thepupil

BRK/B FRPH VNO MAND SP

there are 437 companies in the S&P 500 ex financials. Those companies have a median and average net debt to EBITDA of 2.2x and 3.0x (the average only counts levered companies). Of the top 100, which comprise 70% of the market cap, the median is 1.6x. The weighted average of all 437 companies is 1.2x, again because the big market caps like MSFT, AAPL, AMZN, Alphabet, Facebook, Visa, Johnson and Johnson, Walmart Exxon, PF, and Mastercard (literally the top companies in order, all of which are less then 2x or net cash companies) are either net cash or low debt. In my humble opinion, top down concerns regarding corporate leverage don't apply to most people's portfolios. PE portco's are where all the leverage is. That's not to say there won't be knock on effects, but the public equity universe just doesn't seem to have many junk borrowers. IIRC, about 3% of the S&P 500 are junk credits. I wish I could do it for the Russell 2000, but I don't have access to a quick excel of the Russell 2000 ex financials and am not going to do anything that takes much time. I'm not saying that buybacks are necessarily the best use of capital for all companies, but corporate publicly traded america isn't exactly levering to the hilt to take in shares. Banks also appear to me to be very well capitalized.

Quick glance using bloomberg: 12/2010 to 9/2018: Net Debt to EBITDA increased from 1.5x to 2.1x EBITDA - Capex to Interest expense went from 7x to 7x Long Term Debt to Assets went from 16% to 27% Cash interest: $636mm to $848mm ($1.1 billion if you annualize Q3) One could make the argument that the through the cycle leverage has increased, but I'd hardly call it a PE-like levering up of the business. Part of the analysis of the investment was a monopolistic's railroad's ability to carry debt and extract cash, right? I think you have to give them credit for the "dividend recaps" as they'd be called in PE land. Capacity increase = capex = more rate base = more EBITDA = more extremely low cost debt capacity = cash extraction, no?

So does the portfolio close out flat at the end of each trading day? If not, then what happens if these stocks open more than 10% down? Does it automatically sell and thus realize a loss greater than 10%? Or does it hold and thus lead to a single name drawdown potential >10%. I think the idea of being able to mechanically exit after a 10% drawdown has technical limitations and that you could get destroyed in a single name or market like flash crash (we all know how the whole "portfolio insurance" thing worked).

muscleman, have you considered changing your asset allocation to reflect your (apparently high) drawdown sensitivity? It seems that you want to invest in risk assets (no matter the strategy, value/technical/etc.) without significant drawdowns. Therefore, I'd consider the following: a) recognizing that you're 33 have a long runway of net savings ahead of you and can in most scenarios handle a drawdown but if that doesn't work then b) including cash/bonds/i-bonds/TIPs etc. in your asset allocation to mitigate volatility. c) potentially even buying insurance on your risk assets or investing in something like TIAA traditional. Based on your post you have the ability (you are employed and young) to bear downside risk but not the willingness. Therefore some type of low-risk (and suboptimal and potentially expensive over the long term) investment should perhaps be in the mix. I think you are receiving a lot of (warranted) criticism because it sounds like you stopped value investing because of your low tolerance of drawdowns, but I'm not sure if your new method really solves the problem of keeping your emotions in check or your apparent goal of making equity or above equity returns without major drawdowns. I just think that's wanting your cake and to eat it too. In other words, I don't think it's really possible to do sustainably and that you should realize you have to save more and make a lower return if you can't handle the drawdowns. Also, there is such a thing as low octane value investing where one invests in relatively low risk overcapitalized enterprises that (in general) also have experienced low volatility, in part because their intrinsic value is less volatile, but I think that's beside the point. Go Che It just feels like the your cure doesn't really fit the disease Note: I edited out some stock specific stuff I deemed not relevant

I think divining reasons for very short term out/underperformance is hard. If I had to put a reason to it, it would be that Berkshire outperformed in 4Q 2018, so some short term mean reversion is potentially at work. 4Q2018 Outperformance Against SPX +9% S&P Financials +9% AAPL +25% BAC +11% Union Pacific +10% (BNSF) Progressive +10% (Geico) YTD 2019 Against SPX -7-8% Financials -9% AAPL -1% BAC -19% Union Pac -14% Progressive -6-7%

John, I'm kind of confused. What exactly is the issue here?

