MMPIQ Asset Valuation

I’ve compiled the latest data from the L.A. County Assessor’s Office. The following is that information. It is important to note that this information is not “assessed values” but rather “market values” as of the record date. I will be compiling a viewable data sheet this week which I will include within this posting that will list ALL their properties. Currently, time restraints don’t permit me to publish all my findings, therefore, I am only listing a few for the short time being.

Property #1: 3rd & Omar Street

Record Date: 08/10/2005

Market Value: $5,083,182 / $272.63 per sqft.

Description: 18,645 sqft., 0.50 acres. Industrial/Distribution space. This section of town is often referred to as “Little Tokyo, Los Angeles – the beginnings of Skid Row”.

The tan building on the far right is owned by Meruelo Maddux Properties, Inc.

Surrounding Properties Comparison:

1020 Wilde St., Los Angeles, CA.

Location: Within 1 mile radius.

Market Value at time of sale: $2,814,321

Record Date: 06/28/2005

23,100 sqft. Sold on: 10/14/2009 for $2,500,025 / $108.23 per sqft.; 11.17% discount to its market value.

1020 Wilde St. Los Angeles, CA

500 Mateo Street. Owned by Meruelo Maddux Properties, Inc. until recently. This building is also within a 1 mile radius.

Market Value at time of sale:$2,387,718

Record Date: 01/11/2006

12,948 sqft. – 0.75 acres. Sold on 04/30/2009 for $1,900,019 / $146.74 per sqft.  MMPIQ owned 99.6% of the property. Sold at a 20.43% discount to its market value.

500 Mateo Street

I’ve presented a strong argument for why I believe the assets of MMPIQ aren’t the type of quality that some people think they are. I’ve only presented one scenario here but have found this correlation throughout a large majority of their properties. Currently, many value investor’s are diving knee deep into this one. I’ve taken a pass. I don’t believe a margin of safety exists. Conversely, I believe the business is insolvent. Currently, the Southern California Commercial Real Estate market is down approximately 27% from its 2005 market valuations. Knowing this, it’s interesting to see the 2009 sales aren’t far off from that. As I compile my complete list and make that public, you’ll see that one particular property of theirs sold in 2009 at approximately 30% discount to its 2005 market valuation.

Skipping ahead, my findings are:

Total combined properties market Value: $574,490,410.

Approximately $91 Million of the market value is 100% owned by MMPIQ and the rest is 99.6% owned by the company.

($574,490,410 – $91,000,000) = ($483,390,410 x 99.6%) = ($481,556,448.40 + $91,000,000) = $572,556,448.40

Southern California Commercial Real Estate Decline since 2005 (my findings): 27% – apply as discount.

$572,556,448.40 – 27% = $417,966,207.30

Cash: $9.15 M

Receivables: $1.41 M x 0.85 discount = $1.20 M

Total Liabilities: $415.94 M

Shares Out: 88.05 M

($417,966,207.30 + $9,150,000 + $1,200,000 – $415,940,000)  / 88,050,000

= $0.14 per share.

[Note: The above valuation is incorrect. Rather than post the correct data, I've decided to leave my mistake posted and will be submitting a new valuation in the coming days as I find the available time to do so.]

Therefore, I’m not on board with many concerning the $0.20 “floor”. It hasn’t been approved and I’d be highly surprised if it did get approved.

Stock is currently trading for $0.18 per share. No margin of safety exists. Furthermore, during a bankruptcy proceeding, attorney’s costs millions. Ironing out the details in court could easily eat up any of the excess $12.33 M cash. If nothing else remember this – attorney’s don’t work for free.

Lastly, but maybe most importantly, Seth Klarman reminds us that we should value a bankruptcy no different than as we would any other business. Recognition of the events is the only difference between any other investment. I subscribe to this same logic therefore I propose this important warning sign. A conversation that took place between the company and its investors. Read carefully.

August 2008 earnings call:

Jack Ripstein – Potrero Capital Research Hi. Good morning. Thanks for taking my call. Question on the debt side, are there any properties or any changes in the debt associated with the new financing that are recoursed back to the company? Or is it all still projects and – either projects or land specific?

Andrew Murray All our debt is non-recourse.

Jack Ripstein – Potrero Capital Research Okay. So each piece that we can go through, the supplemental is attached to the actual project proposal next to it and nothing else?

Andrew Murray As you know, our construction loan is recourse, but that’s normal with a construction loan. But all the loans that we refinanced are secured by first trustees. We have one of our acquisition loans that we’re going to be doing with Overland terminal is a recourse loan, but that’s primarily because it’s a bridge loan.

Jack Ripstein – Potrero Capital Research Okay. You would replace that when possible?

Andrew Murray Yes.

Jack Ripstein – Potrero Capital Research Okay. Great.

Andrew Murray Generally speaking, we’re still in a non-recourse marketplace.

Jack Ripstein – Potrero Capital Research And that hasn’t started to change with some of the changing landscape out there?

Andrew Murray No.

Jack Ripstein – Potrero Capital Research Okay. Great. Appreciate it. Thank you.

Six months later, March 2009 earnings call:

Analyst for Jordan Sadler – Keybanc Capital Markets I just want to try to better understand your process and strategy and so what exactly would be the benefit in declaring Chapter 11? I see several properties that are 100% occupied or about six or seven that are over 90% occupied and so I guess first, what loans exactly are recourse to the company? And then second, why wouldn’t you essentially hand the keys back to the lender on the vacant buildings or under performing assets, reduce your expense load and just continue operating the remaining assets?

Richard Meruelo The great majority of our loans are either directly or indirectly recourse to the operating partnership or the company and so handing back keys is not enough of a solution.

Analyst for Jordan Sadler – Keybanc Capital Markets So most of the loans are recourse in some form or another? Were they non-recourse and now because of non-payment or a trigger of some sort of default they are recourse?

Richard Meruelo No but, many of them from the beginning had some form of recourse and as they’ve been modified over the last year it’s continued to increase the level of recourse. We’ve been modifying these loans now for over a year in short term extensions and recourse issue has become most prevalent in all of our loans except in just a few.

Analyst for Jordan Sadler – Keybanc Capital Markets On the non-recourse loans, when you say a few, can you just give a better sense of maybe what the NOI on those are which ones?

Richard Meruelo We have amount of non-recourse debt is how much Andrew?

Andrew Murray $74 million.

Richard Meruelo $74 million of our debt is non-recourse.

Andrew Murray We haven’t calculated the NOI on those properties but our overall strategy though is to continue to work with four of our lenders again, as we mentioned in our press release and in our comments to come up with an agreement with these four lenders that should deal with our cash flow matter, the cash flow issues we have in the company. We’re in advanced discussions with these four lenders. We’ve been having conversations with them daily now for several weeks and we continue to work towards a solution with them. That’s our primary focus right now.

Analyst for Jordan Sadler – Keybanc Capital Markets So the properties that are 100% occupied or in the 90% range, those are likely recourse or have some form of recourse to the company?

Andrew Murray If we have a performing property and it has recourse we want the relationship with that particular lender on that property to be in good standing.

Until next time.

[Disclosure: this is neither a buy or sell recommendation. As of July 19th, I own a shareholder interest in MMPIQ.]

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