(NLCP) Newlake Capital Partners Inc

Newlake Capital Partners Inc (NLPC) is a publicly-traded cannabis REIT that trades OTC. It was founded in 2019 and IPO'd on August 20th, 2021. As of this writing, the share price is $22.85.

I was initially intrigued to research the stock because it is part of the OTCQX, has good disclosure, a 5.78% dividend yield, and its story initially made sense to me. 

Cannabis companies have limited access to capital in the United States because cannabis is federally illegal. So they can't have the normal banking relationships that other industries of that size would have. Growing and distributing cannabis requires capital-intensive real estate. So a cannabis company can sell their real estate to NLCP through a sale-leaseback and the cannabis company gets to free up capital and get a long-term lease in the real estate that they once owned. 

NLCP is run by seemingly impressive management and now gets to own cultivation and retail properties in the cannabis industry with long-term tenants through triple net leases. Seems like a win-win. 

NLCP owns 29 properties in 11 states. They choose to work in limited license jurisdictions where they believe there is less competition - leading to a better business environment for NLCP and their tenants. All of their properties are 100% leased. They have a 12.5% average weighted revenue yield on the capital they have invested. 

It struck me as interesting that NLCP has $460 million in assets and almost no debt. Usually, REITs are fairly levered. I don't know if this is because they also have difficulty accessing bank debt to lever the balance sheet because they are associated with cannabis. Or, if it is because they are a recently public company that is flush with cash and they plan on levering the balance sheet in the future. 

Here are the things that don't make sense to me. 

1. NLCP's bull thesis is that the cannabis industry is rapidly growing and will inevitably become federally legal. By owning NLCP you can take part in the cannabis industry's growth and inevitable profitability. 

The issue that I see with this is that if the industry grows and becomes federally legal - the cannabis companies will have more and more access to low-cost capital. They may still decide to do sale-leasebacks but they will have more options and at better prices and terms. 

NLCP is focused on continued growth and acquisition of new properties. So if the cannabis industry does as well as they are expecting - then they will face more competition from other lenders and will be getting worse and worse deals with future sale-leaseback transactions.

Also, NLCP is a REIT and has to pay out 90% of its taxable income in the form of dividends. So they can't fund their future acquisitions with retained earnings. They say they will do so by issuing equity or debt. So far they have done it with the issuance of equity. 

So by owning NLCP you are theoretically going to get diluted over time with potentially worse and worse deals. 

2. The price is not cheap. I was intrigued when I saw NLCP because I saw that the share price was down about 24% from the IPO and was at a 5.78% dividend yield. I thought there might be some value there.

Turns out that NLCP is trading at 1.1 times book value. But 27.6% of NLCPs assets are in cash that will be deployed. 

Because only 60% of their assets are invested in real estate, and the balance sheet is not levered -the return on equity is only 4%. 

And the PE is currently 34.5. 

Yet they pay a 5.78% dividend yield. Earnings for 2021 were $0.65 per share diluted but in just the last 3 quarters they paid out $0.76 per share. 

So they are paying out more in dividends than they are actually earning. Which is fine because they are flush with cash right now. But it doesn't really make the dividend yield all that attractive once you learn this. 

To be fair - as NLCP invests the excess cash that they have, their revenue, earnings, and return on equity will go up. But it still would not juice earnings to an enticing amount. 

Conclusion

Overall the stock does not seem cheap to me. There will be significant dilution in the future in order to fund business growth. Yet their strategy doesn't make total sense to me. If the cannabis industry becomes legalized and takes off - they aren't going to get any extra rent payments. At best they get yearly inflation increases and all of their tenants pay on time. 

But with that will come increased competition to give funding to these cannabis companies. So if cannabis does well in the US it will become harder and harder for NLCP to strike good deals on these sale-leaseback transactions. NLCP has direct competition with other publicly traded companies right now - most notably is IIPR which has a market cap of $4.3 Billion. 

