Let me begin by saying that I love your stuff and spend a lot of time looking for similar kinds of investments. It's hard work, and doesn't always work out. But when it works, it really works.
With little or obscure companies, how shareholders are treated is really important. I have found some wonderful little companies, with great products, and luscious free cash flow. But the board and management have no intent of serving the interests of shareholders.
I am always skeptical of real estate trusts, especially small ones. Highlands REIT is a curious story!
A look at the 2016 10K shows:
2015 total assets = $739,154 FFO = $50,765
2016 total assets = $512,554 FFO = $21,762
The 2023 10K shows:
2022 total assets = $275,554 FFO = $2,600
2023 total assets = $309,002 FFO = $ 300
Is it possible that the stock seems heavy discounted when in fact it reflects that the longer term picture of the business is one of slow but steady decline?
Looking at the behavior of management leaves the mouth dry. There are three inside directors and two outside "independent" directors. So inside directors control the board.
The two "independent" directors , Turner and Shekell, have 2023 compensation of $210,000 and $200,000 respectively.
Management has a sweet deal. Looking at 2022 and 2023 compensation is an eye opener.
The CEO makes:
2022 $2,747,321
2023 $3,276,243
The CFO makes:
2022 $623,892
2023 $700,372
The General Counsel makes:
2022: $1,938,609
2023: $2,399,837
That is a total executive compensation in 2023 of $6,376,452 on a company with total revenues in 2023 of $30,981,000. Executive Comp is 20.5% of total revenues. Add in Board compensation and you have 21.2% of total revenues.
Whats more, the executives and board members collectively own 3.69% of the outstanding common. The remaining 96%+ of shareholders clearly have no say in the management of the company.
I think this stock is cheep for a reason. Management is running the company for their own benefit and will continue until they are thrown out or there is nothing left.
Thanks for your detailed comment. I agree with basically everything you just said there, but I've reached a different conclusion. Yes, I think management put the deal in Maryland and likely took every feasible step to entrench themselves (see board structure). I think they extract all the FCF for themselves and would like to do so for many years to come.
That said, I only care about one thing - MY return on capital.
And in the case of HHDS, I believe that if I were able to buy shares at .01-.02, that it's likely I could tender my shares back to the company or to another party for more than I paid.
I have no desire to pay anything much higher than .01-.02. I know the properties are worth more than that (setting aside management for the moment), and there's a decent likelihood the long history of tenders continues.
Beyond that, there are all kinds of interesting things that happen when you pay substantial discounts from intrinsic value. Maybe management wants to take the deal private, maybe an activist figures his/her way around the entity. Anything really.
All this is moot currently, because I don't have shares.
Thanks again for your detailed comment and for sparking an interesting discussion.
Dirt, are you calculating NOI from adding the taxes, depreciation, and amortization back? Also, the stock based comp is extremely high... could there be a take under situation soon?
Everything you say is true. I'm adding back tax/depr/amort/sbc. I understand the business books a loss, that's not the point. I understand the management is paying themselves ludicrous sums, again, not the point.
The point is that the business has profitable unit economics. Private market value is certainly multiples higher than $14MM.
Take under could happen, but I'm quite confident it wouldn't happen below $0.02. I've seen crazy appraisals in take under scenario, but $0.02 for HHDS would trump them all by a mile.
I think it's significantly more likely that you tender shares to the business or a Mackenzie type entity.
You're asking all the right questions, and you're right to be skeptical. This is a unique setup. Management = bleh. Corporate governance and board structure = double bleh. But I believe there is money to be made still.
Thank you for the quick answer sir. Appreciate it.
Have you ever considered trying a full takeout offer of your own for assets like these? Some of them seem like there is enough meat on the bone to payoff the management, board, and still have a nice pile left over.
Let me begin by saying that I love your stuff and spend a lot of time looking for similar kinds of investments. It's hard work, and doesn't always work out. But when it works, it really works.
