Windrock Land Company (WRLC): A Hedge on Inflation with Potential Upside
This is one of the rare land companies that has an operating business attached to it
Windrock was established in 1872 as The Coal Creek Mining and Manufacturing Company. They are based in East Tennessee outside Knoxville and initially focused on leasing coal properties to mine operators. With the decline of the coal market, they shifted to diversify their revenue streams, which primarily comes from their Windrock Park operation.
This company has grown operating income from $1.5 million to $3.2 million from 2019 – 2024 and there are signals indicating that this could be poised to grow at a similar or faster clip moving forward. I see this as a covered land play where the going in pre-tax yield is around 10% and the underlying value of the 73,000 acres they own is well over double their current EV of $31.5 million. Management also seems to be allocating capital intelligently. I’ll explain why below.
A very simple company
Windrock owns land and monetizes it in various ways and operates with virtually no debt and plenty of net cash. It is a very simple business to understand. On their income statement, they have several segments where they derive income from; rental income, recreational income, general store income, carbon offset credits income, timber sales, oil and gas royalties, wind power lease income, tower site lease income, and miscellaneous income.
There are a handful of companies out there that own large tracts of land and monetize their resources in various ways. Some of these are Aztec Land and Cattle, Pardee Resources, Beaver Coal, and Garden City. These are safe and boring land companies with little to no debt that plod along generating income streams from timber, coal, oil, wind, solar, etc.
On the surface, Windrock appears to be another one of these types of companies, but they have an income-generating asset that no other land hold co has (to my knowledge) that they have been developing for almost 20 years.
Windrock Park
Rental, recreational, and general store income is primarily derived from Windrock Park, which is the largest privately owned off-highway vehicle (OHV) park in the US. They also offer opportunities for camping, hiking, mountain biking, and shooting here. I grew up riding ATVs and dirt bikes and these places tend to get a cult following if they are good. There is a sentimental attachment to places like this if, for example, you ride 4-wheelers with your son for the first time, go there with buddies and have a blast, etc.
It seems that the rental income is derived from equipment rentals and lodging, and the recreational income is derived from permits they sell to ride there. The permit pricing looks like this:
From my experience, this seems very cheap and they should have the pricing power to raise this going forward. This certainly isn’t a commodity they are offering so raising prices without customer attrition should be very feasible.
For the rental side of things, they are primarily deriving this income from on-site lodging. You can get primitive and rent a camping site with no hook-ups, or you can get a 3-bed, 2-bath fully furnished house with Wi-Fi, Roku TV, full kitchen, heat/AC, and a fire pit. You can also get everything in between as they have cabins, yurts, and RV sites with full hook-ups. Here is their booking site where you can get a better understanding of what they offer. Although it should be noted the animated layout of their premises is not what it actually looks like. It is much more private and secluded, which I was happy to realize by looking at Google Maps.
The last element of Windrock Park is their general store income. Very simple; this is what they generate by selling merchandise at the general store.
Revenues from the 3 segments making up Windrock Park went from $4.8 million in 2019 to $9.6 million in 2024 with growth over the prior year taking place every year. Demand for the park seemed to jump up with Covid (makes sense as this is outdoors and was in a non-lockdown state) but hasn’t trailed off like a lot of other industries have seen. Anecdotally, I am a part-owner of a small hotel in Virginia that caters to outdoorsy people coming to hike, ski, go to breweries, etc. and demand really trailed off post-Covid with 2024 being our worst year so far. I don’t think this was isolated to just us as I’ve seen lots of hospitality companies deal with less demand post-Covid. I say all this because Windrock has likely dealt with this headwind too, but is still growing.
Their NOI (including $930k depreciation) on this revenue is about $2.75 million, making it have much more attractive margins than all of their natural resources segments combined. Their natural resource segments don’t seem to produce much earnings unless supply is constrained and prices for those resources rise. So, I’m not even focusing on their resources. Here are the financials for the previous 6 years in Excel format:
My belief is that Windrock Park has a strong moat with limited competition I can see that would erode their ability to raise prices and continue their growth trajectory.
Growth signals
Aside from the obvious signal of their revenue and earnings growing YOY since 2019, there are some recent things they have done indicating that they have good internal investment opportunities on the land they own and are opportunistically looking for these.
Carbon offset credits – while I am excluding these from my numbers due to a conversation I had with management several months ago, it is a positive signal to me that they are adding income streams such as this. It also generated a lot of cash in 2022 and 2023 for the company. The person I spoke to said that the future of these are in flux at the moment though, so I’ve decided to exclude this.
Recent investment opportunities at Windrock Park – from 2019-2021 the company’s cumulative capex was $2.6 million. From 2022-2024 it was $12.2 million. Again, from my conversation with management, the person I spoke to said they simply outgrew a lot of their facilities and this was essential based on the demand for the park.
Some of this investment included constructing the following:
· 10,000 sf general store
· 5,000 sf office and check-in facility
· 31 luxury RV sites
· 5 cabins
· 5 tiny homes
The fruits of this investment will likely begin to show up in the following years as the RV sites, tiny homes, and check in facility wasn’t placed in service until some time in 2024. Because of this, it is likely that NOI will be higher in the future. But, for the sake of conservatism, if we take Windrock Park’s (excluding all natural resource income) 2024 EBITDA of $3.67 million and put a modest 10x multiple on it, that values the business at $36.7 million, just below the current market cap. I’m likely dreaming here a bit, but if the company sold the operating business, Windrock Park, and did a ground lease with the buyer, they could likely return the entire market cap to shareholders and would still own 73,000 acres of land. I don’t think this will happen, but point is that Windrock Park has legs of its own and is likely not being fully appreciated here.
Downside protection
Being that they have a net cash position, own 73,000 acres of land with natural resources and a decent operating business, I would say there is good downside protection based on their assets. The market is currently valuing them at $432.56/acre. I’m not a raw land expert, but this certainly seems cheap. Lee Roach is someone who appears to be more experienced with land than I am and he states in his writeup that land in this area regularly sells for well north of $4k/acre, which would make the land value almost an order of magnitude larger than what it is currently valued at. His writeup is great, but I think he completely overlooked Windrock Park, which is the best asset they own by far.
I certainly don’t think this land value that Lee mentioned will be realized any time soon, but point is that there is a tangible asset here that cannot be reproduced (land) giving this some downside protection if things were to go south at the park.
Bottom line
I believe Windrock presents an opportunity to invest in an asset-rich company with virtually no debt (net cash) and a great operating business that should continue growing into the future so long as people continue to enjoy camping, shooting, dirt bikes, ATVs and RVs.
You also get the optionality of their natural resources providing decent amounts of cash when supply is constrained (such as oil in 2022).
Management has demonstrated a good history of intelligent capital allocation with returns on equity (even excluding carbon capture) ranging between 12% and 30% since 2019 (2024 was 17.39%). I think this company will continue to be opportunistic about setting up new revenue streams and with the current pre-tax EPS at $42.68/share, this is an attractive going in yield around 10% for a company that should grow in the coming years once the capex from the past 3 years starts to generate returns.
Important: This information is for general purposes only and is not financial advice. Always seek professional guidance for investment decisions.
Hey Harvey, thanks for this write up. Do you know how much land is actually used by the off-highway vehicle park? Is it the entire 73,000 acres, or is it less? Also, do you know anything about the ownership structure? I looked through their annual reports but didn't see anything on share ownership.