CRM Windridge Partners, L.P. is a long/short equity hedge fund with a particular focus on the real estate component of the research process when analyzing companies. A multi-capitalization company approach, the overall universe of potential investments (long and short) consists of:
1) Real Estate Investment Trusts (REITs), 2) Real Estate Operating Companies (REOCs), and 3) Real Estate Related Companies. This generates a broad universe of industries for potential investment (long and short), including but not limited to REITs, REOCs, Homebuilders, Healthcare Facility Stocks, Lodging, Title Insurance, Restaurants, Gaming, Leisure Stocks, and Retail Stocks.
We take a value approach to investing in real estate related stocks. History shows that companies with large real estate exposure eventually trade above the value of their real estate. Real estate related stocks tend to be misunderstood, as Wall Street focuses only on earnings and other factors, ignoring the underlying real estate value. This leads to mis-priced stocks that trade at a discount to their real estate value. In addition to evaluating all of the traditional valuation metrics such as earnings power, cash, and cash flow, etc., Windridge looks for hidden real estate value within stocks. The team's specialized background, contacts, and tools empower them to properly value real estate related securities. On the long side of the balance sheet we seek to buy stocks at large discounts to their real estate values, hold them until they trade for a premium, sell and repeat the process. In general, stocks trade back to a premium of their real estate value as: (1) the market realizes this hidden real estate value, (2) the company sells their real estate holdings and buys back stock or distributes the proceeds in the form of a dividend, and/or (3) a private real estate opportunity fund purchases the company.
On the short side of the balance sheet, we invest in both directional shorts and balanced shorts. Directional short positions are taken in companies that are trading at an unjustified premium to their real estate value, companies in which our research indicates declining fundamentals not yet recognized by the overall market, and/or companies in which our research identifies a negative event not yet recognized by the market. Balanced trades are situations where we are simultaneously long and short individual stocks within a given area of the market. The short investments within such themes are often loved by the investment community, have a large amount of capital chasing the area, and are trading at a large premium to the estimated intrinsic real estate value. They are paired with long investments in companies that are trading at a large discount to their real estate value, where there is not a lot of capital chasing the area, and where we see fundamentals improving. Here we are seeking to capture inefficiencies in thematic developments in the sub-sectors of the real estate securities market.
The instruments employed include REITs, common stock of non-REIT companies and, less frequently, hedging instruments, including, but not limited to, exchange traded funds and options on the S&P 500 Index (to hedge market exposure), the Russell 2000 Index (to hedge small cap exposure), the Dow Jones Industrial Average (to hedge cyclical exposure), and iShares on the Lehman 20 Year Bond (to hedge interest rate risk).