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.

#3 Forest City Realty Trust Inc (NYSE:FCE.A)

 – Shares Owned by Third Avenue (as of March 31): 5.66 Million

 – Value of Holding (as of March 31): $119.41 Million

A new stake in Forest City Realty Trust Inc (NYSE:FCE.A) represented Mr. Whitman’s most bullish move during the first quarter and totaled 4.59% of Third Avenue’s portfolio value on March 31. In order to reduce its debt and focus its portfolio on core products and markets, Forest City Realty Trust sold The Avenue at Tower City Center, a specialty retail center in downtown Cleveland, for $56.5 million on March 23. Forest City’s shares are up by 1.72% this year, which is considerably lower than the average gains of 8.86% posted by commercial REITs during the same period. Citigroup, however, upgraded the company to ‘Buy’ from ‘Neutral’ earlier this month, which could mean that the stock is poised for better performance in the future. AEW Capital owned 4.87 million shares of Forest City Realty at the end of March.

#2 Brookfield Asset Management Inc (NYSE:BAM)

 – Shares Owned by Third Avenue (as of March 31): 4.74 Million

 – Value of Holding (as of March 31): $164.81 Million

Third Avenue has held a stake in Brookfield Asset Management Inc (NYSE:BAM) since the third quarter of 2001 and the holding received a 9% boost to its size during the first three months of this year. Even though the investment management & fund operators industry is down by over 2.43% this year, shares of Brookfield Asset Management have moved against this trend, with year-to-date gains of more than 7%. Markel Gayner Asset Management, which is led by Tom Gayner, inched up its Brookfield Asset Management Inc (NYSE:BAM) holding by 1% to 5.05 million shares during the first quarter.

#1 Weyerhaeuser Co (NYSE:WY)

 – Shares Owned by Third Avenue (as of March 31): 7.35 Million

 – Value of Holding (as of March 31): $227.61 Million

Despite being slashed by 19% during the first quarter, Third Avenue’s Weyerhaeuser Co (NYSE:WY) position occupied the top spot in the fund’s portfolio at the end of March and represented 8.75% of its value. Following first quarter financial results in which the Canada-based global alternative asset manager topped earnings estimates but missed on revenue, DA Davidson downgraded the stock to ‘Neutral’ from ‘Buy’ and lowered its price target on it to $33 from $34. Shares of the company are up by 3% year-to-date and by 39% since February 12. First Eagle Investment Management, led by Mehdi Mahmud, raised its Weyerhaeuser Co (NYSE:WY) holding by 137% during the March trimester to 36.01 million shares.

Disclosure: None