Looking over yesterday’s press release and trying to put the pieces together. This statement stands out to me.
(IBAC will concentrate on the Hotels and Country Club & Golf Course of which is all Real Estate owned properties with a home building division being put in place and will concentrate on additional acquisitions. IBAC will continue with its anticipated move to the OTCBB with a stronger asset base," said Wayne Burmaster, President IBAC.)
In the October 26th press release they stated that the board of directors has approved an aggressive business plan with a budget of 100 million.
NEW YORK, Oct 26, 2006 (BUSINESS WIRE) -- IBAC Corporation (Pinksheets: IBCX) today announced that its Board of Directors has approved an aggressive business plan to acquire more real estate owned properties, they have authorized a budget of $100 million dollars, (of bank financing for the project), as the board believes that this is the only way the company can achieve its stated goals and objectives.
IMO restaurants are a labor intensive business and the type of business that takes a hands on management approach, some restaurants are a labor of love, meaning you have to love being in the business because it takes a long time to grow a successful restaurant or chain of restaurants. IMO IBCX management is doing the right thing by spinning this off to another entity, getting new management to run that division and concentrate on spending 100 million in real estate acquisitions. From what I have read about the company and its principals, they have a real estate backround, not a restaurant backround. So it is the best move for the company to concentrate on real estate acquisitions. With 100 million to spend, they could purchase 500 million in real estate with 20% down payment or 1 billion in real estate by leveraging with only 10% down payment.
The success of this company IMO is in purchasing distressed and mismanaged properties such as the golf course. With their new construction and development division they can accomplish this easily.
Lets look at the potential revenue from real estate. Income generating properties usually sell around 8 to 10 times gross revenue. So if we purchase 500m in real estate then we will be looking at generating 50 million in gross revenue, if we purchase 1 billion in real estate we are looking at 100 million in gross revenue. If these are distressed and mismanaged properties and the company can go in and increase the gross by 10 to 20 percent, most of that increase in revenue will show up in the bottom line net revenue figures. For example 100 million revenue with a property that gives a net of an 8% cap rate or $8m net after all expenses and you increase the revenue by 20% you now have 128 million gross. Now the value is 1,280 billion. Most importantly now your net revenue is 28 million rather than 8 million and your cap rate has gone from 8% to 28%. Sure there are expenses to accomplish this but you get the picture.
Another statement by the company in regards to focusing their efforts on real estate rather than restaurants:
The company had also previously announced a sale or transaction off of its restaurants in Florida, this proposed deal has not been completed at this time, if said deal is completed the shareholders would also receive an additional form of dividend when completed. This deal is under consideration as the Company is directing its efforts towards becoming a quality 100% real estate owned hospitality property Company.
