As I mentioned in Monday's RM column, I started to nibble on a few names this past Friday, small positions in small names. The second is one I've been aware of for many years, but could never quite pull the trigger. It's one that has become semi-legendary in small value circles, Reading International (RDI) which has two share classes: Class A Non-Voting RDI, and Class B-Voting RDIB. Five hundred words does not do this story justice, so take this column as the tip of the iceberg.
Reading, which actually has its roots in the Reading Railroad, generates the bulk of revenue through the operation of cinemas in the U.S., Australia and New Zealand, not exactly a great business at this point in time, and the primary reason that Class A shares have fallen nearly 60% over the past two months, while Class B shares are down about 35%.
But the kicker here, and reason for my interest, is the company's real estate portfolio. At year-end 2019, this included 844,000 square feet of income producing property, with a net book value of $173.8 million. In addition, there is significant investment/development property which includes 44 Union Square in New York City, which was purchased in 2001 for $7.7 million. The company had been renovating it for years, and it is now in "lease-up" mode.
RDI has a storied history as a family-controlled business that has been embroiled in an estate and legal battles for years. The company has a dual class share structure, and Dallas Mavericks owner Mark Cuban happens to own 12.5% of the Class B Voting Shares RDIB. In fact he has added to his stake as late as April 8, according to a recently filed 13D/A. In addition, Cuban owns just over 72,000 Class A shares. The B shares, which closed at $15.45 on Tuesday, trade at a huge premium to the Class A Non-Voting Shares, which closed at $4.02.
The company has received buyout offers over the years. In 2016 Patton Vision and a consortium offered $18.50/class A share. That offer was rejected, and two years later, another group, which included Patton Vision, offered $17.22/Class A share. Now, amid economies in shutdown mode until further notice, RDI shares languish in the $4 range.
In March, with the announcement of a fourth quarter loss of $1.25 share (just one analyst follows the name), the company authorizes a $25 million increase in its Stock Repurchase Program. During 2019, the company repurchased 1.2 million shares Class A stock at an average cost of $12.52/share, not a great use of capital as it turns out with shares in the $4 range, but this is uncharted territory.
The company ended 2019 with $12 million in cash and $207 million in debt, putting the current enterprise value at about $300 million. Shares currently trade at .85x tangible book value. This is a potential sum of the parts story, that could fill volumes.
