Reitmans Ord Shs V.RET

REITMANS

[modulex]

Interesting link

https://seekingalpha.com/article/4477722-reitmans-equity-is-undervalued


September 9,2022

Looking at last CBRE reports on Montreal Industrial Stats, the current combined value of Reitmans' two buildings alone is over $132m now. On top of that we can add the value of unused land around the distribution center for an extra $28m, for a total of $160m of real estate value. $160m of real estate value provides a backstop value of $3.14/ share, as long as the company stays net debt negative.

 

This is before adding any premium for the fact that the distribution center will be a 5mn walk away from the Bois-Franc Station on the REM line in Montreal. (rem.info/...) Any piece of land around the REM stations have seen their value explode since Montral traffic dynamics will be transformed by this huge mass rapid transit system. The value will probably keep going up with the REM construction advancing.

 

From my point of view, this company is providing investors with 2 value plays, the real estate sit-and-wait side of it and the ongoing rebirth of a profitable retail business. An optimized capital management strategy would probably be to break this company into two separate entities: a real estate holding company and a retail business renting the facilities from it. That would prevent the potential value destruction/subsidization from one business to the other.

 

Looking forward to see the next rounds of results.

To your first question, I dont think we need the Reitmans family to care about investors since they are the biggest shareholder group by far. Interests are aligned with investors. Difference is probably that they probably have a longer view than outsiders and probably don't pay much attention to the stock price fluctuation in the short-term. But at the end of the day, everyone needs a liquidity event. Which brings me to your second question.

 

I see at least two possible catalysts. The first, in the short/medium term, is capital allocation. If the ongoing turnover is successful, as it looks to be so far (next results will be telling us), the company being debt-free will start generating massive free cash flows vs its current share price. Hopefully, they will start paying a dividend or buying back shares, as they start doing in H2 2019 at $3/share.

 

The second possible catalyst is a take private transaction, which will most probably happen if the stock price vs fair value gap keeps widening. At current prices/volumes there is no liquidity for the Reitmans family or other investors. At some point, they will have to create a liquidity event, not because they care about external investors but for themselves.

 

In the meantime, a buy-and-hold patient investor can collect shares for less than 50% of the current NAV of the real estate, plus taking a flyer on the retail business. For whoever have an investment horizon bigger than 12 months, it can look like an appealing investment opportunity.