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    Value Investing Prescience Point Capital - Long Thesis on Groupon Inc

    December 28, 2021

    Value Investing Prescience Point Capital - Long Thesis on Groupon Inc

    Prescience Point Capital - Long Thesis on Groupon Inc

    Posted: 28 Dec 2021 12:34 AM PST

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    Anybody have thoughts on JBG Smith?

    Posted: 27 Dec 2021 06:51 AM PST

    This is not a full fledged long thesis, but rather primarily a post to stimulate discussion on the potential of JBG SMITH (JBGS). Disclaimer: I don't have a position on this name yet.

    For those that don't know it, JBGS is a REIT focused on the greater Washington DC area. This is a company that was born as a spin off from VORNADO (another REIT) back in 2017. It's a small company ($3 bn mkt. cap. / $bn enterprise value), with virtually no analyst coverage – but poised perhaps on the ledge of significant NOI growth. Lets dicuss!!

    The bad:

    • Since inception the Company has historically underperformed, both in the stock market as well as in terms of its operating metrics – which are relatively flat on a unitary basis vs. a few years ago.
    • Part of the share underperformance has been that the company is predominantly focused on Office/Retail real estate and part that a lot of the CFs have been reinvested in long-tail ventures that have yet to translate into material NAV accretion.
    • Only 2 analysts cover the name, so there is not a lot of attention from the Street here.
      • BMO just started coverage a few months ago, so if anyone could share the Initiation of Coverage report, that would be helpful in the analysis.

    The good:

    • The majority of assets owned by JBGS are in the National Landing area, which is where Amazon is developing HQ2 in Washington DC.
    • JBGS is a respected player in the Wash. DC real estate game with a significant track record and a good management team. In fact, they were chosen by Amazon as their exclusive development partner for HQ2.
    • Given the AMZN relationship and the big asset base in National Landing, JBG should benefit from both a significant development pipeline in the area (they own >70% of unencumbered development rights in the area) as well as overall rent growth there. MG is very active and is working on many projects in lease-up, construction and pipeline.
    • The company is in the midst of a change of focus: they are currently predominantly office-focused, but have espoused an orientation of transitioning towards residential. They have publicly communicated plans to sell >$1.5bn of non-core assets and reinvest them both in multifamily and National Landing development.
      • Capital reciclying won't necessarily be the sole source of growth. They have very little leverage (~33% of NAV), which could definitely be higher.
      • The stock has a price that optically seems not onerous / could support a floor to the valuation: cap. The current in place NOI ($324mm annual run rate) equals a cap. rate higher than 5.4%. T
      • his appears to be OK pricing for DC when one takes into account all the non-prime office they own, but it also excludes new projects and NOI growth venues.
      • That is, it would seem we are paying a low price for the in place assets and getting a potential upside without much price risk.

    Unsure on speed of execution and how much / how soon the NOI will grow, but the projects coming online in the next 1-2 years alone represent at least 11% NOI upside. NOI upside is likely higher when taking a look at the mid-term. Between this and the potential for cap. rate compression, as the REIT shifts increasingly towards MF and prime office, as opposed to old office, we could be looking at least at a mid teens IRR case over the next 2-3 years. All this while getting paid a >3% yield to wait.

    ​

    • This reminds me somewhat of the BSR REAL ESTATE (HOM.U / BSRTF) case, where you had a small market cap. company that is unfollowed execute an "overhaul" of their portfolio assets in a relatively short time span. If you take a look at the BSRTF stock chart you will get an appreciation of how the market perceived the changes.

    ​

    The risks are that they are unable to execute the capital recycling with celerity and that the market does not give them credit (multiple-wise) for the shift in the asset base towards lower cap. rate assets.

    ​

    What are your thoughts?

    submitted by /u/djfablemaker
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