REAL ESTATE VALUE FUND Third Quarter 2018 1 CONFIDENTIAL. FOR - - PowerPoint PPT Presentation
T H I R D A V E N U E REAL ESTATE VALUE FUND Third Quarter 2018 1 CONFIDENTIAL. FOR INSTITUTIONAL/BROKER USE ONLY. NOT FOR DISTRIBUTION TO THE PUBLIC. CONTENTS Overview 3 Investment Process 7 Portfolio Characteristics 15 Performance
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Third Quarter 2018
T H I R D A V E N U E
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Overview Investment Process
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Portfolio Characteristics
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Performance
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Investment Examples
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CONTENTS
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As of September 30, 2018
FOUNDED ASSETS UNDER MANAGEMENT EQUITY STRATEGIES OFFERED OWNERSHIP STRUCTURE MANAGEMENT EMPLOYEES INVESTMENT PROFESSIONALS VALUE EQUITY STRATEGY VEHICLES
1986 $3.4 billion Real Estate, Value & Small-Cap Affiliated Managers Group is majority shareholder; 9 Third Avenue partners with average firm tenure of 15 years Three-person management committee with average Firm tenure of 14 years leads strategic direction Four-person operating committee handles day-to-day operations with average Firm tenure of 12 years 33 13, including 10 with a Chartered Financial Analyst designation Mutual Funds UCITS Global Real Estate Select Portfolio (Concentrated, Best Ideas)
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T HIRD AV E N UE REAL ESTAT E VALUE ST RAT EGY BACKGROUND
Deep Expertise
Significant expertise in real estate securities analysis as well as direct experience in real estate development
Long Term Track Record
Launched in 1998, our 20 year track record makes us one of the longest tenured Global Real Estate mutual funds
Differentiated Approach
Our strategy seeks long term capital appreciation by investing globally across an expansive universe that includes real estate and real estate- related securities and across the capital structure
Ryan Dobratz, CFA Portfolio Manager 14 years experience Joined firm in 2006 Jason Wolf, CFA Portfolio Manager 24 years experience Joined firm in 2004
Portfolio Management Team
Named BEST GLOBAL REAL ESTATE FUND for 5 Consecutive Years1
1 Lipper designates award-winning funds in most individual classifications for the three-, five- and 10-year periods and fund family awards covering three years. Lipper Fund Awards are based on Lipper’s Consistent Return calculation. Lipper scores for Consistent Return reflect funds’ historical risk-adjusted returns relative to funds in the same Lipper classification and include each fund’s expenses and reinvested distributions, but exclude sales charges. Consistent Return values are calculated with all eligible share classes for each eligible classification. For the 2018 United States Lipper Awards, TAREX was the top performer among 33 funds in Lipper’s Global Real Estate category based on five-year risk-adjusted performance. For the 2017 Switzerland Lipper Awards, TAREXU was the top performer among 28 funds in Lipper’s Global Real Estate category based on fiver-year risk-adjusted performance. For the 2016 US Lipper Awards, TAREX was the top performer among 33 funds in Lipper’s Global Real Estate category based on five-year risk-adjusted performance. For the 2015 US Lipper Awards, TAREX was the top performer among 36 funds and 103 unique share classes in the Global Real Estate Category based on three-year risk-adjusted performance. For the 2014 US Lipper Awards, TAREX was the top performer among 92 funds in Lipper’s Global Real Estate category based
THOMSON REUTERS LIPPER FUND AWARDS BEST Global Real Estate Fund
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Value Investor with a Long Term Horizon
We limit our investments to long-term value opportunities applying Third Avenue’s investment philosophy for equity and debt investments as the foundation
Focus on Total Return
Our investment return objective is focused on tax-efficient total return with a primacy on capital appreciation over current income
Expansive Real Estate Universe
