Small caps broadly trade at a significant discount
Top right graph, real estate stocks are one of the least crowded sectors
NYC REIT: IR Page
This company owns a significant amount of NYC real estate. According to their balance sheet, they have paid $853 million for their real estate assets. Their market cap is currently ~$96 million. They have $390 in debt. This equates to a potential upside of 5X based on book value alone.
What are some possible explanations for this discount, aside from a broad underweight of small caps and real estate?
Recent drama involving a re-election of a board member. This drama ended with the company and CEO getting their way and getting their board member re-elected. Yet the stock price remains discounted. The core of this drama was because an investor holding 2% of the company suspected the CEO/board having conflicts of interest with their connections to other real estate companies.
Default risk: due to lack of cash on hand, the stock price having gone down so much, and a tightening fiscal environment, it has a heightened default risk, Bloomberg calculates it to be 20% cumulative probability over the next 5 years. This risk is overstated because, again, their properties are worth significantly more than their debt.
This company has a 'poison pill', restricting anyone from owning more than 5% of the company. This could be scaring off bigger institutional investors.
What are some other reasons to be bullish on the stock?
NYC rents are skyrocketing over the past few months. I live in NYC and some rents are even doubling from pandemic lows.
Insiders are buying
Short interest is very low and decreasing, as no one is dumb enough to bet against a company valued far below its book value.
Has a FWD PE of ~5.
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