I am not saying I am right, but this does not seem to be a worthy investment to me. What could prove me wrong and change my mind is if cannabis stays illegal for longer than expected. Management turns out to be spectacular and continues to make incredibly smart decisions regarding future transactions and how to fund them. Management then levers the balance sheet to get a quality ROE. And the stock grows and grows, gains in popularity, and eventually gets up-listed and trades at a premium price. 

But that isn't something I am willing to bet on. 

Cheers,

Calum

Read More

High Country Bancorp (HCBC)

High Country Bancorp is a small, 4 branch bank located in Salida, Colorado. It has offices in Salida, Buena Vista, and Canon City, Colorado. HCBC started out as a Savings and Loan institution and was originally called Salida Building and Loan Association. In 1997, it converted from a locally owned savings and loan to a publicly traded stock. Since then, HCBC has returned a CAGR of 8.58% a year for 23 years with dividends reinvested. The S&P has returned 8.15% over that same time. 

I believe HCBC presents and attractive opportunity to invest in a small, well run bank in a growing community with a good deposit base. The bank primarily engages in residential mortgages, commercial real estate, commercial loans, and construction. 

On 2/24/20 HCBC sold $4.3 million of stock in a private placement to accredited investors at $41.50 a share. This was in response to Covid. Now the company has an authorization to repurchase up to 5% of shares outstanding. However, CEO Larry Smith gave the impression that it is unlikely for that to be completed. They won't buy shares above book value and the illiquidity of the stock makes it difficult to find the shares. 

Below I will break out the pros and cons of this opportunity as I see it.

Pros

- High insider ownership. Insiders own 28.59% of the bank. The CEO owns 5.2%. 

- ROE is around 14% and has grown over the years. Return on assets of around 1.5%

- Dividend yield of around 5%. 

- Located in rural Colorado. The state is seeing strong population growth. With Covid, there are lots of people flocking to the area who can work from home. HCBC is well positioned as the local bank to write mortgages and provide its services. 

- The CEO has been with the bank since the 1970s and has been CEO since 1991. I caught good vibes from him over the phone. 

- The stock trades at 1.16 P/B and 8.7 P/E. This is not screaming cheap but it is also not expensive. Many banks have taken off lately. HCBC has not participated so much in the rally and I think that it has some room to run. It has benefited from juiced earnings and PPP loans like every other bank.

- Prudent with buybacks. They have a history of buying back shares ever since they have been public. After they IPOd they were flush with cash. 9/11 gave them an opportunity to retire shares and get their equity-to-assets into shape. They won't buy back stock above book. If the stock gets too undervalued in the future, I think they will step in and buy shares.  

Cons

- With $365 million in assets and a market cap of $42 million, the bank is small. At sub-scale, it will likely not perform as well as a larger bank. 

- While the bank is growing, it is paying out 5% in dividends. Not a bad thing but it puts a cap on the amount the bank can grow.

- HCBC is traded OTCQX. The volume is low - around 10.5 million shares trading a year, or about 0.25 share turnover. This is an off the radar stock. It likely will not have big gains any time soon. I doubt this will ever get over-valued. More likely to be a slow, but steady compounder. 

Conclusion

Overall I like the stock. I think it is a well run bank that will grow and perform well over time. At 8 times earnings I think that this will do a solid, steady return for many years to come. In a time where the market is going crazy and everything is charging up, it may seem silly to buy a stock that is unlikely to do the same. For some reason I am attracted to investments like this. I feel they are easy to hold and stick with, knowing that they will probably be slow, steady performers. 

As I am sure you know, bank stocks have taken off lately. The KRE (regional banking etf) trades 23% higher than it did pre-covid now. HCBC is still 9% below its pre-covid levels. This may be a nice way to catch the trend in a stock that has not run as much as it probably should. This is very off the beaten path so it may take time for investors to catch on. Cheers!

Disclosure - Long. Do your own due diligence. I am a Rook. 

Read More

Generations Bancorp NY (GBNY)

Generations Bancorp (GBNY) is a newly converted second step thrift. This bank was previously listed on the OTC Pink sheets as (SCAY) from when it did its first step. On 1/31/21 the rest of the bank was sold to the public at $10 per share and began trading under the ticker GBNY on the NASDAQ. 

