Equity investors typically play real estate through real estate investment trusts (REITs), which have done very well for quite a while – until recent Taper talk brought the prospect of rising interest rates into focus.
REITs may still do OK if rising revenues, income and distributions offset that. But for those interested in real estate and who’d rather downplay the interest-rate/income debate, Forbes Low Priced Stock Report's Master List selection Reading International (RDI) offers an interesting alternative.
This small company’s core operation is cinemas and is spread between the U.S. and Australia and a bit in New Zealand. This business consistently generates strong cash flows that heretofore had been invested in growing that business through regular cinemas or specialized (i.e. arty) or upscale cinemas (involving, nowadays, premium amenities such as luxury seating, fancy bars and cafes).
RDI recognizes that the modern cinema business isn’t necessarily about the movie (personal streaming can handle that quite well); it’s about the experience of going out, which is not vanishing. But it’s not necessarily a growth business either.
So rather than forcing more capital into this business than it can profitably absorb, management is now willing to redeploy cinema cash flow into non-cinema real estate development and, where the opportunity presents itself, even redevelop properties that currently house cinema projects to non-entertainment uses (as might occur for some of its New York City properties in areas that have recently become more upscale). Valuation metrics are reasonable in themselves and relative to other publicly-traded cinema firms.
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Excerpted from January issue of Forbes Low Priced Stock Report.
