With a market cap under $400 million, a complex business structure and a winding operating past, it's little wonder that most investors haven't heard of Green Brick Partners Inc. (GBRK).
Green Brick Partners is a residential real estate company that develops residential communities and holds interests in several different homebuilders. According to its website, it controls approximately 4,800 prime home sites, originates approximately 1,000 secured first lien loans each year and owns a controlling interest in four homebuilding companies in Dallas as well as the fifth-largest homebuilder in Atlanta.
What may surprise you is that some legendary investors, mainly Greenlight's (GLRE, Financial) David Einhorn (Trades, Portfolio) and Third Point's (TPRE, Financial) Daniel Loeb, have bought shares worth nearly two-thirds of the company. Greenlight Capital is the largest shareholder with a 49% stake, while Loeb’s Third Point owns about 17%.
Insiders and company management are also heavily involved, with numerous insider buys over the past 12 to 24 months. In total, insiders (other than the previously mentioned hedge funds) own more than 20% of the company. This means that there is a fairly small amount of float left for the public, creating the potential for wide swings in the share price given less volume in the shares.
While the company does operate in the real estate sector, one of its biggest assets is its net-operating losses (NOLs). These allow the company to get off paying little to no taxes until they are wound down. In total, Green Brick has $180 million in NOLs, along with nearly $90 million in additional deferred tax assets.
Interested investors may be getting shares at a discount given their recent dip, falling over 30% from the highs set this year. In an 8-K filing, the company had announced that, due to a number of factors including weather, new community development, labor shortages and an extended building cycle pushing back closings in its core markets, it expects pretax income to be in the range of $22 million to $24 million for 2015, below market expectations.
Still, company management and numerous hedge funds are confident about the company's long-term future. Even if the company isn't able to grow as fast as expected, the ability to offset nearly all its tax exposure gives it a huge advantage over competing investments. Additionally, an easy way to magnify equity returns would be to lever up the balance sheet. While this isn't always a foolproof decision, Green Brick has plenty of room to take on debt before the balance sheet feels any sort of strain. In all, investors are getting a small, underfollowed company, with plenty of support from insiders and value investing legends, all for a recent discount.
