Yet Another Value Podcast - Inside Arbitrage's Asif Suria shares his thesis on insider purchases at Pebblebrook $PEB

Episode Date: December 20, 2024

Asif Suria, Author of "The Event-Driven Edge in Investing: Six Special Situation Strategies to Outperform the Market" and Founder and CEO at Inside Arbitrage, joins the podcast for the second time to discuss his thesis on Pebblebrook Hotel Trust $PEB, as well as his thoughts on insider activity post-election. You can buy your copy of Asif's new book, "The Event-Driven Edge in Investing: Six Special Situation Strategies to Outperform the Market" here: https://www.amazon.com/Event-Driven-Edge-Investing-Strategies-Outperform-ebook/dp/B0CN3PF1SW?_encoding=UTF8&dib_tag=se&dib=eyJ2IjoiMSJ9.1zuikMLb5MN1aQVWodj1ww.Nui4P_rilsWES5p1FNmoTnd5v0myqxSeQautyazGgno&qid=1715709920&sr=8-1&linkCode=sl1&tag=andrew613880e-20&linkId=376c305fd243b22988ebba35edf5ecee&language=en_US&ref_=as_li_ss_tl Chapters: [0:00] Introduction + Episode sponsor: Fintool [2:13] What is Pebblebrook Hotel Trust and why are they interesting to Asif [6:18] Insider purchases at Pebblebrook Hotel Trust [9:44] What Asif is seeing with Pebblebrook Hotel Trust that the market is missing [13:56] $PEB portfolio [18:56] Management claim on 11-14% ROI growth investment / NAV numbers from their November 2024 investor presentation [23:20] Competitive landscape - why $PEB over other hotel companies / Share buybacks [28:07] What keeps Asif up at night about his $PEB thesis and investment [29:50] Management incentives [36:12] AirBnB risk? [37:59] Special Situations in general: What have insiders been looking at post-election / sectors Asif is seeing a lot of insider buying currently and elevated insider selling [44:28] Spin-offs Today's sponsor: Fintool Fintool is ChatGPT for SEC Filings and earnings calls. Are you still doing keyword searches and going to the individual filing and using control F? That’s the old way of doing things before AI. With Fintool, you can ask any question and it’s going to automatically generate the best answer. So they may pull from a portion of an earnings call, or a 10k, whatever it may be and then answer your question. The best part- every portion of the answer is cited with the source document. Now- if you’ve tried to do any of this in ChatGPT you may know that the answers are often wrong or hallucinations. The way Fintool is able to outperform ChatGPT is their focus on the SEC filings. If you’re an analyst or a portfolio manager at a hedge fund, check them out at https://fintool.com?utm_source=substack&utm_campaign=yavb&utm_content=podcast280

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So look, if you're an analyst or a portfolio manager, try FinTool today at finTool.com and take your research to the next level. That's fintool.com. all right hello welcome to the yet another value podcast i'm your host andrew walker if you like this podcast i mean a lot of you can rate subscribe review wherever you're watching or listening to it with me today i'm happy to have on uh for the second time my friend awesome syria awesome how's it going things are going great andrew thanks for having me back on hey thank you so much for uh popping on look we've got the man who literally wrote the book on event driven investing also came on

at the beginning of the year he wrote uh event driven investing i'll include a link in the show notes. I read it. It was a great refresher of a bunch of different event-driven strategies. He also runs insider arbitrage. Before I started talking about why he's coming on the program today, just a quick reminder to everyone. Nothing on this podcast is investing advice. Please consults a financial advisor, do your own work, all that sort of stuff. Just remember this as a financial advice. Awesome. The reason you're coming on is you reached out to me, you said, hey, there's this really interesting series of insider buys at EEB, Pemblebrook, a hotel company. I'd love to come on and just chat about them quickly because I think they're so

interesting and I agree, I was posting some interesting stuff from the proxy on Twitter last night, but I'll just toss it over to you. What is PB and why are they so interesting? Yeah, so Pemberbroke Hotel Trust is a hotel reed that is focused mostly on luxury resorts as well as luxury urban properties. So what we like to do, Andrew, is we look at insider transactions every night and we're looking at not just who is buying the stock but you know why they might be potentially buying it and why now and so the most interesting thing with this one as you noticed was here was a situation where a CEO who you know has 30 years of experience in the hotel industry has been the founder of this company is buying stock but not only is he buying common stock

he's also selling his preferred shares to buy the common stock which is a highly unusual thing we do see insiders sometimes by preferred shares and maybe they're getting it you know well below the you know the face value if you will of twenty five dollars and so they're figuring you know eventually maybe the preferred shares get called i pick up some yield along the way and then when the preferred shares get called i pick up an additional return on you know the preferred shares marking up from let's say twenty one dollars to twenty five in this case he's going the other direction where he's selling six point three seventy five percent yielding preferred shares and another batch of prefer shares to go by common stock and so that really caught my attention yeah no

completely great let's i want to i want to sidetrack for a second because you mentioned the preferred share buys and we'll talk pebbleberg and the preferred shares all this specifically but i just wanted to sidetrack you with one thing you know one of my favorite things is when you see a set of preferred you mentioned most public trade preferreds kind of have a 25 dollar per share par value so they trade you know around 25 if they're if they were kind of issued in the zirp maybe they trade at 22 because they're very low yielding or something. But one of my favorite things is when you see a series of preferred that are kind of distressed and you see insiders buying the distress, so you saw it a lot during after FRB and Silicon Valley Bank

