In New York a large penthouse apartment was recently sold for $88 million. If this doesn't seem like such a bargain it may be because U.S. investors are currently able to buy shares in the publicly traded Maui Land & Pineapple at an $81 million valuation. This company (MLP) owns 22,000 acres of prime vacation real estate on Maui, recently developed into a luxury resort.
The beauty of the U.S. stock market is that there is a wide selection of similar companies that own valuable land in areas of prime real estate development opportunities. The monetization of these opportunities has uncertain timing but most have interesting operating businesses with upside and many pay significant dividends to their investors.
Often these companies are the result of America's agricultural heritage. Maui Land & Pineapple, mentioned above, is just one of them. A former collection of pineapple farms, the company has developed a high end resort and ecological sanctuary. Also based in Hawaii is Alexander & Baldwin (ALEX) which just in June of 2012 spun off its transportation subsidiary Matson (MATX). This created a publicly held company that owns one of the largest agricultural parcels in the United States: over 88,000 acres of coffee and sugar plantations throughout the state of Hawaii with large concentrations on the islands of Maui and Kauai.
While this company has been in business for well over 130 years, a recent interview with the CEO of Matson reveals that "Alexander & Baldwin always ran Matson as an independent business, such that we, the Matson group, had its own finance, legal, information technology, accounting, insurance. They operated us much like a portfolio company, and so the separation, while momentous from a historic point of view, from an operational perspective was a fairly straightforward matter." The spin off now frees up the real estate based company to maximize shareholder returns.
Other agricultural land holdings stocks are also spin offs from transportation companies. Alico (ALCO), formerly the Atlantic Land & Improvement Company, was spun off from the Atlantic Coast Line Railroad Company in 1972. In an October 12 interview the CEO of Alico J.D. Alexander describes his business: "We own approximately 130,300 acres in southwest Florida, which is located in Collier, Glades, Hendry, Lee and Polk counties. We produce citrus and sugarcane, as well as raise beef cattle. We also lease land, have rock and sand mines, and one producing oil well."
Managing this entity requires patience and agricultural experience:
"… citrus is produced from a tree that takes years to grow, so the size and strength of the tree dictates how many oranges it can produce. Most of time, the care you give a tree in this quarter or this year may not be fully realized until the next year or even the year after that. So you must build and nurture the productive capacity of the tree in order for it to produce optimally. That is something we have done extremely well - build the productive capacity of the tree to get the most production we can."
This long term management philosophy also benefits shareholders. Alico is currently paying out 32 cents per year in dividends and has a market cap of over $270 million.
If Florida orange groves or Hawaiian pineapple plantations aren't enough for your portfolio, CKX Lands (CKX) has Louisiana lumber as well as significant oil and gas royalty income from its properties in southwest Louisiana and Griffen Land & Nurseries (GRIF) has Pennsylvania plant nurseries as well as commercial and residential developments in Connecticut and Massachusetts that were the former tobacco fields of the Culbro Corporation.
|Alexander & Baldwin||ALEX||$27.62||N/A||--||$1,150 mln.|
|Griffen Land & Nurseries||GRIF||$30.66||$.40||1.3%||$212 mln.|
|Maui Land & Pineapple||MLP||$1.93||N/A||--||$81 mln.|
|CKX Lands||CKX||$13.69||$.28||2.0%||$22 mln.|
Both CKX Lands and Griffen Land pay dividends, as does Alico. Maui Land doesn't currently pay a dividend and Alexander & Baldwin stopped paying a dividend when it spun off its dividend paying transportation company. But should these stocks be valued for their agricultural products or dividend history?
Valuation of these agricultural real estate companies is difficult since the land is almost fully depreciated on their balance sheets and pricing future output in the volatile world of orange juice, pineapple, coffee and sugar markets is more than a bit different from determining real estate development value. The timber Real Estate Investment Trusts [REITs] provide a valuable financial comparison.
These include, in order of descending current enterprise value (the market value of their stock plus outstanding debt), Weyerhauser (WY), Plum Creek Timber (PCL), Rayonier (RYN) and Potlatch Corporation (PCH) all of which are dividend payers. A recent interview with analyst Joshua Barber of Stifel Nicolaus & Company (SF) who specializes in these REITs can easily be applied to the other agricultural land stocks:
"… looking at it today from a REIT perspective and saying, "I'd like to own names that are within the REIT index that have that home-construction sensitivity," I think timber REITs are a great way to do that. Plus, if you are uncertain about the pace that the recovery starts unfolding and you want a name with some really good longer-term supply/demand fundamentals, I think you look at timber and say, "Over a three-to-five-year period, I think those names offer some very compelling returns, and I am getting paid to wait, and I don't really have the risk of any balance sheet issues in the interim."
|Plum Creek Timber||PCL||$44.40||$1.68||3.8%||$9.8 billion|
Other publicly traded comparable companies with significant U.S. real estate include the large cap timber companies such as International Paper (IP), MeadWestvaco (MWV), St. Joe (JOE) and Deltic Timber (DEL). These companies provide not only pulp for paper mills but also timber for the construction industry. Their vast tracts of forest often enable residential real estate development as well as a variety of other commercial real estate businesses from hunting leases and resort hotels to candy wrappers.
The decline of the newspaper industry has not been kind to the paper producing sector, but suppliers of construction materials for the housing industry have the same significant upside for these dividend payers as for the timber REITs. Indeed, in a housing market recovery, the prices of all of these stocks should receive strong positive feedback from the increasing value of their real estate.
|International Paper||IP||$38.15||$1.20||3.1%||$28.6 billion|
|St. Joe||JOE||$20.20||N/A||--||$1.7 billion|
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.