2017: 2018: All Interactive Brokers accounts (this is Taxable 1, IRA 1, and Roth consolidated into one performance because I'm lazy now): 1 yr: -2.41% with S&P and ACWI at -4.3% and -9.4% 3 yr: +14.9% / annum with S&P and ACWI at +9.3% and +6.6% 5 yr: +10.2% / annum with S&P and ACWI at +8.5% and +4.3% Outperformance to S&P for consolidated IBKR accounts. I am US based and heavily biased to the US and real estate/financials. 1 yr: +1.9% 3 yr: +5.6% 5 yr: +1.7% Oddly, this year (a down year) my best performing account was the taxable account that is levered long (on a cash basis) and pays a fair bit of margin interest but is hedged with puts to a max drawdown. That account was up 4.4%. The 100% long and unhedged accounts were down between 6 and 8%. Thus far in my investing career, I don't know if I've added much value against the indices in terms of risk adjusted returns. 1/2 of my assets are in non-taxable accounts which makes me less concerned about adding value after taxes. I think my portfolio is less fundamentally risky than the indices but we will only know over time. I know that from 2011-2013 (before opening IBKR accounts) I outperformed by about 20% cumulatively, so this would improve the since inceptions a bit, maybe to like 3-4% outperformance / year. My Fidelity accounts don't seem to have a readily available performance calculator. I'll have to look into this. IBKR is over 2/3 of assets. My work 401K (~8% of asset) was all in stable value then all in REIT index as of February/March (which was a profitable trade) then all in EM Index (which has given a little bit of performance back). The sum of that was a +5% return from index/market timing.

Which issuers/CUSIPs fit your description?

Seems like more of the same, did I miss something significant that you heard/read?

Not quite high $20's, but I'll take it. https://www.bloomberg.com/news/articles/2018-07-31/brookfield-is-said-to-near-6-8-billion-deal-for-forest-city Overall, REITs have done quite well lately and the private market bid has come in a few times (Brookfield, Blackstone, etc.). I'm more or less fresh out of interesting ideas, clinging to a large position in EQC (an exercise in watching paint dry) and a small, low conviction position in Vornado. Recently took a look @ British Land in the m60's as % of NAV w/ an LTV of 26%, but the cap rate used to value NAV is 4-5% which is tough given the heavy retail exposure and Brexit/macro risks.

Why do you think that something like KIM doesn`t compound as fast as BRK? BRK bookvalue growth was around 10% (without tax reform) over the last decade, with a 6.4% dividend yield KIM just has to grow NOI/dividends by 3.6% to match that. Don`t you think that is a pretty low hurdle? well, management is guiding to 1.5-2% NOI growth and I don't really see the overall environment for strip/power centers getting much better, so I'm not sure if 3.5% growth is a "pretty low hurdle"; there are real issues in retail RE. At low teens I thought KIM was starting to price in some deterioration in economics of owning this type of stuff. I'm not convinced that deterioration is not happening (everyone seems to be developing/upgrading their way to quality, which illustrates that over time assets deteriorate and that some of these centers face obsolescence risk). In general, all else equal, I'd consider a portfolio of businesses assembled by Warren Buffett to have better re-investment opportunities, intrinsic rate of compounding, etc particularly on a risk adjusted basis; I think NAV for Berkshire is in the $220-$250 range so it's not like you're paying a premium or even full value (I think most of Tilson's assumptions are reasonable). And all else equal I'd own much more Berkshire at the same discount to NAV; Berkshire gives me a warm and fuzzy feeling and I'll own some forever. Berkshire is a wife. Kimco is a one night stand, for me at least. I will probably err on the side of underestimating the ultimate upside. I mean one can dream and point out that KIM traded at 3.5% dividend yield not long ago. EDIT: also, REITs do have a fair bit of drag from management overhead over time, whereas Berkshire's "expense ratio" would be measured in basis points

