On track: are railroads yesterday's mode of transportation? RailAmerica begs to differ. The Boca Raton-based company grew from a single stretch of track in 1986 to $370 million in revenues last year - Transportation

South Florida CEO, July, 2002 by Johanna Marmon

Listening to the executives at Boca Raton-based RailAmerica talk about their company is like sitting in on a real-life game of Monopoly. But instead of spending paper money on the fictional Reading or B&O lines, CEO Gary Marino buys real short-line railroads -- 80 miles here, a couple hundred miles there. He's created the largest short line rail company in the world, with almost 13,000 miles of track -- along with 650 locomotives, 10,000 cars and 2,800 employees.

"In a way it is kind of like monopoly," says Wayne August, RailAmerica's vice president of investor relations. To date, the company owns 46 freight-hauling railroads in the United States and Canada, and three in Chile and Australia -- but that number could change at any time, as the company buys and sells track as opportunities present themselves.

"It's a very capital-intensive business for that very reason," says Marino, a former venture capitalist who founded the company in 1986 after hearing of 83 miles of track on the block in Michigan. "CSX Transportation wanted to get rid of the line, because at the time [large] railroads were on the skids," says Marino. "So I put down $100,000 of my own money and borrowed the rest, and bought the line for $1.4 million. Within a year we turned the rail around from losing money to actually making a few hundred thousand dollars. And I said, well, there's got to be prospects to do more."

It appears so: The company has been on a dizzying railroad buying spree ever since. Most recently, in January, RailAmerica acquired Texas-based StatesRail and California-based ParkSierra, two short-line railroad holding companies, for $90 million and $48 million, respectively. "Usually the way it happens [in North America and Canada] is that a bigger railroad will have a branch line that it wants to sell," says Marino. "So rather than close it down and lose the business entirely, they sell it to an independent operator like us that will run it as a separate business. Or we'll acquire other companies that are strictly short-line."

Overseas, August says the company looks for railroads being privatized by the government or up for auction. "Railroads run by governments are usually shoddily-run," says Natasha Boyden, an analyst with Sidoti & Co. in New York. "Privatizing them offers a huge opportunity for a company like RailAmerica." After purchasing its 3,150-mile-long railroad in Australia from the government in October 1997, RailAmerica streamlined the workforce from 1,400 to about 700.

Short-line railroads are exactly what they sound like: short sections of track that connect with bigger "Class 1" railroads -- defined as long-line railroads that exceed $255 million in revenue, such as CSX or Newport Southern. RailAmerica's main competition comes from the trucking industry, and, to some extent, from barges. On the railroad side, the lead competitor is Connecticut-based Genesee & Wyoming, with about 1,300 miles of track in North America.

RailAmerica, which went public in 1993 (NYSE: RRA), had revenues last year of $370 million and net income of $17 million. This year, revenues are projected to surpass $500 million; total assets are currently estimated at more than $1 billion. The company recently completed $475 million in financing with UBS Warburg and Morgan Stanley, as well as 17 other lenders. The money will fund future acquisitions and refinance existing debt, which, at year-end 2001, stood at $446 million, a debt-to-equity ratio of 1.5:1. It's a major improvement from year-end 2000, when the ratio stood at 4.4:1. "They paid down the debt really quickly," Boyden says. "I have no problem with a 1.5:1 ratio ... it's not shabby. It's a very capital-intensive business."

On the local front RailAmerica has 70 employees, though it has just a tiny rail presence in the state. "You don't really have to be where [the railroads] are located, because we run them autonomously," August says. Last month, RailAmerica secured a $40,200 Palm Beach county grant to bring "60 or 70 employees from StatesRail and ParkSierra to our headquarters," Marino says. The money is part of $200,000 in tax breaks the company is getting over the next five years to stay in Florida.

"We like to think of ourselves as the best-kept secret in Boca Raton," says Marino. And why move? Analyst Boyden can't see any reason to go anywhere else. "I think they just like the sun," she says.