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Ackman v. Hovde: Round 2
Whatever your position on the Ackman v. Hovde catfight (even if your position is that it is actually the Heavyweight Championship) there is something to see in Pershing's defense of General Growth Properties valuation from the Hovde assault. Bloomberg sets the stage:
Pershing Square, based in New York, owns a 25 percent economic interest in Chicago-based General Growth, including 7.5 percent of its shares. The balance of Pershing Square’s General Growth holdings is in derivatives known as swaps. General Growth filed the biggest real-estate bankruptcy in U.S. history in April after amassing $27 billion in debt during an acquisition spree.
The Pershing Square report is, of course, a response to the Hovde Capital Advisors report of December 14, 2009. Zero Hedge commented on the release of that report as well. Actually, that particular Zero Hedge post appears to have been the first public airing of the Hovde report in general. Later releases on Seeking Alpha and the like seem, however, to have gotten more attention.
If nothing else, one might derive a certain sense of how clever (or un-clever) retail investors are(n't) based on the stock's (non)response to colorful PowerPoint presentations.
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Take the time to download and read the report. A masterpiece of numbers manipulation, wholesale adoption of broad based economic and social assumptions and head-in-the-sand conclusions. Even a doubting Thomas such as myself is now convinced nothing but clear blue skies lay ahead.
The latest flavor of Kool-Aid is lip smacking good. Brilliant!
While I'm not a fan, there is a logical reason why a restaurant chain like Chick-fil-a has decided to build standalone stores over their traditional retail mall footprint.
And it starts and ends with foot traffic. The malls just aren't cutting it, despite the decline in rents.
If Pershing really thinks GGP is that undervalued, they can always lever up and buy more of it.
My mouth would water everytime the commercials came on. Block partay!
Second time today. Dammit!
Nothing to see here. IYR hit yearly high today, CRE market just peachy.
Thought I saw SPG in the red for a second after a downgrade... A little rub of the eyes remedied that horrible vision.
LOL! The mortgage insurers got downgraded and three of them are up double digits. Makes perfect sense as well.
Since yesterday I've been looking at some of the most popular shorts this last quarter. Figure that a lot of books want to get flat before year-end.
Go figure, most of those names have popped over 20% this week already. I think you see a lot of traders moving from name to name until each one gets a cover pop.
p.s. check out the IYR volume...
http://stockcharts.com/h-sc/ui?s=IYR&p=D&yr=1&mn=1&dy=0&id=p33966182618
So let me get this straight:the company is bankrupt,and yet the stock is trading at 10 buck a piece?If this is the case,then what is a true gold's fool?and what is the legal standing of those shareholders even in case the company restructure?
Why isn't Zero Hedge posting any articles about the biggest scam in history, aka the Health Care bill. Never before have so many senators strutted their stuff in hooker fashion to get money for their "favorite" pimps.
Writing bills that are "unable to be repealed ?" This year's lawmakers this year are making the mafia, Chavez, Saddam, etc. look like altar boys.
My apologies for commenting here, but what's up ZH ?
Clearly ZH has no idea what they are writing about.
Actually, we have quite an extensive health care bill post in the works.
Just buy health insurance stocks, they are flying. Funny though, the news told me the bill would kill the health insurers. Color me confused.
IF I remember correctly, I saw on tv today that there are 68 lobbyists for each person in congress. The rally in health insurance stocks means that traders think the companies will profit more than they lose by the planned changes. Obviously the lobbyists convinced the congress that the needs of the few outweight the needs of the many.
ZH is the ultimate contrarian. The day something positive is posted will be the day to sell some longs and shorts. Until then, enjoy the ride.
Assetman, malls want Chik-fil-a to stay open on Sunday, that's a factor too.
Absolutely. When you become a tenet of a mall, you open your books and profits to the mall operator. You are told when to open and close and are expected to participate in mall activities.
Chik-fil-a is a one of a kind business that I follow with great interest. They take care of their employees, they are family orientated, they respect Sunday as a day of rest and profits are not the first thing they think about when they wake in the morning.
Imagine that. And in America no less.
C'mon folks... do you really know what mall operators are doing these days?
They are fighting tooth and nail to keep tenants in their building. Having Chick-fil-a open for foot traffic 6 days out of 7 is much better than having them for 0 days.
Why is that, you wonder? Because there are no other retail vendors knocking the doors down to replace a Chick-fil-a in a retail mall.
If mall operators wanted to crowd these guys out because of a Sunday issue, they would have done so years ago, when retailers were fighting like crazy for rental space.
It's a totally different environment now.
You guys are making this too complicated. The opportunity is General Growth is that it trades at 12.0x NOI (8.4% cap rate) and its competitors like SPG/TCO/MAC trade at 14.5-15.5x NOI (6.5-7.0% cap rates), and if GGP emerges and trades at those same comparable multiples the stock will trade at $35 (a triple from here).
We can debate how real these multiples are, whether the stocks are anticipating the huge asset inflation the Fed is creating w/all its money printing (that's my view), etc...but the bottom line is those multiples are the market today and GGP on that basis has huge relative upside. If you don't buy the multiples of SPG/TCO/MAC, then go short those against your GGP long and hedge out that risk. either way, GGP has a long way to go up on a relative basis.