My highest cost lot (Feb 2018) is up ~17% and lowest cost lot (April 2018) is up 30% in Kimco, overall +24%; it is a low conviction small position that is part of my basket of similar NAV stories. Kimco has outperformed Berkshire by ~30% (+25%, -5%) over the past 3 months and is trading at close to the sell side's lower end of NAV estimates. There's still upside (trading to NAV, market recognizing some level of platform value in terms of financing advantage, etc). I think the fattest part of the trade is over and am kind of disappointed with the move up in REITs in general (they've gone from ~15% discount to PMV to ~5% overall) in that it looked like we had a very interesting opportunity forming, but I don't see any screaming bargains right now. I bought a fair bit of Forest City following the disappointment / no sale announcement (which confirmed PMV in the mid $20's) and now Brookfield is rumoured to be interested again and it's at $23 and it's not that interesting. Sold my FRPH @ $62, deferring to superior knowledge of the security and blindly following the Mr. Chen's advice on VIC. The problem with small discounts to NAV / intrinsic value (small being defined as 20-40%) is that when things go up 15-25% they don't have a ton of upside beyond the compounding of intrinsic value, which for most of these things isn't at that high a rate. I personally don't find many a 50 cent dollar or multi-year compounder and am somewhat content to slum it in 70 cent dollar / low rate of compounding land, but it definitely has its annoyances. Probably selling some KIM soon to add to my already huge hedged Berkshire position.

How are you coming up with $45B earnings for BRK? He's taking last year's GAAP which includes the change in the DTL which is one-time in nature, which I think is what you are getting at. ($21 billion of the $45 billion for 2017 was negative tax expense) To use a reasonable neutral third party, JP Morgan estimates ~$28 billion for 2019 ($5B investment income, $2B of underwriting = $7 Billion insureance + $29 billion operating+$4 billion investment gains +- some other crap for $34 billion of pre-tax income less $6.6 b of taxes = $28 billion of earnings), with upside in the event of deployment of excess capital. I think Berkshire is safe and relatively cheap and it is my largest position (and my family's). $45 billion of earnings ain't happening (unless the stock portfolio zooms up, which you wouldn't capitalize those earnings) EDIT: What I mean is that $45 billion of operating earnings ain't happening any time soon. Because of the accounting changes made recently you could get there with stock value change, but that's not the same thing. Overall, I think longinvestor just took 2017 GAAP NI and did not mean it as a representation of anything more than that, 2017 NI.

I think that you make some good points but you're generally wrong. First off IB will not let you do 4 or 5x margin. They enforce Reg T margin which is 1:1. In Canada you're actually allowed to have 2:1 margin but IB still enforces 1:1. Of course you can use derivatives to manage that but it's not straight up margin. https://www.interactivebrokers.com/en/index.php?f=1451 Portfolio margin > leverage than reg t

