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Rupert Hargreaves
Rupert Hargreaves
Articles (1448)  | Author's Website |

TCI Hedge Fund Makes $1.1 Billion Bet on Offices

A look at the firm's latest 13F filing

February 18, 2021 | About:

Regular readers of my articles will know I follow the trading activity of Chris Hohn's TCI Fund Management closely. While this fund does not attract the level of attention of other high profile investment managers and hedge funds, it is one of the world's best-performing hedge funds

The $30 billion firm has compounded investors' capital at about 18% per year, net of fees, since inception at the start of 2004.

According to research conducted by The Financial Times, TCI's flagship Master Fund has produced investment gains of $17 billion since the beginning of 2010.

Concentrated approach

TCI's approach is to make large investments in what it believes to be significantly undervalued investments. It then holds onto the securities for the long term while encouraging management to unlock value.

For example, TCI has owned its stake in Charter Communications (NASDAQ:CHTR) since the first quarter of 2016. Back then, the holding made up 36% of assets under management and traded at an average share price of $228. Today, the stock makes up just under 23% of the portfolio, according to the firm's latest 13F filing, which detailed its holdings at the end of 2020. The reported price of the position at the end of the year was $661 per share.

Over the past 12 months, TCI has been using market weakness to initiate large positions into property-focused businesses.

In the second quarter, the hedge fund initiated positions in Boston Properties (NYSE:BXP) and Vornado Realty Trust (NYSE:VNO). These were only relatively small positions compared to the overall portfolio at the time. However, TCI's traders continued to accumulate shares through the third quarter.

According to TCI's third-quarter 13F, the firm boosted its position in Boston Properties by 240% to just over 5 million shares, giving it a 1.5% portfolio weight. Meanwhile, the holding in Vornado was hiked by 140% to just under 10 million shares, giving it a 1.2% portfolio weight.
After these deals, TCI had devoted $800 million of capital to these two investments.

TCI continued buying Boston Properties throughout the fourth quarter as well. According to the hedge fund's latest 13F filing, it increased its holding in Boston Properties by 61% throughout the three months to the end of December 2020. Following these deals, the holding has a 2.6% portfolio weight and makes up just under $800 million of assets under management. This was the only holding the fund added to or acquired in the period covered by the 13F report.

Boston Properties

This trade has not yielded any positive results for the hedge fund. After the stock rose to a high of $105 at the beginning of December, it has since trended back to the low $90s. The largest publicly-traded developer, owner and manager of Class A office properties in the U.S. reported its results for the fourth quarter of 2020 at the end of January.

Despite the pandemic's impact on the office market, Boston reported net income attributable to common shareholders of $862.2 million, or $5.54 per diluted share, compared to $511.0 million, or $3.30 per diluted share, for 2019. The firm managed this positive performance primarily due to gains on asset sales in 2020.

Thanks to these deals, as well as other asset management initiatives, the group's book value per share actually increased in 2020, rising to $38.50 from $36.70 in 2019. The company is also expected to maintain its dividend for 2021. A payout of $4 per share is expected, giving a dividend yield of 4.3% on the current share price. Based on these metrics, it seems as if TCI is betting on an improvement in investor sentiment toward the business, which is performing better than expected. It'll be paid to wait in the meantime.

Disclosure: The author owns no stocks mentioned.

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About the author:

Rupert Hargreaves
Rupert is a committed value investor and regularly writes and invests following the principles set out by Benjamin Graham. He is the editor and co-owner of Hidden Value Stocks, a quarterly investment newsletter aimed at institutional investors.

Rupert holds qualifications from the Chartered Institute for Securities & Investment and the CFA Society of the UK. He covers everything value investing for ValueWalk and other sites on a freelance basis.

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