failed. You saw a lot of insiders at banks because a lot of banks have preferred that are publicly traded. You saw a lot of them go buy distress preferred. And I love to buy distress preferred when insiders are buying it because, A, you know insiders think that the preferreds are likely to pay off if they're buying it on the open market. But B, the other reason I buy it is most prefers are issued by companies that are kind of asset heavy. And if they're issuing preferreds, if they're buying preferreds, then all of a sudden they're

incentives to live and they're like, hey, let's issue common equity, right? Like, who cares if we issued it at two times book value or half a book value? If we issue common equity, that's more safety for the preferred. So I just love aligning myself with people when they buy the preferreds like that. Complete divergence. I'll let you talk about any experience you have with insiders buying preferred or anything. thing, but I just wanted to advert to that real quick. Absolutely.

And so that's why we built basically a list of any insider that's buying preferred. So we have a list that we can look at. The most recent one was American homes for rent. They rent out single family homes. B. Wayne Hughes, who started public storage, also started this company. He's no more, but his daughter was involved with the thing. I actually got involved in this company many years ago because both him and his daughter were buying common stock, but more recently.

we see Insider's Buy the Preferred Stock of American Homes for rent. So another read where you're seeing inside of buying of the preferreds, on the banking side, you're absolutely right. We still see some of it come through. I'm just looking through the list. Texas Capital Bank shares, that's one where a director keeps buying preferred shares. So just like you, I really like the signal inside of buying and preferred shares sense, and most people don't tend to look at that part of it.

They're looking at common share purchases or sales, but not preferred. yep yeah so pebblebrook uh i think the thing that you tell me if i'm wrong or if i'm seeing things differently but the thing i thought was most interesting was the CEO he's got a history of buying shares here right i've got the insider shares by it pulled up and he was buying the stock in uh he was buying the stock in early 2023 i see some open market purchases in 2022 but i thought the most interesting thing here was in november 2003 he goes and he buys and he buys and he buys call it $500,000 worth of preferred on the open market when the prefers are trading in the mid-to-high teams. And then this year, he started buying common again. You know, he buys it in May. He buys it

in June. He buys it in August. But the thing that was really interesting to me is he sold a bunch of the preferred that he bought last November, November 2023. He sold them in November, 2004 to buy more common in the mid-12 range and people can go see that series of transactions but that was what was really interesting to me so i paused there talk and talk about that kind of trade and how you think that's interesting yeah so that was the other thing that was really interesting to me because you sometimes see insiders for example you know dustin moscovitz of asana who will just keep buying the stock right all the way that one for people who are unfamiliar I haven't looked at the stock in over a year, but I think it's the largest insider purchase of all time,

and he started the insider purchase like 100, and the stock touched 15, if I remember correctly, and he's rich from Facebook, but it was some of the craziest insider purchase of all time, and he's incinerated, incinerated wealth, just buying back stock on the market handover fist. And he openly admitted that Asana seems to be doing better the stock yesterday or some day or two ago, when I checked, it was up to 24 because they brought over a new CFO from Ring Central who was able to really move the needle on the bottom line for Ring Central. So maybe she does the same thing at Asana. But anyways, coming back to what I was saying, inside a buying, sometimes you see these

CEOs just consistently keep buying. In the case of John Borts with Pebblebrook, this is not somebody who comes in and you know, is consistently buying. I've seen him sell shares in the, you know, the $25 range. And I see him buy consistently between the $12 and $16. range on the common stock. So, this is a person who has an opinion about when he wants to buy and when he wants to sell, and he's gotten it exactly right on both sides. I mean, the stock is up about 15% from where he bought most recently, and I think, you know, it's going to continue

to appreciate, which is why I'm on dear. We've seen this with some other CEOs like Align, you know, the dental implants, aligners, company, their timing is excellent as well, as well as carvana in some sense. They were excellent at selling at very high prices, picking it up after the Apollo transactions and when it dropped to the bottom. And obviously, they've been selling for many months now. So when we track insiders and they have this history of timing it exactly right on both the buys and the cells, we are very interested. A reminder that today's podcast is sponsored by fintool.com, the chat GPT for SEC filings and earnings transcripts. Just ask your question and FinTool will pull the best answer from the relevant documents, whether it's a snippet from an earnings

call or a key point from a filing. If you're an analyst or portfolio manager, try FinTool today at FinTool.com and take your research to the next level. That's fintool.com. Let me pause there. I want to dive into what Pevelbrook is everything, but I probably should lead with this, but I like to ask everyone, I guess, you know, the market is a very competitive place. Obviously, a lot of what we're talking about, I think the insider buys are the thing that attracted you that is kind of attracting me, but these are public findings. So I guess I'd pause here and say, what are you seeing in these insider buys and Pevelbrook and everything, that you think the market is kind of missing that makes this a

risk-adjusted alpha opportunity? Yeah, so I think the market probably is just looking at this as just another hotel rate, and a hotel rate that yields less than 0.3%. So who wants to own a reet that yields next to nothing, right? So that's one of the things. Another concern was, you know, how much is Airbnb going to take market share from hotels? The third macro concern is, you know, how our hotels going to do in a difficult potentially recessionary environment if we didn't have the wonderful soft landing that we actually had. So there were some of those macro concerns. And so maybe we should backtrack a little bit and tell people what Pebblebrook does, right? So Pebblebrook has 46 hotels mostly on the coast. So they have a bunch of hotels in San Diego and California.

