Several guru investors in a home builder company backed by prominent hedge fund manager David Einhorn (Trades, Portfolio), Green Brick Partners (NASDAQ:GRBK), pulled out of their positions in the third quarter. Each of the other holders tracked by GuruFocus – besides heavily invested Daniel Loeb (Trades,Portfolio) – sold nearly half their shares or more.
The two investors to sell out made a relatively quick entrance and exit. Leon Cooperman (Trades, Portfolio) of Omega Advisors was the biggest investor to trade out of his position in the Dallas-based company, selling 245,681 shares purchased in the previous quarter. Paul Tudor Jones (Trades, Portfolio) also sold all of his 118,750 shares, which he bought the previous quarter. Each owned less than a percent of its shares outstanding, respectively.
The two other guru holders reduced their positions. Murray Stahl (Trades, Portfolio), co-founder of Horizon Kinetics, held 330,507 shares after selling 64.3% of his 926,311-share holding in the third quarter. Jim Simons' (Trades, Portfolio) algorithm-driven Medallion Fund also reduced its position, from 302,377 to 159,635 shares, a 47% drop.
The third quarter left Einhorn’s Greenlight Capital Inc., whose fund is down 20.2% year to date, remaining as 49.4% owner and Daniel Loeb (Trades, Portfolio)’s Third Point LLC as 16.5% owner of Green Brick, as its largest equity investors.Â
Both investors started their respective positions in the company in the second quarter of 2012 and grew their interest in the fourth quarter of 2014. They then expanded their positions to their present size as part of its public offering of 17 million shares priced at $10 each, which closed on July 1.
Einhorn’s involvement with the company started when he co-founded JBGL Builder Finance LLC with CEO Jim Brickman in 2008. He was then instrumental in combining it with a shell company that operated ethanol plants, called BioFuels Energy, to a form the home builder in October 2014. Along with the $70 million it raised as part of its rights offering in October, Einhorn gave the company a $150 million loan and became the chairman of its board.
"We are very pleased to help transition BioFuel Energy, the former ethanol producer, into Green Brick Partners, a successful homebuilder," Einhorn said at the time. "This deal is a win-win for everyone involved and creates an exciting platform for Green Brick's future growth."
Green Brick now has a $370.4 million market cap, 4,800 home sites and a controlling interest in four home building communities in Dallas, and one in Atlanta. It operates by developing neighborhoods for successful builders, supplying expertise and capital, generating three revenue streams: land acquisition, construction lending and equity participations. For future growth it plans to target additional home builders, increase developments and drive expansion with a focus on Dallas and Atlanta markets, according to Credit Suisse.
At June 30, Green Brick was selling homes in 43 communities, a 30% increase from the 33 communities it sold at 2014 year-end, and expects a more than 30% community count growth by the end of 2016.
Operationally, Green Brick has seen growing annual revenue and new home deliveries from 2012 through the trailing-12 months ended June 30.
Gurus sold shares in the third quarter, when the price rose to a historical high of $14.94 per share. The price has since fallen back to $7.66 per share, including a steep drop in late October and early November back into the single digits. Year to date, shares have declined 5.8%, versus a 0.02% gain for the Standard & Poor’s 500 Index.
Unfavorable weather, new community development, a labor shortage plaguing the housing industry and a protracted building cycle caused Green Brick headwinds in the third quarter, however, postponing closings in Dallas and Atlanta. The challenges forced the company to lower its earnings guidance for the year, which sent its stock tumbling at the end of October. Green Brick estimated it would have pre-tax income in the rage of $22 million to $24 million, a downgrade from the previous range of $29 million to $32 million it previously expected.
For the third quarter, Green Brick had revenue of $75.2 million, compared to $49.68 million for the same quarter last year, with 543 new homes under construction, up 28.4%. Net income was $5.29 million, or $0.06 per diluted share, down from $6.06 million, or $0.33 per diluted share.
Years since housing’s drop in the market crash of 2007 and 2008, the stocks of the S&P Home Builders Select Industry Index have enjoyed an almost 4% gain this year. Also, more broadly, U.S. new housing starts for new privately owned housing units have gone up 23.5% in the three years through Oct. 1, and edged down 1.85% year to date.
At 4.3%, Green Brick Partners ranks as Einhorn’s ninth largest position in his hedge fund, Greenlight Capital’s $6 billion public equity portfolio. Apple Inc. (AAPL, Financial), General Motors Co. (GM, Financial) and Michael Kors Holdings Ltd. (KORS, Financial) formed his top three positions at more than a third of invested portfolio capital.
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