What We're Reading ~ 9/4/19

Certain to Win: The strategy of John Boyd, applied to business [Chet Richards]

The commoditization of information [Geoff Yamane]

Position sizing: why conviction matters [Intrinsic Investing]

The problem with believing what we're told [WSJ]

How a Canadian firm has taken on Wall Street's private equity titans [Economist]

Research on the financial performance of collectibles [Alpha Architect]

Peloton is a phenomenon: can it last? [NYTimes]

A skeptical look at Peloton churn [Inquisitive Investor]

Peloton bikes are the real deal [The Margins]

How Amazon's shipping empire is challenging UPS & FedEx [WSJ]

Amazon's next-day delivery has brought chaos and carnage to streets [BuzzfeedNews]

The man behind the biggest beauty brands in the world [Coveteur]

Aston Martin tried to replicate Ferrari's IPO success but shares are down 75% [Fortune]

On the importance of broadcasting income to European football clubs [Swiss Ramble]

5 lessons from Microsoft's antitrust woes by people who lived it [NYTimes]

What We're Reading ~ 5/9/18

Factfulness: Ten reasons we're wrong about the world [Hans Rosling]

Retail: is the beauty industry 'Amazon proof?' [FT]

The hyperfragmentation of retail and why the winners are digital ad platforms [Medium]

Attack of the micro brands [Medium]

Big beer struggles to tap into shifting consumer trends [Food Dive]

Morrisons' recovery is underway but is it in the share price? [UK Value Investor]

Behind the rise of activist short sellers [AFR]

Why T. Rowe Price likes Alphabet, Amazon, Facebook [Barrons]

A seed investing framework [Medium]

The Chinese unknown that's making Africa's phones [Bloomberg]

China wants its tech firms back, are CDRs the answer? [Bloomberg]

Why there's a worldwide shortage of vanilla [The Economist]

The Canadian king of New York: inside the rise of Brookfield [Bisnow]

At Uber, new CEO shifts gears [New Yorker]

Mark Zuckerberg on Facebook's hardest year, and what comes next [Vox]

Deep fiber: the next internet battleground [Deloitte]

CRISPR: the gene-editing tool revolutionizing biomedical research [CBS News]

Where's the invisible hand when you need it? [Stanley Druckenmiller]

The importance of high standards [Medium]

What We're Reading ~ 6/24/15

A Wealth of Common Sense: Why Simplicity Trumps Complexity in Any Investment Plan 
[Ben Carlson]

The loneliness of the short-seller [NYTimes]

Shorters needed [FT Alphaville]

Fat tails, thin ice [Jason Zweig]

What is staying power? [Fundoo Professor]

On the fear premium in stocks [Crossing Wall Street]

A look at Brookfield Asset Management [Brooklyn Investor]

Mobile is eating the world [Andreessen Horowitz]

Sketching out the internet of things trendline [Brookings]

The way humans get electricity is about to change forever [Bloomberg]

Cheap energy poised to shake up pipeline industry [WSJ]

Driverless cars + Uber = death of car insurance? [Value & Opportunity]

Insurers cannot be asleep at the wheel [Bank Underground]

Buyback extravaganza [Investor Field Guide]

Beware the stock buyback craze [WSJ]

Union Pacific: the railroad with better profit margins than Google [Fortune]

Ant Financial valued at $45 billion after fundraising [FT]

The CFA vs MBA decision [A Wealth of Common Sense]

Best age to go to business school [Bloomberg]

Pershing Square Sells General Growth Properties Stake to Company

Bill Ackman's hedge fund Pershing Square Capital Management has finally sold the rest of its longstanding position in General Growth Properties (GGP). 

The company has announced that it acquired the shares from Pershing for around $556 million (around 27.6 million shares at a price of $20.12).

As detailed in our Hedge Fund Wisdom newsletter last year, Pershing Square had already sold almost half of its GGP stake in the third quarter.  And now the fund is completely out of the position as they've also sold their warrants in the company to Brookfield Asset Management, the company's largest shareholder.

This has been one of Ackman's most successful investments ever, as he purchased shares below $1 a share.

Per Google Finance, General Growth Properties is "a real estate investment trust (REIT). The Company owns or with joint venture partners 144 regional malls (126 domestic and 18 in Brazil) consists of approximately 135 million square feet. The Company is engaged in ownership, operation, management and selective re-development of its Consolidated Properties and Unconsolidated Properties, which are primarily regional malls."

For more on Pershing, we've also highlighted that they recently trimmed their Beam position and have disclosed a Platform Specialty Products stake.