I recently read Jim Royal's excellent book - The Zen of Thrift Conversions. I have done a fair amount of bank investing before this, and am now excited to delve into the obscure world of thrifts. GBNY is the first thrift I have analyzed and I am ready to share what I have found. 

GBNY has 10 branches in the upstate New York area - near Rochester and Syracuse. Prior to the conversion GBNY had $367 million in assets and about $29 million in tangible book value. When it was listed previously as SCAY, the MHC owned 60% of the bank and 40% was public. Management owned about 5%.

In January the remainder of the stock was sold to the public, thus fully completing the conversion. After the proceeds of the sale, less fees, at $10/share the bank is valued at about 63% of tangible book, implying a 58% upside to book. The bank is clearly cheap but also has substantial problems. Generations Bank did not have a first day pop like most thrifts. Instead it has drifted down about 5% since then. I will break the investing case down in terms of pros and cons.

Cons

- Management is giving almost all of the meager proceeds from the stock sale to the bank - not to the holding company. This means that there is little to no money available for dividends and buy backs. In fact, management has explicitly said that they don't want to pay dividends. They won't be able to buy back stock for a year anyways, and it seems that they aren't interested in buying shares once the restricted period ends.

- Management wants to grow the bank. They want to use the new cash raised by the stock sale to expand. 

-  Generations is not consistently profitable. They either make or lose a small amount of money. With such a small asset base, it is hard for a small bank like this to have high returns on equity these days. 

- Risky 3rd party loans. - 49% of their loan book is traditional home loans. But 21% of their book is auto loans, rv loans, and manufactured home loans. This is the area that management is proud of and want to expand on. They are buying these loans from third parties and out of market. They get a higher interest rate on them, yet they are substantially riskier than single family home loans. 

- They incorporated the new bancorp in Maryland. This doesn't really make sense because they are based out of New York. From what I have heard, when a public company incorporates in Maryland, it is because Maryland is less shareholder frienldy when it comes to legal matters. This is a little suspect.

- Management was also throwing other proposals into the proxy voting about giving less voting rights to large holders of the stock, and other proposals that would make activism more difficult.

- They are located in upstate rural New York. Management acknowledged that the population is shrinking. Not the best demographics for a bank. 

- Management is not old. The CEO - Menzo Case has been with the bank since 1999 and is only 56 years old. This is not management team looking to sell out quickly. 

- In 2018 they did an acquisition and bought Medina Savings and Loan ($55 million in assets). This isn't necessarily a bad thing but it further reinforces the fact that their intention is to grow and expand. If done well this can be good, but is not the surest way to get good returns in thrifts. 

- The bank is not over-capitalized. Its equity to assets are around 11%. So even if the bank wanted to do substantial dividends and buy backs they couldn't. 

- At a $22 million market cap, this bank will fly under most investor's radars, which may cause it to take more time for the valuation to re-rate. 

Pros

- The notorious activist Joseph Stilwell is a 9.9% owner. He entered the position in 2014 when it was trading as SCAY. His 13D filings from that time don't give any extra information, other than the fact that he has the stake.  

- M3 Funds bought a 7.59% stake in the company at the second step of the conversion in January. They are a small fund that focuses on banks and thrifts. I don't know if they do any activism or not, but I would have to imagine that they would vote on behalf of shareholders and are good to have as fellow holders. Their website is incredibly dated and is worth looking at for a blast to the past.

- Management already owned shares and bought more in the second step. They own approximately 6%. They did not buy the max allotment, but they did buy.

- The bank is cheap. At $10 per share, the market cap is around $23.15 million. Tangible book is about 36.75 million. That is 58.75% upside to book from $10 per share.

- Low downside. At this price, it is unlikely it will be cheaper 5 years from now. 

- At $22 million market cap and low liquidity, the opportunity exists for individual investors but not for funds or professionals. 

- Almost no financial websites or screeners have proper information for GBNY. When they report their first quarter, it will finally update and start showing up for more investors. 

