the largest shareholder. A future tie-up with Standard AVB Financial would solidify S&T’s status as a top 10 bank by deposit share in the Pittsburgh MSA. Not saying it will happen, but S&T is acquisitive.

Alluvial Capital Management, LLC holds shares of Allegheny Valley Bancorp and Standard Financial Corp. for client accounts. Alluvial may buy or sell shares of Allegheny Valley Bancorp and/or Standard Financial Corp. at any time. is an Alluvial Capital Management, LLC publication. For information on Alluvial’s managed accounts, please see

Alluvial Capital Management, LLC may buy or sell securities mentioned on this blog for client accounts or for the accounts of principals. For a full accounting of Alluvial’s and Alluvial personnel’s holdings in any securities mentioned, contact Alluvial Capital Management, LLC at


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Kaanapali Land – KANP

Being somewhat of a business history nerd (perhaps the least sympathetic or relatable type of nerd) I am always intrigued when I happen across a company that represents the last public vestige of a once-great corporate empire. I own a few of these (one being Retail Holdings NV, the modern remnant of the mighty Singer Manufacturing Company) and beyond the monetary gain I hope to achieve, I also get an odd sense of participation in American and world economic history. (Again, not that sympathetic or relatable.)


One such company is Kaanapali Land LLC. “KLL” traces its roots all the way back to 1849, when German boat captain Heinrich Hackfeld arrive in Hawaii and started a general store. The store was a success, and Hackfeld expanded into many other ventures, including lodging, sugar production, and import/export activities. H. Hackfeld & Company eventually became one of Hawaii’s largest land-owners, at one point holding 60,000 acres. All was well until World War I, when the US government confiscated the company under the “Trading with the Enemy Act.” At the time, the loyalties of German-Americans, even those who had been US residents for generations, were considered suspect. The government auctioned the company’s assets to a group of Hawaiian businessmen, who renamed the business “American Factors.” The company’s sugar business grow rapidly and was the company’s main source of profits until Hawaiian tourism took off in the 1960s. American Factors profited handsomely by expanding its lodging and resort operations and by selling land for development. Over the next few decades, American Factors (renamed “Amfac” to match corporate conventions of the time) followed the 60s and 70s playbook of continual expansion into a wide range of unrelated industries. As often happened in such cases, Amfac eventually found itself unfocused and over-leveraged. A series of divestitures and complicated transactions meant to fend off hostile takeovers left the company less indebted but still not reliably profitable. Multiple loss-making years eventually forced the company to accept a $920 million buyout offer from a major Chicago-based real estate company, JMB Realty. JMB set about slimming Amfac down to its agricultural and property development roots, hiving off or selling all the mainland operations and contributing various other Hawaiian assets to other JMB companies. Unfortunately, sugar production in Hawaii was in terminal decline and Amfac Hawaii declared bankruptcy in 2002.

Amfac Hawaii emerged from bankruptcy in 2005 as Kaanapali Land, LLC. 167 years after Herr Hackfeld opened his shop on Maui, what remains in Kaanapali is 4,000 acres of Maui land, some $25 million in cash, a $22 million pension surplus, and various minor current assets and liabilities. The company’s only activities are managing and monetizing its remaining real estate, as well as dealing with some residual legal actions related to bankrupt subsidiaries that are now in liquidation. The company is working on gaining approvals for its Ka’anapali 2020, Wain’e, and Pu’ukoli’i Village developments, and it has successfully created an innovative agricultural/residential development in Ka’anapali Coffee Farms. Of the 51 lots at Ka’anapali Coffee Farms, 12 are still available for purchase.

The company’s website contains detailed project plans for each development, with videos and maps.

In all, the three proposed developments will account for just over half of Kaanapali’s developable land. (Of the company’s 4,000 acres, 1,500 are protected conservation lands.) Problem is, approvals for new development can take a long time in Hawaii, where a fraught history often results in strong local opposition to real estate projects. Kaanapali has made great efforts to work with the local community in planning these developments, including committing to infrastructure improvements and affordable housing. But that is no guarantee that actual development will begin soon, or at all.