What We're Reading ~ Analytical Links 3/13/13

The truth about market timing [The Big Picture]

Here's what happens when rates rise [Reformed Broker]

7 big questions to help you invest better [Fool]

Advice from a contrarian: when running with the herd, it's easy to trip [Globe & Mail]

The paper world of Brookfield Asset Management (BAM) [SIRF]

Greed is Groupon (GRPN): can anyone save the company from itself? [Verge]

NYSE Net Margin debt: most important chart of last six years [Aviate Global]

Nu skin (NUS): ladders, losers and direct-marketing schemes [Caixin Online]

No Kodak moment for Hewlett Packard (HPQ) [II]

Sidetracked: why our decisions get derailed [Simoleon Sense]

In spinoffs, a time to jettison undesirable liabilities [NYTimes]

A pitch on Northbridge Industrial Services (NBI.L) [Octomore]

Gold is the worst investment of 2013 [Quartz]

Quantitative easing: the greatest con ever sold [Minyanville]

7 investment principles for entrepreneurs [Inc]

Offshore cash hoard expands by $183 billion at companies [Bloomberg]

Amazing shift in US fuel consumption trajectory [FT Alphaville]

Bill Ackman on General Growth Properties, J.C. Penney, Procter & Gamble at Value Investing Congress

Continuing coverage, we're posting up notes from the Value Investing Congress.  Below are notes from the presentation of Bill Ackman of Pershing Square Capital Management.  His talk was about General Growth Properties (GGP) and the need to stop Brookfield Asset Management (BAM) from acquiring it.


General Growth Properties (GGP)

$19.48 stock, 5% cap rate.  Long-term contracts.  85% recurring revenue, 3% rent escalators per year.  Even during Great Recession, and GGP's bankruptcy, NOI only dropped 10%. Up from $15 to $20 out of bankruptcy, spun off HHC. Stock fell later in 2011, collapsed to $12.50 last summer.

Very interesting saga about how Simon Property Group (SPG) and Brookfield Asset Management (BAM) and Pershing all tried to do a deal with the company (we posted Ackman's letter to GGP).

This summer, Pershing filed a13D requesting a financial advisor to look a selling the company.  Board rejects the idea.   Ackman contends that director Patterson isn't independent, so 5 of 9 board members are conflicted.  He says if status quo continues, BAM will get control of the company without paying a premium. Says GGP will always have a "Brookfield Discount."

Says SPG may still be interested in buying GGP even though he says he won't do a deal.  Ackman says shareholders benefit from a merger with SPG, it's less risk, and has synergies.  He details the synergies of a deal with SPG:

Incremental NOI, etc.  Saves overhead costs of almost $110M per year.  Says $350-590M in incremental cash flow, with a multiple, several billion of value.  Says 86% stock/14% cash deal makes sense, pay 29% premium.  Accretion of 5.4% from day one.  Deal is $29 equivalent price by end of the year, up from about $20 today.  Dividend also goes up, 51% increase to shareholders.  Lower leverage, more liquid.  He assumes SPG stock will also go up.

Ackman claims BAM was filing prospectus in the meantime, to buy the company themselves.     His solution:  the board of GGP should form a independent committee, hire independent financial advisors, to salvage the control premium.

Q&A:  How do you expect the board to do this, since they've already dismissed it outright? He says they didn't understand what they were being presented.  "Properly informed" he says they will respond correctly.


J.C. Penney (JCP)

Updates on JCP?  Says very few people followed them in GGP, because is was unconventional.  Same with JCP, it there is enormous skepticism. Says JCP is building "a mall within a mall" and 85% of their stores are in malls with $300/sq ft and above, B+ malls.  SSS down 20% in 1H12 and will be in 2H12 as well.  The shops are working, but it takes time. Also, easier comps next year.  You have to think more than 3 months ahead, it's interesting.  Also, killed the dividend, which was unpopular.

What if the JCP strategy doesn't work?  Issue is how do you get them in the store?  A free haircut is better than a coupon of 50% off an inflated price. 


Procter & Gamble (PG)

He's long PG - why does he like it?  Says company has bloated cost structure, organization gotten more complex.  Company instead of cutting costs, raised prices to protect profits, and started to lose market shares.  He has attributed these issues to senior management failings.  If CEO doesn't turn things around soon, they will have to look outside to find a new CEO.  


Shorts?

Best short idea?  waiting to put on more, will share it publicly after they fill their position.  (As you'll see in our past profile of Pershing Square, shorting is less common for them to begin with).

