Third Avenue Management Cuts Real Estate Holdings Heading Into Q2

Martin Whitman‘s Third Avenue Management seeks out the best risk/reward opportunities it can find across various markets, industries, and sectors. According to the fund’s latest 13F filing with the SEC, the two industries that comprised the largest chunk of the firm’s 13F portfolio were real estate and finance, though real estate stocks were down to a 30% share of the portfolio on March 31, from 36% on December 31. In order to help retail investors seek out bargains in this space and benefit from Third Avenue’s rigorously researched bottom-up approach, we have delved into the fund’s top-5 holdings and presented our findings below.

We track prominent investors and hedge funds because our research has shown that historically their stock picks delivered superior risk-adjusted returns. This is especially true in the small-cap space. The 15 most popular small-cap stocks among a select group of investors delivered a monthly alpha of 80 basis points between 1999 and 2012 (see the details here).

#5 Rayonier Inc. (NYSE:RYN)

 – Shares Owned by Third Avenue (as of March 31): 4.10 Million

 – Value of Holding (as of March 31): $101.09 Million

During the January-to-March period, Third Avenue slashed its holding in the timber REIT by 20%, after which the stake represented about 3.23% of the company’s outstanding shares. If we take into account the monumental 14.3% appreciation in Rayonier Inc. (NYSE:RYN)’s stock price so far this year, Third Avenue’s move seems to be one of profit taking, rather than an example of bearish sentiment. Rayonier reported its first quarter earnings on May 4, which amounted to $0.11 per share in earnings on revenue of $134.8 million. EPS was $0.03 ahead of estimates, while revenue beat forecasts by $6.9 million. With 8.09 million shares of Rayonier Inc. (NYSE:RYN) in its portfolio, Mason Hawkins‘ Southeastern Management is the largest stockholder of the company within our database out of the funds that have filed for the March 31 reporting period.

#4 Macerich Co (NYSE:MAC)

 – Shares Owned by Third Avenue (as of March 31): 1.38 Million

 – Value of Holding (as of March 31): $109.14 Million

Third Avenue’s stake in Macerich Co (NYSE:MAC) was slashed by 23% during the first quarter, with the REIT representing 4.2% of the value of the fund’s portfolio on March 31. In its financial results for the first quarter, Macerich managed to meet analysts’ expectations on the bottom-line and exceeded revenue estimates. RBC Capital Markets recently upgraded the company to ‘Outperform’ from ‘Sector Perform’ and raised their price target on it to $87, which suggests upside potential of about 23%. Jeffrey Furber‘s AEW Capital Management, another prominent real estate investor, also trimmed its Macerich Co (NYSE:MAC) holding during the March quarter, by 6% to 1.11 million shares.

Third Avenue Management’s top-3 stock picks are uncovered on the next page.