They have a bunch in Boston and a significant number of them in Florida. But this was, This company was founded in 2009 by John Bots. He was previously with Jones La Salle, and at LaSalle, he basically started their hotel investment group in 1994, I think, 1994, and then he was involved with the creation of LaSalle Hotel Properties. I don't remember the exact name of what it was called. So there was his hotel reed that he created there, and then he retired from that company and eventually started Pebblebrook in 2009.

La Salle was going to get sold to Blackstone, but Pavel Rook stepped in, offered a higher price and ended up acquiring them. So when they acquired them in, let's say, December 2018, La Salle itself had 84 hotel properties, 64, not 84. And so what's happened since that time is they have really repositioned the portfolio. They've gotten rid of some of the urban business hotels like, you know, a courtyard by Marriott or something like that, a Hilton Garden and they've gotten rid of those kind of hotels and the scale down the portfolio to just 46 hotels that are mostly luxury or you know high-end resorts so you know the average daily rate on these things could be anywhere from you know 290 to 310 dollars a night and occupancy rates are very decent for hotel rates it's about 60 76 77 percent

so what he has done over the last few years when COVID hit obviously nobody wanted to go to the malls nobody wanted to travel, nobody was in hotels. And so you saw a bunch of these hotel and retail reeds cut their dividend to next to nothing, which made sense because they didn't know how the future would unfold that we would have a vaccine and people, you know, things would open back up again. When things did open back up again, most reads because they're owned by people who like dividends, ended up bringing back their dividends. So you saw, you know, a rebound in the dividends.

Often it came back up to where it used to be or maybe has even surpassed that. What John Botts did with Pebblebrook is he did not bring the dividends back. He continued to invest in basically refurbishing the hotels. He basically amped up the capex cycle on these things and ended up creating a portfolio where daily rates are higher, it's better positioned in terms of the kind of city season, they exited Philadelphia, they exited New York, they exited Seattle and so on and so forth. That whole repositioning, Andrew, is done. as of this quarter right so this is a rate you have to pay out 90% of your earnings as dividends

what's he going to do now in 2025 my expectation is he's going to start bringing up that common share dividend and that's probably why he's selling preferred shares and buying common because once the common shares start paying a dividend and that increases over time that's going to attract market participants especially the ones who look at dividends and leads it's one of my favorite setups now this is more i've played it more on the MLBs and LP side, but it applies to reach, you know. Most people buy a REIT or an MLP, as you pointed out, for a dividend, right? These things trade on dividend yields. Most of the sell side who covers them talks about dividend. The sell side isn't stupid. They can also do a NAV calculation, but most

of the investors and people who cover them do it for dividends. And I do love when you have something where the whole investor base is dividend focus and it doesn't pay a dividend because I just think like the buyer pool gets a lot more limited. And to your point, you know, you kind of front front rammy, but on the Q3 call, you know, the, I can't remember what was the CFO or CEO, but he comes out and they say, look, we've done a huge redevelopment projects in all these properties over the past two or three years. And they say directly, there is no next wave of redevelopment properties. We've pretty much read, I'm quoting right now, we've pretty much redeveloped everything in the portfolio from our acquisition asset. So all this redevelopment

CapEx is done. And going forward, as you say, you'd have to expect that shareholder returns are coming back, particularly, you know, again, to our point on preferreds earlier, the nice thing about prefers is when the CEO buys prefers, then he's got a lot of incentives to make sure the prefers are safe, and that can be issuing equity. The nice thing about common is when the CEO buys common, he's probably going to want to return. So, you know, he, I'll talk pay in a second. Let's see, just on the portfolio here, right? They own the Weston Copley pace and Boston, I've probably spent, I was in private equity and we were based in Bain, I've probably spent 250 nights there in my lifetime. Now, I haven't been there in eight years, but I know it well.

I know it well. But, you know, they're a portfolio. So they've got, as you said, they've got the luxury stuff, which is mainly kind of along the coast. And then they've got the urban stuff. And the urban stuff is San Diego, Boston, L.A. are the big three. They've got some Portland assets. And I guess I just want to ask you, you know, when I look at those urban assets, and I think, assets, San Francisco, San Diego, Chicago was one of them, and Boston. A little more challenged, I would say, than New York or places where people are traveling. I know kind of work travel is still coming back post-COVID, but I guess it would ask you, like, when you look at this portfolio and they say, hey, we've still got tailwinds, we've still got rebound, do you believe it

or do you worry like, hey, San Diego is tough? San Francisco, it's tough out there. Chicago might be do, Lumpin? Like, do you worry a little bit about maybe they're not going to participate so much in the rebound? Not really. You're right about San Francisco. We have a new mayor in San Francisco that might move the needle, if you will. There are parts of San Francisco where my friends or their kids live, and they say they're just absolutely wonderful. And there are parts like the tenderloin, you don't want to walk through whether there's a day or night. And I walk through that for several years. So I'm quite familiar with different parts of San Francisco. So you're spot on about San Francisco, but California is a very large state. Besides a few pockets, the rest of it is

actually quite wonderful. You might not hear that on the media, but if you had to go visit some of these cities, and Sandigo in particular, right, I think it's doing just fine. When you look at the projections of what's happened between, say, 2019 through 2024, EBITA in San Francisco has gone down for them very significantly, and which makes sense, which reflects the macro environment, which reflects the problems in San Francisco. But EBITA at San Diego has actually not gone down much or has actually gone up. So you can see it in the numbers that San Diego has performed well for them. And then they have this property up in the hills in Santa Cruz that is completely isolated from these kind of situations.

