April 2025 Update
Seaport, TerraVest, Watches of Switzerland, ContextLogic
Don’t forget to read our recent Special Report on XPEL based on 54 interviews. XPEL is a great company going through a blip.
We will be publishing a (paid) update on Watches of Switzerland in April based on our attendance at the industry’s biggest trade show, in Switzerland.
Hidden Gems Investing has reached over 3,100 free subscribers and 170 paid subscribers in the four months since the newsletter was launched. Thank you for subscribing, and upgrade to paid to receive our best content. An annual membership is just $347 and subscribers are protected against future price rises. Go here to learn about what you can expect as a paid subscriber.
I will be hosting a casual meetup in Omaha at 5pm local time on May 2, the Friday before the Berkshire Hathaway annual meeting. I’ll be at the bar at Brickway Brewery & Distillery on Jackson St and feel free to attend whether you are a subscriber or not. See you then!
Seaport Entertainment (SEG)
Special Report, Follow-up analysis
Seaport published Q4 results on March 10 and annouced a 75,000 sqft 20 year lease with immersive art installation Meow Wolf, beginning in 2027.
I thought the results themselves were unsurprising with cash burn still high as the numerous changes management are making should not have a material impact until summer 2025 at the earliest. The Meow Wolf deal on the other hand is transformational in my view and the single most important factor in turning the neighborhood around. Investors however focused on the cash burn, with the stock selling down post earnings.
Results in Q4 were:
Revenues = $22.8mm (-0.3% y/y).
EBIT = $-25.2mm or $-27.2mm ex a one-off.
Equity losses = $-18.2mm or $-8.2mm ex a write down. Losses at the Tin Building reduced from $12.0mm to $8.7mm. The Lawn Club and Jean-George Restaurants were both profitable.
G&A was $9.8mm and included separation costs and one-offs. The CFO guided to this reducing throughout 2025 and it seems like there is a good chance this drops to a runrate of $7.5mm/quarter, which is what I was hoping for in the Special Report.
There were some ups and downs across the three reported segments (landlord, hospitality, entertainment), but nothing material in my view.
Management discussed some of the buildings but again there was nothing much new beyond the Meow Wolf annoucement. They are looking to sell or partner with a developer on 250 Water St, while the Tin Building is consolidating concepts, kitchens, and procurement and loss making concepts are being shut while successful ones are expanding.
Seaport is in the final stages of reaching an agreement to take over the Bryant Park Cafe, one of New York’s most successful restaurants.
Investors reacted negatively to the losses, which was undoubtedly high with EBIT + equity losses ex one-offs of $-35.4mm. But this level of loss is consistent with what was disclosed during the spin-off, Seaport is a seasonal business with Q4 and Q1 being the seasonally weak quarters, the company incurred costs related to the spin and rights offering, and maintenance capex should be lower than D&A.
Management have made major changes at the Pier and Tin Building which you can read more about in my follow-up analysis, but these took place after Q4. Some of these changes like cutting costs at the Tin or remodeling for new tenants at the Pier will result in further upfront costs in Q1. Q1 is also the seasonally weakest quarter and so we should expect losses to stay high until the summer begins and changes start to take effect.
On the other hand, I thought the Meow Wolf news was transformational. In the Special Report, I wrote that:
the conversion of space on Pier 17's second, third and fourth floors will be one of the most important drivers of improvement in the Seaport district's economics. The district's core issue is that it needs more attractions and at a variety of price points and spending opportunities in order to make it a destination for New Yorkers to go for half a day and spend at multiple points.
…a successful redevelopment of Pier 17 could attract an additional 1mm visitors to the Seaport area each year, which would have a substantial knock-on benefit to the other properties in the area.
…an additional 1mm visitors to the Pier would double meaningful foot traffic.
One of the examples I cited was the Immersive Van Gogh experience which temporarily came to Pier 36 in 2021. Pier 36 is just one mile from Pier 17 and the experience took 75,000 sqft and attracted 1mm+ visitors by my estimates.
