Before we move on to other topics, I have one more 13F filing I want to cover.
EJF Capital has become one of my favorite 13F filings over the past few years. The firm was founded by former partners at Friedman Billings Ramsey who left the firm in the wake of an insider trading allegation that was eventually settled. They invest primarily in real estate and banks, so their filings are right up my alley as those are two of my favorite sectors. According to a Wall Street Journal article earlier this year, the fund has averaged about 17% a year since opening its doors in 2008. The fund has grown to over $6 billion in assets over the same time frame.
These are smart guys who work because they want to, not because they need to anymore. Co-founder Emmanuel Friedman, 68, told the WSJ in the same article, "I also love the intellectual challenge of the market, coming in every day after 50 years and realizing that I know virtually nothing. At my age, there is also some satisfaction in making money and using it to make small changes in our society." You have to respect a guy like that and aggressively steal his ideas and insights whenever possible.
Before we look at what they were buying in the quarter, I want to comment on their selling activity. They pretty much blew energy out of the portfolio in the third quarter. Some of the bigger names they sold included Devon Energy (DVN), Anadarko (APC), Enterprise Products (EPD) and Consol Energy (CNX).They had a decent energy position and it is now pretty much zero. I know a lot of other value guys who wish they could say the same, myself included.
Something that jumped off the page for me is that they were a buyer of First Bancorp (FBP), the Puerto Rico-based bank. Some very smart people were buying the stock in the quarter, including Joseph Stilwell. Stieven Capital Advisors, Citadel, Firefly Value, Castine Capital and Wellington were also buying the stock in the third quarter of the year. The private equity firms that helped recapitalize the banks, Thomas Lee and Oaktree, are holding tight to their 20% stake in the bank as well. First Bancorp is trading at half of book value and has huge upside if the economic mess in Puerto Rico is resolved on a somewhat favorable basis. A lot of very smart people seem to think it will happen.
They were a big buyer of Citizens Financial Group (CFG), the bank that was sold off by Royal Bank of Scotland (RBS). It has 1,230 branches in the Northeast and Midwest. The stock is trading at about 1.1x book value and is prominently featured on my "buy in collapse" list.
As always, they were active in some of the trade-of-the-decade small regional and community bank stocks. EJF was a buyer of Kearny Financial (KRNY), First of Long Island (FLIC), Orrstown Financial (ORRF), Central Pacific Financial (CPF), Yadkin Financial (YDKN), First Northwest Bancorp (FNWB), Westfield Financial (WFD), BNC Bancorp (BNCN) and Eastern Virginia Bankshares (EVBS). The firm has a strong background in bank stocks and you would be wise to pay careful attention when it is buying in this high potential sector.
On the real estate side of things, EJF continued buying shares of NorthStar Realty Finance (NRF). NorthStar has been a tremendous operator of commercial real estate and has averaged an annual return of about 18% since its IPO in 2008. It is active in several sectors of commercial real estate, but the bulk of the investments are in health care properties, hotels and manufactured housing communities. Last month, it spun off its European properties to shareholders as NorthStar Realty Europe (NRE). The new REIT has 52 properties in nine countries with a focus on UK, France and Germany. NorthStar Realty itself is trading at 90% of book and has a double-digit yield, so it could be attractive for growth and income investors.
EJF Capital was also a buyer of Apollo Commercial Real Estate Finance (ARI) in the quarter. This REIT originates and invests in commercial real estate loans and is one of my favorite long-term holdings. Its close relationship with Apollo Global Management gives its access to deals no one else sees, and I hope to own my shares pretty much forever. The shares are trading at 75% of book value and if you do not already own it I would be a buyer of this REIT.
EJF Capital has done very well for their investors and my portfolio of mostly pirated ideas over the years. Its filings should be must-read material every quarter.