I was looking up, you know, what a night would cost in mid-2020-fime during the summer season when things are nice in Santa Cruz. It was $400 a night. They have a property in the Keys that is actually really nice. about $800 a night from Christmas to New Year's. So they have all these properties. I'm not concerned as much about, say, for example, Chicago or San Francisco. I'm more concerned about the risks they have from the hurricanes in Florida. That was my next.

Yep, absolutely. Why don't we just talk about that? Because that was my next question. Yeah. So they've already had to make some insurance claims against basically one of their resorts La Playa, which was hit by hurricanes. They've had to do this a couple of different times. and they mentioned, as you probably noticed in the last press release and call,

that they are not going to be getting any more payouts from insurance on some of these properties. And which is well and good, everybody has to have insurance, they're going to get paid out or something happens. But over time, those insurance premiums are going to go up, and so their cost to operate these properties in Florida is going to increase. So I'm a little bit more concerned about that than San Francisco, which I feel like when you look at the number of conference nights that they've already sold for 2025, is seeing a rebound.

a significant rebound from 2024. Perfect. Let me ask you two questions on what I'm going to term trust. And I don't mean that in a mean sense or something. But, you know, if I, every management team that told me that their shares were undervalued and that they were making these great growth capax investments, you know, if I trust them, if I trust them and they were right, my returns, which is be absolutely astronomical, right?

So I'm going to ask you trust on two dimensions. The first dimension, they say, and I would encourage anyone to go flip, through their, just go to their investor website and flip through their most recent debt because I think it's really informative and it's got a lot of detail. They give earnings by hotel, they give returns on investment for all of these things, all this are so. So my first question, the question, they say, hey, over the past, if I'm looking at this correctly, over the past two to two and a half years, we've invested about $200 billion into growth capax, right? And they say, we've done this at an 11 to 14% ROI, which is great for

hotel industry, right? You can borrow it much cheaper than that. That's a very solid, solid return. My question is, do you believe them about that 11 to 14% ROI growth investment? Yeah, for the most part, if you look at the numbers and what they said happen to these hotels and, you know, the investor presentations clearly show you what the before and after looks like and, you know, what their average rate per night looks like. And then I went into Expedia or, you know, you can do the same thing go pull up your favorite travel site and see what these hotels are selling for per night and what kind of demand that they're seeing so that correlates so that's one of the things i did with multiple properties i pulled them up to see you know what the rates were

per night you know given that the one hotel san francisco that they did the location is really good i can't see that happening you know i can't speak exactly to the returns whether it's 11 to 14 percent or below or higher than that but you know the fact that you mentioned that these clearly outlined that the capex cycle is behind them that's music to my ears and you know that you should see what they do rather than what they see and what he's doing is he's buying stock on the open market despite having a significant stake in the company and he's selling preferred shares so i'm more interested in that and the fact that he's going to bring back the dividends rather than you know the ROI being a little bit lower than they might have stated okay second question

I'm looking at their November 2004 investor presentation page 23. They walk you through the math of how they get to an NAV per share here. They say the low end is 2650 and the high end is 3150, right? So they walk

you through that and say, hey, our stocks at 1250, this is a huge discount. Now part of this is, this is quite levered, right? They've got if I'm doing the math on this right approach, just under $3 billion. of debt plus preferred, and their enterprise value right now is about, it's under five,

so this is quite levered, right? Part of the, this gap is just a leverage gap, right? The whole portfolio is worth 20% more, but the equity is a double because it's a levered. Part of that's that, but just want to ask you, do you kind of agree with the nav numbers, do you believe in the nav that they're presenting here? Yeah, if you look at that slide, they presented in many different ways, they're calculating private market value, they're saying based on cap rates, based on key rates from transactions that have already happened more recently. So they're looking at it in many different ways and they think it is worth double almost what it is right now.

And what you see, Andrew, with his behavior is you see him selling in the $25, $26 range and you see him buying in the $12 to $16 range. That kind of exactly reflects what he thinks of as the value of the company. And of that $3 billion in debt, some of it is preferred and one part of it, 750 million is convertible notes. And if you look at the convertible notes, the interest on that is very low. It's 1.75% but the conversion price is $25 and change.

And what they've done is they've put in some kind of, you know, call option structure that they negotiated. That essentially limits dilution to some extent by moving up the price to $33. So when you look at that and the, you know, the conversion on that convertible notes, all of those seem to align with that, you know, $25, $26 number.

