. Today I bought some Compass Diversified Holdings @ $8.82 a share.
What is Compass Diversified Holdings (CODI) and what do they do?
Acquires controlling interests in profitable small to middle market businesses in attractive niche industries;
Works with the management of those companies to pursue growth opportunities, provide strategic support and increase cash flow in the intermediate to long term;
Provides investors an opportunity to participate in the ownership and growth of businesses that traditionally have been owned and managed by private equity firms, wealthy individuals or families or large corporations;
Enables our shareholders to participate in the operating cash flows of our companies through the receipt of regular distributions; and
Offers sellers of middle market businesses transaction financing certainty and an efficient and streamlined due diligence process.
Watch these following videos (apologize for video performance). The first from October 2008 then January 2009 with CEO Joseph Massoud:
What is interesting is the outlook and patience from Massoud. In October he saw companies “holding on” to assets and then in January, saw them coming onto the market. It is also important to note that through the crisis he did not jump in early rather preferring to wait until summer/fall. To me that says he is a very disciplined CEO who plan on making deals this year. Along this line, Compass recently raised $45 million in a stock offering to raise additional funds for investment opportunities.
Now $45 million may not sound like a lot of money, but when you consider they have over $300 million available through credit agreements AND the company has a current market cap of $277 million, the potential to make a deal that provides large and immediate earnings boosts is very real.
Today I bought some Compass Diversified Holdings @ $8.82 a share.
What is Compass Diversified Holdings (CODI) and what do they do?
Acquires controlling interests in profitable small to middle market businesses in attractive niche industries;
Works with the management of those companies to pursue growth opportunities, provide strategic support and increase cash flow in the intermediate to long term;
Provides investors an opportunity to participate in the ownership and growth of businesses that traditionally have been owned and managed by private equity firms, wealthy individuals or families or large corporations;
Enables our shareholders to participate in the operating cash flows of our companies through the receipt of regular distributions; and
Offers sellers of middle market businesses transaction financing certainty and an efficient and streamlined due diligence process.
Watch these following videos (apologize for video performance). The first from October 2008 then January 2009 with CEO Joseph Massoud:
What is interesting is the outlook and patience from Massoud. In October he saw companies “holding on” to assets and then in January, saw them coming onto the market. It is also important to note that through the crisis he did not jump in early rather preferring to wait until summer/fall. To me that says he is a very disciplined CEO who plan on making deals this year. Along this line, Compass recently raised $45 million in a stock offering to raise additional funds for investment opportunities.
Now $45 million may not sound like a lot of money, but when you consider they have over $300 million available through credit agreements AND the company has a current market cap of $277 million, the potential to make a deal that provides large and immediate earnings boosts is very real.
For those of you who believe Goldman sachs (GS) is controlling the world, this is as close to “in the bag” as it gets then, no?
July 20 (Bloomberg) — Goldman Sachs Group Inc. boosted its forecast for the Standard & Poor 500 Index, saying improving earnings will spur the steepest second-half rally since 1982.
The benchmark index for U.S. stocks will advance 15 percent from its June 30 level to 1,060 on Dec. 31, an increase from David Kostin’s prior projection of 940. The chief U.S. investment strategist at New York-based Goldman Sachs also lifted his 2009 and 2010 earnings estimates for S&P 500 companies to $52 and $75 a share, which are 30 percent and 19 percent higher than prior estimates.
Profits that beat analysts’ forecasts at companies from New York-based JPMorgan Chase & Co. to Intel Corp. in Santa Clara, California, helped boost the S&P 500 by 7 percent last week, the biggest gain in four months. Since March 9, the gauge has rebounded 39 percent amid speculation the economy is recovering.
“Improvement in ex-financial earnings per share, stabilization in profit margins and higher forward EPS guidance all point to a rising market through 2009,” Kostin wrote in a report today.
Kostin is now tied with Frankfurt-based Deutsche Bank AG’s Binky Chadha for the second-highest S&P 500 forecast among 10 Wall Street strategists tracked by Bloomberg News. Only JPMorgan’s Thomas Lee, at 1,100, is more bullish. Barclays Plc’s Barry Knapp, who had been the most pessimistic U.S. strategist, boosted his projection a week ago following the 40 percent surge in the S&P 500 between March and June, the biggest gain since the 1930s.
Surprising Strength
Knapp raised his year-end target 23 percent to 930, saying he’d failed to foresee the size of the advance since the S&P 500 fell to a 12-year low of 676.53 on March 9. His increase left Kevin Gardiner of HSBC Holdings Plc and Jason Todd of Morgan Stanley tied for the lowest S&P 500 projection at 900
Interesting move was going from $GLD for owning physical gold and storing it because “storage was cheaper than GLD fees”…. kind of gives a bit more credence to all the gold commercials we see on TV.
Also bought Dow Chemical (DOW) at $10 and sold at $12 “way too soon”.
It is a 5 page letter and worth the tie to read (click all images to enlarge). The quote at the end is simply the best…..read it to see it
Interesting move was going from $GLD for owning physical gold and storing it because “storage was cheaper than GLD fees”…. kind of gives a bit more credence to all the gold commercials we see on TV.