With little or obscure companies, how shareholders are treated is really important. I have found some wonderful little companies, with great products, and luscious free cash flow. But the board and management have no intent of serving the interests of shareholders.
I am always skeptical of real estate trusts, especially small ones. Highlands REIT is a curious story!
A look at the 2016 10K shows:
2015 total assets = $739,154 FFO = $50,765
2016 total assets = $512,554 FFO = $21,762
The 2023 10K shows:
2022 total assets = $275,554 FFO = $2,600
2023 total assets = $309,002 FFO = $ 300
Is it possible that the stock seems heavy discounted when in fact it reflects that the longer term picture of the business is one of slow but steady decline?
Looking at the behavior of management leaves the mouth dry. There are three inside directors and two outside "independent" directors. So inside directors control the board.
The two "independent" directors , Turner and Shekell, have 2023 compensation of $210,000 and $200,000 respectively.
Management has a sweet deal. Looking at 2022 and 2023 compensation is an eye opener.
The CEO makes:
2022 $2,747,321
2023 $3,276,243
The CFO makes:
2022 $623,892
2023 $700,372
The General Counsel makes:
2022: $1,938,609
2023: $2,399,837
That is a total executive compensation in 2023 of $6,376,452 on a company with total revenues in 2023 of $30,981,000. Executive Comp is 20.5% of total revenues. Add in Board compensation and you have 21.2% of total revenues.
Whats more, the executives and board members collectively own 3.69% of the outstanding common. The remaining 96%+ of shareholders clearly have no say in the management of the company.
I think this stock is cheep for a reason. Management is running the company for their own benefit and will continue until they are thrown out or there is nothing left.
Thanks for your detailed comment. I agree with basically everything you just said there, but I've reached a different conclusion. Yes, I think management put the deal in Maryland and likely took every feasible step to entrench themselves (see board structure). I think they extract all the FCF for themselves and would like to do so for many years to come.
That said, I only care about one thing - MY return on capital.
And in the case of HHDS, I believe that if I were able to buy shares at .01-.02, that it's likely I could tender my shares back to the company or to another party for more than I paid.
I have no desire to pay anything much higher than .01-.02. I know the properties are worth more than that (setting aside management for the moment), and there's a decent likelihood the long history of tenders continues.
Beyond that, there are all kinds of interesting things that happen when you pay substantial discounts from intrinsic value. Maybe management wants to take the deal private, maybe an activist figures his/her way around the entity. Anything really.
All this is moot currently, because I don't have shares.
Thanks again for your detailed comment and for sparking an interesting discussion.
Dirt, are you calculating NOI from adding the taxes, depreciation, and amortization back? Also, the stock based comp is extremely high... could there be a take under situation soon?
Thanks!
Everything you say is true. I'm adding back tax/depr/amort/sbc. I understand the business books a loss, that's not the point. I understand the management is paying themselves ludicrous sums, again, not the point.
The point is that the business has profitable unit economics. Private market value is certainly multiples higher than $14MM.
Take under could happen, but I'm quite confident it wouldn't happen below $0.02. I've seen crazy appraisals in take under scenario, but $0.02 for HHDS would trump them all by a mile.
I think it's significantly more likely that you tender shares to the business or a Mackenzie type entity.
You're asking all the right questions, and you're right to be skeptical. This is a unique setup. Management = bleh. Corporate governance and board structure = double bleh. But I believe there is money to be made still.
There are no bad assets, just bad prices.
Thank you for the quick answer sir. Appreciate it.
Have you ever considered trying a full takeout offer of your own for assets like these? Some of them seem like there is enough meat on the bone to payoff the management, board, and still have a nice pile left over.
Never thought about it. Interesting to consider, probably outside my purview.
remind me of a young Buffett
“But I found that the traditional expert market brokers couldn’t buy shares.”
Do you know why not?
No, I don't unfortunately.