The unfortunate thing is those converts expire in 2026, so they'll have to pay them all. That's a, uh, anytime you've got 1.75% financing, that's way out the money. You, uh, you'd love for them to be 2086 notes instead of 2026. That's right. So we've covered Nav. We've covered up. We want to ask one more question just on competitive set, right? So just to prep for the podcast, I was looking at a few different hotel rates and I was

talking to a friend who covers these guys. You know, I looked at Park, which I don't believe is a reed. I think that's a normal C-Corp, but I looked at Park and they've got a great set of hotels, and they kind of come out and say, I'm looking at their investor presentation. They say, look, they've got a really high dividend G.O. They say we traded a 35 to 40 percent discount NAB. Great set of hotels there. Or Diamond Rock Hospitality is another one. I looked at that I don't think they give a nav, but they talk about how they've got a portfolio that looks pretty similar to Pevelbrook, actually. And if you go through their investor presentation, they actually talk about how they think the

quality of their portfolio is much better than Pelbrook. So we talked about why in a absolute sense, Pevelbrook looks discounted, right? Big NAV discount, Insiders buying, possibility for big capital returns next year. But I just want to talk in a relative sense. you know, why Pebblebrook over some of these other hotel companies that I'm kind of mentioning? Yeah, so one of the things I look at is, you know, what are these trading at when compared to peers? And I looked at a peer group of five of them. Diamond Rock was one of them, Sunstone is another one.

And these are the ones that are closest in size to Pebblebrook versus some of the other ones that are much larger or microcaps. When you take Diamond Rock, it's trading at 14 times price, but, adjusted funds for operations AFF4 for 2025 and has a very tiny dividend as a dividend yield as well 1.23 percent and so when you look at diamond draw it's trading at 14 times and when you consider pebble brooks estimated a f4 for 2025 it's trading at 10 times it's trading at 8 times 24 aff4 based on my calculations so there's a huge gap there where i feel like you know you're just trading at a significant discount to AFFO compared to similar peers. And so you have that discount when people do a peer comparison.

And then once they bring the dividends back, people who actually look at these things are going to see that discount, not just to map, but discount with the peers. And I feel that's going to help move the stock up. Quickly, share buybacks. The company on their call, they mentioned, hey, since October 2022, we've bought back over 12 million of shares, about 9% of the company's shares outstanding at 1440 per share, and they said that's about a 50% discount to NAB. On the Q3 call that we've referenced, they've been pretty clear, as we said, capital returns are coming now that the wave of KAPX is over. But I wasn't sure, you know, historically they did pay a dividend, but now that they've kind of got the capital returns,

now that we've got the KAPX behind them, do you expect them to like really start blasting out the dividend and ramping that up next year? Or do you think? think maybe they try to, as long as they're treating a big discount, retire a bunch of more shares, and then maybe dividends are a 26, 27 story or something? That's possible, and that's one of the risks here, Andrew, that if they choose to do the capital return through buybacks, and they already have an authorization in place right now, I think it's a $150 million authorization of which they've used up something like $20 million. So they have $130 plus million left on that authorization that they could use to buyback shares.

If I have to wait another six months where the buyback shares in the $13-40 range and then they pay out the dividend, I'm happy as a long-term holder. Usually I keep these things for several years. And I like to pick certain times when these situations work well. February 2009, I bought an apartment read called Avalon Bay. The yield was 8% who worked out great. Saw capital appreciation as well as yield appreciation. Two years ago, it was American Assets Trust. It was a mixed diversified read with a lot of office exposure and the 84-year-old founder was buying stock almost on a daily basis.

And I looked at the portfolio and I realized that it wasn't quite as impacted as people believed it was. And once again worked out great. I can't get myself to sell it now because it's an 8% yield for me. So I see this situation in read in different segments of the reads. And so the same vibes is what I'm feeling here. I know why this is not something that investors want to hear about, but when you see these situations play out over and over again, that's what's attracting me here. So it's pretty easy to point out risk, right?

Like we go into a recession, this is quite levered. They do have some near-term debt maturities. We could point to that as a very obvious risk. That's going to apply to all hotel companies, all recompense. I mean, actually, the converts are due till 2026, so you do have a little bit of time, but they are going to have to address them. And if things got really bad in 25, that could be a little worrisome. But I guess when you think about your investment in this company, you know, you've got a lot of signals from the insiders.

We've talked about that value. But what kind of keeps you up at night? What do you think could cause this to go wrong outside of just general macro risk over the next few years? It's three things. One is the leverage, as you mentioned, you know, converts will most likely convert at some point. So there's dilution there. they did refinance a lot of their debt so nothing is due till December

26 at this point and the average I think the rate they have including the Converts is about 4.35% or something like that so it's a decent number it's not very high so there is some concern about the leverage and the dilution from the converts the other two issues

are one is company specific and their exposure to Florida and insurance related risks from hurricanes and the second one is the macro risk You know, these are ultra luxury, not ultra luxury, these are luxury properties. And you would think that at some point, you know, the high end segment of this market is also going to get impacted if there's a recession and if it's a deep recession, pretty much across the board, you're going to see that have an impact on hotels. So really, it is a macro risk combined with company specific properties and then the balance sheet. me last question and then i might want to jump to just some random things in special situation land that you're looking at but you know one thing that look we we decided to do this podcast a few weeks

ago i spent most of yesterday afternoon learning about the company refresh so i can't claim to be an expert right but i i was very intrigued by this but one thing that kept screaming at me here was hey my let's say i agree with you that nav is 30 and the stock is 15 and management's buying shares great signal, right? The thing I was kind of worried about was when I read the proxy, it really jumped out to me that this guy is the founder of the company, right? So you were a founder and you think big ownership state. It's going to be different in asset-heavy industries than like a Facebook or meta,

but you think big ownership state. This guy is the founder of the company. He founded in 2009. I was reading the proxy and he owned about 1.7 million shares, right? Which is not nothing, but at market prices about 20, million dollars worth of stock, which I'd love to have $25 million worth of stock. Don't get me wrong. But he makes about $7 million per year running the company.

