Centerbridge Partners is perhaps better known for its private equity business, which announced that it would be taking P.F. Chang’s (NASDAQ: PFCB) private earlier this month for $1.1 billion. However, the hedge fund, run by Mark Gallogly and Jeffrey Aronson, has racked up impressive returns as well. As a testament to its investing prowess, it was able to quickly raise a $2 billion credit fund in March. Centerbridge leans toward distressed debt and leveraged buyouts and has approximately $17 billion in assets under management. Below are some of its top equity holdings.
CIT Group (NYSE: CIT), also held by Marc Lasry and Bruce Berkowitz, have seen its shares undergo a sell-off in recent weeks, and as shares bounce on a YTD low, we think this is a market overreaction that lends itself as a buying opportunity. We suspect drivers are European problems, lackluster performance last quarter, and a misunderstanding of the company’s business model. CIT is a new company post-Chapter 11, and while the stock proves challenging to value, especially with its self-dubbed “fresh start accounting,” (FSA) we think shares will revalue as it demonstrates that it is no longer a complex turnaround, rather a profitable company with earnings growth. With the stock down to ~5.8x 2014 earnings, we feel that even if we are giving CIT too much credit, the valuation still provides a margin of safety plus upside potential. There are catalysts in the upcoming quarter between relief from the Fed and net interest margin improvement, and we are buyers.
BankUnited (NYSE: BKU) had a decent Q1. EPS was slightly below consensus estimates ($0.44 vs. $0.45) but the company reported 7.4% q-o-q average loan growth and 12% y-o-y. Non-covered loans were up to $2.1 billion, 21% q-o-q, marking the first quarter that non-covered loans exceeded covered loans. Also, there was a bargain purchase gain of $5.3 million from the Herald acquisition. The PV of the indemnification asset was ~1.0 billion at Q4 end, but we think it would command a large markup if bought since it has such a high yield. We don’t feel that the opportunity here is very compelling. While there are certainly opportunities for BKU to continue to expand through acquisition, we would like to see more organic growth from the company.
Visteon (NYSE: VC) is another interesting restructuring play, but we think it’s about a year too early since we view the success of the restructuring process as dependent on rosier macro painting. Operations have been muddling along but are holding steady. From a restructuring standpoint, VC has sold the Lighting segment for a low multiple (2.3x to 4.6x), garnering negative press, sold the Grace Lake headquarters for $80+ million, and sold its stake in Duckyang, a Korean interiors joint venture. We expect that what remains of the Interior segment will be transferred to a joint structure with China-based Yanfeng Visteon Automotive Trim Systems with a final agreement potentially signing this quarter. We see this as a very deal-driven play as opposed to an earnings growth play. Based on the VC proxy, we infer that the five of seven Board seats are picked by hedge funds aka “investor friendly,” which is good but we maintain that without a healthy M&A market, we aren’t comfortable establishing a position just yet.
Starwood Hotels (NYSE: HOT) came out with some impressive Q1 results, commenting that this year’s earnings will continue to surprise. The company increased RevPAR (revenue per available room) forecasts to 6% to 8%. We think this is attainable (similar to Marriott’s guidance) however management held EBITDA guidance flat, adding some caution to our outlook. For the quarter, adjusted EBITDA of $297 million beat consensus estimates and guidance out of the water ($265 to $275 million). Moreover, Bal Harbour saw sales increases and strong pricing in its residential units. And to top off a great quarter, management touted its investment grade credit rating, bolstered by potential asset sales. And with over 1,100 properties (325,000 rooms) in ~100 countries, HOT has its pick. However, from a valuation standpoint, we think that there is limited upside at ~13.0x EV/EBITDA. If the European recovery is sooner and swifter than we anticipate, we may reevaluate our stance.
