Author Topic: LAACZ - LA Athletic Co  (Read 16742 times)

BG2008

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Re: LAACZ - LA Athletic Co
« Reply #10 on: March 09, 2018, 09:11:13 AM »
To play devil's advocate here: I don't understand why almost everyone glosses over the GP-LP structure here. Generally speaking I detest investing in GP "yieldco" structures as they usually result in management teams with incentives that conflict with outside shareholders' best interests.

http://www.nytimes.com/2005/06/19/business/yourmoney/these-stocks-are-short-on-glamour-long-on-returns.html


BG2008

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Re: LAACZ - LA Athletic Co
« Reply #11 on: March 09, 2018, 09:14:59 AM »
To play devil's advocate here: I don't understand why almost everyone glosses over the GP-LP structure here. Generally speaking I detest investing in GP "yieldco" structures as they usually result in management teams with incentives that conflict with outside shareholders' best interests.

http://www.nytimes.com/2005/06/19/business/yourmoney/these-stocks-are-short-on-glamour-long-on-returns.html

I also think that the LP structure was a remnant of a time ago where more real estate companies were LP structures.  The GP have very little take here in this situation unlike a Kinder which at the high splits takes 50% of the incremental cashflow above a certain threshold.  Yes, you will get a K-1 form for investing in LAACZ.  People should be mindful of that. 

Foreign Tuffett

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Re: LAACZ - LA Athletic Co
« Reply #12 on: March 09, 2018, 01:03:50 PM »
Hi, just going to chime in here. Our company has 155 shares in LAACO. I believe we are treated very fairly by GP. Fees are something like a half percent. Hathaway family has a history of treating shareholders quite fairly.

I wouldn't get so hung up on the GP/LP structure regarding having minority shareholders being screwed at shareholders expense.

Only 155 shares? If you bump your position up to 200 shares then I'll buy some too. Otherwise I'm on the sidelines.*


* In case it's not obvious, this is a tongue-in-cheek comment


Spekulatius

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Re: LAACZ - LA Athletic Co
« Reply #13 on: March 11, 2018, 06:11:30 PM »
I bought my position in 2012 for about $1000/share after doing a fair amount of research. I have little concern that the Hathaway will treat minority’s owners unfairly. THey have proven to be fair to shareholder, predating the LP incorporation for decades now. I think these guys are pretty good sellers and buyers of real estate shown over a long period of time and at least decent operators.

I did notice thwt this year the expenses have outrun revenues and recent results were somewhat subpar.
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BG2008

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Re: LAACZ - LA Athletic Co
« Reply #14 on: March 12, 2018, 07:14:54 AM »
A few of us have mentioned that management team is honest and shareholder friendly despite the LP/GP structure.  I highly encourage people to read the Ben Stein New York Times articled titled These Stocks Are Short on Glamour and Long on Returns.  For someone like Ben Stein to claim that Laaco is their second best investment next to Berkshire Hathaway has to mean something.  That's a pretty bold statement.  It's not enough to buy a stock based on what he said, but it's enough to dig deeper.   

Many years ago (2-3 decades, but with the same family in control), the company paid a special dividend that was 1.5-2x of its share price.  I don't know too many companies that does that.  I think they did that because the family owns 70% of the shares outstanding, so they are the shareholders who benefits the most.  Per my conversation with management, many of the current 70% family shareholder depends on the distribution for their living expenses and taxes etc.  Hence, the distribution and the allocation of additional growth cap ex is a lot more long term and sustainable rather than the typical "weighted cost of capital is x and buy assets at x + 100 bp cap rate" strategy.  Then you add in the fact that you're buying these self storage assets at 9% cap rate and 1/2 of $/sqft of private comps, it becomes really interesting.   

http://www.nytimes.com/2005/06/19/business/yourmoney/these-stocks-are-short-on-glamour-long-on-returns.html

My 2 cents

johnny

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Re: LAACZ - LA Athletic Co
« Reply #15 on: March 19, 2018, 05:05:50 PM »
I'm concerned about any valuation of this company that tries to estimate the market value of the club property: as far as I can tell you should consider that property not-for-sale-under-any-circumstances. I'd bet the surviving Hathaways would much rather retain the family legacy/identity associated with being the custodians of this Grand Institution than discard it all just so that they can go all-in on being vulgar storage facilitators and bump their partnership's ROE up another percent or so.