I was just kind of looking at that. I was like, hey, you know, I'm really attuned to incentives. I wrote a post over the weekend about, you know, the big thing with managements with who don't own a lot of equity is it's always not now. A merger that might be great for shareholders. Not now because the management team, you know, they view the company more as an annuity. And if they sell the company, they lose their annuity versus max, value for shareholders and themselves. Kind of looked at the CEO owning $7 million worth of stock

versus $25 million worth of stock versus $7 million in comp every year. Insider ownership is director ownership very low here. And I was like, look, this reminds me a lot of greets I've seen where, yeah, they trade for a big discounts and nav, but they really need to rationalize, sell assets, sell them, and it's just not an insider's incentives. And I tweeted this out, but one thing that maybe this is one of the reasons I, the hairs on the back of my neck we're standing up so much is they published their proxy and they said that their CEO and all of their main people in 2022, they said our compensation page were our key insiders was negative in 2022. And I was like, did they clawback stock? And no, what they said was this wasn't a clawback. We just said,

hey, they lost money on the stock. So we're going to pretend like their net worth went down. So we're going to pretend that we paid them negative, even though they got bonuses. They got cash and everything. I was like, they just all of it was wrapped together, screams me like, hey, is this company really looking up for me or is this a management team who, you know, they, I've seen management teams that reach that trade for half of NAV issue stock to go buy more acquisitions, right? I was just kind of worried about that. So I've rambled for three minutes. I've thrown out a lot of things.

The proxy was very funny to me. But I just want to toss that risk over to you. Oh, that's absolutely a risk I'm worried about as well. Andrew, it happens a lot. I've been involved in Lionsgate entertainment for honor of the better product. Excuse me while I go commit ritualistic. What is it richly? Oh, my God. Sapuku or whatever that is. Lionsgate had an offer from CBS to, I'm doing this for memory, to buy stars for I think it was

$4 billion. Just stars. Stars today is probably is worth very little. And Lionsgate as a whole is worth less than $4 billion. And they turned that down. I mean, it is incredible how poorly they played that hand. Yeah. They had that Hasbro. offer that was I think $35 before that. Oh yeah. They didn't even have to do the star's deal for all I care, right? So I've seen the situation where management is entrenched. They've been there a long time. It's an annuity and you know, their interests are not aligned with that of the shareholders. In the case of at least Lionsgate, you had somebody like Mark Racheski that was involved who used to work

with Carl Ican so you felt like that was an activist on the board, didn't quite play out. that way and now it's Stephen Mnuchian that's involved. So you don't have that kind of situation with Pebblebrook. You don't have an activist involved or a director that you think can move the needle for the shareholders. That's very much a concern. It's a concern in most companies. And so, yeah, I wouldn't underestimate that kind of risk where the management doesn't take actions that are favorable to shareholders. So if a Blackstone comes along and wants to acquire the company, you know, you would hope that they would do the best thing for shareholders, but often they don't.

No, because exactly what you're thinking. To me, this thesis, you want it to be very simple, right? Company trades for half of NAV, you get a capital return story starting next year now that all the CAPEX and everything is done. And insiders are selling their preferred, which is a fixed income instrument, to buy stock. I mean, that's about as good of a setup as you could kind of imagine in terms of event. But the one thing is all that relies on management and the insiders being aligned, and I worry when I look at that pay package that they're not fully aligned,

right? And I'm trying to pull up the age of the CEO here. Let's see if I can do this real fast. I'm sure everybody loves when I Google stuff. All right, I can't find it. But yeah, I was just wondering if the CEO was old enough where he's closer to, kind of closer to retiring because no, he is. The CEO is 67. So, you know, maybe you start looking at that and say, hey, 67 is not 60, like that's where you might want to think about selling the company and retiring down to one of those Florida properties that they have. The Florida property that they have the big insurance claim on, have you looked at the website, by the way? I did look at that briefly, and then there's another one in the keys that looks beautiful as well. They look really nice. My wife when I was

prepping, she saw me looking at it. She's like, are we taking a big vacation? It's like, no, probably not. Maybe a little out of the podcast or price point, but it looks very, very nice. Anything you want to talk about here or we're a little early, so I'd love to just talk some other special situation stuff if you feel we've hit everything on pebble brock um no i think we've had everything on pebble brook um you know the other thing i was going to mention was um i was looking at tsa checkpoint volume data uh for this Thanksgiving holiday season i was comparing it to last year and when i look at a one big data you know those 19 percent increase in volume and so that kind of aligns a little bit with what they're talking about with 20 for 25 looking good for them

in terms of the bookings they have from conventions and other things. Just along those lines, you mentioned Airbnb as a risk earlier, and I think it's interesting because I'm in New York, right? But New York ban basically banned Airbnbs a few years ago, and now hotel prices are screaming through the roof. And I think there's a lot of other things going on there. But a lot of these big cities, New Orleans, I know New Orleans has started really cracking down on Airbnb's.

