Wintrhop Realty Trust FUR
October 15, 2008 - 8:38pm EST by
2008 2009
Price: 2.25 EPS
Shares Out. (in M): 0 P/E
Market Cap (in $M): 177 P/FCF
Net Debt (in $M): 0 EBIT 0 0

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FUR represents the opportunity to invest in cash laden real estate opportunity platform in the hands of one of the country best real estate investors. With the CEO adding to his already enormous position at $4.00 a share a month ago, the announcement of a stock buyback and ample liquidity the risk-reward to FUR seems exceptional.
I think the following quote from the 2007 letter sums it up (March 2008).
“Management is dedicated to an opportunistic value oriented real estate investment strategy having previously participated in a number of real estate downturns. The effects and duration of each downturn is as unique as its origins and currently impossible to predict. Nevertheless, our prior experience has provided us with certain lessons as to which we intend to adhere in this cycle. First, tread cautiously and deliberately. More often than not those that rush to invest too early in a downturn needlessly expose their capital to excessive risk and miss more attractive opportunities that may emerge later in the cycle. Focus on investing in the highest quality assets. Since their pricing falls almost to the same extent as lesser quality assets and their price recovery is generally quicker and more certain, these assets constitute the best bargains. If you have the stomach for it as we do, consider both performing and distressed debt as a near term investment strategy. Why not enjoy exceptional yields, with the possibility of acquiring an asset at a discounted price point. When available, strongly consider portfolio and corporate real estate investments. You are almost always less likely to be mistaken in your valuation of 30 assets than you are with respect to one asset. Finally, pursue joint venture investment platforms as a means of diversifying your opportunities and maximizing the returns on your capital.”
FUR is a reit that, unlike most reit looks to build value predominantly through capital appreciation versus straight rent and interest income streams. It often buys distressed properties, infuses capital and then sells trying to achieve outsized IRRs. It’s very creative in using real estate tax strategies an NOL harvesting to optimize the platform and ultimate returns to shareholders.
FUR owns a mix of operating assets (real buildings), debt positions, equity participation in JV’s, and equity in other REITs. Ashner has a history of unrelentless pursuit of shareholder value, and is a seasoned activist that will stop at nothing to unlock value. Ackman actually has followed him into some positions (Sizeler), and Ackman last year nominated Ashner to the board of Ceridian during the proposed proxy contest there.
FUR employ’s modest leverage, when compared to other REITs, at the corporate level employ no recourse debt, and is flush with cash in this opportunity rich environment.
When converting the preferred shares fully diluted common is roughly 98 mm shares.
Stated Book Value is $4.00 a share, and the company is actively buying back it’s debt at large discounts, its stock as well and deploying capital in this dislocated environment for commercial real estate assets.
As of June 30, the company has 135 mm of unrestricted cash, and I calculate about another of 20 mm of post quarter cash distributions from other investment. It also took down its corporate revolver at key banc for another 70 mm in liquidity and no significant amount of debt is coming due at the corporate level.
So with roughly 155 mm of cash that represents about $1.60 a share in cash and you are paying ($2.25 – 1.60) * 98 mm = 64 mm for a portfolio of other assets that I think over time are money good and worth about 200-300mm . The other primary investments include a JV with Marc realty which seems to be doing well, as they have exited some investments in that platform at very high IRR’s and also their large investment into the equity tranche of a debt investing platform (Concord). It's hard to tell what the other assets are worth but getting them at such a discount to what Ashner paid is what makes me comfortable.
Concord’s had one impairment, and in general Ashner is not a guy that defers bad news. He also looks first to capital preservation first and I can point to multiple examples where he demonstrates he is not afraid to take his medicine early. The idea behind Concord was originally to buy debt, issue CDO’s and take the platform public. They got one CDO done, but since then the markets here have shutdown, and now FUR wants to start taking its capital out of Concord. They recently brought in Inland partners in a preferred position and over time will take distributions here to get half of their 162 mm investment off the table. So far they have taken roughly 14 mm off.
In summary
$1.60 in cash /share
$ .60 cents for the Marc portfolio
That gets you to the current stock price.
I think those two assets are pretty easy to get comfortable with.
You get the rest of the properties/assets for free, and with 200mm of cash, no near term liquidity needs, in the hands of proven distressed investors we think FUR has little downside, with upside of $4-6 per share through deploying the existing cash, buybacks of stock and debt at deep discounts.This represents 100-200% upside with a credible manager, with low risk of permant loss of capital.
Biggest risk is that Repo lines at Concord, we suspect they have gotten significant margin calls but the inland money should help meet these. Also Concord has a 100 mm line at Key which has lots of room left. In any event we get these assets for ‘free’ since the debt is recourse only to the assets on the lines.
Obviously commercial real estate isn’t in favor as an asset class but this is exactly why the opportunity has presented itself. That could persist for awhile but FUR will continue to buy back the stock/debt and given they can hold their hand for a while we believe value will ultimately be realized.
Ashner and company get paid on a 2/20 scheme….but the liquidation value hurdle is north of $3.87 thus if they want to receive their carried interest they need to be certain that distributions are north of this number, great to know if you get in at this price.
Also given that the operating assets are real estate the vast majority of the debt at FUR is only recourse to the specific properties in question. I think in the current environment one can see the obvious value in this structure.
Bruce Berkowitz use to sit on his board, and backstopped the last rights offering at $4.27 in May.
Check out Ashner’s letter to Investors from March, under the IR section. This is a must read to truly understand FUR.


Buy back of Debt, stock and distributions. Earnings call on 11/6/08
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