That said, has anybody here actually been to the club? I'm sort of flabbergasted how cheap it is. Monthly dues were $84 in 1985 and are barely twice that now. There's a conspicuous lack of pictures of the actual exercise facilities on their website, so maybe I'm not correctly weighing the "athletic" part against the "club" part in my head. I realize this business isn't -really- about the club or its operations (by my own argument), but I'm just curious what the deal is with it, exactly.

BG2008

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Re: LAACZ - LA Athletic Co
« Reply #16 on: March 19, 2018, 05:38:53 PM »
I'm concerned about any valuation of this company that tries to estimate the market value of the club property: as far as I can tell you should consider that property not-for-sale-under-any-circumstances. I'd bet the surviving Hathaways would much rather retain the family legacy/identity associated with being the custodians of this Grand Institution than discard it all just so that they can go all-in on being vulgar storage facilitators and bump their partnership's ROE up another percent or so.

That said, has anybody here actually been to the club? I'm sort of flabbergasted how cheap it is. Monthly dues were $84 in 1985 and are barely twice that now. There's a conspicuous lack of pictures of the actual exercise facilities on their website, so maybe I'm not correctly weighing the "athletic" part against the "club" part in my head. I realize this business isn't -really- about the club or its operations (by my own argument), but I'm just curious what the deal is with it, exactly.

Johnny,

Fair statement.  The club is not for sale.  They've given me a tour.  Some others have seen it.  The club is nice in a Gordon Gekko kind of way.  It's got nice restaurants and amazing facilities.  They recent put a good chunk of cap ex into the club redoing the locker rooms etc.  Two ways that the market pays proper value for the club assets.

1) They eventually develop the surface parking lot on the same block as the club into a luxury high rise condo building. 
2) Enough millennial move to DTLA that they actually start using the club amenities.  It's very under utilized right now.  Frankly, if I were trying to start a tech business in DTLA, I would probably just get a membership there.  You can do work, eat, and get awesome workouts in.  Which is perfect for a tech incubator, small money manager, etc.   So, the upside comes from EBITDA going from less than $2mm from the club to some number that is $5-10mm.  You can pretend that there is no value attached to the brick and mortar of that 184k sqft or you can use the $/sqft of what people pay for a rat infested building within a one block radius and get to a $65mm figure just for the club building alone.  Just because a tree stands in a forest and there's no one to see it doesn't mean it isn't there.   

Regarding your comments about the vulgar storage facilitators, I think these guys understand very well that the vulgar storage facilities is what's paying for their living expenses and taxes.   

Kind of not surprised about prices being about 2x today vs 1985.  If you follow the trajectory of downtown LA, it's only in the last 5-10 years that there's been some revival of downtown.   



oddballstocks

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Re: LAACZ - LA Athletic Co
« Reply #17 on: March 19, 2018, 05:50:25 PM »
There is a *club* here in Pittsburgh that I sort of view along the same lines.  It's the Duquesne club, and there's a tiny hotel, a gym, a restaurant, bar etc.  But the value is in belonging.  If you're selected you're "in".  And it's hard to get that invite.

The Duquesne club is beautiful, a very old money feel.  Dark wood rooms, fountains, marble etc.  If you look them up online there are barely any pictures as well.  I don't think that's a coincidence.  Places like this are the type where they aren't necessarily interested in attracting the public.

Case in point.  A few years ago I was in a business transaction with some people in Chicago.  Turns out one of these guys was in a tight knit gym there as well.  He regularly played basketball with Obama before he was President, and I suspect they're back at it again.  From my understanding it was the type of gym where you shoot hoops, then sit in the sauna and ink deals.  You don't walk up in January and apply for a membership..

From the looks of the website LA Athletic Club is a similar club. 
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johnny

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Re: LAACZ - LA Athletic Co
« Reply #18 on: March 20, 2018, 04:53:26 PM »
Fair statement.  The club is not for sale.  They've given me a tour.  Some others have seen it.  The club is nice in a Gordon Gekko kind of way.  It's got nice restaurants and amazing facilities.  They recent put a good chunk of cap ex into the club redoing the locker rooms etc.  Two ways that the market pays proper value for the club assets.

