Bridgford Foods - A Look at the Real Estate Portfolio

The Bridgford stock is trading at $10, giving it a market cap of $91m, an EV of $84m, and a P/TB of 0.71x. The company was founded in 1932, generates around $240m in revenue, and is 80% controlled by the founding family. Bridgford Foods sells Snack Food and Frozen Food primarily to Wal-Mart and Dollar General, with its headquarters in Anaheim, California. The company has evolved from being a retail meat market to becoming a manufacturer, marketer, and distributor of frozen and snack products across the United States. In 2023, the company had nearly 700 employees.

Hidden value in real estate

In older companies, it’s interesting to look for hidden value in their properties. This is exemplified by BRID's sale of its meat processing plant in downtown Chicago in 2022. After purchasing the plant in 1975 for $500k, they were able to sell it to a residential developer for $60m (a recorded profit of $58m!) — a CAGR of 11%. A high-rise building was constructed on the site. With this, the company's equity increased by 68% (!) from $74.9m to $126.3m. At the same time, the company reduced its long-term debt from $36m to $3.9m and increased its cash from zero to $16m.

Today, Bridgford owns 7 processing plants with a total of approximately 12 hectares of land and 43,000 square meters of buildings. PPE is $63m, the acquisition cost for land and buildings is about $28m, and we estimate the book value to be around $15m. 

A desktop analysis of the property portfolio suggests a potential value of around $50m after deducting latent taxes, which indicates potential hidden values of $35m ($3.80/share). We believe that more than half of this value is in the Anaheim property, which is why we focus primarily on it below. 

Anaheim, California

The HQ and Frozen Food facility in Anaheim, California, part of Orange County, is located in a desirable area with high demand for industrial real estate. The property is located very close to State Route 91, providing easy access to transportation routes. The land is 2 hectares, and the building covers 9.3k square meters (100,000 sq. ft.). 

From what we understand, the property was acquired in the mid-1960s, suggesting a very low book value. We have not found what BRID paid for the property. The company has made several significant investments since acquiring it in the 1960s, including efforts to modernize and upgrade production facilities as well as improve office spaces to keep up with developments in the food industry and meet regulatory requirements. 

We estimate the acquisition cost of this property to be about $6m ($2-3m initially, and then capitalized capex). It should be recorded at less than $5m. 

We believe the property can be divided into two parts: 

- The building of 9.3k sqm is estimated to be worth $25m ($2800/sqm). 

  - Assuming the property was purchased for $2-3m, with inflation growth, it is worth $33m today. The area likely developed better than inflation. The property may have been acquired for less than $2-3m. 

  - With a rent of $200/sqm ($1.9m/year), we estimate a net operating income (NOI) of $170/sqm ($1.58m/year). With a 6% yield (comps at 4.5% and 5.5%), the property is worth $26m ($2799/sqm). 

  - A quick desktop analysis shows that building prices around this location range from $1600 to $3200 per sqm. This applies to the building and adjacent land. 

- Surplus parking (land) is estimated to be worth $5-10m. 

  - As of Q1 2024, BRID has leased a parking lot in Anaheim for $0.8m annually for five years. It is likely adjacent to the HQ building (with a total land area of 20,000 sqm), where there is a car park of 2,500 sqm and a truck park of 2,800 sqm — given the substantial rental cost, we guess both parking lots are leased out. If we assume a cap rate of 8%, the parking lot has a value of $10m, but let's say $5-10m ($943-$1886/sqm). 

In total, we estimate a value of $30-35m. The zoning does not seem to allow for a "Chicago Case" where the land is worth much more — no vertical construction is allowed. 

Ten years ago, properties around Anaheim Boulevard were primarily used for industrial and commercial purposes, but in recent years, the city has focused on developing new residential and commercial properties to enhance the urban environment. 

Today, a residential area named La Palma and Palmilla is being developed at the intersection of Anaheim Boulevard and La Palma Avenue. The project includes a total of 161 homes, comprising 103 townhouses, 54 duplexes, and 4 corner apartments. The development targets new families, second-home buyers, and retirees looking for proximity to entertainment and workplaces in Orange County. Some of these homes are for sale for about $800k each, and if that is the average price, it gives a total market value of $129m for the 161 homes. The entire residential area (formerly an industrial area) has a total area of about 27,000 sqm. 