Our investment opportunities include REOCs, REITs, land developers, homebuilders, real estate brokerage, companies with substantial real estate holdings (e.g., retailers, timber companies), and real estate related debt securities when we can earn equity-like returns
Active Portfolio Management
We actively manage the portfolio by prudently concentrating on our highest conviction ideas, hedging where appropriate, and holding cash when there are fewer buying opportunities
KEY DIFFERENTIATORS
A Differentiated, Value- Oriented Approach to Global Real Estate Investing
T HIRD AV E N UE REAL ESTAT E VALUE ST RAT EGY
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$717,413
Third Avenue Real Estate Value Fund
FTSE EPRA/NAREIT Developed Real Estate Index
$581,859
Source: FactSet Portfolio. 1 Inception Date: September 17, 1998. The gross expense ratio for the Fund’s institutional, investor and z share classes is 1.11%, 1.36% and 1.01%, respectively, as of March 1, 2018. The FTSE EPRA/NAREIT Developed Real Estate Index was developed by the European Public Real Estate Association (EPRA), a common interest group aiming to promote, develop and represent the European public real estate sector, and the North American Association of Real Estate Investment Trusts (NAREIT), the representative voice of the US REIT industry. The index series is designed to reflect the stock performance of companies engaged in specific aspects of the North American, European and Asian Real Estate markets. The Index is capitalization-weighted. The S&P 500 Index is a widely recognized benchmark of U.S. stock market performance that is dominated by the stocks of large U.S. companies. The S&P 500 index is a registered trademark of McGraw-Hill Co.,
include reinvestment of interest, capital gains and dividends.
Performance is shown for the Third Avenue Real Estate Value Fund (Institutional Class). Past performance is no guarantee of future results; returns include reinvestment of all
fluctuate so that an investor's shares, when redeemed, may be worth more or less than the original cost. For the most recent month-end performance, please visit the Fund’s website at www.thirdave.com.
$418,599
S&P 500
100 200 300 400 500 600 700 800 900 TAREX NAREIT S&P 500
T HIRD AV E N UE REAL ESTAT E VALUE ST RAT EGY VALUE OF $100K From September 1998 to September 30, 20181
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Universe Idea Generation Fundamental Analysis Security Selection Portfolio Construction Sell Discipline
$2.9 Trillion Global Opportunity Set Proprietary quantitative and qualitative screens Ongoing monitoring of reserve list and current holdings Full assessment of company’s balance sheet, business risks, long-term growth potential, and fundamental valuation Highest conviction ideas added to inventory or Portfolio, based on valuation Concentrated with 30-40 names; top 10 typically account for up to 50% of Portfolio Trim or exit position based on valuation targets and portfolio construction goals
IN V EST MEN T PROCES S INVESTMENT PROCESS
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34% Real Estate Operating Companies
$1 trillion market cap
34% Real Estate Related Companies3
$1 trillion market cap
31% Real Estate Investment Trusts
$900 billion market cap
EXPANSIVE INVESTMENT UNIVERSE
select markets1
Developed Real Estate Index2
Global Opportunity Set
1. The Fund invests only in markets in countries with minimal political and legal risk and provide shareholder protection in the form of high transparency, English language disclosures, audited financials and other regulatory protections. 2. The FTSE EPRA/NAREIT Developed Real Estate Index. The index series is designed to reflect the stock performance of companies engaged in specific aspects of the North American, European and Asian Real Estate markets. The Index is capitalization-weighted. 3. A company is considered a real estate-related company if at least 50% of its gross revenue or net profits at the time of investment are derived from providing goods (e.g., building materials and/or supplies) or services (e.g., consulting, property management, brokerage, leasing, appraisals or insurance) to the real estate industry.