Thoughts

This is not the best thrift opportunity. The loan book of GBNY is pretty sub par in my opinion. I understand that there is a willing suitor for every bank, but why would an acquirer be interested in a bank with so many 3rd party loans? The average thrift gets bought out at 140% of tangible book. But I am only comfortable assuming GBNY would get bought out at 100% of tangible book value. 

The price is fluctuating, but from $10 a share if it takes 5 years to be bought out at tangible book that would be a 9.68% return. This is assuming no book value growth. From $9.48 a share (where it is currently trading it would be a CAGR of 10.96% a year. 

The risk is that management doesn't want to sell. And does a poor job expanding. Leading to a decline in book value over time. Honestly, it really seems to me that they won't sell within five years, but it is possible. Investors could also continue to assign a low multiple. 

The bull case is that this bank is incredibly cheap. Management works to expand and improve operations. And over time, the public starts valuing this bank closer to TBV. Because this just finished its second step conversion, it is not available in screeners. There are not current financials with the updated balances from the stock sale. I actually think there could be a re-rating as quarterly financials come out and more of the investing public discovers the stock. 

The limited downside is intriguing. I do not recommend this as an investment though.

Feel free to message me on Twitter @noobyinvestor with your thoughts on this. I am a rook sauce investor so please correct me if mistakes were made. Cheers.

Disclosure

Long. I took a smallish position to observe the stock. I may trade in and out. This is not investment advice. Do your own due diligence. 

Read More

1347 Property Insurance Holdings Inc (PIH, PIHPP)

 Today I am going to cover an interesting little stock - 1347 Property Insurance Holdings Inc (PIH).

It is an illiquid microcap business that previously sold individual property insurance in Florida, Texas, and Louisiana. At the end of 2019, PIH sold off its insurance business to FedNat Holding Company (FNHC), a publicly trading insurance company. 

In exchange for the sale of the business, PIH got $25.5 million in cash, and $25.5 million in FNHC stock. All of PIH's employees transferred to the new company except for two. 

Currently PIH is somewhat of a clean slate. It has practically no liabilities and a relatively liquid book value of $46 million. That consists of 25.6 million in cash, 4 million in real estate investments, 1.8 million in income tax assets, and 14.5 million in FNHC stock. 

And the market cap of PIH is only 25.5 million dollars. (Share price of about $4.20)

You may ask, why is this trading at 0.54 of book value when there is no debt and all assets are relatively liquid? Great question. 

That is what I asked myself when I discovered this net net and I believe there are a few good explanations. 

1. This stock is pretty illiquid. It is listed on Nasdaq but has a share turnover of only 0.19. This is because 87% of shares are owned by insiders and a few funds that hold the stock. The market cap is only 25 Million so very few people know about this stock, and no large players would ever touch this because of the scarce float available. 

2. $14.5 million of the $46 million book is in FNHC stock. FNHC has taken a strong beating lately and is down 75% since it's high in 2014. PIH's shares are already down 43% since they got them in late 2019. If you look at the two stock charts on top of each other over the past year, they are moving in tandem. This makes sense to a degree, however PIH has 25.6 Million in cash and the FNHC stake only accounts for 31.5% of their book value. 

Perhaps people have concerns about the FNHC holdings because of how poor the stock has been performing. They company is currently losing money, although appears quite cheap as it is trading at half of book. 

Part of the problem is that PIH has a standstill agreement with FNHC, where it appears that they cannot sell their stake for five years.  

The Standstill Agreement imposes limitations on the sale of voting securities of FedNat held by the Company and restricts the Company from taking certain actions as a holder of voting securities of FedNat. The term of the Standstill Agreement is five years.

 I think shareholders are concerned that PIH will be holding FNHC for so long if it does poorly.

3. PIH currently does not really have a business. They have two or three employees and then their board of directors. They are starting a reinsurance business, and want to start an asset management business where they will sponsor investment managers starting funds. And they want to invest in real estate. They are moving in this direction and have taken some action but there is no evidence that any of this will work out. They have to hire employees and do a lot of work to start these, as well as invest capital. So while the book value is $46 million now, it could go down substantially as they build these businesses over the next few years. 

4. The insiders and the company are all strangely intertwined. It actually gets really complicated when you look into all of the connections and related party transactions. 

