Moerus Discusses GLP, Straits Trading

Moerus Capital Management (Moerus) is a New York-based investment management company founded in September 2015. The firm’s founding / management team comprises Amit Wadhwaney, John Mauro, Michael Campagna and Ian Lapley, all of whom previously worked at Marty Whitman’s Third Avenue Management. 

Moerus currently advises the Moerus Worldwide Value Fund, which has a deep value-oriented, go-anywhere investment strategy. The investment team focuses on well-capitalised companies that trade at substantial discounts to their conservative estimates of intrinsic value. The fund portfolio is unconstrained by geography, industry or index considerations and the team’s mandate also allows them to hold a sizeable cash position in absence of suitable investment opportunities.

The fund only opened to outside investors in July 2016 so their standalone track record is pretty short, but it’s really a continuation of the team’s investment process from their Third Avenue days. Their first annual report to investors is now available on their website and includes a more detailed overview of the fund’s investment philosophy as well as commentary on specific holdings. Worth a read.

Below is some commentary on GLP and Straits Trading, two of the fund’s listed investments in Asia:

Global Logistics Properties (GLP)

  • Singapore-listed real estate company with a portfolio that spans over 573m sq ft
    • Largest market share in China, Japan and Brazil; second largest in the US
    • Third largest operator of modern logistics facilities globally
  • Facilities are technologically advanced and in strategic locations; significant network economies make it difficult for new entrants to replicate without lots of capital
  • Business model allows GLP to extract value from all parts of the industrial real estate life cycle:
    • Operating portfolio generates recurring cash flows
    • Development business draws on the company’s base of existing clients to do both build-to-suit and demand-led developments
    • Fund management business allows GLP to leverage its expertise across a broader asset base and generate substantial recurring fee income
  • Concerns about slower consumer spending growth in China and Brazil last year allowed for an attractive entry point into what has historically been a high growth / high valuation company
  • Market also misunderstood recent transactions made by the fund management business, which has now entered the US market in a meaningful way without a significant increase in invested capital

Straits Trading Company (STC)

  • Singapore-based holding company with a high quality management team led by Chew Gek Khim and primary investments in real estate, hospitality, resources and financial services
  • Company is in the midst of a significant transformation – away from direct ownership of lower yielding, capital intensive businesses and toward a more capital light asset manager model
  • In the last few years, STC has sold direct ownership stakes in a number of assets and reinvested the proceeds into similar business lines as a financial investor with control elements. Key transactions include:
    • Selling its stake in WBL Corporation, a diversified holding company
    • Contributing its hospitality portfolio into a JV with the Far East Organisation in exchange for a ~30% stake in the new entity
    • Contributing its real estate assets into a JV with ARA Asset Management and purchasing a ~20% stake in the listed parent company
  • Opportunity to invest at a significant discount to the current value of underlying assets and alongside savvy capital allocators – if the transformation is successful, Straits will be a significantly more valuable business