Gulf & Pacific Equities Corp.
An interesting stock I came across to put on my watchlist is Gulf & Pacific Equites Corp. (GUF.V). It’s not something I would invest in now but would need some sort of catalyst for this idea to work and don’t see it right yet.
Gulf owns 2 malls, a retail property and a piece of land in Western Canada. All of the assets are owned in small towns. One mall is located in St. Paul, Alberta and is 100% leased with good tenants (Tim Horton’s, Dollar Tree, Mark’s and more). The other mall is located in Cold Lake, Alberta and is not 100% leased but has good tenants as well (Pizza Hut, Sobeys, Taco Bell, etc.). The retail property is located in Three Hills, Alberta and is leased 100% to Dollarama long-term. And then there is a vacant land owned in Merritt, BC which management doesn’t give any value to.
The company began operations in 1999 and this is the income statement the past 2 years:
It looks extremely profitable but the profits the past two years are really as a result of the FV adjustments in the way they mark up or down their properties and run it through the income statement. It is essentially breakeven on an operating basis. But what got me more interested was the balance sheet:
The stock trades at $0.42 with fully diluted shares outstanding of 22,660,685 for a market cap of $9.5m. Right from the balance sheet you can see it is trading for 43% of book value. If you include the FV adjustments as real income (which I don’t) it would be trading at 8x last years earnings. In the notes, management states it recently had appraisals done for the 3 properties as well as completed their own appraisals and the two large malls were worth $48.35m and the smaller location was $2.01m.
The CEO owns 52% of the shares through his investment company Ceyx Properties Ltd. and insiders own a combined 55%. Two other shareholders own another another 28% so the shares are in just a few hands which leaves the remaining 17% shares to the public.
There is a pretty compelling case to be made that this should just be privatized to a larger retail/mall operator:
Reduce public company and management costs. Management and the board are paid just over $400K a year which would drop straight to the acquiror’s bottom line as well as public company/audit costs not included in that $400K number.
Access to lower costs of capital from merging with a larger entity.
Become part of a larger mall portfolio which would reduce business risk as there would be many malls in the portfolio.
The CEO is currently running this company as well as another publicly traded junior gold miner, Plato Gold Corporation and he is also the CEO of Ceyx Properties Ltd.
Gulf & Pacific won’t ever get the appropriate earning/FFO/book value multiple because it is too small and illiquid.
In order for me to get real interested, I would need to see discount to book as well as cheap on an earnings/FFO/cash flow multiple. If the Cold Lake mall can get near or to 100% leased it might get there. Or management decides to liquidate and pay proceeds out to shareholders. Until then I am just going to add it to my watch list.
Disclosure: Stock watchlist