ValueX Vail 2015: Opportunity In Real Estate – Owens Realty, UCP

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Mindset Capital presentation on opportunity in real estate – Owens Realty, UCP – from the ValueX Vail, June 2015.

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Home Prices Continue to March Higher

Owens Realty Mortgage (ORM)

  • From 1990-2007 Owens Realty was a successful private mortgage fund paying over 8% annual yield to investors
  • Financial crisis caused the fund to foreclose on most of its loans and suspend dividends
  • In 2013 converted into a REIT and went public to provide liquidity to investors
  • Currently a public company that has no analyst coverage, pays a small dividend with substantial real estate assets, and has a small loan book

$100m Property on the Books for $53.7m

  • 11.5 entitled acres in the heart of Heavenly Valley Ski Resort area of South Lake Tahoe
  • Entitled for 477 Hospitality Units, 58,000 SF of retail, 20,000 SF meeting space and 19,000 SF Spa Facilities
  • April 2009 appraisal was in excess of $100 million
  • Recorded at cost of $53.7m on balance sheet
  • 3.5 hours from SF & should benefit from tech boom
  • Entitled status difficult to replicate
  • Property is currently being marketed for sale

Miami Condo Project

  • Ocean front location in North Bay Village, Florida
  • 154 condo units in Pointe Tower (renovated in 2005-2007) that are managed as apartments.
  • 15 condo units (out of 160 total) in the South Tower. Also renovated in 2005-2007
  • Rental units are 95% occupied with $19.63 annual rent per square foot
  • 160 units in North Tower. Building is 100% vacant and Owens Realty is in the process of renovating the building completion estimated Q4 2015
  • At $200k per unit net of sales cost, should be worth close to $66 million.

Valuation Analysis

Owens Realty, UCP

Sale Proceeds = Dividends to Investors

  • Owens Realty has recently completed the sale of three properties for over $24 million in proceeds ($15m gains above book value)
  • Recently announced increase in regular quarterly dividends to $0.08 per share, or 2.2% annual yield
  • Announced a special one time dividend of $0.10 per share payable for shareholders as of June 30
  • In late May, announced a buyback starting at the end of June for up to 5% of the company


  • Current dividend is 2.2% (excluding special one time dividends) and rising
  • Book value is $17.18 per share and rising
  • NAV is at least $20 per share
  • Stock trades around $14.50 per share
  • Classic underfollowed, misunderstood microcap with little downside and uncertain upside
  • Potential risks: disappointing sale prices and delayed timeframe of property sales

UCP: An Undervalued Homebuilder

This Isn’t an Encouraging Chart

Owens Realty, UCP

UCP History with Shareholders

  • Poorly received IPO in 2013 with PICO Holdings retaining a 57% stake in UCP
  • IPO to take advantage of the lots UCP had acquired in the financial crisis
  • UCP has experienced operational problems and generated losses as they have scaled up
  • Confusing story with a development arm and a homebuilding arm
  • Has yet to prove they can generate income and returns for shareholders

UCP’s Future: Turnaround or Sale

  • “We have encouraged UCP to evaluate options for unlocking shareholder value” PICO’s Q4 earnings release
  • PICO, the main shareholder, is losing money and is actively marketing one of its main assets.
  • UCP cannot be far behind if it doesn’t show significant improvement
  • Doesn’t make sense for UCP to be public with a market cap of $60 million.
  • Recent merger activity points to significant cost savings in mergers
  • Ryland and Standard Pacific estimated $50 to $70 million in savings in their merger

Tailwinds for UCP

  • There is a shortage of homes with new single family home construction staying at generational lows
  • John Burns Consulting estimates that we are at the beginning of a 15 year bull market for homebuilders
  • UCP’s markets are very strong in Seattle, Nashville, Northern California, Southern California, North Carolina, and South Carolina
  • Latest new home sales data rose to a seven year high and is up 24% for the year through the month of May

UCP is Very Cheap

  • Stock trades near $8 and has a book value of $10.81 per share
  • Average P/B multiple of homebuilders is close to 2 times
  • They bought most of their land in the heart of the crisis and that book value is significantly below market value
  • UCP owns 6,886 lots, in very attractive locations
  • UCP could double in value by returning to its IPO price
  • Risks include continuation of operational losses, majority investor not pushing for change, drift.

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