Interestingly, Kaanapali has disclosed that it signed an agreement with a third party to sell all of its landholdings for $95 million in January, 2016. However, the unidentified buyer eventually backed out and the deal fell through. The company also had an agreement to sell its Pioneer Mill site (essentially, the proposed Wain’e development) for $20.5 million, but that deal also fell through. The proposed sale price for all of Kaanapali’s acreage works out to $38,000 per acre. The price for the 200-acre Pioneer Mill site alone was $102,500 per acre. Though neither deal actually went through, the failed transactions provide a helpful yardstick for valuing Kaanapali’s land.

At the current trading price, investors in Kaanapali are buying developable Maui land at a price of just $10,900 per acre, net of corporate cash. If we credit the company for its pension surplus, the effective price falls to just $2,100 per acre. (Crediting the company for the full value of its pension surplus is dubious, as actually accessing a pension asset is a difficult proposition.) Either price is a fraction of what the land is likely worth, but then again there is substantial doubt as to the feasibility and timing of actually developing that land. Still, I don’t know of a cheaper way to buy Maui land, even if indirectly.

Potential investors in Kaanapali should be aware that the company is not current on its financial filings, though it is working on filing updated annual and quarterly reports. The company neglected to file these reports for some time, though it has nearly 700 shareholders of record. An SEC notification set the company on the path toward current filing status. (Turns out, there is a point at which the SEC will intervene on behalf of shareholders in an unlisted company. Who knew?) The most recent financial statement data is as of June 30, 2015, though the company has disclosed all material events since that date. Potential investors should also be keenly aware that realizing value from Kaanapali’s assets could take an extremely long time, if it ever happens at all. Finally, potential investors should consider Kaanapali’s extremely tiny float: only about 330,000 units are free-floating, with a current value of around $10 million.

Author David Waters owns one unit of Kaanapali Land, LLC, so he can talk about his getaway in Maui. 



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Urbana Corp. – URB.TO, URB-A.TO

The other day I was looking back through some old investment notes and I found the name of a company I had quite forgotten, Urbana Corporation. Urbana Corporation is a Canadian investment company that focuses on investing in the financial sector, exchanges in particular. An investment thesis on the company made the rounds back in 2011, when various value bloggers wrote about Urbana. (See a few of those old posts here and here. Isn’t it remarkable how long ago five years seems in internet history?)

Essentially, Urbana was trading at a gigantic discount to the value of its holdings and aggressively repurchasing its shares. It seemed like a good recipe for success, but there were also a few red flags. For one, management seemed to enjoy buying tangential assets like gold mining stocks and other things far outside the fund’s core strategy. Management had also begun making investments in related-party companies, creating the possibility of conflicting interests between management and shareholders. Finally, Urbana’s operating and management costs were high in relation to its asset base, and management was firmly in control via its ownership of the firm’s voting shares.

Weighing the discount to NAV and the ongoing share repurchases against these negatives, I chose to pass on the company and didn’t give it another thought until yesterday.

Turns out, I passed on a decent rate of return. Over the last five years, Urbana’s A shares returned 98%, well in excess of market averages. The strong return was driven by a combination of appreciation in the firm’s investment holdings, and by continued share repurchases. It’s hard to over-estimate just how seriously Urbana has taken its repurchase program. Since the end of 2009, the company has repurchased 39% of its shares outstanding, always at significant discounts to its net asset value. These accretive share repurchases have had a major positive effect on Urbana’s NAV, which has risen from a low of  CAD $1.70 per share at year-end 2011 to CAD $3.75 now, a 15% annualized rate.

Urbana’s current trading price is CAD $2.26, a 40% discount to NAV. But what sorts of holdings does that NAV include? Unfortunately, the proportion of non-traded assets in Urbana’s portfolio has grown, and that makes it more difficult to pin down a precise value for Urbana’s holdings.

Urbana NAV 7.22.2016

Urbana reports its holdings and NAV on a weekly basis. Investments in publicly-traded assets make up 56% of Urbana’s assets.  Large American and Canadian banks and securities exchanges represent the majority of these public holdings, though Urbana also has holdings in Canadian materials stocks. Despite my dissatisfaction with Urbana’s propensity to invest outside its wheelhouse, I must admit the investments in “Canada, Inc.” (management’s terminology) were well-timed and have performed well.

