Monthly Archives: December 2015

Berkadia Negotiates Sale of $16.8 Million Multifamily Property in Tempe, Arizona

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Berkadia has announced the $16.8 million sale of a multifamily property and development parcel known as The Mark, in Tempe, Arizona.

Located at 1115 E. Lemon Street, near Loops 101 and 202, the community is within walking distance from Arizona State University (ASU), and caters to student renters.

The buyer, Nelson-Brothers of Aliso Viejo, California, is a national student housing firm that looks to acquire assets at major universities and saw the opportunity to further enhance the community and build its brand near ASU. The seller, Sundance Bay of Salt Lake City, had previously purchased the property as a distressed asset and completed a full renovation and rebranding.

Berkadia’s Vice President Dan Cheyne, Senior Managing Director Mark Forrester and Managing Director Ric Holway of the Phoenix office, as well as Managing Director – Student Housing Kevin Larimer of the Detroit office, closed the sale on November 23.

The Mark features 161 units with studio, one- and two-bedroom floor plans. Built in 1970, the property is currently 98 percent occupied and master-metered for HVAC. The Mark offers unique, renovated and retro style apartment homes featuring polished concrete floors, quartz countertops and fully renovated kitchens and baths. Community amenities include a swimming pool, sundeck, student lounge, fitness center, courtyard with barbecue grills and elevator access.

“Nelson-Brothers was attracted to the area’s rent-growth potential, as well as the asset’s strong location near ASU and directly on the Valley Metro Light Rail,” said Cheyne. “Nelson-Brothers plans to strengthen the student housing community by upgrading amenities and eventually developing and expanding onto the vacant one-acre lot that was included in the sale.”

“At a per-unit price of $104,280, the deal sets the high-water mark this year for sales of master-metered properties,” added Cheyne.

The Mark is situated near downtown Tempe and Tempe Town Lake. The top employers in the immediate area include Arizona State University, State Farm, Wells Fargo and United States Postal Service.

Vacancy in the Phoenix metro area was 5.6 percent at the end of the third quarter, 60 basis points less than last year. Average asking rents were $903 per month in September, a year-over-year increase of 6 percent.

© 2015 David Mazor

Disclosure: David Mazor is a freelance writer focusing on Berkshire Hathaway. The author is long in Berkshire Hathaway, and this article is not a recommendation on whether to buy or sell the stock. The information contained in this article should not be construed as personalized or individualized investment advice. Past performance is no guarantee of future results.

Berkshire Open to Merging BNSF with Norfolk Southern or CSX

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With Norfolk Southern the subject of repeated bids from Canadian Pacific, Berkshire Hathaway is considering jumping into the bidding too. And, while everyone has been focusing on Norfolk Southern, BNSF has interest in CSX as well.

“CSX would be at an enormous (competitive) disadvantage and so there would be another step towards consolidation,” Matt Rose explained to Reuters.

As for Norfolk Southern, the railroad rejected Canadian Pacific’s initial offer in early November and its most recent offer last week. There are significant questions on whether regulators would approve the deal, even if the price was right.

Grossly Inadequate

“Canadian Pacific’s revised, reduced proposal is not only less than what the Norfolk Southern board has already found to be grossly inadequate, it is even more uncertain and risky given the decrease in the cash consideration,” said Chairman, President and CEO James A. Squires in a statement released by the railroad. “In addition to being grossly inadequate, the proposal is based on a voting trust structure that we reviewed and do not believe would be approved by the STB. Yesterday we released a white paper by two former STB chairmen who believe that the STB would not approve any voting trust structure because there is no basis to determine that it would be in the public interest.”

STB Approval?

Norfolk Southern’s white paper by former Surface Transportation Board commissioners Francis Mulvey and Charles Nottingham concluded that, “As simple background, rail carriers cannot assume control of another carrier without prior STB approval. The STB’s approval process can last between 19 and 22 months. Current STB regulations, adopted in 2001, set a high bar for approval of a proposed major merger and related voting trust based on an untested public interest standard. In our expert opinions, the STB is not likely to approve CP’s proposed voting trust or the CP+NS merger.”

BNSF Jumps Onboard

BNSF Railway chairman Matt Rose has indicated that BNSF is interested in either Norfolk Southern or CSX depending on the outcome of Norfolk Southern’s status.

“I’ve had general conversations with both of them and told them that we’re going to watch this with interest,” Rose told Bloomberg News.

While the path to North American railroad consolidation is a bit murky, What is clear is that BNSF is unwilling to have the current balance of power in North American freight hauling shift too heavily to any one railroad.