Stifel provides a NAV range of 6-7% cap rate ($~18.25 - $23.50 / share) versus stock @ $13.33 (~8%) w/ an additional $1.00+/share or so in RAD/Albertsons stake. So that's a 25-45% discount at 6-7% OR a like a 0% discount at 8%. February 20, w/ stock @$15.25 Valuation: Shares currently trade at a 7.7% implied cap rate. Our $20.75 NAV estimate is based on a 6.5% cap rate. Our NAV range of $23.50-$18.25 reflects a cap rate range of 6.0%-7.0%. Our current NAV values KIM’s Albertsons investment at book or $140 million($0.33/share). If we were to incorporate the value of KIM's ownership stake using valuation estimates of $448 million and $574 million,our NAV at a 6.5% cap rate would increase to $21.50 and $21.75, respectively, all else being equal https://www.reuters.com/article/us-usa-property-kimco-realty/kimcos-u-s-asset-sales-show-gap-in-public-private-market-prices-idUSKBN1HO2X6 the way i see it is "don't be a hero but start to buy" time in REIT land broadly. KIM sold 5% of its buildings (but like 2% of its EV) in the first quarter. and has another 3.8% of EV under contract. If you are buying the whole thing at 8% and they're selling the crap at what i regard to be a very decent clip at 7- 8%, that's great, in my view. I broadly agree with you that the bottom probably keeps falling out of the bottom x% of assets a quarter. But the (so far) very liquid private market is allowing them to exit at a decent clip (~7% of EV in sales planned for this year). the recycling / will cause NOI / FFO to decrease, but will also increase the remainder in quality over time. the company sees overall NOI over the next few years increasing as developments/re-developments come online. KIM has ~25% of ABR in the top 5 metro areas in the US (85% in top 50). I see no properties on loopnet w/ decent anchors in these markets at anything close to an 8% cap rate and some what look to be reasonable comps at a 4-5% cap. REG (higher quality) trades at about a 6%. I mean here's an Old Time Pottery Petsmart Dollar Tree in far-out Orlando for 8%. When I go through a loopnet search with >$10mm, shopping center/retail, and sort by cap rate, high to low, there's simply not that many in a state for above 8%. There are some, but they all feel lower quality than what the public REITs own. I encourage those more knowledgable than I wrt commercial real estate to provide some counterexamples. http://www.loopnet.com/for-sale/fl/multiple-property-types/?sk=5beec26afc6872519f91cf90ad800554 the description of the properties as well as the trends in all measures of portfolio quality indicate to me that they are indeed selling their worst assets and have been culling the portfolio for a number of years. they went in to the crisis extended and complicated and have been simplifier/upgraders for years. 2008: As of December 31, 2008, the Company had interests in 1,950 properties, totaling approximately 182.2 million square feet of gross leasable area (“GLA”) located in 45 states, Puerto Rico, Canada, Mexico, Chile, Brazil and Peru. 2017: As of December 31, 2017, the Company had interests in 493 shopping center properties (the “Combined Shopping Center Portfolio”), aggregating 83.2 million square feet of gross leasable area (“GLA”), located in 29 states, Puerto Rico and Canada. In addition, the Company had 372 other property interests, primarily through the Company’s preferred equity investments and other real estate investments, totaling 5.8 million square feet of GLA. KIM has about $4B of debt due over the next 10 years, $0.5B of which is well above market rates (luckily this is the stuff due in 2018-2020). So $3.5B has risk from rising rates starting in 2021 (3 years out). Seems very manageable. In fact, discounted purchases the $2.2B of very high duration 2045+ unsec's and pref's could be a significant offset to rising rates. An immediate 200 bp increase on that $3.5B would increase interest cost by $70mm over a course of 10 years (~11% of 2017 FFO), but it'd also cause $2.2B of liabilities to trade at about $63 (assuming constant credit spreads on the unsec's / pref's).

I think KIM and BRX are getting interesting down here @ 8-9% cap rates w/ lots of long term leases w/ groceries and very termed out debt / pref in the case of KIM (40% of debt/preffered is 2045 - perpetual). Continued dispositions inside of or in line w/ the overall implied cap rate confirm that stock is at discount to private market value as they are selling off the tail assets in the portfolio. KIM is at a 43% discount to JPM's NAV. The private market will continue to weaken based on what these stocks are doing and the outlook for retail is pretty shitty, but at a point these are worth a buy. Have a 3% position in KIM and will probably add a little BRX.

http://www.valuewalk.com/wp-content/uploads/2014/06/David-Einhorn-Value-Investing-Congress-2005-PEG-ratio.pdf Mr. Einhorn isn't doing so well lately, but I think his speech on the PEG ratio is spot-on.

Was Semper Scribere taken?

Sent you a PM, but I encourage you to crap on them. Different perspectives should be provided.

Debatable since the more recent track record is less impressive, but he mentions Buffett's annual letter, has a long term per share scorecard, has been in the business forever, and I happen to be reading it and I like to shamelessly pimp my thread.

Do you have a link with his returns? I have just found this one: http://www.valuewalk.com/2015/11/jim-chanos-return-model/ Of course you can`t view the funds returns in isolation since it is short only. You can only value it as a market hedge, so a 0% return would be pretty good as that because it means you will extract a positive return with rebalancing and lower drawdowns. Especially when you withdraw money for retirement spending this is very important. At the moment i think i have a huge advantage over chanos because i can use options whereas i don`t think you can do that with 3-6 billion $ in AUM. So i can concentrate on the best shorts and have a limited downside. If i had for example 10 million $ i might be too big for netnets already but i still think i can buy and sell options on my shorts. I'm famous! I'm sure valuewalk posts like 1000 articles a day, but I never knew that my rant was picked up by them. I don't even know if that thing I put together was correct lol. Here's a more "theoretical" exercise done by the FT and an interview with the man himself. https://ftalphaville.ft.com/2016/05/10/2160162/how-short-selling-can-theoretically-improve-your-portfolio/

