Posted: February 24, 2017 by Eli Randel, Director of Business Development
PROFILE OF THE ACTIVIST CRE INVESTOR – JONATHAN LITT
Activist investors are nothing new. Famed investors like Carl Icahn have made careers out of obtaining stock or equity in a firm and then attempting to force changes or restructuring to unlock perceived thus creating profit in a higher share price, the payment of dividends (Icahn held a major position in Apple and lobbied to them to pay out their cash in dividends), or from a merger or buyout. The strategy is perceived occasionally as shortsighted, sometimes self-serving, and often hostile as activist investors usually become a thorn in the side of management and executives. But often (not always) the activist is right and helps shareholders gain by unlocking value in a misaligned firm.
Where the concept might differ in the CRE world thus resulting in fewer activists is that typically REITs aren’t as complex as other industries and are mandated in their tax structure to pay a percentage of profit as dividends. REITs are generally the holding company for a portfolio of assets therefore the stock value should be relatively in-line with the value of the assets. However, how the portfolio is managed could dilute asset value. An additional complexity is that some REITs – despite being publicly traded – are still largely controlled by a scion or founding family resulting in a pride of ownership or level of control which may at times contradict fiduciary duty to shareholders. When an imbalance and inefficiencies are seen, opportunists like Jonathan Litt emerge.
Jonathan Litt has become a popular figure in the Commercial Real Estate world by becoming a prominent activist investor through his hedge fund Land & Buildings. Simply put, the firm generally accumulates enough stock or equity to hold a significant position in a REIT, and then explores ways in which additional value can be unlocked which in turn should drive up the stock’s share price. Strategies might involve restructuring, merging with another firm, changing the executive composition, or selling off properties when it’s believed they are worth more than where Wall St. is valuing them. Why the strategy has been effective in recent years is because the Net Asset Value (or NAV) of several REITS has exceeded the corresponding stock value meaning the assets the company owns are worth more than the company (there is a similar story to the privatization of REITs).
Despite seemingly being on the finance side of the industry more than brick-and-mortar, Litt knows property. He knows lease details, values, renovation costs, management; and the result is an average of 17.2% in annual returns (net of fees) in his first three years operating his hedge fund which outperformed the REIT index by 6.7% and the S&P 500 by 4.4%. In 2016 Litt made his mark when he recognized a Las Vegas recovery and took a position in MGM. He would help convince MGM to spin off many of their hotels into a public company. The result was a short-term 20% gain in share price (greater now) and while some question how much Litt’s involvement deserves credit, the response is always – it got done.
Prior to forming Land and Buildings in 2008, Litt was a Managing Director and Senior Property Analyst at Citigroup where he coordinated a team of 44 research analysts and was considered one of the best analysts in the industry. Litt’s career began with European Investors and BrookHill Properties. Litt obtained a BA from Columbia University before obtaining his MBA from NYC. Jonathan Litt is also involved in several charities.