Fundamental Global Investors owns 45+% of PIH. (I actually think it is 50% because they bought more shares after the most recent proxy statement.)

This firm is run by Kyle Cerminara and Lewis Johnson. They are both Co-Chairman of the board of PIH. They also run a bunch of other businesses, and sit on the boards of many other publicly traded companies. All of which have performed horribly as stocks. (BTN, TSXV: ICL, BKTI)

Many of the people on the board and the current CEO is associated with KFSI which used to own PIH. As you would expect, many of the connections are network related, however when you dig into it, everything looks a little too intertwined. 

Cerminara and Johnson own a bunch of PIH, but they also get paid a bunch by PIH and have it very interconnected with their own firms. They don't have a great track record with other companies. While I would expect that they would want the stock to do well, perhaps they are happy controlling it and slowly drawing money out of it. 

It should be noted that PIH also wants to change its name to Fundamental Global Financial Corporation (FGFC) at the end of the year at the shareholder meeting. A move that would further intertwine it with Fundamental Global Investors - the firm run by Cerminara and Johnson. 

It seems that the bear case is that "Yes this stock is ridiculously cheap, but management has plans to transform it and they could end up burning the capital in the process of doing that." 

PIHPP

During my research process, I couldn't help but get intrigued by the preferred shares (PIHPP). In early 2018 PIH issued their Series A 8% preferred stock. The par value is $25. 700,000 shares are issued which amounts to $17.5 million raised. They pay a quarterly dividend of $0.50 each quarter, amounting to $2 per share or 8%. This costs them $1.4 million per year. 

What is interesting is that there is no senior debt to the preferred shares. There are no weird catches with the preferred shares either. And on February 28, 2023, PIH can redeem the preferred shares if they want. That would mean that they would buy the shares back at $25 par value and would pay out any unpaid dividends. The company would only not pay dividends if they felt they didn't have the cash. However the company is currently only really cash and liquid securities. There is no debt so this seems like a pretty safe bet. This is because in the event the company goes down, PIHPP would have first dibs on assets. 

PIH did have Series B preferred shares which they ended up buying back with the money raised by their Series A issue. Because they are paying 8% a year on this, I would expect that they will redeem the shares in 2023. The cost of borrowing is so low right now, they have ample liquidity, so it seems odd that they would not. 

The risk is that management runs PIH into the ground and totally burns through all the capital as they go out on their new ventures. This is unlikely to me. Management owns a ton of equity, as well as a big percentage of the preferred stock. Johnson and Cerminara own the preferred for a bunch of their clients as well. So I feel it is unlikely to stop paying its dividend, as well as unlikely to blow up to the point that the $17.5 million in preferred would be lost. It has first preference in the event of bankruptcy. 

Conclusion

PIH is indeed very cheap. But is it a buy? Historically net-nets have done very well. But at the moment, there is not an established business. Management does not have a great track record, and seems very scattered with obligations. There is a ton of upside if management executes, but at the moment there is no proof that they will. I would say that the downside is pretty limited but the upside is very uncertain. 

However in PIHPP it seems that there is a pretty secure 8% return for the road forward. For some of you reading this that may seem too low to mess with. But the preferred shares intrigue me. The idea of putting some capital in there and not having to worry or think about it, and knowing that I will be getting a pretty safe 8% return is attractive. Plus I have never bought preferred shares before so it is a first. This stock doesn't seem to have any of the pitfalls that I have read about in other preferred shares. 

So I have taken the plunge and bought some PIHPP. I feel that PIH is probably a bargain as well and probably has way more upside than PIHPP of course. In a year you could make 8% with PIHPP but you may make 45%+ with PIHPP. For some reason I am just having trouble getting comfortable with the equity. 

Disclosure: Long PIHPP. I am an absolute Noob Whale Investor. Do your own due diligence and don't take anything I have written here at face value. Feel free to point out where I was wrong or right in the comments. I would love to hear from you. Cheers!