The private side of Urbana’s investment book is more interesting. The largest of Urbana’s private holdings is Real Matters Inc. Real Matters is a real estate technology company providing appraisals and valuations to banks and insurers. Real Matters has been a home run investment for Urbana, though Real Matters is strongly levered to the potentially over-heated Canadian real estate market.

The second largest private investment is the Bombay Stock Exchange. This investment has not done as well for Urbana, though the Bombay stock exchange has received approval to conduct an IPO and may receive a higher valuation if and when it does so. (It appears that Urbana invested in several private securities exchanges when their valuations were higher. These include the Budapest Stock Exchange and the Minneapolis Grain Exchange. Value investor favorite [perhaps former favorite] FRMO Inc. has also invested in the Minneapolis Grain Exchange.)

Most controversially, Urbana has invested in a private financial company owned by Urbana’s CEO, Thomas S. Caldwell. The company maintains that investments in Caldwell Financial Ltd. are done at valuations of one-third to one-half of what Caldwell Financial would fetch in private sales. I have no reason to believe this is not so, but these related-party transactions introduce an element of additional uncertainty in evaluating Urbana’s holdings, and require investors to exercise a greater degree of trust in management.

Urbana management has indicated it will continue to buy back shares aggressively, but also notes that large blocks of class A shares are becoming more difficult to source and that the pace of repurchases may slow.

Shares at current prices offer a way to purchase an otherwise inaccessible collection of private exchanges and other intriguing assets at a large discount to NAV. I don’t know if these underlying assets will provide strong returns in coming years, but continued share repurchases should help grow Urbana’s value per share. Investors will have to judge for themselves if the 40% discount to reported NAV is large enough to overlook the company’s high management costs and complicating related-party transactions.

Alluvial Capital Management, LLC does not hold shares of Urbana Corporation for client accounts. Alluvial may buy or sell Urbana Corporation shares at any time. is an Alluvial Capital Management, LLC publication. For information on Alluvial’s managed accounts, please see

Alluvial Capital Management, LLC may buy or sell securities mentioned on this blog for client accounts or for the accounts of principals. For a full accounting of Alluvial’s and Alluvial personnel’s holdings in any securities mentioned, contact Alluvial Capital Management, LLC at

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Quarterly Letter and a Wilhelmsen Update

I’ve finally gotten around to posting Alluvial Capital Management’s first quarter 2016 letter to clients on my company site. Please go here if you are interested in reading it or any other letters.

Three months ago I wrote about Wilh. Wilhelmsen ASA, a deeply-discounted Norwegian specialty shipping company with an upcoming catalyst in the form of a spin-off. That spin-off has been accomplished, and Wilhelmsen ASA and Treasure now trade independently. The price of each is well, well below a conservative reckoning of fair value.

Treasure ASA

The newly independent Treasure ASA is easy to value. The company’s major asset is a 12.04% stake in a Korean logistics company, Hyundai Glovis. Treasure also holds USD 18 million in cash, contributed by Wilh. Wilhelmsen. On the liability side, Treasure remains a guarantor on Wilhelmsen’s corporate-level obligations, though this liability is minor. (Wilhelmsen has strong liquidity and all its corporate-level bonds will roll off within a few years.)

At current exchange rates, Treasure’s stake in Hyundai Glovis is worth USD 687 million. Adding Treasure’s cash holdings yields total value of USD 705 million. Translated to Norwegian Krone, Treasure’s value is NOK 5,839 million, or NOK 26.54 per share.

Treasure’s last trading price was NOK 15.50, a 42% discount to NAV. It’s normal for a holding company to trade at a discount to the value of its assets, but a discount of this magnitude is unusual and I do not expect it to last. Either Treasure will take advantage of this discount and repurchase shares, or Treasure’s majority owner (Wilh. Wilhelmsen Holding, with a 72% stake) will increase its ownership.

Needless to say, I think Treasure’s current price is driven by non-economic selling pressure and that buyers at the current price will be well-rewarded.

Wilh. Wilhelmsen ASA

While the newly-spun off Treasure ASA looks quite attractive, Wilh. Wilhelmsen may be even more so. Wilhelmsen’s goal in shedding its Korean assets was to highlight the value of its autmotive shipping and logistics operations, but the market has shown no inclination to cooperate thus far.