As for a potential price, anything in the $27-$40 billion range is within Berkshire’s means with its cash on hand and strong financing ability. The company is is still in the middle of its $32 billion acquisition of aerospace manufacturer Precision Castparts, but sometimes there is a parade of elephants.

(This article contains updated information from when it was first published.)

© 2015 David Mazor

Disclosure: David Mazor is a freelance writer focusing on Berkshire Hathaway. The author is long in Berkshire Hathaway, and this article is not a recommendation on whether to buy or sell the stock. The information contained in this article should not be construed as personalized or individualized investment advice. Past performance is no guarantee of future results.

Special Report: Is Berkshire Hathaway About to Strike it Rich in Natural Gas?

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With natural gas prices tumbling to prices not seen since January of 2002, a big natural gas field would not seem to be the hottest news, but Berkshire Hathaway’s success has often been based on running counter to the herd. They are patient enough to know that energy prices will be higher in the future, and they have the money to drill now when others are strapped for cash.

In mid-November, Berkshire Hathaway Energy’s Australian subsidiary, CalEnergy Resources,  drilled a test well in Western Australia for what could be what the company is calling modestly a “significant gas field.”

How Significant?

Four trillion cubic feet of gas-in-place significant.

Exploration permit EP 408 is located approximately 280 kilometers south of Perth, and covers both the Whicher Range and Wonnerup gas fields.

The gas fields were first discovered in 1968 and 1971, respectively, and are located in ancient sandstone reservoirs nearly four kilometers underground.

The fields contain an estimated four trillion cubic feet gas-in-place, and Berkshire’s share currently stands at approximately 84%. Other partners include Which Range Energy.

CalEnergy Resources is the operator, with Farley Riggs, Australia’s largest well testing and data acquisition service provider, running the testing program.

Currently, down hole gauges are being used on Whicher Range-1 and Whicher Range-4/ST1 to test the interconnectivity of the reservoir before a three-month well test commences, The test will hopefully demonstrate flow rates in excess of four million cubic feet per day.

Not About Fracking

While the excitement in the oil and gas business in recent years has been all about fracking, the tumble in energy prices has hurt the fracking business due to its relatively high cost of energy recovery.

Fortunately, the Whicher Range and Wonnerup gas fields are conventional gas fields, and are neither shale gas nor coal seam gas. The cost of recovery should be much lower than gas produced by fracking.

Natural Gas for Western Australia

The natural gas will support the growing energy needs of Perth’s 1.8 million people. The fields are located on the southern edge of the State’s current gas pipeline network, and are roughly 20 kilometers south of Busselton. The cost of connecting to the pipeline is estimated to be in the range of $10 million Australian dollars.

Berkshire Hathaway and Energy Exploration

While Berkshire has built up one of the largest renewable energy portfolios in the world, with solar and wind power leading the way, it’s not a company people think of when it comes to fossil fuel exploration.

As always, Berkshire is full of surprises.

(This article has been updated since it was first published.)

© 2015-2016 David Mazor

Disclosure: David Mazor is a freelance writer focusing on Berkshire Hathaway. The author is long in Berkshire Hathaway, and this article is not a recommendation on whether to buy or sell the stock. The information contained in this article should not be construed as personalized or individualized investment advice. Past performance is no guarantee of future results.

Berkshire Cuts Munich Re Stake, Again

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Berkshire Hathaway continues to see the reinsurance business as a low return business and is pulling back from the sector in its own underwriting and in its ownership stake in other underwriters.

Berkshire has again cut its stake in Munich, Germany-based reinsurer Munich Re, this time from 9.7 percent to 4.6 percent. It previously cut its stake from 12 percent to just over 9 percent earlier in 2015.

Berkshire’s own reinsurance business has been less than stellar this year with Berkshire reporting$155 million in losses from storm damage on Australia’s east coast in the 2nd quarter of 2015.

Charlie Says

“The reinsurance business not as good as it once was and is unlikely to get better,” Charlie Munger said at the 2015 Berkshire Hathaway annual meeting. “Money has come in, not because they want to be in reinsurance, but because it’s an uncorrelated asset class. We’re in it for the long haul.”

Uncorrelated (also called non-correlated) asset classes are assets that move in the opposite direction of a particular asset class, thus helping investors reduce risk in exchange for lower upside performance.

Munger’s words were echoed by Ajit Jain, who is the head of Berkshire Hathaway Reinsurance. “What was a very lucrative business is no longer a very lucrative business going forward” Jain was quoted in The Wall Street Journal.

© 2015 David Mazor

Disclosure: David Mazor is a freelance writer focusing on Berkshire Hathaway. The author is long in Berkshire Hathaway, and this article is not a recommendation on whether to buy or sell the stock. The information contained in this article should not be construed as personalized or individualized investment advice. Past performance is no guarantee of future results.

