Activism is Back (Sort of)

A Review of Active Campaigns at Whitestone REIT and Tejon Ranch Company

Small-Cap Shareholders after their 3rd Letter to Management

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In this issue:

• Marty Whitman and Asset Conversion Activities

• Whitestone REIT and Erez Management (Bruce Schanzer of Cedar Realty fame)

• The allure of land banks, Tejon Ranch Co. and Nitor Capital Management

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In 2022, I wrote about my favorite investor, Marty Whitman. Whitman’s fundamental view was that for the most part companies are not engaged in earnings generation as is commonly assumed, but rather “creating corporate wealth” by using the entire range of capital allocation tools. 

Somebody Has to Pay For Lunch

“Unlike Graham and Dodd and the financial accountants, we believe that a very large part of American businesses are engaged in asset-conversion activities: that is, they are not strict going concerns involved only in operations that result in recurring accounting earnings. Rather, many companies, in whole or in part, are engaged in asset-conversion activities that give rise to tax shelter, mergers and acquisitions, changes in control, liquidations, investment activities, and major refinancings.”

This analytical framing is especially useful for REIT investors who must balance discounting cash flows from NOI against the fair market value and capitalization of the underlying real estate.

A capital allocation policy that stresses NOI (or FFO) growth can leave shareholder value untapped, while too aggressively harvesting asset value can slow FFO growth and weigh on the equity multiple. These competing views of capital allocation are driving two activist campaigns at real estate companies: Whitestone REIT WSR 0.00%↑ and Tejon Ranch Co.  TRC 0.00%↑