Wilhelmsen shares last traded at NOK 23.30 per share and a market capitalization of NOK 5,126 million. Meanwhile, Wilhelmsen’s tangible book value is north of NOK 11 billion. (This value will increase materially with next quarter’s results, due to an accounting gain from an acquisition.) So, Wilhelmsen’s price to tangible book value ratio is somewhere below 47%, a level usually reserved for the kind of distressed, unprofitable firm that Wilhelmsen most certainly is not.

For the twelve trailing months, Wilhelmsen’s remaining operations produced free cash flow of more than NOK 800 million, for a free cash flow yield in the mid teens.

I believe Wilhelmsen shares should be valued at a premium to book value. Company management has demonstrated ability to earn robust returns on capital through the cycle, no small accomplishment in a cyclical, capital-intensive, largely commoditized industry. All the same, I do understand the market’s more pessimistic point of view. As was plainly illustrated in Wilhelmsen’s first quarter results, the shipping market remains deeply unfavorable. Auto shipments have held up well, but shipments of mining and construction equipment have fallen markedly. I would not be surprised if the next few years were difficult for Wilhelmsen. Still, I expect the company to remain profitable and to use the downturn to set itself up well for the eventual return to happier times.

At less than half of tangible book value, the market is telling us that Wilhelmsen’s assets are severely impaired, that the firm will fail to earn its cost of capital over the next economic cycle, or that a long period of unprofitability will erode the equity base. I disagree with all of these scenarios, and I expect good things from Wilhelmsen stock.

Alluvial Capital Management, LLC holds shares of Wilh. Wilhelmsen ASA and Treasure ASA for client accounts. Alluvial may buy or sell shares of Wilh. Wilhelmsen ASA and/or Treasure ASA at any time. is an Alluvial Capital Management, LLC publication. For information on Alluvial’s managed accounts, please see

Alluvial Capital Management, LLC may buy or sell securities mentioned on this blog for client accounts or for the accounts of principals. For a full accounting of Alluvial’s and Alluvial personnel’s holdings in any securities mentioned, contact Alluvial Capital Management, LLC at

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Rand Worldwide Revisited – RWWI

Back in late 2014 I wrote about Rand Worldwide, a software reseller and training provider of design products like AutoCAD. At the time, the company had just announced it would repurchase more than half its shares outstanding, allowing Peter Kamin’s 3K partnership to take control. I was bullish on the company, pointing out Rand’s cheap pro forma valuation on both current results and the company’s projections. I purchased shares then for clients and continue to hold them. So, how has the company done since?

It’s a mixed bag. Rand has failed to live up to the cheerful revenue and profit outlook it put forth in its tender offer documents. Revenues have actually declined somewhat since. But, the company has been extremely successful in defending its excellent margins and generating cash flow. The debt the company used to finance the share repurchase has already been reduced by 40% to $12.6 million.

Rand recently released its results for the quarter ended March 31, 2015. Let’s compare those results to the financial projections the company provided during the tender offer. For those projections, I’ll be using weighted fiscal 2015 and 2016 projections, since fiscal 2016 has one quarter left to go.


Thus far, Rand has fallen far short of its revenue goals, coming in fully $17 million shy of its target. Much of this shortfall can likely be blamed on the revenue model transition that Rand Worldwide’s largest supplier, AutoDesk, is undertaking. AutoDesk is transitioning from a traditional software license sale model to a subscription model. Often, these transitions result in some degree of business interruption for re-sellers and other ecosystem participants. AutoDesk’s revenues have fallen during this transitional period, but the changeover is going well and subscription counts are rising steadily. There may be signs that the worst is over for Rand as well. Revenues for the most recent quarter rose year-over-year for the first time since 2014.

Rand has done better on the expense front, managing to post a 52% gross margin and hold down operating expenses during period of slow sales. But so far, the upshot is operating income well below plan.

This lackluster operating performance is likely the reason why Rand’s stock has treaded water since 2014. While Rand’s operating results may have been lackluster, the company’s aggressive deleveraging actually makes it just as attractive today as it was back then. Rand’s $9.5 million in EBIT and enterprise value of approximately $75 million yields an EV/EBIT ratio of 7.9. That’s fairly cheap for a company that earns pre-tax returns on capital north of 35% and generates gobs of free cash flow, especially if Rand’s revenues are returning to a growth path.