For more on Ackman, we've posted an excerpt from his Q2 letter on why he sold Citigroup.


Embedded below is Ackman's slideshow presentation from the Value Investing Congress:





Be sure to check out the rest of the presentations from the Value Investing Congress.

Bruce Berkowitz Sells General Growth Properties (GGP) Stake to Brookfield (BAM)

Shares of General Growth Properties (GGP) have been a big winner for Bruce Berkowitz's Fairholme Capital (and mutual fund FAIRX). After scooping up debt and shares while the company was in bankruptcy, Berkowitz has profited from the company's emergence from Chapter 11 as shares rebounded from the low single digits to now over $14.

It appears as though Berkowitz has said that now is the time to take some profits off the table. Announced via a press release today, Brookfield Asset Management (also a large GGP investor) has acquired 113.3 million shares of GGP from the Fairholme Fund. This transaction is valued at $1.7 billion and Brookfield's ownership stake in General Growth Properties will rise to 38%. Per GGP's restructuring, Brookfield is limited to owning 45% of GGP at most.

Other large General Growth Properties investors include hedge fund Pershing Square. Bill Ackman's firm helped spearhead the campaign to restructure GGP and ensure its exit from bankruptcy. We've detailed previously that Whitney Tilson's T2 Partners also owns GGP but trimmed its stake as well.

To finance the transaction, Brookfield will use $804 million in cash and will issue 27.5 million shares of Class A stock (BAM). Upon completion, Berkowitz's Fairholme will own a 4.5% equity stake in Brookfield.

Maybe the most interesting note here is that Fairholme is selling its *entire* equity stake in GGP, but it will continue to own warrants. Todd Sullivan over at ValuePlays has an interesting look at why Berkowitz might be doing this. A hint: it relates to St. Joe (JOE), a battleground stock as Berkowitz is long and David Einhorn's Greenlight Capital is short. It's purely speculation, but it's certainly an interesting idea.

Bill Ackman's Pershing Square: Mall REIT Presentation

Today we have the recent ICSC Mall REIT presentation from Bill Ackman's hedge fund Pershing Square Capital Management. The slideshow is entitled 'If You Wait For The Robins, Spring Will Be Over' and it addresses the macro environment as it pertains to real estate investment trusts, and in particular, mall operators. If you're unfamiliar with Ackman and Pershing, check out our profile/background post on them.

Those of you who have been reading Market Folly for a while know that Bill Ackman bought into equity and unsecured debt of General Growth Properties (GGWPQ) back when the equity was trading below $0.40 per share. Today, shares are up above $10.70 per share and the unsecured debt is trading near par. Needless to say, he has already won big time on this play. But, he's not done yet. Ackman recently detailed more in-depth thoughts about GGWPQ in his investor letter. Given that GGWPQ is emerging from bankruptcy, he believes that GGWPQ can either emerge as a standalone company and that the equity will still be valuable (even if the unsecured converts over) or it can serve as a prime takeover target. If you've been paying attention recently, you already know that Brookfield Asset Management (BAM) and Simon Property Group (SPG) have been buying GGWPQ's debt so things are getting interesting on a possible takeover or some other strategy.

Ackman has already presented his case specifically for GGWPQ in a previous presentation, so now Pershing Square has shifted to a more top-down look at the US economy, the US consumer, and REIT mall operators. Embedded below is Pershing Square's entire 68-slide presentation from the latest ICSC event. RSS & Email readers will have to come to the blog to view their presentation.



You can download the .pdf here. While the above presentation details an overview of the industry, make sure to check out Ackman's original presentation on GGWPQ as well for more detailed specifics. Pershing certainly has painted a bullish picture for mall REIT operators. Their conclusions are that mall REITs and their tenants have not only survived, but have been resilient in a time of trouble. In order for REITs to outperform going forward, Pershing argues that you don't need to see consumer spending at 2007 levels either. They believe that the closure of underperforming stores is a long-term benefit for these operators as it weeds out the weak (our words, not theirs). Lastly, their bullishness can also be attributed to the fact that tenant cash flows (and as such their balance sheets) are much improved over a year ago and that many retailers have substantial growth plans.

For more resources on Bill Ackman's hedge fund Pershing Square, check out their latest investor letter where they talk in-depth about GGWPQ and their other positions. Additionally, we've also covered Pershing Square's portfolio recently as well. Lastly, you can also check out previous presentations from Bill Ackman's hedge fund as they presented the case for a long of Corrections Corp of America (CXW), as well as their case for a short of Realty Income (O).