A simple estimate for the above project: total revenues at completion are $129m. If it costs $3.2k per sqm to build the homes, construction costs will be $72.5m. If we estimate other costs (permits and fees, architects, legal, sales, administration, etc.) at $12m, total costs will be $84.5m excluding land. With a sale price of $129m and an assumed return on invested capital of 20%, the developer can pay $23m for the land (($129 / 107.5) – 1) = 20%. At $23m, the land has a value of $850/sqm. Based on this sqm price for construction projects in the area, Bridgford's land value is approximately $17m. 

Dallas, Texas

The third-largest property, specified to have 1.6 hectares of land and an 8.7k sqm (94,000 sq. ft.) building, appears to be the Bridgford Frozen Rite Division located near downtown Dallas with proximity to major highways such as I-30 and I-45. Based on our analysis, BRID acquired this or these properties sometime in the 1970s. We do not know the exact terms. 

Based on Google Earth measurements, we believe the highlighted properties are located in the same area. 

The estimated sqm price: for an industrial or commercial building of this size and location, a reasonable value could be slightly over $1100/sqm with a yield of around 6%. In such a scenario, triangulating yields and sqm prices, we estimate the larger property to be worth about $8m and the smaller one about $1m — a total of $9m. 

We estimate these two properties have an acquisition cost (including capital improvements) of about $6m and are recorded at around $2m. We assume the land was acquired for $1m and is recorded at that amount. 

Chicago, Illinois 

The Chicago, Illinois property, near the old Chicago Stockyards, with 3.2 hectares of land and a 16.4k sqm (177k sq. ft.) building, was acquired in March 2017 for $5.6m ($341/sqm), with nearly $4m to be invested in improvements shortly thereafter. 

An initial estimate suggests an acquisition cost of $9.5m ($1.5m land and $8m building) and a book value of about $8.5m ($1.5m land and $7m building). Some of these investments were likely in machinery. 

Industrial properties in the Chicago area can vary significantly in price, from about $500-$1100/sqm. The property is located in the southwestern part of Chicago, near the area where I-55 and I-90 intersect. This is an industrial and commercially dense area, which can positively impact the value of the property due to its proximity to major transportation routes and the city's central areas. Generally, for such a property in this area, the building value could be around $15m. 

Since the acquisition was relatively recent, in 2017, there shouldn't be a significant difference between the "market value" and the acquisition cost, estimated at $9.5m or $579/sqm, and/or the book value (estimated at $8.5m). A value of $10m ($610/sqm) seems within reach, considering a certain value increase since the acquisition (which aligns with the general price increase for industrial properties in the city). The price per sqm is lower than comparable properties. It is possible that BRID has invested more than we know in value-enhancing measures since the acquisition. A value of $10m ($610/sqm) also seems reasonable when triangulated with the estimated net operating income in the area and yields for similar properties. 

Statesville, North Carolina

The property in Statesville, North Carolina, was acquired in 1996 and is mainly used for the production of frozen bread dough and other food products. The land is 3.2 hectares, and the building is 3.9k sqm (

42,000 sq. ft.). The building appears to be in good condition. Working backward, the property may have been purchased for $2m, where we allocate $0.5m to the land and $1.5m to the building. The property has also undergone several expansions and technological upgrades, including a recent investment of over $2m to incorporate new technology into the production process. 

We estimate the property could be worth about $3m ($769/sqm), which is relatively high for North Carolina but reflects the company’s substantial landholding. 

Other Dallas Properties

Two remaining properties in Dallas are likely Bridgford Foods Shipping. The property's location in an established industrial area near significant transportation routes, including proximity to major highways and railroads, is advantageous for logistical purposes. The total value of the properties is now estimated to be approximately $3m ($968/sqm). This considers that the land is 1.4 hectares and may have other uses.

(Disclaimer: at the time of publication, the writer owns shares in the mentioned company)