In order to get an idea of what Rand’s controlling shareholder may decide to do with the company, it’s worth looking at some of the other companies that Peter Kamin and Company control, like Calloway’s Nursery, Rockford Corporation, and Abatix. In general, 3K likes to increase its ownership over time via open market purchases or tender offers before ultimately purchasing a company outright. In other cases, 3K holds its ownership steady but directs its controlled companies to pay out large special dividends from time to time. In my view, 3K will have eventually utilize Rand’s increasing debt capacity to fund another large tender offer.

The initial loan agreement allowed for total debt of up to 2.75 times EBITDA. Using the same assumptions, Rand currently has the capacity to take on an additional $17 million in debt. If Rand were to announce a debt-financed tender offer tomorrow at say, $2.50, then the company could buy back around 6.8 million shares, or about 20% of the outstanding shares. Question is, will 3K act soon, or will they allow the company to pay down debt by a few million more first? That would allow Rand to buy back even more shares, but it also increases the risk that Rand would have to pay substantially more for the shares if business results trend well. Either way, I think current shareholders win.

Alluvial Capital Management, LLC holds shares of Rand Worldwide, Inc. for client accounts. Alluvial may buy or sell shares of Rand Worldwide, Inc. at any time. is an Alluvial Capital Management, LLC publication. For information on Alluvial’s managed accounts, please see

Alluvial Capital Management, LLC may buy or sell securities mentioned on this blog for client accounts or for the accounts of principals. For a full accounting of Alluvial’s and Alluvial personnel’s holdings in any securities mentioned, contact Alluvial Capital Management, LLC at


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More California Real Estate in LAACO, Ltd. – LAACZ

Continuing on the theme of California real estate, today’s post concerns LAACO, Ltd. LAACO is a California partnership. At I write, the partnership has 169,985 units outstanding and a market capitalization of around $338 million. (Units trade at a fairly wide bid/ask spread.) LAACO’s business is real estate. The partnership’s name comes from its ownership of the venerable Los Angeles Athletic Club, but the partnership also owns over 50 self-storage operations as well as some other land holdings in Los Angeles. LAACO is extremely well-run, only modestly leveraged, and trades at a very attractive multiple of net operating income.

I’ll get into the details of LAACO’s holdings, but let’s start with a look at the headline numbers. In 2015, LAACO produced net operating income of $25.7 million. Net operating income, or NOI, is a very important figure in real estate investing because it is a good estimate of the cash flow that properties produce. It isn’t the end all, be all, because it excludes the normal capital expenditures that all properties require. But it is useful shorthand for comparing prospective acquisitions. Naturally, more attractive properties tend to trade at higher multiples of NOI/lower NOI yields. Properties with good potential for increasing cash flows and those in areas with restrictions on new construction also tend to trade at high multiples/low yields. LAACO’s properties satisfy both of these characteristics. The Los Angeles properties are located in desirable areas where constructing new buildings is both difficult (for lack of available land) and expensive. The self-storage facilities enjoy very high occupancy and great potential for rate increases.

LAACO has net debt of $31.1 million, giving it a total enterprise value of $369 million. Using the $27.0 million NOI figure gives an estimated NOI yield of 7.3%. For those of us not living in coastal metropolises, that may seem like a pedestrian figure. Here in Pittsburgh, its still possible to buy multi-family properties at cap rates of 10%, 12%, or even higher. This is not the case in LAACO’s markets, nor in the self-storage industry. In Los Angeles, CBRE put NOI yields for full-service hotels at 6.5% in the second half of 2015. NOI yields on self-storage properties are even lower. National self-storage REITS are currently trading at NOI yields between 3.6% and 4.0%. (To me, purchasing at this valuation seems like a recipe for losing money, but hey, that’s where the market currently is.) The point of this exercise is simply to show that the market is valuing LAACO far, far below comparable businesses.