IN V EST MEN T PROCES S
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THIRD AVENUE REAL ESTATE UNIVERSE
Global REITs, Real Estate Operating and Real Estate Related Companies
Equity and Special Situation Credits
Opportunistic Ideas
business improvements
Screening
qualitative screens
list and current holdings
Current Themes
markets
Recaps and Acquisition Targets
Team Discussion
Select candidates for extensive fundamental analysis
IDEA GENERATION IN V EST MEN T PROCES S
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FUNDAMENTAL ANALYSIS IN V EST MEN T PROCES S
High quality assets Appropriate debt levels Ability to retain capital for reinvestment Lack of commitments and contingencies Full assessment of company’s business risks including: markets, competition, financial, macro, environmental and legal Companies domiciled in countries with sound regulatory, legal and political frameworks Development, redevelopment, entitlements or other value creation activities Current focus on gateway cities Double digit compounding value Free cash flow expectations Alignment of interest with Shareholders Operational capability Investing track record Financing strategy Compensation Personal capital at risk What is the business worth on a long-term basis under best/mid/worst case scenarios? Private transaction or strategic purchaser value
Balance Sheet Strength Business Risks Long Term Growth Potential Company Management Valuation
Fully vetted candidates are formally presented to the team
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SECURITY SELECTION IN V EST MEN T PROCES S
Add to reserve
Exceptional opportunity Businesses we would like to own at more attractive valuations Price isn’t ideal at current time
Idea Inventory
30-40
Names
Portfolio Holdings
30-40
Names Buy for Portfolio Highest conviction ideas Compelling valuation, compounding potential and managerial strength
Fully vetted candidates
Fundamental Strengths Long term growth potential
Fully Vetted Candidates
Initial investment decision
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IN V EST MEN T PROCES S
Portfolio Guidelines
PORTFOLIO CONSTRUCTION
Focus on global universe and invest in REOCs, REITs, homebuilders, land developers, timber companies and other real estate related companies
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SELL DISCIPLINE IN V EST MEN T PROCES S
Trim portfolio position Exit portfolio position
buy-outs, spin-offs, etc.
attractive upside downside trade-off
managerial missteps or a mistake in our analysis
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CK Asset Holdings Brookfield Land Securities Forest City Vornado Wheelock Henderson Land
Compounders
Weyerhaeuser Rayonier Five Point Lennar FNF Group Amerco Lowe’s
Residential
45% 32% 17%
Millennium & Copthorne Trinity Place Wharf Toys “R” Us
Special Situations
6%
Currency Hedges Options
Cash & Options
As of September 30, 2018 PORTFOLIO THEMES P ORT FOLIO CHARAC T E RISTICS
Holdings subject to change without notice
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FUND CHARACTERISTICS
Portfolio Turnover2 7% Number of Equity Holdings 33 Weighted Market Cap3 $16.03 Billion Active Share4 92.27% Price-to-Book3 1.09x Cash 5.8% Non-U.S. Real Estate Operating Companies 31.2% U.S. Real Estate Investment Trust 15.2% Forest Products & Paper 9.8% Non-U.S. Real Estate Investment Trust 7.9% U.S. Real Estate Operating Companies 7.1%
TOP 5 INDUSTRIES5
TAREX Index1
CK Asset Holdings, Ltd. 6.4% 1.4% Lennar Corp. 5.8%
5.5%
5.4%
4.7% 0.5% Henderson Land Development Co. Ltd. 4.6% 0.4% Rayonier, Inc. 4.3%
4.0%
3.9%
3.6%
48.2% 2.3%
TOP 10 HOLDINGS
1 The FTSE EPRA/NAREIT Developed Index was developed by the European Public Real Estate Association (EPRA), a common interest group aiming to promote, develop and represent the European public real estate sector, and the North American Association of Real Estate Investment Trusts (NAREIT), the representative voice of the US REIT industry. The index series is designed to reflect the stock performance of companies engaged in specific aspects of the North American, European and Asian Real Estate markets. The Index is capitalization-weighted. 2 For the year ended October 31, 2017. 3 Source: FactSet Portfolio Analytics. Based on equity holdings only. 4 Relative to the FTSE EPRA/NAREIT Developed Index. Active Share is the percentage of a fund’s portfolio that differs from the benchmark index. 5 Third Avenue Management LLC ("TAM") does not necessarily utilize these Property Types in its annual reporting. Narrow industries are utilized for compliance purposes, whereas broad sectors are utilized for reporting. TAM does not adhere to any pre-determined sector, industry, or geographic allocations.
