Notes from Larry Robbins, Jim Chanos, Carson Block, Jeff Smith, David Einhorn and many more from the 2016 IRA Sohn Conference. These are extensive notes we also have prior ones here but got another set so in case we missed anything readers can see it below.
Prior set -> SEE THE FULL CONFERENCE HIGHLIGHTS HERE-> LINK Edition #1
IRA Sohn Investment Conference 2016 – Larry Robbins
“Get a grip – benefits of hanging on”
- Hedge funds have had a rough ride – getting criticized by everyone
- Investors have been going “tubing”
- Stocks go from point A to point B – tracking earnings and multiples
- On the way, there are waves of uncertainty and doubt – be they fundamental or macro or tactical – follow where the boat is going and not the waves!
- Recent “waves” – China, oil, drug pricing, elections, monetary policy, Zika, inversions, antitrust, high-yield, liquidity, positioning, new economy (Airbnb)
- VCA: Boat has been going up and to the right, but multiples have come in. Was down 14% in a day in February because an article said “a large HF, one of the largest holders, was getting redemptions.” The article was about us and it wasn’t even true!
- TMO: We’ve owned this for 12 years. “I don’t want to give hedge funds a bad name, but occasionally we invest!”
- Anthem – managed care is a good biz. Will merge with Cigna in accretive transaction. Tons of dry powder. If deal doesn’t happen they’ll do something productive with that cash. Market is assigning a 1/3 chance it happens. We own both Anthem and Cigna. If deal doesn’t close we think both stocks go up from fundamental appreciation. People are worried about antitrust. If you look at public policy initiatives – they’d want this to close! Most small co-ops have gone bankrupt.
- Abbvie from last year – we got thesis right and the stock is down 1%.
- Brookdale – down 50% with FFO down 15% – feels extreme to us.
- IN CONCLUSION: Don’t throw the baby out with the bathwater. Our portfolio is full of “cheap boats.”
IRA Sohn Investment Conference 2016 – Carson Block
“We don’t believe in Santa Claus, 7% GDP growth in China, or rapidly expanding low-risk banks”
Short idea: OZRK – Arkansas
- “There is no such thing as alchemy in banking”
- 45% 3 year loan book CAGR, 93% 3 year off balance sheet liability CAGR
- 90% real estate loans – outsized exposure to single projects
- Extreme concentration in construction
- Overconfident management: “I can take my top 10 guys and match them with JPM’s top 10 guys and feel pretty good about our chances of winning that battle” Q1’10 call
- “Ass-backward” business model: let’s keep making loans and we’ll acquire banks and sell off assets in order to have deposits, and we can find the loans that way. Requires bigger and bigger acquisitions to grow – went from doing deals in Arkansas to SF/NY, biting off more than they can chew.
- Construction lending as a % of total is 35%, next most concentrated company is 18%. They make outsized loans relative to assets.
- Construction loans are risky – unfinished projects can have massive haircuts.
- Basel III will require loans to be risk weighted at 150%. They’re risk weighting their own book at 65-75%.
- Real estate cycle is long in the tooth – 1Q16 slowing in NY – lowest property volumes since mid-2014. Miami slowing as well.
- Banks should be increasing provisioning as cycle goes on. OZRK has them going lower as % of assets.
- Funding costs have gone up. $6.1B pending of asset acquisitions. We expect capital raises in both 2016 and 2017.
- Using 2014 provisioning rate, Q1 2015 EPS would be down 15%, Q1 2016 down 26%\
- Way more unfunded commitments than other banks. Nearly lowest provision rate.
- On top of all this, management compensation growing like a weed.
- “At best, unsustainable earnings – at worst, inadequately capitalized.”
IRA Sohn Investment Conference 2016 – John Khoury – Long Pond Capital
Hyatt – 65% upside
- Hotels are out of favor as an asset class
- Lodging is most out of favor in real estate due to worries over Airbnb
- Lodging stocks have underperformed REIT index by 30% over the past year and are as cheap as they’ve ever been using implied cap rate spread vs major sector average
- Not all hotels are the same – the multiple changes depending on type – suburban, airport, urban, resort etc.
- Some will be hurt more than others. Hyatt’s profit pool is safe but has been thrown out, baby with the bathwater.
- Hyatt has traded in lockstep for past year with (company B) Hyatt has 1/3 leverage as B, and 3x daily rate. Yet trades at same EBITDA multiple (9.6x)
- Why Hyatt?
- Low leverage. Quality assets. Pritzker family controls company – never gives guidance – business is not run for quarterly earnings. Not meant for short term investors. They have $4B of capital invested alongside us. 45% of EBITDA is franchised, rest is a high-quality superior portfolio. Vast majority of Hyatt hotels you see out there are not owned by Hyatt.
- Public comps trade at 13x – IHG and Choice and consolidation is happening.
- 55% is owned real estate. 41 hotels. 20000 rooms. $218 average daily rate. Can do asset by asset valuation.
- Comps: intercontinental Paris, baccarat, strategic.
- Top 10 hotels worth $655k per key or $3.1B. Rest is worth $260k or $3.9B. $7B total. Add $5.4B for franchised portion gets you to $11.5B gross asset value or a $79 stock (65% upside)
- Bonus: aggressive share repurchases – “eventually there will be no float left.”
IRA Sohn Investment Conference 2016 – Jeff Smith – Starboard
- Nucynta franchise and a few others
- Has not taken egregious price increases – price follower rather than leader
- At competitive disadvantage due to lack of scale – this and the desire to remain independent pushes them to make poor capital allocation decisions.
- Business is attractive to a strategic – reduce overpriced debt – easy synergies could more than double EPS
- HZNP offered a 60% premium for DepoMed at $33/shr – the stock now trades under $17/shr. Did DepoMed even engage with them? No. They took highly aggressive defensive measures – poison pill – and also sued Horizon. We were concerned their interests lay in staying independent.
- In past month, these fears have been confirmed. They wanted to reincorporate in Delaware. Hidden in the proposal were some meaningful provisions reducing shareholder rights. Eliminated abilities for shareholders to replace board members.
- We think the company is substantially undervalued and intend to replace existing board.
Long WRK (Westrock)
- Paper and packaging. Defensive business. Stable end markets (consumer staples). Significant non-core resi and real estate holdings. Spun off a spec chem business recently.
- Trades at $37/shr – excluding spin, 4.9x next year’s EBITDA and 15% FCF yield.
- Macro concerns weighing on stock. Sold off with commodities. Containerboard price down 2% and people are concerned prices go lower. These concerns are overblown. Given how cheap it