Self-Storage: Storage West


LAACO’s self-storage business, called Storage West, was founded in 1978. Currently, the company operates 52 locations, 50 of which are wholly-owned. These properties are located in California, Arizona, Nevada and Texas. For 2015, Storage West’s properties reported 87% occupancy, with rents rising 4.5% to $14.59 per square foot. The company is working on developing three new properties near Houston and improving two existing Orange County locations. Storage West has indicated a preference for developing new properties from the dirt up over buying additional existing properties, citing unattractive valuations for seasoned self-storage facilities. A combination of solid operations and increasing national demand for storage facilities has enable Storage West to produce some excellent results. Storage West produced NOI of $24.5 million in 2015, compared to only $17 million in 2010. That’s a healthy 7.6% growth rate, and the company’s results should only continue to grow as rent increases take effect and new properties are brought to market. In 2016, Storage West should be able to produce at least $25 million in net operating income. LAACO also owns 50% interests in two additional self-storage properties, which produced $601,000 in income in 2015. Assuming margins in line with Storage West’s wholly-owned properties, these joint ventures produce at least another $130,000 in depreciation, meaning LAACO’s share in the NOI of these properties is around $731,000. Adding this figure to the estimated $25 million in NOI from the wholly-owned properties gets us to $25.7 million in NOI.

So what’s that worth? Large national competitors trade at 25-28x net operating income, but I don’t want to be that aggressive. I’ll instead use a more conservative 20x NOI, which still yields a value of $514 million using the $25 million NOI estimate.

Los Angeles Athletic Club

LAACO’s other major asset is the Los Angeles Athletic Club.


Founded in 1880, the LAAC has counted many prominent Los Angeles citizens among its membership over the years. The club’s athletic facilities have helped train generations of athletes, including dozens of Olympic medalists. Today, the Club operates a 72 room boutique hotel, event and meeting space, plus dining and athletic facilities for its members.

For tax reasons, LAACO leases the Club’s land and building to a fully-taxable subsidiary, LAAC Corp. In 2015, LAACO received $804,000 in rental income from LAAC Corp., and LAAC Corp. earned after-tax income of $276,000. Depreciation of Club assets was $552,000 for total cash flow to LAACO of $1.63 million. In 2014, cash flow to LAACO totaled $1.67 million. Using CBRE’s cap rate estimate for full-service Los Angeles hotels provides an estimated value of $25.7 million for the property. However, there are many reasons to believe this figure underestimates the value of LAACO’s Los Angeles real estate substantially. First, the company is in the midst of an extensive renovation of the Club’s facilities, which should provide an uplift in both revenues and profits. More importantly, the company also owns an adjacent parking garage, plus an empty lot, all located contiguously. The neighborhood is undergoing a meaningful amount of redevelopment, with Whole Foods (ever the bellweather) going in just two blocks away. Through the magic of Google Streetview, I present a look at LAACO’s downtown LA property.


From left to right is the vacant lot, currently surface parking, then the parking garage, then the Club itself. LAACO controls the air rights on all three lots. If the trajectory of downtown Los Angeles can be sustained, it is easy to see millions in value being created from the redevelopment of the vacant lot and possibly the existing parking garage.


Valuing LAACO as a whole is relatively straightforward. Conservatively estimated, the self-storage assets and the LAAC are together worth roughly $539.7 million. Against that value, there is $31.1 million in debt. Finally, LAACO pays annual management expenses to a company called Stability, LLC. Stability is controlled by the family that also owns the majority of all LAACO units, the Hathaways. Stability receives 1% of LAACO’s distributions to shareholders, plus 0.5% of LAACO’s total revenues. In 2015, this amount totaled $597,000. Conservatively capitalizing this fee stream at 20x the 2015 fee yields a liability of $11.9 million.


Using these figures, each unit of LAACO is worth $2,922, or roughly 47% more than the current mid-point. This value does not include potentially lucrative development. Each $5 million in value created by redevelopment would benefit LAACO units by $29 per unit or so. It could add up. Finally, just as a thought exercise, what if we did value the self-storage business at a 4% NOI yield? Well, turns out doing so would increase the value of LAACO units by $128.5 million, or a cool $756 per unit. Do what you like with that.

As you can see, its not hard to arrive at a value for LAACO units that is substantially above where the units are trading today. Units are illiquid, and the company is tightly controlled by the Hathaway family, but LAACO could be a nice “lazy” holding for long-term investors.

