At the time of QAD's IPO, the company owned 28 acres and 54,000 square feet of office space which it was carrying on the balance sheet at $8.9 million. During fiscal 2005, the company took on $18.0 million of financing and constructed its new headquarters on the property. Thus, QAD's total real estate investment was $26.9 million.
Based on our (and other) valuation estimate(s) of $50M+, QAD's property is currently understated on its balance sheet by about $25 million.
To double-check this calculation, we utilized a second methodology:
Since the time of its IPO, land price indexes in the area have risen between 135% and 170%. Based on the carrying cost at the time, the company is likely sitting on at least $12-15 million of unrealized gains on the original property. Of course, this assumes a 1997 purchase date and is solely based on the original financing and carrying values. Regardless, we'll stick with the lower figure ($12M) for the sake of conservatism.
By comparing the geographical breakdown of QAD's property & equipment balance to its geographical revenue breakdown, we estimate that its Santa Barbara headquarters (land + building) is now being carried on the books at just over $20 million. That's $6.9 million lower than the original $26.9 million. In addition, the $18 million loan it took to construct the new headquarters now has a balance of $16 million (all data as of the end of its 2012 fiscal year).
Via simple arithmetic, we calculate a second estimate of unrealized profit:
$12M + ($26.9M - $20M) + ($18M - $16M) = $20.9M
This brings us pretty close to the original $25 million estimate. Keep in mind, if we go with the higher end of the $12-15 million range above, our second estimate becomes $23.9 million.
Considering QAD's cash and deferred revenue balance, this $21-25 million is an significant addition to the company's true net-asset value. Juxtaposed against its free cash flow and maintenance revenue stream, it becomes easy to see the value represented in its current share price.