Also bought Dow Chemical (DOW) at $10 and sold at $12 “way too soon”.
It is a 5 page letter and worth the tie to read (click all images to enlarge). The quote at the end is simply the best…..read it to see it
-Macquarie CountryWide Trust (MCW.AU) said Friday that it has agreed to sell its 75% stake in a portfolio of U.S. shopping malls for US$1.3 billion (A$1.61 billion) to help cut debt, sending its shares sharply higher.
The price for the portfolio of 86 properties, owned in partnership with shopping mall owner Regency Centers Corp. (REG), reflected a capitalization rate of 9.1% (emphasis mine), based on Sydney-based Macquarie CountryWide’s estimated net operating income for calendar year 2009.
It valued the whole portfolio at US$1.73 billion, the Australian property trust said in a statement.
Macquarie CountryWide has been selling assets to refinance maturing debt and enhance its liquidity as the trust – which specializes in retail properties – refocuses on its Australia and New Zealand portfolio.
How does this possibly effect General Growth Properties (GGWPQ)?
The question is “what kind of properties were these”? There are no details listed but their partner, Regency according to their website:
Regency Centers is a national developer, owner and operator of grocery-anchored and community shopping centers. We have spent more than 40 years, building a legacy of success evidenced by 440 centers, 21 regional offices and properties in nearly every major market. Our highly-focused commitment to quality and innovation has made Regency an industry leader and premier shopping center company.
I think it is pretty safe to assume that the properties sold were the strip mall shopping center type and they went for a 9.1% cap rate. Here is the list of Macquaries’ US properties.
Now most of GGP’s Mall’s are classified as “A” properties due to the type and diversity of tenants. A local shopping center will sell for a higher cap rate simply because if the one large tenant (grocery store) pulls out, the property is highly adversely affected.
In this vein I checked with reader Micheal working in the CRE field now who said:
Before 2002 and the run up of CMBS financing average cap rates on strip centers were around 9% vs. roughly 7% on class A malls. This is a very rough estimate as class A in suburbs of Cleveland will go for a higher cap rate than class A in the suburbs of New York. Also cap rates have historically moved with interest rates. Investors need a yield spread above their cost of debt in order for a deal to make economic sense.
The thing to note right now is that cap rates are basically unknown because the market is so illiquid. This is especially true for class A malls because there are only a few groups who operate in the space (Simon, Taubman, GGP, Macerich). These assets are simply too expensive to have a large pool of bidders. In the strip center space you have many more players therefore a relatively (though still not very liquid) more liquid market. Right now Publix anchored centers in Florida are trading at around a 9% cap rate in comparison to low 7’s or high 6’s two years ago. The bidders on these assets are local buyers who use local bank debt with recourse.
No, I am not alluding to GGP garnering a 7% cap rate now (same time next year when they plan to file a reorg plan is a possibility though). I do not think it is that out of the realm to say Boston’s Fanuel Hall and Baltimore’s Inner Harbor would garner cap rates much less that a grocery anchored strip mall in Alameda California.
Now lets look at come cap rates/dilution percentages for GGP:
Because of that the 9.4% cap rate in the example looks to be high in relation to a valuation of GGP (it was intended to be that way). Let’s use the 9% cap rate. Simply put if the common shareholders get diluted 95%, it gives them a per share value of $1.69 (remember, not all of GGP is in Chapter 11). If you believe they deserve a lower cap, that minimal value rises. For instance if we split the historical cap rate gap of 7% to 9% and take the middle, 8%, even if shareholders are diluted 95%, the equity is still worth over $2 a share (this being as close to “wiped out” without actually being so as it could get).
If you think the cap rate is about right but the dilution will run 50%, the value for current shareholders is double digits. Basically the lower you run on the cap rate and the dilution scale, the potential equity gains are exponential. I am in the “some dilution” but nowhere near 95% camp. I am of the opinion we get some sort of “cramdown” (discussed here and here) with some sort of debt maturity extensions/debt to equity conversion scenarios.
The key to it all is the markets as Micheal alluded to above. How they are/aren’t functioning and what are they providing for pricing guidance determines much of the value data. Deals like this one start to give us a picture of what could be happening…
Here is the whole presentation from Pershing Square: GGP Ackman
Michael Lewis – Michael Lewis is an American contemporary non-fiction author. His bestselling books include Liar’s Poker, The New New Thing, Moneyball: The Art of Winning an Unfair Game, and The Blind Side: Evolution of a Game.
Intro: “Amid the deepest recession of the postwar era, the Federal Reserve faces one of the gravest challenges of its 96-year history.
Janet Yellen, President and CEO of the Federal Reserve Bank of San Francisco, assesses the state of the economy while explaining the thinking and the actions behind some of the Fed’s precedent-shattering initiatives to rescue a financial system in crisis and help jump-start economic growth.”
Since we are about to pass some form of Cap & Trade that will effect the whole economy, a fair discussion on whether it is really necessary ought to be had…no?
Vulcan Material’s (VMC) CEO testimony…. check it out
For those wondering why the stimulus for “shovel ready” project has not worked, read this. for those who do not wish to read the whole 8 pages, go to the last page and last paragraph. James says it in a nutshell.