GEOGRAPHIC COMPOSITION
PORTFOLIO OVERVIEW
as of September 30, 2018
P ORT FOLIO CHARAC T E RISTICS
5.4% 19.7% 17.3%
2.5%
USA Hong Kong Singapore United Kingdom
48.9%
Canada
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As of September 30, 2018 P E RFORMAN CE THIRD AVENUE REAL ESTATE VALUE FUND
6.60% 6.25% 7.43% 10.33%
0.76% 4.62% 7.16% 6.34% 6.88% 9.63%
0% 2% 4% 6% 8% 10% 12% 3 Mo YTD 1 Yr 3 Yr 5 Yr 10 Yr Inception* Third Avenue Real Estate Value Fund FTSE EPRA/NAREIT Developed Index
*Inception for Fund is September 17, 1998. The gross expense ratio for the Fund’s institutional, investor and z share classes is 1.11%, 1.36% and 1.01%, respectively, as of March 1, 2018. The FTSE EPRA/NAREIT Developed Real Estate Index was developed by the European Public Real Estate Association (EPRA), a common interest group aiming to promote, develop and represent the European public real estate sector, and the North American Association of Real Estate Investment Trusts (NAREIT), the representative voice of the US REIT industry. The index series is designed to reflect the stock performance of companies engaged in specific aspects of the North American, European and Asian Real Estate markets. The Index is capitalization-weighted.
Performance is shown for the Third Avenue Real Estate Value Fund (Institutional Class). Past performance is no guarantee of future results; returns include reinvestment of all distributions. The above represents past performance and current performance may be lower or higher than performance quoted above. Investment return and principal value fluctuate so that an investor's shares, when redeemed, may be worth more or less than the original cost. For the most recent month-end performance, please visit the Fund’s website at www.thirdave.com.
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2017 2016 2015 2014 2013 2012 2011 2010 2009 2008 Third Avenue Real Estate Value Fund 22.17% 5.82%
13.12% 16.42% 36.24%
17.76% 38.67%
FTSE/EPRA NAREIT Developed Index 11.42% 4.99% 0.05% 15.89% 4.39% 28.65%
20.40% 38.26%
2007 2006 2005 2004 2003 2002 2001 2000 1999 1998* Third Avenue Real Estate Value Fund
30.14% 14.37% 28.16% 37.39% 4.22% 18.15% 31.02% 5.13% 7.47% FTSE/EPRA NAREIT Developed Index
42.35% 15.35% 37.96% 40.69% 2.82%
13.84% 8.87%
*Inception for Fund is September 17, 1998; 1998 calendar year performance covers inception through December 31, 1998. The gross expense ratio for the Fund’s institutional, investor and z share classes is 1.11%, 1.36% and 1.01%, respectively, as of March 1, 2018. The FTSE EPRA/NAREIT Developed Real Estate Index was developed by the European Public Real Estate Association (EPRA), a common interest group aiming to promote, develop and represent the European public real estate sector, and the North American Association of Real Estate Investment Trusts (NAREIT), the representative voice of the US REIT industry. The index series is designed to reflect the stock performance of companies engaged in specific aspects of the North American, European and Asian Real Estate markets. The Index is capitalization-weighted.
Performance is shown for the Third Avenue Real Estate Value Fund (Institutional Class). Past performance is no guarantee of future results; returns include reinvestment of all distributions. The above represents past performance and current performance may be lower or higher than performance quoted above. Investment return and principal value fluctuate so that an investor's shares, when redeemed, may be worth more or less than the original cost. For the most recent month-end performance, please visit the Fund’s website at www.thirdave.com.
