stabilized earnings

Beware the Ides of buying the chairman's brother's real estate business and the elevated thinking that comes with it.

The twenty analysts that followed the stock offered the critical equivalent of the wave. The fancy math of what to pay for imagined future earnings coined a new phrase, stabilized earnings, that raised curiosity in what the multiple might be for unstabilized earnings, thinking a lot because the variance would be greater, or no earnings.

In 2018 the buyer admitted using $400 million of shareholders money to pay 12 times stabilized 2021 earnings for management contracts from the executive chairman's brother without mentioning the relationship to, say, Melvin Capital Management, 9% shareholder, or any that may find the time to browse SEC 8k filings that were not made over coffee. The $400 million was ten percent of revenue for the year and about what was paid for two hotels in Arizona and California at the same time. Another $1 billion went to buyback shares

The acquisition was for contracts to manage rooms, promised contracts to manage rooms that did not materialize, and no real estate. The cost of the integration was $20 million with management plebes skilled at running escapes for conspicuous consumers elevated over company lifers. The $20 million was a bargain because management believed that earnings would be $25 million in the first year and future earnings would follow.

The going rate for hospitality management agreements is four times earnings.  Paying twelve times earnings expected in three hence was over the top.  Call it the family premium. The accounting for goodwill, paying too much and getting too little, started with the first quarterly reports. Management thought better of its enthusiasm and in 2019 whispered that the acquisition had not been well thought, that the market value was $80 million and that the $300 million difference would cliff dive into the ocean of impairment.

With the actual cash that flowed out the selling brother along with a Chinese partner capitalized a hospitality financing company one year later vowing that nine years managing hotels was enough. The Chinese partner (2015) of the selling brother redeployed money made selling auto parts to GM and Ford into golf courses, ranches, and North Korean minerals, the latter much to the consternation of the Department of Justice. 

The CEO of the buying brothers outfit is an affable alumnus of First Boston who shepherded the founding families' interests for seventeen years and appears to be planning a sojourn financed by the $10 million in stock that he sold in 2021 along with 34 fellow travelers filing s4 forms with aplomb.