I am long Hovde on this one.
zerohedge guys - no offense but that's the second time i've posted a thoughtful note on this situation and you guys haven't published it and i'm not sure why (I wrote the note explaining why ggp is cheap relative to the other REITs which totally explains why its having this big move up). i'm happy not to post if you don't want to hear the otherside but what i assure you is that a lot of work went into those #s by me and i think thoughtful analysis helps people understand the situation. the point is this stock is significantly cheaper than the other REITs and that valuation gap is about to close. its certainly more interesting that hearing about whether chik-fil-a is open on sundays, but hey its your call.
As long as Truett Cathy is alive, Chick-fil-a won't be open on any Sunday.
What about the dilution to FFO over time as NOI goes lower and lower? Ackman is just talking his book. More publicity he gets, the higher the stock price will be, and the more valuable his position. Well played, as even Ackman knows GGP ain't worth $10 or $35. Ackman punted on the optionality, and he got lucky as CMBS SPE non-consolidation opinions were busted up, overcollateralizing his equity stake. I can play roulette too.
Ackman's macro outlook is a bit too optimistic for my tastes. You can download my 42 page macro outlook for CRE here: CRE 2010 Overview to see my opinion based upon objective research. That is not necessarily to say that I agree with Hovde's calculations, though. I would have to look a little deeper into it.
I followed GGP since '07 and shorted it that November. It's was outrageously overvalued at $60 then, and even $35. Now, with an even worse enviroment, it is a hard sell to buy $45 for this company. The current multiples for the big REITs may very well be pricing in a cinderella recovery which can smooth earnings volatility, one that I am not confident we are going to get. Or more directly, the entire second half of this year has seen fundamentals totally detach from stock prices.
One does wonder where all of the hedge fund managers, pundits and analysts were when GGP was soaring at $60 with an investment grade rating months before it spiraled down into insolvency and eventually bankruptcy, no? I caught a lot of flack from GGP management when I released my analysis illustrating why I was short the company (late Saturday night press releases directly from the CFO attempting to disparage my analysis, quips during the conference calls on blogs, friends of GGP coming after me, etc.), yet at the end of the day.. (see "GGP and the type of investigative analysis you will not get from your brokerage house.")
I feel that many are signficantly too optimistic on the outlook of CRE, as they were on the outlook of residential real estate. The games being played to hide the problems do just that, hide the problems. They do very little to fix them. Overvalued assets need to drop in price in order to create a healthy market, IMHO.
As of the anonymous poster above who says that GGP is trading at a discount to SPG, MAC, etc,. well, it should. It's in bankruptcy with a whole host of uncertainties. He does pose an interesting query as to whether those other companies multiples will come down or whether GGP's will increase.
MAC, for one, is another company that is grossly overvalued considering its upcoming credit issues and the overall macro outlook (which I believe is a tad bit more dire than Ackman's presenations may lead one to believe).
My overview on MAC can be found here: A Granular Look Into a $6 Billion REIT: Is This the Next GGP?
Ackman's analysis has two major shortcomings:
First on cap rates, he steps away from the world of absolute value and justifies his perspective on "comps". This is the fallacy of sell side research, not what one would expect in an analysis provided by a seeker of value.
Second on "cash flows". GGP has $25 billion of depreciated assets on its balance sheet and 750mm of ttm depreciation. If we r going to use "normalized analysis", then surely capital spending can not be assumed to run constant at the $14mm embedded in Mr. Ackman's analysis.
Ackman present yet another example of the hedge fund tactic of position, spin and then exit.
Ackman's analysis contains two flaws.
First he steps out of the realm of hedge fund manager and into that of sell-side scam artist by relying on "relative valuation" to justify his cap rates. the market has been wrong before.
Second ggp has $25 billion of depreciated assets on its balance sheet and 750mm of ttm depreciation. If we are to use normalized numbers in evaluating the company, then surely $14mm of ttm capex is a little light.
Ackman is the master of postion, spin and then exit. Unfortunately, that game is over.
Didnt Ackman release his first "long GGP" commentary in the summer? Looks like he is at least a triple already and I wouldnt be surprised if he held the equity out of bankruptcy. Market action today continues to be supportive of his position.
Time is on the side of recovery. Imagine what cap rates are when lending starts to open up after Q1 2010 with 0-1-2-3% rate levels? Yes "rents" will go down... but so will capital costs. New stores and concepts (LULU, ULTA, etc) will spread like weeds into the recovery.
Overall, Ackman has been a weak player (TGT anyone?) but he appears the be the clear winner here and arguing from a position of strength. I know nothing about REITs and I'm tempted on a reward/risk basis.
Isn't Ackman the brilliant guy who lost his rear end on Target?
30 second analysis - Let's see:
GGP rev per long term assets 11.5cents/$ invested
SPG rev per long term assets 17 cents/$ invested
GGP loses money
SPG earns 11% on revenues
Don't see how the argrument for equal cap rate flys.
+10% to Ackman for the second straight day.