Calum

Read More

Merchants' National Properties Inc. (MNPP)

Today's write up is on a dark unlisted stock called Merchant's National Properties (MNPP). It is a real estate company based out of New York City. What is intriguing about this business is that it is "dark," yet has a market cap of 120 Million and is extremely communicative with shareholders. Their website provides useful information on all their properties across the United States, plus a relatively detailed annual report with a proxy statement and robust financials. Plus, the business is relatively simple to understand - real estate.

(Note - all numbers are based here on a share price of $1,300. The shares are pretty illiquid and based on just one share, the price can move a decent amount. So when you are reading this it may be a little different. Look at the volume of trades to determine the significance of the movement.)

I came across the company whilst perusing OTC Markets for stocks with high share prices. My thinking behind that, was that any unlisted stock with a high share price is bound to have some kind of business or valuable assets behind it that has not been diluted too much over time. Sure enough, MNPP fits the bill. 

MNPP was founded in 1928 as a real estate business. That same year, they acquired 17 properties for $3.5 million. Since then, they have operated as a real estate business, owning commercial properties across the United States, and collecting rent on those properties. They have grown their holdings over time. Now MNPP manages, develops, and leases 67 properties in 13 US states. 

In 2006, MNPP acquired Marx Realty, which was founded in 1915. Now, Marx handles the property management of a growing number of MNPP properties, which is adding to profitability. Marx also handles the development and leasing of the properties. 

The partnership of MNPP and Marx Realty came about when MNPP became bankrupt in 1933. Leonard Marx, who founded Marx Realty, took control of MNPP. He died in 2002 but had a significant stake in MNPP, which I believe is why they acquired his company - Marx Realty in 2002. Today, Leonard Marx's three children own 30.01% of MNPP shares. 

What is intriguing about MNPP is that it is conservatively run. Management is not overpaid, and the company uses very little leverage - unlike most real estate companies. MNPP has 250 million in assets but just 54.5 million in liabilities. And only 25.3 million of that is mortgages. The stated book value of the company is 196 million. Yet the market cap is 120 million. (All numbers quoted in here are as of December 31st, 2019, in their annual report.)

So this is a real estate company trading at 0.61 of book. You would think that there must be something horribly wrong with the company. They must be losing money, making terrible deals, using tons of leverage, paying out ridiculous stock compensation, and issuing shares. Yet none of that seems to be the case here. 

MNPP seems to act like a conservative private company. The insiders own 20% of the company. Then there are the descendants of Leonard Marx, who own 30% of the business. MNPP owns high-quality real estate in attractive markets. Their current primary focus is New York City, Atlanta, and Washington DC. 

"Marx has been and will continue to sell assets with little or no potential for rental income growth in non-core markets in which we believe the upside potential is limited in comparison to the investment required and reinvesting the proceeds from these sales into assets in higher barrier to entry markets with more attractive long-term appreciation potential. As has been our practice, as long as most of the owners of any given property agree, and an opportunity arises that is economically advantageous, in case of a sale in excess of $2 million, we will continue to seek to roll over the proceeds into tax-deferred exchanges for other assets in one of the following markets - New York City, Atlanta, and Washington, DC."

Throughout the report, it is clear that they are very selective and judicious with the capital. 

"99 Greenwich Avenue, Greenwich, CT: In July 2019, we completed the sale fo this property for $30 million. MNP owned a 16.9% interest in the property. We sought a 1031-tax deferred exchange for the property, but we did not find a property that made sense for the exchange and we distributed the proceeds from the sale to ownership in January 2020."

So it is like they are operating this company with long-term-shareholders in mind. The goal is to improve efficiency in their assets and to slowly grow their book over time. 

Earnings

As far as earnings go, the company is profitable and cash-flow positive. 2019 is a little weird because of the accounting change where unrealized gains from securities are recorded as income. MNPP has a decent sized security portfolio, given its market cap - 50 million. But including everything, they had an earnings yield of 8.6%. They are consistently growing their book value over time. 

Value Realization

MNPP is a dark, illiquid stock. Remember, between Marx's children and insiders, 50% of the float is taken up. A lot of times, people will worry about how value will be realized in such a dark, illiquid security. Will it remain cheap forever? Here are the ways that MNPP can appreciate over time.