Lubrizol LifeSciences Makes $15 Million Investment in Vesta

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Berkshire Hathaway’s Lubrizol Corporation is investing $15 million in its LifeSciences’ Vesta business to expand its global manufacturing facilities.

The goal is to better position LifeSciences to serve the growing market for medical device contract manufacturing.

Lubrizol has been investing heavily in LifeSciences, and in August 2015, acquired Particle Sciences, a global leader in complex formulations including drug eluting device product development.

Since 2014, Lubrizol LifeSciences has solidified its presence in the life sciences market by introducing new products and making strategic acquisitions. This capital investment will expand multiple facilities and increase Lubrizol LifeSciences’ in-house engineering capacity for both silicone and thermoplastic products.

“We have significantly enhanced our capabilities through the combination of strong polymer technology, application know-how and world-class component manufacturing,” states Deb Langer, vice president and general manager, Lubrizol LifeSciences. “As healthcare companies look for total solution providers, we continue to invest in the right areas to provide valuable offerings to our customers.”

Vesta, Inc. was acquired by Lubrizol in August of 2014 and is a leading contract manufacturer for the global medical device industry. With the addition of Vesta, Lubrizol LifeSciences now offers disposable and implantable silicone medical components and assemblies across a wide product portfolio, as well as precision thermoplastic extruded tubing.

According to Lubrizol, the recent acquisition of Particle Sciences, Inc. has positioned Lubrizol LifeSciences as one of the most comprehensive drug delivery device solution providers, offering end-to-end solutions in the healthcare market.

“When customers partner with Lubrizol LifeSciences, they benefit from working with us at every stage in their development process,” states Robert Miller, global business director, medical devices. “With a long history of polymer expertise and significant investment, Lubrizol LifeSciences is positioned to offer full-service development for next generation medical and pharmaceutical innovations.”

About Lubrizol

Based in Wickliffe, Ohio, Lubrizol owns and operates manufacturing facilities in 17 countries, as well as sales and technical offices around the world. Founded in 1928, Lubrizol has approximately 7,500 employees worldwide. It sells its specialty chemical products in over 100 countries.

Berkshire Hathaway acquired Lubrizol in 2011 for $9 billion in cash.

© 2015 David Mazor

Disclosure: David Mazor is a freelance writer focusing on Berkshire Hathaway. The author is long in Berkshire Hathaway, and this article is not a recommendation on whether to buy or sell the stock. The information contained in this article should not be construed as personalized or individualized investment advice. Past performance is no guarantee of future results.

Berkshire Hathaway Specialty Insurance Enters Surety Market in Asia

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Berkshire Hathaway Specialty Insurance Company (BHSI) is entering the surety market in Asia, and has appointed Andrew Ho as Vice President, Head of Surety, Asia. Ho will be based out of BHSI’s Singapore office.

“Our expansion into surety is indicative of our strategy to commit where our deep expertise and top-rated financial strength will create value for our customers,” said Marc Breuil, President of Asia, BHSI. “We are pleased to have Andrew leading our newest business segment, providing quality surety underwriting and responsive local service.”

BHSI is initially focusing its surety efforts in Asia on civil contractors, general builders, engineering firms, equipment manufacturers and suppliers, and fabrication firms.

“A strong surety offering is a welcome addition to the marketplace and rounds out our broad range of coverages for construction and commercial customers in Asia,” said Marcus Portbury, Senior Vice President and Regional Head of Third Party Lines, Asia, BHSI. “We look forward to working with Andrew and our BHSI colleagues worldwide to provide local and global surety solutions, tailored to individual needs.”

Andrew joins BHSI from Standard Chartered Bank where he was Director, Trade Programmes & Credit Insurance. Prior to that, Andrew worked for more than 17 years in surety and trade credit roles at QBE, including Regional Underwriting Manager – Credit & Surety, Client Accounts

© 2015 David Mazor

Disclosure: David Mazor is a freelance writer focusing on Berkshire Hathaway. The author is long in Berkshire Hathaway, and this article is not a recommendation on whether to buy or sell the stock. The information contained in this article should not be construed as personalized or individualized investment advice. Past performance is no guarantee of future results.

Star Wars Ad Campaign Powers Up Duracell Before Shift to Berkshire Hathaway

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The force seems to be with Berkshire Hathaway as a major movie tie-in is likely to power up interest in Duracell batteries just as Berkshire takes over the world-leader in alkaline batteries from its previous owner, Procter & Gamble.

