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Raising Cash: Sold Howard Hughes Corp (HHC) and Gramercy Capital (GKK)

September 14, 2012

I’m generally not a macro investor, basically because I don’t think it’s possible to forecast where the economy or the stock market is going. But, right now I’m a bit worried. The S&P is up over 15% this year and the economic situation does not look better now than it did in January. There are a number of economic hurdles coming up shortly, the presidential election and the fiscal cliff, just to name two of the the most obvious. US politicians seem to be ignoring the HUGE government budget deficit and national debt (on both sides of the aisle they spout rhetoric but no one seems able to find a compromise – and isn’t that what leadership is really about?) All politicians seem hell-bent on kicking the can down the road rather than tackling it head on. Nothing good can come of this. I have to agree with Wexboy in his no-holds barred analysis of the current situation and the inevitability of INFLATION. So where to invest? The same places we always do, special situations, spin-offs, recaps etc. But these seem to be few and far between these days. In fact, my rate of posting is down over the summer exactly because I don’t seem to be finding ANY compelling special situation opportunities outside of the ones already in my portfolio. Usually, just about the time I begin thinking that I should lighten up on equity exposure (like now) because I can’t find any slam-dunk opportunities, Mr. Market takes a substantial drop and I’m left with little cash to take advantage of the lower prices. This time I’m moving sooner (and likely Mr. Market will instead MOVE UP this time). But it’s the comfort factor I’m after. I’m trying to build a 25% cash position. So I’ve begun selling off some positions that have either run up considerably or have added risk since I first entered them.

I’ve completely sold out of my position of Howard Hughes Corp. (HHC). I still think there is great upside in the share price but this is a company with assets that are going to take years to develop and bring to fruition. I’m in LTCG territory on all my shares and with the uncertainty of next year’s treatment of capital gains I thought it prudent to take the gain now. The position is up over 55% in the 2 years since I began accumulating it.

I’ve also sold out my position in Gramercy Capital (GKK). My investment thesis was based on restructuring or selling the company not rebuilding it. With the hiring of a new CEO 3 months ago, the Board has set a different direction (raising capital and remaining independent) from that which I had hoped. Even though the new CEO put up over $2.5 million of his own money to purchase shares (and thus filled in what I considered a weak point of my investment thesis – low or no insider ownership) I think this work-out is going to take much longer than I originally anticipated. I still think there is still considerable potential upside in the shares and I would consider repurchasing my position in the low $2 per share range.

Cash now at 12%… and counting. What’s next?

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From → Positions Closed

7 Comments
  1. brett permalink

    Any interest in the Sears (SHOSR) rights offering or the LIberty Ventures rights offering? Thanks.

  2. The Sears Hometown warrants are interesting for those who already own them. Their price is being driven (up) by Sears shortsellers who suddenly find themselves short the warrants and want to cover. For me, more interesting than the warrants are the Sears Holding shares themselves which own a number of assets whose value Eddie Lampert is in the process of realizing.

    As to Liberty Ventures I think there is little margin of safety at current prices. Glenn Chan did an interesting valuation before the shares were spun out (which you can see on his blog). I had the shares pegged as interesting below $15, so you can see how far off I was. I think investors are overoptimistic because they are associating this spin-off with the Liberty Media spin from TCI (see Greenblatt’s book “You Can be a Stock Market Genius” for that story). Right now LVNTA is a leveraged play on Expedia and TripAdvisor, not the investment accumen of the Malone team and it is priced for good to perfect execution. That doesn’t always happen. In any case the story has a long way to play out, and I wouldn’t be suprised if the shares traded down (but perhaps not to my interest level) before they trade up.

  3. If you do expect inflation why sell HHC: don’t they own a lot of land and buildings? Seems to me exactly the type of thing you want to own if you expect inflation.

  4. Agree but I think we’re still in for a deflationary period before we get to an inflationary one. HHC is trading on asset value rather than earnings or yield. I think there will be a chance to buy back in at considerably lower prices than what we’re seeing today. If not, there will be other opportunites.

    • Not to nitpick, but doesn’t that mean you are trying to time it – selling during the deflationary period while hoping to reenter when/before inflation starts?

      Otherwise, cashing out as theShiller PE turns 23 and Market Cap to GDP over 100% is not a bad idea. Moreover, corporate profits are also at a high and the markets – overstimulated. A good time to be cautious.

      • I suppose one might construe it as such, selling when the market is high(er) and buying when the market is low(er). But who knows whether the market will be even higher in 6 months? I certainly don’t. My reason to raise cash is that the market has moved up in lockstep over the past two months without discerning between companies. Why is HHC selling for 60% more today than it was a year ago? I haven’t seen the economics of the company improve that much. That’s what bothers me. I want to see the economics improve. I want to see the investment thesis play out.
        I’m not counting on reentering these positions at a lower price. I’m just saying that they continue to be companies I’m interested in, along with a select group of other companies/stocks, if the price to value relationship improves.

  5. Jay permalink

    KFT and TYC spins?

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