1. The stock can re-rate to book value. Currently, MNPP is at 0.61 of book. I don't think that book is at all overstated. So if the stock re-rated to book, that would be a stock appreciation of 63.93%.

2. Dividends - MNPP consistently pays out a portion of profits as a dividend. MNPP trades at a dividend yield of about 3.84%

3. Stock Buy Backs - MNPP buys back shares. In 2019 they bought back 1,425 shares at an average price of $1,645 per share. There are now 91,638 shares outstanding. 

4. Book value will grow. At an 8 percent earnings yield, considering dividends, book value will likely grow at something like 4% a year. 

So let's assume a ten year holding period. That is what I would go into this security with — a long term play. If we say that in 10 years, book value will re-rate to 90% of book and that the business earns 8% a year, we would have a capital appreciation of 127%, or 12.7% a year. 

I think that MNPP is attractive because it is a way to own high quality commercial real estate, at really attractive prices. You have a good management team that is shareholder aligned running it for you. You get paid out a small dividend every year. I think that the downside is low, and the upside is reasonable. This is not going to be a high flyer stock. But I think that this stock will very safely return 8-13% CAGR over the next ten years plus. 

Risks

There are definitely risks involved. The is a commercial real estate company based out of New York City. We are in the midst of the COVID pandemic. There are risks that people don't want to live in New York or other populated cities. Risks that real estate prices go down dramatically. 

That being said, MNPP uses very little leverage. It may not do well in the short term. But I think that the risks are adequately priced into the stock already. At the time of writing this, the share price is $1,300. I think to ensure success holding this stock; you need to think of it as a very long term play. Like 10+ years. What is attractive is that this is probably something you can own for much longer than ten years. 

If It Is Such a Good Stock, Why is it trading so cheaply?

Probably because it is dark and illiquid. Not many people know about this. Eventually, I found one other right up (mentioned below) but there is almost no one talking about this stock online. A major shareholder passed away in 2017, which opened up a bunch of shares to be traded. I think that there was some indiscriminate selling from the estate, which brought the shares down a bit with the liquidity. 

What is really cool though, is that even though this is "dark" stock, management is not sketchy. They are super friendly to investors and give a ton of information on their site. I would be very apprehensive to own if management was unfriendly and secretive towards shareholders. This really just seems like a low-key, long-term real estate holding company. 

Is Book Value Understated?

This, I am not sure of. They hold the real estate on their books at the original cost. Yet, according to their accounting notes, they will adjust the value of the real estate on the books if there are changes to the expected future cash flows of the property. For example, they took an impairment of $1.3 million in 2019 when a property that they were trying to sell had a deal that fell through. 

I can't see the original price they paid for everything and the year that they bought each property. I'm sure with some digging that all that stuff could be found out. I don't think that book is over-stated. I am also not making any assumptions about the book being under-stated. Better to be conservative unless someone really knows for sure. 

Fun Fact

Warren Buffett used to own shares in the MNPP and ended up selling them to Walter Schloss. After I had invested in MNPP I found a really good article on Seeking Alpha, written by Thomas Niel on MNPP. In there he pointed this fact out.

If you have read the Snowball, then you might remember this being mentioned. From what I recall, the "favor" that Walter mentions here is when Buffett demanded that Walter sell him his shares in Berkshire. This was when Buffett was still in the acquiring phase of the stock. So he sold Walter a few stocks that were of really high quality and cheapness as a way of repayment. Super interesting that MNPP was one of them and that Walter had held on to it for so many years. That is kind of my thought process with this stock. Walter did super well with like a 30+ year holding period without having to touch the stock. I think it can be a lot of work to continuously sell stocks and then find new ones to replace them with. 

Disclosure

I own shares in MNPP at the time of this publication. I am an absolute Rook when it comes to investing, so don't take anything I wrote here as scripture. Ideally, this blog can serve as a starting place for your own research if it intrigues you. As always, please feel free to point out where I am wrong or right in the comments section. I am newish to investing and have so much to learn. I could be completely wrong on anything I write, so feedback is welcome. Cheers!

~ Calum

Read More