I was therefore pleased to hear Seaport annouce an immersive experience at Pier 17, which will lease 75,000 sqft of space and according to management attract an estimated 1mm+ visitors.
Meow Wolf is a highly successful immersive art installation that has five locations in the US but none on the East Coast. The image and video below gives you an idea of the concept:
Whether or not you would personally go there, it looks like Meow Wolf will bring 1mm+ visitors the area as Seaport have estimated.
Meow Wolf’s most comparable locations are in Las Vegas (which Seaport’s CEO knew well) and Denver, which both bring in 1mm+ visitors per year. Those cities have a combined local and tourist populations of 42mm and 31mm respectively. New York has 71mm.
While the Sante Fe, Grapevine and Houston locations have attracted about 500,000 visitors each, those spaces are about half the size so on a per sqft basis would also imply around 1mm visitors for New York.
This looks like a huge win for Seaport and the good news is Meow Wolf will only take up around half the office space at Pier 17. That means the company could put in even more concepts that bring visitors to the area, although some of that space will take longer to turn around as Nike has an existing lease.
Management annouced some other good news at results which investors do not appear to be valuing.
The nonprofit Bryant Park Corporation, which manages Bryan Park in New York, has awarded Seaport with an 18 year lease to take over Bryant Park Grill pending sign off from the local Community Board.
Bryant Park Grill might be New York's highest grossing restaurant, generating $28mm in revenues last year. Bryant Park Corporation believes the new restaurant could generate $40mm.
The new restaurant would license from Jean-Georges and be operated by Seaport. Seaports plan to spend $12mm on a renovation, reopen the porch in October 2025 and the full restaurant in May 2026.
While getting a $40mm revenue and profitable restaurant would be nice, I think there may be a bigger play here. Bryant Park is an iconic part of New York, between Grand Central and Times Square, and the Grill has been a centrepiece since the 1990s. If Seaport can get more involved beyond the restaurant (e.g. the iconic winter festival, ice rink) that could be significant. There was some discussion at the Community Board meeting about Seaport working with Bryant Park's sponsorship team, for example.
Interestingly, Seaport was awarded the lease even though the incumbent offered more fixed rent ($3mm vs $2mm). The park picked Seaport because of the $12mm investment in the restaurant and park, the Jean-Georges' name being able to draw visitors, and the higher sales benefitting the overall rent as the park gets a % split of revenues.
Finally, I discussed Seaport Entertainment with Andrew Walker on Yet Another Value Podcast. The podcast is free and I’ll be publishing a transcript for paid subscribers next week. Here are the timestamps:
[0:00] Introduction + Episode sponsor: Fintool
[2:22] What is Seaport Entertainment and why it's interesting to Chris
[7:40] What is Chris seeing with $SEG that makes Seaport a risk adjusted alpha opportunity
[9:20] Cash burn / is the district really that valuable, good?
[17:41] What attracted Andrew to $SEG - how the opportunity came about (spin off from Howard Hughes)
[22:36] Ackman involvement
[27:25] Overview of Pier 17 and the new lease they've got there / Meow Wolf concept
[36:37] Tin Building and the vision for it / kitchen consolidation / competitive analysis
[48:50] Overview of 250 Water and Vegas assets (air rights, Triple A team)
[59:33] Overview of "The Historic District"
[1:02:38] How the $SEG thesis doesn't play out / new management team
[1:06:06] Final thoughts
TerraVest (TVK.TO)
Special Report, Podcast, Presentation
TerraVest made the very large acquisition of EnTrans International for US$546mm, which is more than the company has spent on all other acquistions in the last ten years combined.
EnTrans is primarily a manufacturer of tank trailers and has facilities across the US and Mexico. The company operates in niche markets and is usually the leader, with management claiming 50% market share in some cases.