While rising rates have been blamed for REITs awful relative performance in 2018 (-10% VNQ versus SPY), I think that there are also more fundamental concerns with respect to the supply / demand picture across other than retail. The manhattan office market is definitely weakening, multi-family has been on a many years construction boom and anecdotally rent growth is stalling there (at least in the yuppy haunts where I and my friends roam), skilled nursing/healthcare seems to be undergoing distress (I don't know much about this, just inferring from securities prices). I like FCE; it will be sold. News a few months ago that EQC would buy. NEws out today that brookfield will buy, but not for a big premium. I think it gets taken out in the high 20's. Small position w/ costs of $19.40 / share though, not sure if I'd buy it post B-field bump (ya ya I know everyday you aren't selling you're buying). I like EQC. It is not at a discount to intrinsic value (99% of my estimated NAV), 81% of market cap in cash. More or less Sam Zell SPAC. Optionality on negative turn in cycle and/or deal before turn in cycle. I like the 7 1/8% cumulative Colony Northstar preferreds @ 91.63, 9.45% yield to the 2022 call, 7.8% yield on a perpetual basis. I think (but am not so sure) the equity may be very cheap, but have far more conviction that the equity is not a zero and the prefs are money good. Baupost and Abrams in the common adds some level of comfort as well. I like FRPH as a well run underlevered owner of blah industrial real estate, aggregates reserves royalties, and 1 important building in SE DC w/ some additional development optionality. My cost is significantly lower than current px and don't think it's that cheap from here, but it's a good company. Rhizome knows this company better than anyone so search for his stuff. I think VNO is starting to get interesting. Potential takeout by the likes of Blackstone or sovereign wealth as Mr. Roth ages. Stripped down to NYC (plus merch mart and the san fran bulding) makes for a nice clean pure play NYC company and it's cheapened a fair bit. JBGS spin didn't help. I like the NYRT stub, just as highly levered illiquid beta, to be owned in small size. I am drawn like a moth to a flame to CBL, but hold myself back. wouldn't be surprised if 2-3x, wouldn't be surprised if 0. I am waiting for ILPT to decrease in price. IPO range was $26-$28, priced at $24.75, trading at $22.60 It trades at a significant discount to intrinsic value (i see it at about a 6.5-7% cap rate when a substantial portion of assets are really nice hawaiin industrial ground leases with high escalators, great occupancy and high barriers to entry), but deserves it because Portnoys suck. At a price, I want to own it. The hawaii ground lease assets are great and the company is virtually unlevered. Capital allocation will suck. Likewise w/ SIR. Brixmor is at an 8 cap and rising for myeh grocery anchored strip centers. I recently took a hard look when stock at $19 and thought "myeh" and now at $16. In doing some google earthing and rilling into where exactly their properties were, I jsut wasn't that impressed. Kimco kind of similar thoughts. In general, I think discounts to private market value are to be had, but there are real risks out there as well in terms of supply/demand imbalance (rent/fundamentals etc.) developing and rising rates, so I limit overall exposure.

JBGS would be the purest way to play. It is the largest landlord in the DMV, representing the combination of Vornado's DC assets and those of JBG (a real estate PE firm). Vornado spun its assets into this entity to become an (almost) pure play NYC company, since it believed the supply/demand imbalance in the DC metro was tainting VNO's consolidated multiple. JBG wanted liquidity and was prevented from buying NYRT, so this was another way to do that. JBGS has a substantial development pipeline and a good bit of re-leasing upside, but doesn't appear to me to be particularly cheap, despite the company throwing out a NAV of like $50+ a few years out, with the stock @ $33. I kind of stopped after it wasn't obviously cheap on a cash flow basis, but there's a lot of non-earning or under-earning assets so I very well could be wrong. Just wasn't quite worth the effort on account of my scarce time. I have it on my long list of things to look at more closely though. AMZN moving their HQ to the area would certainly shift fundamentals and sentiment to the positive. I personally don't think it will happen just because the DC area is so expensive. Isn't part of the reason for the new HQ to be lower COL area? http://investors.jbgsmith.com/Cache/1001229705.PDF?O=PDF&T=&Y=&D=&FID=1001229705&iid=4899055

Buy JBGS?