I’m revisiting Marcus (MCS) with an attempt to appraise the hotel side of the business. Andrew sent me some articles discussing property tax appraisal of Milwaukee hotels (including those owned by Marcus). I looked at some other property tax records. I looked at Penn State’s hotel value index. Andrew spoke with the CFO of Marcus. And I consulted a few other sources.
My best guess is that the pre-COVID fair value of Marcus’s hotel assets was around the $235 million to $400 million range. On a fully diluted basis (41 million shares) assuming that the convertible is fully converted – this is inaccurate, because it ignores the “capped call” Marcus entered into – that works out to between $6 and $10 a share from the hotel segment. Remember, Marcus has like $5 a share in debt. It has cash, tax refunds due, other assets it isn’t using etc. that might be worth around $2 a share. But, then this is a hotel and movie theater company. So, it’ll burn through some cash in the quarters ahead. Maybe it’s best to ignore the cash, tax refunds, excess land etc. and assume that Marcus will just need to use that stuff to fund cash burn through 2021. That leaves $6 to $10 in hotel value per share vs. debt of $5 a share. So, hotel value net of debt is $1 to $5 a share. Marcus stock is at $11 a share right now. So, the stock is pricing the theater chain at like $6 to $10 a share. In a normal year – like 2022, maybe (certainly not next year) – I wouldn’t be surprised if Marcus could do $1 a share in free cash flow from its theaters alone. So, that’d mean the stock is now priced at like 6-10x free cash flow from the theaters.
What’s MCS stock really worth? Probably more like twice that amount (14-20x free cash flow) if it was priced like a normal business.
How solid is this $6 to $10 a share (after the conversion adds to Marcus’s shares outstanding) in hotel segment valuation?
Not very. Hotels are pretty difficult to value in the sense that they bounce around a lot like stocks do. Cap rates are important. If yields on other assets are very low, hotels will rise in price. If debt is widely available, hotels will rise in price. And then these are cyclical assets. If you look at the year-by-year figures for hotel values on a per room basis – each year is priced a lot like the market is just extrapolating the present into the distant future. Hotels may have fallen like 30% or something in value during COVID. But, this isn’t really relevant on an asset like this. And I’m going to ignore 2020 values for hotels even though they are our most recent valuations. I’m not going to value hotels in 2020 for the same reason I wouldn’t value a stock portfolio using early 2009 prices. They clearly …Read more