P E RFORMAN CE
ANNUAL FUND RETURNS SINCE INCPETION
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Well-Capitalized
95% leased on an average term of 8 years
below 30%
to make opportunistic investments
Discount to NAV
stated NAV implying a cap rate in excess of 6%
pricing even more compelling for long-term investors
Potential to Increase NAV Solid Management Team
End Office & market dominant Regional Malls
Victoria office and Oxford retail projects
and projects in near-term
to long term value creation
sounds operations & strategic development
Compounder: UK’s Largest REIT with high-quality office and retail properties and long-term value creation potential through strategic developments
Holdings subject to change without notice
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Well-Capitalized
timberland portfolio in North America
OSB, etc.) and Resource businesses
a Loan-to-Value Ratio of less than 30%
Discount to NAV
market comps and implied value of less than $2k per acre
depressed cash flows
Potential to Increase NAV Solid Management Team
prices in both its Timber & Wood Products platforms
capitalize on Higher & Better Use (“HBU”)
timberlands business
shareholder value, divesting non-core assets, cut costs , and repurchase shares at discounts to NAV
Residential: Leading owner of Timberlands and Wood Products
businesses with strong ties to an improving US Housing Recovery
Holdings subject to change without notice
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Well-Capitalized
cash on its balance sheet with no debt
retain its profits and reinvest in the business to compound value
Discount to NAV
a 50% discount to its private market value which is likely to close as the company builds out its development projects.
Point’s residential land bank is only $30k per lot for some of the most well-located sites in North America.
Potential to Increase NAV Solid Management Team
10% or more per year by improving and selling its residential land and reinvesting the profits in commercial real estate properties that will be held for long-term investment.
existing projects expanding the amount of entitlements beyond the existing 40k residential lots and 20 mm square feet of commercial space.
head of Five Point Communities and CIO of Lennar Corp (US Homebuilder)
financing, operating, and investing capital and is aligned with significant inside ownership
Residential: U.S. based land developed company with high-quality properties in high barrier to entry markets with promising pipeline
Holdings subject to change without notice
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Special Situations: Former retailer turned Real Estate Company via bankruptcy and restructuring
Well-Capitalized
a portfolio of well-located real estate, intellectual property, and substantial tax assets
modest levels of debt and excess cash after recent capital raises
Discount to NAV
25% discount to its private market value without assigning development profits at key projects
the company’s development site in lower Manhattan is less the $400 per square foot
through the company’s 77 Greenwich Project in lower Manhattan which has 240,000 sf in development rights
invest with partners to build up scale as an asset manager focused on value-add NYC assets
Potential to Increase NAV Solid Management Team
was previously at Forest City and has significant experience in the NYC market across multiple property types
term investors and incentivized to unlock value in the company’s remaining assets
28-42 Trinity Place
Holdings subject to change without notice
622 Third Avenue, 32nd floor New York, New York 10017 www.thirdave.com
/third-ave-management
clientservice@thirdave.com (212) 906-1160
Fund Risks: In addition to general market conditions, the value of the Fund will be affected by the strength of the real estate markets. Factors that could affect the value of the Fund’s holdings include the following: overbuilding and increased competition, increases in property taxes and
maturing debt, vacancies due to economic conditions and tenant bankruptcies, losses due to costs resulting from environmental contamination and its related clean-up, changes in interest rates, changes in zoning laws, casualty or condemnation losses, variations in rental income, changes in neighborhood values, and functional
and appeal of properties to tenants. For a full disclosure of principal investment risks, please refer to the Fund’s Prospectus.
These materials do not constitute an offer to sell or a solicitation of an offer to purchase any securities. Third Avenue Funds are offered by prospectus only. Please visit www.thirdave.com to access and carefully read the Fund’s prospectus before investing as it contains important information, including full disclosures of investment objectives, advisory fees and expenses, and investment risks, including principal loss risk. Distributor of Third Avenue Funds: Foreside Fund Services, LLC.