Notes from Ira Sohn Conference

These the notes from the "Next Wave" Sohn mini-conference. Stay tuned as we'll be posting notes from the main Sohn Investment Conference later on.

John Khoury. Long Pond Capital

Idea: American Homes for Rent (AMH). REIT, buys houses, fixes them up and rents them out. Debate is whether it is a good business or not. Bears say it is impossible to manage thousands of homes efficiently. Bull case: 95% occupancy, length of stay 2x that of apartments NOI margins at or higher than apartments. Doing securitization now at L+1.66 Levered up- "you want to own an asset when it begins to be securitized."

Currently 2.7% FCF yield, but with 45% net leverage get 7.0% FCF yield. "REITs do not trade at 7% FCF yields." Apartment REITS trade at 5%, if this gets there, stock has $23 PT, 40% upside. "Free call option" is consolidation, they could roll up other businesses. Still only 20% of 1% of the total market. $3T market opportunity. Founder and management own $1B of the stock. Unlevered now, so limited downside if they are wrong.

Jason Karp. Tourbillon Capital

Idea: Ctrip (CTRP) - Tourbillon: looks for durable themes, ideas that there is a different way to look at it (he's formerly of SAC). Chinese travel one of the highest probability growth themes on the planet. $7.5B market cap, $800M cash, $48 now, LT price target $115-170. Trades at 17-25x p/e.

China is largest global spender on international tourism, but low per capita. Thesis is travel spend per person will catch up with other countries. China is only 50% internet penetration, but already has 600M users, double the US population. If CTRP just holds share, the revenue goes up 7.7x . They have 40% market share now. People always mismodel or underestimate the upside.

In 2009, sell side thought PCLN would do $9.19 eps in 2013, they actually did $41.00. PCLN went from $5.5B to $61.7B, up 10x in 5 years. CTRP is on similar trajectory, but their core market is growing faster. Controversy: margins have declined because they are investing in their business in a battle with eLong. Mobile room nights went from 0% to 35% since 2012. Problem is operating margins from 2007-2011 were 40%. Now in the 20s, but he says it will expand back up since they will not be able to spend so much on the business simply because the topline is so big.

Ethan Devine. Co-PM of Indus Capital

Idea: Goldencrest. Listed in Japan. Largest condominium developer in Japan. Trades at 0.50x book. Condos in Tokyo. Thesis is stock is cheap, despite how hot real estate is in Tokyo. He focuses on global special situations.

Nitin Saigal. CIO at Kora Management

Idea: Bharti Infratel. Originally thought it was a great short: Unattractive Industry, Regulatory uncertainty, hurdles to scale, capital allocation concerns. Bull case: There is competition and was overdevelopment in the past, but supply has rationalized. 900M cell phones in India, only 90M smartphones. Data demand story- like the US, China. India just did a spectrum auction. $7B market cap, 80k towers, 25% market share- has scale- nationwide tower network. Capital allocation has gotten better- dividend payout increased, disclosure better. Costs $50k to build a tower, one tenant 7.5% ROI, 3 tenants $15,500 annual revenue 25% ROIC. Thinks it should trade at 330 rupees/share, trades at 6% FCF yield, growing 15% per years, TEV/EBITDA 11X. Kora is an emerging markets fund, based in NYC, but offices in China, India, and Sao Paolo

Will Snellings. Founder of Marianas Fund.

Idea: Jet Blue (JBLU). Two big changes: consolidation- top 5 players control 85% of capacity. Cost curve shift- Southwest was destabilizing the industry, taking share because they had a cost advantage- which they no longer have. So industry is still below mid-cycle economics. Jet Blue has youngest fleet in industry- 8 years, low cost position and low ticket prices. Has 7.5% of industry capacity- small enough to grow without disrupting industry stability. 2013: $758M op cash flow vs $4.5B EV, $2.8B market cap. JBLU has materially underperformed the industry over last 2 years. He worked at Ospraie while setting up his own fund. Likes structural changes in businesses that make a bad industry become a very good one.

Courtesy of MarkketFolly email

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