I think Nashville did. You mentioned Airbnb as a risk. I almost think I don't know how. it's playing out in any of these individual markets, to be clear. But I almost think of it as an opportunity where, look, if you're in a market where Airbnb is widely available, it's already hit you at this point, right? So it's already in the results. But there's a decent chance that the market, if it hasn't already, it's going to crack down

and then you will have an improvement going forward as the Airbnb's come off the market. So I don't know if you have any thoughts on that. Absolutely. Barcelona is going to get rid of Airbnb from 2026 as well. So you're seeing this across multiple big cities at this point. And Airbnb has its place. I do both hotels as well as Airbnb, depending on who I'm traveling with for how long and where I'm going to. I think they all work just fine.

And you haven't seen that impact either Hilton or Marriott or Hyatt. They've all done quite well over the last few years. It is a risk that I mention as an illusion, if you will, where people are concerned about Airbnb's impacting hotel. And that concern continues to remain, even though the reality doesn't quite support. uploaded. A reminder that today's podcast is sponsored by fintool.com, the chat GPT for SEC filings and earnings transcripts. Just ask your question and FinTool will pull the best answer from the relevant documents, whether it's a snippet from an earnings call or a key point from a filing. If you're an analyst or portfolio manager, try FinTool today at fintool.com

and take your research to the next level. That's fintool.com. Okay, so let's switch to a special situation. I would love to talk. You, the insider arbitrage stuff, it's almost too much. You run tons of squeens, tons of quants. You're following like every different type of event trend there is. I would just love to talk to you. We're talking on December 11th. I guess we're going to post this podcast early the week of December 16th. But it's been about a month since the election.

Q3 results are done. The insider window for companies opened. So insiders could buy shares as we talked about with Pebblebrook. Insiders could buy shares if they wanted. If their stock ripped on the heels of election, they wanted to sell shares, they could sell shares. They could go and out share buyback. all this sort of stuff. So I'd just love to ask you to start. What have you seen in all these

quants and screens that you run? What have you seen companies kind of looking at, insiders kind of looking like since the election over the past month? What I'm seeing just on the big picture side of things, insider selling remains significantly elevated compared to insider buying. So that's a signal that I look for. It worked multiple times in the past. It didn't work at the beginning of this year that you did see elevated insiders selling compared to buying and then there was weakness for a couple of weeks and then the market took off like a rocket. So you got a caveat the fact that there's macro signals might sometimes not work. But I am seeing elevated inside of selling in terms of sectors and it's more broad-based. There are times, for example, in May 2020,

I saw inside of buying in the oil and energy sector. And you know, the beginning of last year, we saw a lot of buying in the banks. To the point we were reporting on sometimes like 80 transactions a night, and it just became too much for us. I bought a lot of banks in May-ish of 2023, and I was seen the same thing you did. I was like I've never seen insider buying in a sector like I've seen here. I could find you preferreds where banks records were buying preferred hand over fist.

I bought them all, and my rule is I buy them below book and I'll sell them at tangible. and I did it, and if I had not sold those things that tangible, I mean, it drives me insane how well these banks have done. And I mean, insiders have made a lot of money here. And one interesting thing is a lot of banks where insider ownership was kind of minimal, not that it's insane, but they bought so much that insiders are going to be pretty incentivized. And I wonder if Trump administration, Insiders bought a lot of stock and they're up a lot on it over 18 months. I wonder if that combo pushes a lot more banks together than, you know, people are predicting a bank wave for next year over the next few years with Trump, but I think it might be even bigger than people are thinking.

Absolutely. There are thousands of banks in the U.S. Even though they've consolidated. So that wave is going to restart, I feel. You know, that wave slowed down quite a bit because you had a couple of bank mergers fail. Also, you had situations where bank mergers were taking a really long time to close. Oh, yeah. You know, the first horizon was just one of those, but every single bank merger takes like a year or more to close.

And so under the Trump administration, if things start moving a little bit more freely, I can see just like you said, a whole lot more consolidation. And it's a great way for, you know, the insiders, if they're thinking of retirement, to exit to somebody else. There were situations like this bank in, you know, Hawaii that had an competing offer, which they didn't go for, unfortunately. because, you know, it was a handshake deal with some other bank. So you'll see things like that where it doesn't make sense for shareholders, but I think we're going to see a whole lot more consolidation there. But if somebody's participating in one of those mergers or expecting them, just be aware it takes a really long time because you need multiple approvals in those kind of situations.

Any sectors where you're seeing a lot of insider buying currently? I'm not. Continuing to see interesting insider buying across sectors. Bank will financial. It's rated very high on a quantum. I've owned it previously. I don't own any shares currently, but I have owned it previously.

That was one of the ones that I did when everything went to heck. It's an interesting piece of it. It's in Connecticut, very rich markets, lots of insider buying. You've got some people who've known to get aggressive on the board there, but that's a really nice one. Yeah.

I think it's trading below tangible book when I last looked at it. So we've seen interesting things across sectors. That was Oscar Health. That was fascinating in the technology insurance space, if you will. There was yesterday, earlier this week, Orenia pharmaceuticals that Kevin Tang made a big insider purchase of, and the stock went up 14%.