Alluvial Capital Management, LLC does not hold units of LAACO, Ltd. for client accounts. Alluvial may buy or sell LAACO, Ltd. units at any time. is an Alluvial Capital Management, LLC publication. For information on Alluvial’s managed accounts, please see

Alluvial Capital Management, LLC may buy or sell securities mentioned on this blog for client accounts or for the accounts of principals. For a full accounting of Alluvial’s and Alluvial personnel’s holdings in any securities mentioned, contact Alluvial Capital Management, LLC at

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InterGroup, Santa Fe, Portsmouth – Odd Structure, Significant Value

One unusual company I have enjoyed following over the years is The InterGroup Corporation. InterGroup sits at the top of a strange trio of related companies. This odd triangular ownership structure, as well as the very low liquidity of each company’s stock, conceals significant asset value. Arriving at a reasonable estimate of each company’s value requires some legwork.

InterGroup owns 81.9% of Santa Fe Financial, which in turn owns 68.8% of Portsmouth Square. InterGroup also holds 13.1% of Portsmouth Square directly, giving it an effective ownership interest in Portsmouth of 69.4%. InterGroup is NASDAQ listed, while Santa Fe and Portsmouth trade over-the-counter. This chart casts some light on the clunky structure.


In order to determine InterGroup’s value, we must start at the bottom and work backwards.

Portsmouth Square, Inc.

Portsmouth Square’s major asset is the entire group’s crown jewel: the San Francisco Financial District Hilton. Built in 1971 and renovated in 2006, the hotel has 32 floors with 544 rooms. While it is perhaps not the most beautiful structure (the influence of Brutalism is obvious) it is nonetheless an extremely valuable property.


Through its subsidiary, Justice Investors, Portsmouth Square owns a 93% interest in the hotel. For the twelve months ended December 31, 2015, the hotel produced net operating income of $10.5 million. In fiscal 2015, the hotel produced NOI of $9.8 million. Hotels are often valued using cap rates, and these are especially low in a desirable city like San Francisco. Using a cap rate of 5% would value the hotel at $210 million. Using 6% would put the hotel at $175 million. This valuation is supported by the company’s own estimates. In late 2013, Justice Investors increased its stake in the hotel from 50% to 93%, cashing out minority owners at an implied hotel valuation of $182 million.

The Hilton has mortgage debt of $117 million. Using the lower end of my valuation estimate, the hotel’s net value is $58 million, making Portsmouth’s 93% ownership stake worth $53.9 million.

Portsmouth also has various other assets, including $3.3 million in unrestricted cash and $4.0 million in marketable securities. However, 88% of these securities are common shares of Comstock Mining, a chronically unprofitable gold and silver miner. I value these shares at zero, leaving marketable securities of only $0.5 million. The company also holds a small amount of “other investments,” but there is no visibility toward the nature of these holdings and I think it better to ignore them. Against these assets, Portsmouth owes $8.9 million in notes payable, including $4.3 million to its ultimate parent, InterGroup. Portsmouth Square also incurs annual SG&A costs of around $0.7 million. I value this ongoing liability at negative $5.8 million, net of tax.


Sum it all up and you arrive at a valuation of $43 million for Portsmouth, or almost $59 per share. The stock lasted traded at $55.50, so it looks like the market is largely in agreement with this valuation. (I pulled a quote after I did the valuation, I swear.) My estimates were fairly conservative, so it’s possible that Portsmouth is worth quite a lot more. For example, using a $210 million valuation for the hotel and assuming the Comstock stock is actually worth its balance sheet value, Portsmouth could be worth as much as $108! Clearly, the company’s value depends greatly on the value of its hotel, magnified by the significant leverage the mortgage debt provides.

Santa Fe Financial Corporation

It gets easier from here. In addition to its 68.8% ownership interest in Portsmouth, Santa Fe owns some corporate cash and a 55.4% interest in an apartment complex in Los Angeles, plus some undeveloped land in Hawaii. Portsmouth’s assets and liabilities are consolidated on Santa Fe’s balance sheet, so naturally we must back these out to see what Santa Fe actually owns.

Santa Fe reports $3.4 million in cash, but only $0.4 million is Santa Fe’s. The rest belongs to Portsmouth. Similarly, Santa Fe reports $6.1 million in marketable securities, but again, it’s nearly all in Comstock. Santa Fe’s non-Comstock, non “other investments” investment securities are de minimus. 

