Notes From Invest For Kids Chicago: Lasry, Perry, Cooperman, Zell & More

Yesterday at Invest For Kids Chicago, numerous high profile hedge fund managers shared their latest investment ideas. The event had 800 attendees and raised $1.1 million (100% of the proceeds went to charities benefiting children). Please click the links below to view notes on each speaker's presentation:


Invest For Kids Chicago Notes:


Marc Lasry (Avenue Capital): Long General Motors & Hovnanian Bonds


Richard Perry (Perry Capital): GSE Junior Preferred Securities & RBS Tier 1 Securities


Leon Cooperman (Omega Advisors): Charming Shoppes (CHRS), KKR Financial (KFN), E*Trade Financial (ETFC)


Sam Zell (Equity Group Investments): Brazil's Investment Opportunity


Barry Rosenstein (JANA Partners): long McGraw Hill (MHP)


Thomas Russo (Gardner Russo & Gardner): Look abroad for opportunities, Nestle


Michael Milken (Milken Institute): Thoughts on Capital Markets


John Keeley (Keeley Asset Management): ITT Corp (ITT)


Barry Sternlicht (Starwood Capital Group): Likes Lowe's, Toll Brothers, NVR


Michael Elrad (GEM Realty Capital): Long Macerich (MAC)



For more of our coverage of the latest investment conferences, be sure to also head to notes & presentations from the Value Investing Congress.

Michael Elrad Likes Macerich (MAC): Invest For Kids Chicago Notes

At Invest For Kids Chicago yesterday, Michael Elrad of GEM Realty Capital gave a presentation on going long Class A malls and Macerich (MAC).

Be sure to check out all notes from Invest For Kids Chicago where numerous high profile hedge fund managers shared their latest investment ideas.


Long Macerich (MAC)

Elrad likes investing in both private and public real estate. He likes top down real estate themes, bottom-up investing (long and short), and hedging. His top down theme is Class A malls. 90% are owned by public companies like Simon Property Group (SPG), Westfield, Macerich (MAC), and Taubman (TCO). Leases are 10 years in tenure and 6.3% nominal cap rates and 5% for private.

His idea is to go long Macerich (MAC). It has a 4.4% dividend versus 3.7% for its peers. It is 84% Class A malls and has reduced leverage to 45% down from 84% before the recession. It has 4% more of its holdings in Class A malls than its competitors and is likely the next REIT to be added to the S&P 500.

MAC trades at a 10% discount to its peers and has a de-staggered board and is an acquisition candidate. You can hedge if you want to with non class B malls/strip center REITS - he'd hedge 50 cents for every 1 dollar of MAC.

He likes malls because there's often Apple (AAPL) stores in them. He says they've been a success because upscale malls drive people who can touch and understand products and he feels this is a reason there's not internet risk (market share).

You can view full notes from Invest For Kids Chicago here.

The Short Case For General Growth Properties (GGWPQ)

Over the course of this year we've shared various presentations on the potential bullish prospects for mall REIT General Growth Properties (GGWPQ) courtesy of Bill Ackman's hedge fund Pershing Square Capital Management. These have included a recent outlook on the mall REIT industry, an update on their holding via Pershing Square's investor letter, as well as their previous presentation on General Growth. As one of the largest shareholders, Pershing Square has been at the forefront leading the charge. Today, we want to flip the tables and present the short case for General Growth Properties, courtesy of Hovde Capital Advisors.

Hovde Capital Advisors LLC is an investment manager that runs various hedge funds. They employ a "sector-specific, deep-value, long/short strategy" and utilize a combination of both top-down and bottom-up in their approach. Back in March of this year we actually covered President and CEO Eric Hovde's thoughts on the market as he thought we were in a depression and that commercial real estate defaults would hit as high as 25%.

There are always two sides to a trade and this is the perfect example. Hovde Capital prudently points out that many investors have been using Pershing Square's original GGWPQ presentation as a means for valuing General Growth Properties... a presentation that is now well outdated. In their analysis below, they update and expand upon Pershing's original model in order to provide a more current look at the situation from a bottom-up level.

They first examine the macro environment just as Pershing Square did in their recent Mall REIT presentation. While Pershing's highlights potential improvement, Hovde takes the other side and highlights how we are by no means out of the woods yet, citing a drop in consumer spending, a decrease in available consumer credit, and non-bullish trends for mall REITs in particular. Focusing next specifically on General Growth, Hovde believes that that a 7.5% capitalization rate is a far too optimistic assumption given that recent comparables have been higher than 8%. Additionally, they highlight that GGWPQ's cashflow is now more than 20% below the levels in 2008. While the fact that General Growth is extremely leveraged is well known, Hovde points out that rival Simon Property Group (SPG) has debt to EBITDA of 6x while GGWPQ is "in excess of 16x and would still be in excess of 12x even if all of the unsecured debt was converted to equity."

Potentially the most alarming to the bulls though is Hovde's focus on net operating income (NOI) sensitivity. They write, "applying Q3 annualized NOI to the Pershing Square valuation analysis, the implied equity value per share of the company today is NEGATIVE $5.03 at an 8.5% cap rate and +$5.73 at a 7.5% cap rate." Needless to say, they are decidedly bearish on GGWPQ. Going forward, one of the focal points in this whole scenario will be cap rates. Hovde feels an 8% cap rate is unrealistic given the reality of the economic situation and they argue that a cap rate of 8.5% or higher would be more appropriate.

Hovde are short shares of GGWPQ and think that equity investors will instead be disappointed upon GGWPQ's reorganization. Embedded below is the short case for General Growth entitled "Fool's Gold" in its entirety:




You can download the .pdf here. So there you have it: "Fool's Gold," the bearish argument for General Growth Properties (GGWPQ). We thought it would be interesting to examine both sides of the trade as we'd previously examined the long case for GGWPQ and then today we shared the short case with you. We'll continue to watch this intriguing situation unfold as hedge funds wager on the impending outcome. As always, don't shoot the messenger.

Since circulation of this presentation, Todd over at ValuePlays.net has penned a rebuttal to Hovde's presentation. Ironically, Hovde claims many are using outdated numbers from Pershing's presentation and Todd points out that Hovde themselves are also using outdated numbers. Interesting stuff. Secondly, hedge fund manager Whitney Tilson of T2 Partners has also penned a rebuttal as it seems Hovde has been called out on their conclusions. The battle of bulls versus bears continues on...

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).