So would you say the fitness component is on par with, say, Equinox? At this point I'm asking because now I'm interested in becoming a member. Club membership might be the most unambiguously undervalued component to my unsophisticated brain. Did you get a tour as a prospective member, or as an investor?


So, the upside comes from EBITDA going from less than $2mm from the club to some number that is $5-10mm.  You can pretend that there is no value attached to the brick and mortar of that 184k sqft or you can use the $/sqft of what people pay for a rat infested building within a one block radius and get to a $65mm figure just for the club building alone.

I think that's a very reasonable case: looking at what the EBITDA of the club could be and valuing from there. But frankly I just can't shake the feeling that even if the club enjoys some sort of renaissance, the entire offering is basically an anachronism that will never really pencil out to a plausible "best use" of the property, so any market investment case; I am almost tempted to say that the economic loss of that property being indefinitely underutilized is outweighed by the positive expectations it should give you about the conservatism of management in other areas. But still, that property doesn't look like it's going anywhere, and that makes the value of the building to somebody with designs on turning it into a 200-unit loft conversion is just an intellectual conversation.[/quote]

Regarding your comments about the vulgar storage facilitators, I think these guys understand very well that the vulgar storage facilities is what's paying for their living expenses and taxes.

No doubt. I used strong language not to take a stab at the family (or business), but only to try and evoke what seems to me to sometimes be a very under-appreciated reality in our spectrumy/spreadsheety circles. Owning 300 self storage facilities and a 120 year old social club in downtown LA will get you a lot more Tinder interest than owning 350 self storage facilities, and the marginal utility of money diminishes much faster than the marginal utility of SuperLikes in my unjustly limited experience with either.

Quote
Kind of not surprised about prices being about 2x today vs 1985.  If you follow the trajectory of downtown LA, it's only in the last 5-10 years that there's been some revival of downtown.

Even so, it's basically on par, or maybe even slightly cheaper than a single-club membership to the Equinox just 3ish blocks away. Definitely can see those dues outpacing inflation substantially, assuming the club is anything like I'm imagining.

BG2008

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Re: LAACZ - LA Athletic Co
« Reply #19 on: March 20, 2018, 06:15:46 PM »
I got a tour as an investor.  I don't think the club is that exclusive and you can probably just walk in and ask for tour to become a member.  Their equipment is older.  But they feature a pool, a running track, sauna, steam rooms, basketball courts etc.  My assessment is also clouded by NYC lens.  I will gladly pay $300-500/month for amenities like that in Manhattan.  The WeWork rent in NYC is $2,000 for 100 sqft of fishbowl office.  They also have hotel rooms that you can book.  They mentioned that Equinox took a lot of their business.  I think Equinox is posh and cool.  This is an old school athletic club that I would personally love to be a member of.  New York has a NYAC which cost over $10k to join and the monthly is quite expensive. It's all about the cost of the land.  DTLA is ironically somewhere between rat infested buildings and the hip and cool Nomad hotel across the street.  If you pay attention to any sorts of gentrification in the last 20 years, there is always a weird period when a neighborhood has warehouses and WholeFoods on the same block.  But directionally, it seems like the forces of gentrification is inevitable sometimes.

Johnny, I'll be willing to subsidize 50% of your first three months of membership if you want to try it out.  I would love to get some real on the ground feedback on the competitiveness of the club vs other options in the neighborhood.   

If the club generates $10mm of EBITDA, it trades at some absurd 10-11x FFO.  Anachronism or not, it's becomes smack you in the face cheap.  I would also expect dividend yield to approach 5% with a 50% payout ratio in that scenario.   I think the surface parking will be built to highest and best use.  In a previous annual meeting, they have mentioned that it will likely be a luxury building when the time is right (DTLA gentrified).  So, club operation is a EBITDA play.  Do more members join?  Do they increase their EBITDA.  Surface parking lot is a DTLA luxury condo development play. 

The management team is older.  I doubt they are on Tinder.  But nice imagery.  I got a laugh out of it.  But true and more applicable for 30-40 year old.  I get your point.  I think they're holding onto their club business because of the legacy.