The apartment complex produces only a little over $0.3 million in net operating income annually. I value the property at $5 million. There is $3.3 million debt on the property, making Santa Fe’s stake worth $0.9 million. Santa Fe’s undeveloped Hawaii property’s cost basis is $1 million, so I’ll take that as the value.

Santa Fe has no other substantial non-Portsmouth liabilities, and incurs annual SG&A expenses of only around $0.4 million. Valuing the ongoing SG&A at negative $3.6 million yields a value of $28.2 million, or $22.73 per share.


But wait, the last trade for Santa Fe was at $35.00! Looks like the market thinks far better of the company than I do. Then again, using less conservative estimates for the value of Portsmouth Square gets me to Santa Fe values in the $60-70 range. Once again, it comes back to what the Hilton is really worth.

The InterGroup Corporation

Lastly, we tackle InterGroup. Valuing InterGroup is as simple as summing the company’s corporate-level assets and liabilities, plus its effective 69.4% interest in Portsmouth, plus its 81.9% interest in Santa Fe’s corporate-level assets and liabilities. (Including the value of Santa Fe’s interest in Portsmouth Square would be double-counting.)

InterGroup has the standard cash and marketable securities, but also has some more substantial real estate assets. Cash (net of Portsmouth and Santa Fe’s balances) is $1.7 million. Marketable securities are $4.9, once again excluding the complex’s significant holdings in Comstock and the murky “other investments.” The company also has a $4.3 million loan outstanding to its subsidiary, Portsmouth Square.

InterGroup’s real estate assets include 16 apartment complexes, one commercial real estate property, vacant lots, and three single family residences in the Los Angeles area. The single family residences are categorized as “strategic investments.” This seems dubious to me, but at least the value of the single family residences is small compared to the multi-family properties.

The value of InterGroup’s real estate is actually quite substantial. In fiscal 2015, the properties produced $7.7 million in NOI. This figure declined slightly to $7.5 million for the twelve trailing months. At a 6.5% cap rate, these properties are worth a cool $115 million. These properties carry debt of $62.2 million, for a net value of $52.8 million. I’ll bump that value to $55.8 million to credit the company for its non-revenue producing land investments.

As for liabilities, InterGroup owes $1.6 million in margin debt on its investment securities. SG&A expense amounts to a little under $2 million per year, which I estimate is worth a negative $9.7 million, net of tax.

Time to sum it up!


The net value of InterGroup’s assets comes to $86.3 million, or a little over $36 per share. You may notice I assign no value to the ownership stake in Santa Fe, net of Santa Fe’s ownership in Portsmouth Square. That’s because without Portsmouth, Santa Fe actually has a negative value as a going concern. The reason that value to InterGroup is zero, not negative, is because InterGroup has no need to fund Santa Fe in any capacity and is not a guarantor on any of Santa Fe’s liabilities.

The last trade in InterGroup stock was at….$$26.01. So here’s truly undervalued security of this complex. Per usual, it’s the ultimate holding company that receives the greatest discount.

While I think that InterGroup trades at a large discount to conservative reckoning of its asset value (valuing Comstock at today’s market value would add almost $5 per share to InterGroup’s valuation) the company does have some substantial drawbacks. First, liquidity. InterGroup has a float of only around 800,000 shares with a market value of only $21 million. Accumulating these shares, not to mention selling them, is extremely difficult. Second, InterGroup and its related companies are tightly controlled by insiders with a love for investing a substantial portion of the company’s resources in penny mining stocks. Maybe that will work out great…but I wouldn’t count on it. And finally, the value of all three companies will be profoundly influenced by the California real estate market, San Francisco in particular. I don’t have any view about which way that market will go, but it is certainly a risk.

Alluvial Capital Management, LLC does not hold shares of InterGroup, Santa Fe Financial, or Portsmouth Square for client accounts. Alluvial may buy or sell shares of InterGroup, Santa Fe Financial, or Portsmouth Square at any time. is an Alluvial Capital Management, LLC publication. For information on Alluvial’s managed accounts, please see

Alluvial Capital Management, LLC may buy or sell securities mentioned on this blog for client accounts or for the accounts of principals. For a full accounting of Alluvial’s and Alluvial personnel’s holdings in any securities mentioned, contact Alluvial Capital Management, LLC at

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