Posts

House prices: hard to believe currently, but they do go down at times

Real estate prices continues to march unabated since the the crash of 2008 - 2012. Many cities (SF Bay area, Seattle) have already crossed the pre-2007 highs (by a lot). San Francisco median price is 2x that of 2007 highs.Just the equity gains made by residents in SF bay area and Seattle are more than average full time worker salaries. Some of this looks unsustainable. Prices look inflated and there's risk off behavior that assumes that house prices continue going up. Examples such as one shown here indicate that some house prices don't cover even carrying costs (interest + property tax). Is Fear of missing out (FOMO) causing these high prices? 
I don't claim to know how or when prices might get corrected. But now would be a good time to look at prior housing crashes to remember that housing does not always go up. There's no permanent high plateau in finance, and things go in cycles. Some of the risks which caused house price drops in the past may re-appear, or they m…

$FRPH - Value in Action

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tl;dr: Bought FRPH at $39/share in July 2016. Currently, the stock is at $58/share, driven mainly by value enhancing steps taken by owner-operators, the Baker family. This article reviews how FRPH put Value in Action.


FRPH recently announced the sale of their industrial warehouse assets (41 properties) to Blackstone for $359M. The management announced that this was good time to sell given lower taxes and low cap rates. I thought this transaction provided a good opportunity to write about FRPH as "Value in Action" investment. The management doesn't promote the stock much - just look at their bare bones Investor relations website, but they have been long term owner-operators and have created significant value.


FRP Holdings ($FRPH) was formed in 1986 from spin off of real estate and transportation businesses from Florida Rock Industries. I first learned about FRPH from a stock pitch by Bill Chen of Rhizome Capital Partners. The original Florida Rock was run by the Baker fam…

Book Review (and short snippets): The Great Depression - a diary

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This book  is based on diary written by Benjamin Roth, a mid 30s lawyer in Youngstown, OH and is focused mainly on 1931 to 1941 period. The unique aspect of the book is that he captures the investment environment, opinions of "experts", stock prices, and outcomes of investments from 1930s to 1960s. There are interesting case studies involving several people making investment errors and ignoring risks during the boom of 1920s. One example below shows $180K initial investment reduced to $10K.



While statistics such as "market fell down 90% during Great Depression" are thrown often around on Twitter, reading of Roth's diary makes the impact feel more "real". It moves slowly through the market crash days and shows that it wasn't a linear drop, but many mini-busts and mini-booms and many false starts. Before reading the book, I didn't know of 1937 business slow down and stock market drop.

Youngstown was one of the boom towns of the 1920s with rapid…

How Reddit post got me thinking on speculative pricing of assets

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I recently came across this reddit post --  someone with $310K income asking about whether they should try to buy $800K condo with 1 bed, 1 bath in San Francisco. Now $800K is the asking price which probably means that people will bid it up another 10%-20% because that's the "norm".


Two things caught my eye in this post:
1. The carrying costs of this condo (interest, property taxes, HOA fees) will be ~$4K / month, which is higher than renting an equivalent apartment ($3.2K - $3.6K) in the same SOMA area in San Francisco. Clearly its cheaper to rent vs buy, but probably the fear of being priced out in the future is driving this person's actions.
2. This person has close to 14% of their net worth in cryptocurrency!

Could this Reddit posting person be recycling capital from the good ($310K combined salary, presumably from tech) into the speculative ($800K for 1 bed / 1 bath condo, $45K in cyptocurrency)? Probably they're trying to get "fast appreciation of ass…

Drive Shack - Asymmetric risk reward situation with this TopGolf competitor

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Drive Shack, formerly Newcastle Investment (NCT), is a golf management company. The original thesis for Drive Shack (DS) and valuation is here . When I first bought it ~$3/share, the thesis was that there were forced sellers due to cancellation of dividend and REIT status. Add to it the headline risk of "Golf is declining". I was happy to buy from these forced sellers. 
Since then, the stock price has gone up ~70% after Wes Edens increased his ownership to 9%, buying $2.5M of stock at $6 / share. While Wes Eden's buy is a good sign, there are several other developments which require a revision to the original thesis. As announced in Q417 earnings call, the company is transitioning away from being owner of traditional golf courses to development of Topgolf like golf entertainment sites. So I want to look at it as a development company and an example of balance sheet to income statement investment.

Some key recent developments are: 


Internalized managementProgress on Wind dow…

Yatra - Indian OTA Neglected by Mr Market

Yatra is #2 OTA in India and listed on Nasdaq via SPAC in 2016. I first started buying it at ~$10/share after reading Dane Capital and Greenhaven Road Capital letters talking about Yatra as an undervalued way to play the India market.

Recently, YTRA stock price dropped to ~7/share range and I doubled my investments in YTRA because it offers asymmetric risk / reward ratio at current price.

First, some color on India Travel Market:

The Indian air travel market is the fastest growing market in the world (16% CAGR in 2017) and is currently #3 in terms of size (after US and China). Over the last 10 years, during my annual trips to India, I've been amazed by the improving quality of airports and better air connectivity. And many middle class Indians have started traveling by flights due to higher paychecks, increased air connectivity with tier 2 cities, and introduction of domestic budget airlines. In addition to the general increase in # of air travelers, there's also a move from o…

Drive Shack - Forced Sellers Create Opportunity

Drive Shack (DS) is a golf operator, formerly known as Newcastle Investment (NCT) and is managed by Fortress. NCT was previously an REIT that owned senior care facilities and made debt investments. Over the last few years, they spun off senior care REIT and are now in processing of monetizing all their debt investments. Starting Jan 1, 2017, they are no longer REIT and cancelled the dividend. They are now focused on being a golf owner / operator and are touting new concept of golf entertainment called Drive Shack – which will be similar to Topgolf.

The cancellation of the dividend led to “forced sellers” – REIT investors moving to other greener pastures for dividends. The stock currently trades at market cap of $198M. DS has preferred stock worth $60M and debt worth $160M. They also have cash of $130M and expect to realize $110M from monetizing legacy real estate debt. Netting all of this, the market is pricing golf business at EV of ~$180M. I’ve excluded golf member’s deposits from …