Bloggers Want Ray Marino as CEO

As originally appeared in The Troubled Company Reporter.
PICO Holdings, Inc. (Nasdaq:PICO), based in La Jolla, Calif., is a diversified holding company reporting recurring losses since 2008. PICO owns 57% of UCP, Inc. (NYSE:UCP), 100% of Vidler Water Company, Inc., a securities portfolio and various interests in small businesses. PICO has $664 million in assets and $434 million in shareholder equity. Central Square Management LLC and River Road Asset Management LLC collectively own more than 14% of PICO. Other activists at have taken to the Internet to advance the shareholder cause.

The bloggers remind readers that the PICO Executives are not incentivized to create value for shareholders. “The Legacy Comp Committee, comprised of Carlos Campbell, Michael Machado and Eric Speron, have burdened PICO with the criminal Hart Compensation Scheme, which will cost us dearly in economic terms and misaligns executive interests’ with those of PICO shareholders. Recall that Mr. Hart has 5 years to sell PICO assets above carrying value, during which time he will receive an annual base salary of $1 million. After 5 years, PICO has to offer Mr. Hart a similar contract or pay him $5 million cash. This arrangement does not incentivize Mr. Hart to move expeditiously.

We are sure that hedge funds have been blowing up Mr. Hart’s phone with generous job offers. But The Juicer still has $225 million in value left to destroy at PICO — so we don’t expect him to go anywhere soon.”

The bloggers say that PICO should remove CEO John Hart and install its current Chair Raymond Marino in his place. “As best we can tell, Mr. Marino is retired, so he has the time and energy to manage the monetization of PICO assets. Mr. Marino is of impeccable character and an excellent businessman. When it comes to West Coast real estate, Mr. Marino is as good as they come. And unlike Legacy Directors and Executives, Mr. Marino is willing to increase his alignment with shareholders, purchasing 5,000 PICO shares in late March.

From 1992 to 2000, Mr. Marino worked at Pacific Gateway Properties — a California REIT, concentrated in Northern California/Bay Area. Mr. Marino helped resuscitate PGP from near bankruptcy as CFO and COO in the mid-1990s. In 1996, he was appointed CEO of PGP. Mr. Marino presciently sold PGP to Mission Orchard Statutory Trust in 2000, before the crash. This transaction not only earned unitholders a premium, it also avoided the losses precipitated by the NorCal real estate bust, as tech firms folded en mass.

In 2001, Mr. Marino landed at Mission West Properties, as President, COO and a Director. Mission West was a Silicon Valley REIT with a tenant list that included Apple and Microsoft. In 2012, part of the portfolio was sold to closely-held DivCoWest and TPG Real Estate for an EV of $800 million. The remaining properties were placed in a Liquidating Trust and later sold, with about $500 million in proceeds shortly thereafter distributed to unitholders.

Mr. Marino knows West Coast real estate. He knows deals. He is owner-oriented. We think he would make an ideal CEO during PICO’s monetization of assets and return of capital to shareholders.”

The bloggers conclude by repeating their demand for a UCP sale:

“UCP trades at a discount to peers and at a discount to book value. Absent a change in control, there is no reason for UCP to trade higher. In Q1, UCP essentially made no money. Meanwhile, more efficient homebuilders produced healthy results.

UCP has valuable land that was purchased years ago at far less than current market value. Every quarter that goes by, UCP sells this valuable land at an economic loss, destroying value for both PICO and UCP shareholders. In Q1, UCP sold 115 West Coast homes and essentially earned $0. This is value destruction.

Now is a good time to sell a homebuilder. Demand for homes is greater than supply. New home sales are surging. Home prices are increasing in all of UCP’s markets. Homebuilders have lots of cash, strong balance sheets, and a shortage of good land. Homebuilder executives are optimistic. Interest rates are low, which is good for homebuilders looking to acquire and good for homebuyers looking to finance.

And PICO stock continues to trade below $9 per share.

Sounds to us like a no-brainer — which means even patsy John Hart can grasp it.”