Third Avenue Funds has released its latest Shareholder's Report. The company was founded by famed value investor Marty Whitman and its flagship Value Fund (TAVFX) has whipped the S&P 500 (SPY) since 1990, averaging 12.02% versus 9.92%.
[Apache's] shares were purchased at a slight discount to book value, 3.5x earnings before interest, taxes depreciation and amortization ("EBITDA"), 8x expected 2013 earnings and a 20% discount to our conservative estimate of net asset value ("NAV"). The management team, led by CEO Steve Farris, has an impressive long-term track record of growth, and several recent acquisitions, including assets opportunistically acquired from BP (BP) after the Macondo oil spill, provide the company with a wealth of development opportunities to drive future net asset value growth. Apache's financial position is strong as most of its debt is long-term, low coupon (A- credit rating) and easily supported by cash flow (interest coverage totals about 24x).
Third Avenue loves to buy holding companies that are trading at less than net asset value. The Value Fund sold out its holding in Swedish holding company Investor AB (OTCPK:IVSBY). The company holds shares in many European companies, including AstraZeneca (AZN), Ericsson (ERIC), and Electrolux (OTCPK:ELUXY). The stock recently hit a five year high of 200 Swedish Krona.
The fund filed a 13-D with the SEC for its position in Tellabs (TLAB), meaning that it is going to take an active role with the company. The fund was involved in hiring two new board members, recommended as well by other activist funds. Tellabs issued $1 a share dividend, announced a $225 million share repurchase, and laid off 300 people. Like many tech companies, Tellabs has been showing slow growth but still has a hoard of cash at $522 million.
The Real Estate Fund (TAREX) made an interesting purchase in the junk convertibles of a German property company IVG Immobilien AG. According to the report,
Our analysis determined that the IVG Convertible Bonds were most likely the "fulcrum" security in the capital structure. In other words, holders of the IVG Convertible Bonds are likely to participate in a debt-for-equity restructuring, and the subordinated securities (preferred and common) would retain little or no value. IVG Convertible Bonds mature in 2017, but holders have an option to put the bonds to the company in 2014. The Fund purchased approximately 5% of the outstanding IVG Convertible Bonds at an average cost of sixty-eight cents on the dollar.
This investment would require much research on the behalf of an American investor. Having said that, Third Avenue has made some home runs scouring the globe, looking for esoteric investments. Following Third Avenue is not for the faint of heart, nor the person hoping to make outsized-returns in your run-of-the mill stuff that people talk about at cocktail parties.
Additional disclosure: I am long TAVFX