Berkshire agreed to acquire Duracell in November 2014 in a tax-free swap of stock and cash that traded Berkshire’s $4.7 billion stake in Procter & Gamble for the Duracell. The battery manufacturer will also be recapitalized by P&G with $1.7 billion in cash.

According to a Duracell official, the deal looks set to conclude in February 2016.

Just two months before the deal finalizes, Duracell has launched its Star Wars “Battle for Christmas Morning” movie tie-in with a big budget TV campaign that was shot on an all-new anamorphic camera lens and aspect ratio that were only used previously on the new Star Wars film.

A Movie Quality TV Spot

The TV spot debuted December 7th and is scheduled to run through December 31st.

Shot by directed by Star Wars fan and director of the Night at the Museum film series, Shawn Levy, the spot features a 14-year old boy and his 9-year old sister entering a limitless world of creativity once Duracell Quantum batteries are inserted into their new lightsaber toys.

The 60-second spot, which features appearances by original Star Wars characters, C-3PO and R2-D2, highlights the power and importance of imagination for the whole family.

“This ad is a whole story within a finite number of seconds; a boy gets a lightsaber on Christmas morning, he pops in his Duracell batteries to power up his toy and suddenly, within the real world, is this injection of make believe and imagination,” said Shawn Levy, director. “It’s really about the transformation from the real into the fantastical and how these little batteries provide the juice for this whole imagined universe and adventure.”

As a promotional partner of Star Wars: The Force Awakens, Duracell collaborated with many of the forces behind Star Wars, including Disney, Lucasfilm, Industrial Light & Magic (ILM) and Skywalker Sound to create an authentic Star Wars experience and bring this action story to life.

The TV spot received expert guidance from famed cinematographer, Daniel Mindel, who was the director of photography on the new Star Wars film, as well as the director of photography on the 2009 film Star Trek and the 2013 film Star Trek Into Darkness.

A Galaxy of Movie Tie-Ins

Star Wars movie tie-ins are ubiquitous as the highly anticipated film has been on manufacturers and retailers minds for the past few years. Disney, which purchased Lucasfilm in 2012, has tied the film to everything from a Darth Vader-black Dodge Viper from Fiat Chrysler to CoverGirl makeup; however, none would seem to be a better fit than Duracell as the power source for galaxy of Star Wars toys and games.

The movie industry is anticipating that Star Wars: The Force Awakens will smash opening day and opening week box office records around the globe when it hits movie theater screens on December 18. The jumbo box office numbers are guaranteed as there are already over $50 million in presold tickets for opening weekend. The big question is will it enjoy a run at the biggest movie of all-time, a record that currently belongs to Avatar, which hit theaters in 2009 and took in $2.788 billion in theaters world-wide

For Berkshire, hopefully it will launch a great sales year as all the Star Wars toys need a constant supply of batteries. While Berkshire likes to own companies for the long term, it never hurts to start a marriage with an interstellar honeymoon.

© 2015 David Mazor

Disclosure: David Mazor is a freelance writer focusing on Berkshire Hathaway. The author is long in Berkshire Hathaway, and this article is not a recommendation on whether to buy or sell the stock. The information contained in this article should not be construed as personalized or individualized investment advice. Past performance is no guarantee of future results.

Johns Manville Building Second TPO Production Line at Alabama Plant

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With new construction starts continuing to slowly grow, Berkshire Hathaway’s Johns Manville, a manufacturer and marketer of building and specialty products, is adding a second production line at the company’s Scottsboro, Alabama, manufacturing facility.

The new line will increase production capacity for the company’s TPO (thermoplastic polyolefin), a roofing membrane that is used by commercial roofing contractors, consultants and building owners.

The new TPO production line will bring Johns Manville’s total investment in commercial roofing over the past eight years to approximately $200 million.

In October 2008, Johns Manville opened the state-of-the-art TPO facility in Scottsboro. The company furthered its investment in single ply in 2012 with the opening of an EPDM (ethylene propylene diene monomer) manufacturing plant in Milan, Ohio.

To meet recent demand for Johns Manville TPO, the company began a capacity expansion project in March 2015 at the Scottsboro plant. Construction was completed in May, and now work will begin to construct the second production line.

“The plant expansion was a huge success and made our Scottsboro facility what is, in our view, the most productive and efficient TPO facility in the United States, enabling us to meet our customers’ needs for the foreseeable future,” said Jennifer Ford-Smith, Johns Manville’s Director of Marketing and Single Ply. “This new line will give Johns Manville the ability to supply our customers with even more TPO than was previously available.”

About Johns Manville

Acquired by Berkshire Hathaway in 2001, Johns Manville has annual sales of approximately $2.6 billion, and employs approximately 7,000 people. The company has 44 manufacturing facilities in North America, Europe and China.

