Bloomberg reports that the company that is the biggest property owner in downtown LA, with concentrated holdngs in the Little Tokyo section of Los Angeles is trading at a deep discount to book value minus borrowings. The reason? The company may not be able to refinance debt coming due.
Now one may legitimately take book value with a handful of salt, and my dim recollection of LA is that Little Tokyo is adjacent to rather than in the business district. Another factor is that this stock probably trades by appointment: market cap of $142 million, with 45% held by the CEO. Nevertheless, this is yet another manifestation of the credit crunch.
A package of Los Angeles real estate on sale for 35 cents on the dollar is attracting investors to the depressed shares of Meruelo Maddux Properties Inc., the biggest private landowner in the city’s four-square-mile downtown.
The stock has plummeted 85 percent since an initial public offering 15 months ago as the global credit crisis threatens to disrupt refinancing of $200 million in mortgage debt coming due in the next 12 months, as well as completion of the city’s tallest downtown residential tower.
Meruelo Maddux owns or controls 80 acres including the Little Tokyo Shopping Center, home of the country’s largest Japanese supermarket, as well as warehouses and buildings used in Tom Cruise’s action film “Mission Impossible III.”
“It sure looks like a cheap way to play the downtown L.A. market,” said Mike McGarr, a portfolio manager at $2.4 billion Becker Capital Management in Portland, Oregon, which has added shares this year and owns 1.55 million. “You’re not hanging your hat on a few properties. You’ve got about 50 properties in various states of development or redevelopment.”….
Loan payments and maintenance consume $500,000 a month more than the company takes in, eroding the developer’s $13.5 million in cash.