Long Pond Capital is a New York-based hedge fund led by John Khoury. Khoury, with a degree from Wharton School of Business at the University of Pennsylvania, applies a rigorous bottom-up approach to research and invests primarily in real estate investment trusts (REITs), and other real estate-related companies. The hedge fund, with a public equity portfolio valued at $2.16 billion as of March 31, was invested 75% in finance (which includes real estate) and 23% in consumer discretionary stocks, with its three largest holdings all being in real estate-related companies: American Homes 4 Rent (NYSE:AMH), Starwood Hotels & Resorts Worldwide Inc (NYSE:HOT) and Blackstone Mortgage Trust Inc (NYSE:BXMT). We’ll take a look at these stocks in this article.
Professional investors like Khoury spend considerable time and money conducting due diligence on each company they invest in, which makes them the perfect investors to emulate. However, we also know that the returns of hedge funds on the whole have not been good for several years, underperforming the market. We analyzed the historical stock picks of these investors and our research revealed that the small-cap picks of these funds performed far better than their large-cap picks, which is where most of their money is invested and why their performances as a whole have been poor. Why pay fees to invest in both the best and worst ideas of a particular hedge fund when you can simply mimic the best ideas of the best fund managers on your own? A portfolio consisting of the 15 most popular small-cap stock picks among the funds we track has returned more than 142% and beaten the market by more than 84 percentage points since the end of August 2012, and by 4.6 percentage points in the first quarter of this year (see the details).
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In American Homes 4 Rent (NYSE:AMH), Long Pond Capital increased its stake by 32% during the first quarter to a total of 14.71 million shares with a value of $243.50 million, and representing 11.25% of its public equity portfolio. The California-based American Homes 4 Rent (NYSE:AMH) is, as the name indicates, in the home rental business, renting single-family homes to customers in 23 states in the U.S. The stock has struggled of late, being down by 0.9% year-to-date and 6.1% during the last year. The results for the first quarter of 2015 did however show a big increase in revenue, of 70.5% compared to the first quarter of 2014, mainly driven by a higher number of leased houses. On average, American Homes 4 Rent (NYSE:AMH) had 29,717 homes leased during the quarter out of the 36,588 homes it had in its portfolio, which is a bit above an 80% rental rate, far better than the 55% region it occupied last year. In February, American Homes 4 Rent (NYSE:AMH) also announced that it had finished its fourth securitization in order to obtain funds for new purchases, like the 900 homes it bought from Ellington Housing in January. An increased stake in the company was also taken by Bill Miller of Legg Mason Capital Management, who now owns 6.52 million shares of the housing operator.
In Starwood Hotels & Resorts Worldwide Inc (NYSE:HOT), Long Pond Capital increased its stake by 82% to 2.83 million shares with a value of $236.37 million during the first quarter. Starwood Hotels & Resorts has also experienced a slow spring on the exchange, having returned 2.1% year-to-date. Earlier in June, Starwood’s subsidiary St. Regis Hotel & Resorts reported that it was about to launch its St. Regis Mumbai location during the third quarter this year. The luxury hotel St Regis Mumbai is currently kept by Pallazzio Hotels & Leisure Ltd. The opening of St Regis Mumbai is in line with the earlier announced strategy of the company to open more luxury hotels. For fiscal 2015, Starwood Hotels & Resorts plans to open at least 43 hotels.The strongest brand is still the Sheraton Hotel, which lately has gained popularity among Chinese clients, at least according to Starwood Hotels & Resorts Worldwide Inc (NYSE:HOT) itself. An increased share in Starwood was also taken by Doug Silverman and Alexander Klabin‘s Senator Investment Group. After the 152% increase to their positions, the fund now holds 5.65 million shares with a value of $471.78 million.
In real estate finance company Blackstone Mortgage Trust Inc (NYSE:BXMT), John Khoury increased his stake by 2% to 4.69 million shares with a value of $133.18 million. Blackstone, which originates and acquires senior loans collateralized by real estate in Europe and North America, has increased 1.5% on the exchange year-to-date and slightly more, a modest 1.9%, for the last year. The stock leapt on April 10 when it was announced that Blackstone Mortgage Trust Inc (NYSE:BXMT) was about to buy a $4.60 billion mortgage loan portfolio from GE Capital Real Estate (NYSE:GE) but has since fallen back, even despite the first quarter earnings of $0.54 that were announced on April 28 meeting analysts’ expectations. Other shareholders of the company are hoping it will meet their own expectations, including Joshua Kaufman and Craig Nerenberg‘s Brenner West Capital Partners, which increased its stake in the REIT by 2% to 1.04 million shares during the first quarter.
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