© 2015 David Mazor

Disclosure: David Mazor is a freelance writer focusing on Berkshire Hathaway. The author is long in Berkshire Hathaway, and this article is not a recommendation on whether to buy or sell the stock. The information contained in this article should not be construed as personalized or individualized investment advice. Past performance is no guarantee of future results.

BYD Moves into First Place in Worldwide EV Sales

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The headlights flashing to pass you on the autobahn just might be coming from an EV built by BYD Company Ltd.

Chinese auto and battery-maker BYD Company Ltd has zoomed into the number one position as the world’s top selling EV manufacturer.

Nissan, Mitsubishi, Tesla, Volkswagen and BMW rounded out the top five, in that order.

BYD Co Ltd, which Berkshire Hathaway holds a minority stake in of nearly 10%, sold 6,099 pure electric cars in October 2015, which was almost double the 3,115 sold by second-place Nissan.

The Winner Month After Month

BYD’s first-place finish in October was the sixth consecutive month since May that it has led worldwide EV sales figures. The company has an eleven-percent market share of the total EV market.

BYD’s success is due to the popularity of its Qin sedan and Tang SUV. The company will introduce two new models, the SUVs Song and Yuan, in 2016.

BYD’s rise to the top is dramatic, as it was only ranked seventh in 2014, and it’s sure to continue to grow, as the company has yet to retail its EV cars in the United States.

In 2008, Berkshire Hathaway bet on BYD’s potential and purchased 225 million shares, and today owns roughly 10% of the company.

For More on BYD, read the Special Report: BYD, Berkshire’s Tesla.

© 2015 David Mazor

Disclosure: David Mazor is a freelance writer focusing on Berkshire Hathaway. The author is long in Berkshire Hathaway, and this article is not a recommendation on whether to buy or sell the stock. The information contained in this article should not be construed as personalized or individualized investment advice. Past performance is no guarantee of future results.

NV Energy Begins Saving Millions

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Another one of Berkshire Hathaway’s utilities has begun saving millions through participation in an energy imbalance market.

NV Energy, which serves 2.4 million customers in Nevada, commenced participation in the western Energy Imbalance Market (EIM) on December 1, 2015.

“We welcome NV Energy’s entry into the western EIM,” said Steve Berberich, ISO President and CEO. “The real-time energy market is already generating significant cost savings, and NV Energy’s participation is expected to add to those benefits while incorporating more clean energy into the grid.”

In its first 12 months of operation, the real-time market has already produced more than $33 million in cost savings for Berkshire Hathaway’s PacifiCorp, the first EIM participant, and the ISO. Those savings are projected to increase as more utilities join the EIM.

NV Energy President and CEO Paul Caudill said his company’s participation in the EIM aligns with NV Energy’s longstanding commitment to seek opportunities that provide greater value to customers and support renewable energy.

“I am very pleased with the hard work many of my colleagues at NV Energy have done in the past year,” said Caudill. “I am also confident this work will be good for Nevada, as all resulting cost benefits will flow directly to our customers.” With the addition of NV Energy, the EIM expands into Nevada.

The ISO and NV Energy prepared for the utility to join the market for nearly a year, including extensive testing of operations and interfacing in the last two months. The ISO’s state-of-the-art software analyzes western grid needs every five minutes and automatically finds the lowest-cost generation to meet demand.

Millions in Annual Savings

NV Energy will save millions annually. The company’s attributed share of gross benefits is estimated to range from $6 million to $10 million in 2017, and from $8 million to $12 million by 2022.

Berkshire’s PacifiCorp Already Saving Millions

In 2014, when Berkshire Hathaway Energy’s PacifiCorp agreed to become the first participant in the new Energy Imbalance Market, it was touted as a way to balance electricity in-flows and out-flows on a regional basis that would bring millions of dollars in benefits to participating utilities.

About the Energy Imbalance Market

The EIM improves the integration of renewable resources and increases reliability by sharing information between balancing authorities on electricity delivery conditions across the entire EIM region. The only real-time energy market in the Western U.S., advanced ISO market systems automatically balance supply and demand for electricity every fifteen minutes, dispatching the least-cost resources every five minutes.

A 2013 study by the National Renewable Energy Laboratory found that an EIM with participation of all western states could cut electricity production costs by $1.3 billion a year.

© 2015 David Mazor

Disclosure: David Mazor is a freelance writer focusing on Berkshire Hathaway. The author is long in Berkshire Hathaway, and this article is not a recommendation on whether to buy or sell the stock. The information contained in this article should not be construed as personalized or individualized investment advice. Past performance is no guarantee of future results.