smaycs4,
Thanks for the idea. Here is some supplemental research on Star Buffet Inc.
Long Equity- Star Buffet, Inc. (OTC:STRZQ)
My conservative 3-6 month target price is $4.23. Star’s total market cap is under $7 million
and, due to its small size and illiquidity, this write-up should probably be used for personal accounts and
extremely small funds. It is not actionable if you need to put $1 million to work. However, it is due to its
small size that the opportunity exists and is so compelling.
Star Buffet Capital Structure
As of Petition Date:
Secured Debt
Party Type Collateral Amount
Wells Fargo Term 5 Restaurants $ 3,100,000
Wells Fargo Revolver 5 Restaurants $ 2,475,000
Wells Fargo Mortgage Artesia, NM $ 199,000
Stockman's Bank Mortgage Great Falls, MT $ 571,825
Stockman's Bank Mortgage Great Falls, MT $ 308,195
Local FL Bank Mortgage Titusville, FL $ 706,000
Platinum Bank Mortgage Plant City, FL $ 640,000
Victorium Corp Mortgage Ocala, FL $ 200,000
Dalhart Federal Mortgage Dalhart, TX $ 425,000
Bank of Utah Mortgage Layton, UT $ 1,062,000
Total Secured Debt $ 9,687,020
Subordinated Debt
Party Type Amount
Robert Wheaton Note $ 2,227,892
Total Subordinated Debt $ 2,227,892
Total Debt $11,914,912
It is important to note that the continuing restaurant operations include 9-10 owned properties. Even
assuming that my value for the restaurant operations is incorrect, according to property tax records and
my estimates, these 9-10 buildings are worth a minimum of $5-7 million. This at least provides a decent
margin of safety once Star exits Chapter 11 and a potential source of future value extraction for
shareholders. It is also worth pointing out that Star has some current cash on hand, generated from its
restaurant operations while in Chapter 11. Star’s attorney would not tell me the exact amount, but did
say it was “significant”. When I asked him to give me a range, he gave me between $1 million and $5
million. I use $1 million in my calculation of value. A table of my pro-forma estimate of “sources of
value” is shown below.
Sources of Value Amount
Exit Loan from Wheaton $ 300,000
Cash on hand $ 1,000,000
RE Sales of 5 Wells Fargo Properties $ 5,440,000
RE Sales from 4 Other Encumbered Properties $ 4,126,750
RE Sales from 1 Unencumbered Property $ 1,912,500
Value of Continuing 25 Restaurants $ 18,000,000
Total Sources of Value $ 30,779,250
Conceptually, this valuation of approximately $30.8 million for the entirety of the enterprise is not
unreasonable. In the middle of 2008, on a similar asset base, in a severely worsening economy, the
market valued Star’s enterprise at over $33 million. The only thing that has changed about the assets is
that Star has closed underperforming, leased locations. The owned locations that Star chose to continue
operating should be profitable. Also, shareholders actually have a path toward value realization (the
monetization of the real estate) that, prior to Chapter 11 was not realistically going to occur. Therefore,
the entirety of the previous $33 million valuation was based solely on Star’s restaurant operations. |