So it's just one of things across sectors that really pop out to us. Since we have a conch model now, it's a little bit easier. We look and see if something scores high on the model, then we dive a little bit deeper. Any sectors where you're seeing particularly elevated inside, selling? Mostly technology across the board. You see the insiders of Palantir, you see insiders of Carvana and so on and so forth that

continue to sell. You do see Zuckerberg sell, but a lot of that selling of Meta is because they are funding the Chan Zuckerberg Foundation, so they sell stock to make donations to that foundation. So that's not really insider sale that I pay a lot of attention to, but Bezos selling Amazon, Maybe it's for tax reasons, but, you know, Insiders are a Pallenteer and so on and so forth. That really important. And, you know, insider selling, this is nothing new for people who pay attention. It's always tough because the stock goes on a wild run.

I mean, you love the person to Warren Buffett it and ride it for 40 years and compounded like crazy. It's like, hey, the stock can be 95% of their net worth. Like their founder, you mentioned Amazon like Jeff Bezos hasn't even had Amazon anymore. They've got other things. This is the famous, I think it was Peter Lynch, Insider's self. for a bunch of reasons, but they only buy for one reason. It's one of the reasons. I will use insider selling, like, if you see a company where no one's ever sold a share,

and then all of a sudden, you know, sometimes you'll see the stock goes up and all the insiders rush to get out of their shares and they're like, okay, that's, that's an interesting signal. But a founder who owns 40% consistently selling, you know, 2% of their shareholdings over a 12-month period, not as big a deal, not as big a deal. I really agree. Anything else interesting? I mean, you guys cover buyback,

you cover spin-offs, you go anything else interesting, just overall you guys are seeing in kind of special situation lander signals or anything? Yeah, so spin-offs, I do them a little bit more opportunistically. It's not like I'm looking at every spinoff that I'm interested in. So, you know, their Western Digital, that spinoff is quite fascinating to me. I was on Rich House podcast a few weeks ago,

and I talked about that one. And we also discussed Lionsgate, the spinoff of the Studios Division. Both of those are quite fascinating to me. Western Digital is one, I do not have a position, but I have looked at it. I'm very, very interested there. It's just the markets are very cyclical and very hard to, I find it hard to understand. I find it hard to grasp, find it hard to know where we're in the cycle, what technology

looks like and everything. But I just think it's kind of interesting because you can go, for those you don't know, the spinoff's happening because, I think because Elliott made an investment back in about 2022, they said, hey, we think your stock's worth more than 100 if you do the spin-off and the company said, okay, we'll put the divisions together or we'll separate them, we'll do spin-off. And now we're on the verge. And I don't think anything from the Elliott letter has grown stale or anything. I did listen to most of that podcast you did it with Rich, but I don't know if you have anything to add on that. No, I like that one. In some sense,

you're right. The flash business is very cyclical. You have these ups and downs. And so that's what they're doing year by getting rid of the Sandisk division. So the cyclical division is going to be a separate company. And then you have the hard drive business that I think is going to grow at, you know, slightly low double digits over time because of all the demand for data, whether it's for AI or data centers, so on and so forth. So I like that part of it. So when you have a business that's like a steady state grower and that is trading at a significant discount to its only other peer out there, which is Seagate, you know, you can see that, you know, eventually it'll get up to where it should be valued. So that's the part of the situation that

excites me more. The other part that excites me with Western Digital is you have a spin-off and you've got a company with Leaps trading and Leaps are, for those who don't know, long-term options, you know, just disclose a thousand times, options carrying insane amounts of extra risk. Please consults by financial advisor. I'm not mentioning them, but, you know, spin-offs with Leaps, I have no position again, but if you go back and read Joel Greenblacks, you can be a stock market genius, you know, warrants are really what he's talking about, but obviously Leaps recreate a lot of the dynamics of warrants. And you buy a leap and you've got one company and it splits into two companies with some cyclicality and a lot of boom bust. Like instead of having a option on a

basket, you have a basket of options and a basket of options is much more interesting than an option on a basket. Well, that's fascinating, Andrew. That's a good way to play it. Cool. Cool. Anything else you want to chat about? No, that pretty much covers it. As you said, there's so much that comes across our plate constantly that, you know, these were the few that were interesting on the insider and spin-off side of things. Mojab has been very difficult, as you know, Albertson's Kroger, that seems to have come to an end at this point. U.S. feel looks very risky through the end of this year.

Capri failed. So Mojaab has been difficult, so we've been focusing a whole lot more on some of these other situations that look more interesting in the near term. Yeah. Well, look, I'm fascinated by Pebblebrook. I'm fascinated by the hotel space in general because doing research on this, looked at Park, looked a few other, like they all do seem to trade at a discount to NAV. I think the question is just, hey, do you think insiders are incentivized to unlock that discount?

And in Pebblebrook's case, you've got, they're telling you we're going to start returning that capital. The insiders are buying. Like, it seems like they're going to do it. The question is just, will they actually pull the trigger? But I said, this has been great. Can I include a link to the Pebblework write up you sent me in the show notes? Yeah, absolutely. include a link to the public right up in the show notes so people can check it out there.

And through that, I'll be able to find, I'll include a link to the book as well, but you'll be able to find all of his work. Thank you so much for coming on and looking forward to podcast number three. Thank you for having me on. Andrew, it's always a pleasure talking to you. A quick disclaimer, nothing on this podcast should be considered an investment advice. Guests or the hosts may have positions in any of the stocks mentioned during this podcast. Please do your own work and consult a financial advisor.

Thanks. Thank you.