boston omaha (boc 1.41%) has pivoted in its business model and has caught the attention of investors. In this clip of “The Rank” on Motley Fool Live, Taped May 2, Motley Fool contributor Matt Frankel discusses how he ranked Boston Omaha and why it might be a great long-term investment.
matt frankel: boston omaha is often compared to an early stage berkshire hathaway (brk.a 0.62%) (brk.b 0.80%), but that It’s a bit of a lazy explanation, in my opinion. They are a smaller company. Its market capitalization is about 0.1% the size of Berkshire, so it’s not even a fair comparison. There are two main parts to your business. They have subsidiary businesses. those are on billboards, sure. they write surety bonds, which many companies have to carry to protect their clients and the like.
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jason hall: so if you have someone who comes to your house and is linked.
frankel: true. Many financial advisers have surety insurance. And then there’s rural broadband, fiber optic internet infrastructure, things like that. they’ve just announced a big acquisition on that side: infowest which they’re acquiring, which will double that part of their business. And then the other side of their business is what they recently recategorized into boston omaha asset management, where all of their other non-core businesses are located. just to name a couple of the important parts of it. they own 26% of sky harbor (skyh -6.45%) which was recently made public. they are an aviation infrastructure company and have guarantees to buy another 6%, so they could end up owning a third if they want to. that one was recently made public through his spac. It has been volatile to say, to put it mildly. but that could be a big one if he’s a winner. sold part of their investment in dreamfinder homes (dfh 0.00%). they were one of the first investors in that business before it went public. they reduced that stake a bit to help fund their investment in sky harbor but they still own over $50 million worth of dreamfinders homes which i mentioned the value of the entire company is less than $700 million so that’s a big chunk from them. they have a bunch of other minority investments, including a bank, a commercial real estate agency, and a few others. and the latest: they are starting a built-to-rent housing business, which was originally intended to be their fourth business segment. but recently they announced a really big pivot. i don’t know if jason is familiar with this yet. they announced this in their annual letter that they published about a week ago. they are going to manage that as a fund, that is, they are going to contribute 10% of the capital, that is what they said. and they are going to bring in outside investors to help build the fund. there are a few reasons why they are doing this. one, it allows them to do this business and scale it faster and make it bigger than they otherwise could. they’re capping the initial fund, which they call fund 1 at $115 million in initial commitments. they wouldn’t have invested that of their own capital right away, so it allows them to make this a bigger deal than originally planned. that ‘fund 1’, by the way, implies that this could be the first of many. and the economy is much better on this bottom model. this is like the spac model in many ways. they benefit from their own participation in the fund, what I said, they are contributing 10% of the capital. so out of $150 million, they’re putting down $15 [million]. And because they are the fund manager, they get a share of the profits they generate for all other investors. they then get a percentage of the profits generated from the other $140 million [editor’s note: $135 million] in addition to the profits generated by their own capital. So if it’s successful, this could be a very, very profitable deal for Boston Omaha. and here’s a really interesting point: the $150 [million] is just initial commitments. they want to keep scaling this fund and eventually spit it out as a real estate investment trust as it reaches scale. this is definitely a big twist in their business model, and it’s one that I’m a huge fan of. so that’s one of the reasons why I ranked this as high as I did and why I’ve added a lot of my own capital to it over the last two years, actually.
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