Tuesday, February 7, 2023
HomeValue InvestingMid 12 months 2022 Portfolio Evaluation

Mid 12 months 2022 Portfolio Evaluation

Investing is a humbling endeavor.  For the primary half of 2022, my private account is down -27.26% versus the S&P 500 being down -19.96%.

Ideas on Present Holdings
As I’ve throughout powerful intervals earlier than, this is a fast abstract thesis of every of my present holdings (in principally alphabetical order):

  • Superior Emissions Options (ADES) is a ~$90MM market cap firm with NCAV of ~$70MM plus their activated carbon enterprise/plant.  The corporate is now previous month 13 of their strategic evaluate, on their Q1 convention name in Could, CEO Greg Marken responded to a evaluate standing query with: “whereas the method has drawn out, the very fact stays that we’re happy with the place issues stand throughout the course of are hopeful that we will present an replace quickly.”  It is a frequent theme in my portfolio proper now, ready on M&A in a semi-frozen setting for M&A.  Their activated carbon enterprise is barely money movement optimistic and fairly area of interest, possible solely leaving a restricted pool of strategic consumers that may be thinking about it.  The delay could possibly be blamed on a timing subject because it must be the suitable worth for ADES and the suitable time/worth for the handful of potential acquirers.  This isn’t so simple as promoting an house complicated was in 2021.  The worth has are available in fairly a bit from my authentic put up and stays fairly enticing.  The bear case from right here can be in the event that they’re unable to promote themselves, administration then decides they’d be too small in the event that they returned money to shareholders and as an alternative flip into an acquirer.
  • ALJ Regional Holdings (ALJJ) is generally a money shell now run by the controversial Jess Ravich, each asset gross sales have closed, the NOLs are exhausted and now the corporate is taking a look at strategic alternate options.  The RemainCo misplaced a big contract with Humana lately that made up ~30% of the pro-forma income, however the market does not appear to be pricing in a lot if any worth to the remaining operations.  NCAV is one thing like $2.70/share and the inventory at present trades for $1.90 with the prospect of a catalyst on the horizon.
  • The one factor that has barely modified for Argo Group Worldwide Holdings (ARGO) from my write-up in early Could, the CEO who was beforehand on sick depart has formally resigned and the Chairman and interim-CEO, Thomas Bradley, now loses the interim designation.  Bradley is the one main the strategic alternate options course of, perhaps I am reaching, nevertheless it no less than holds with the story that they will promote.
  • Atlas Monetary Holdings (CUSIP 049323AB4) accomplished the restructuring of their previous child bonds and issued new senior unsecured PIK toggle notes which can be denominated in $1 increments to the previous child bond holders.  I do not consider these have traded fingers but within the secondary market, so unsure how related the story is anymore, however the fairness does commerce as AFHIF for individuals who like option-like bets on turnaround tales.  Atlas acts as an agent for insurance coverage carriers within the gentle business auto market (suppose taxis, limos, shuttle buses, and many others.), because the world is normalizes, each from covid and UBER/LYFT not being irrationally enterprise capital backed, one may envision a world the place taxis and limos exist alongside journey sharing companies.  The corporate nevertheless remains to be on questionable footing, it is burning money and would possibly find yourself needing to restructure once more if the turnaround does not flip comparatively quickly.
  • The proposed Bally’s (BALY) $38 go-private provide from 22% proprietor Customary Normal blew up in my face, the impartial members of the board could not come to phrases with Chairman Soo Kim from SG.  Whether or not this was ever an actual provide is up for debate, however the provide was made proper earlier than the financial outlook acquired dicey.  Since then, the inventory has tanked to ~$20, regardless of the market response, a number of good items of stories have come out: 1) BALY’s received the downtown Chicago bid (nonetheless must be accepted by the Illinois Gaming Board), the mock-up of the on line casino appears nice and its within the excellent location; 2) BALY’s introduced a $190 dutch tender providing for between $19.25-$22.00; and three) simply this week, they entered right into a sale leaseback with GLPI to purchase their Rhode Island casinos for $1B or a 7.8% cap charge, a lot of this can be used for the construct out of Chicago and no matter they do with the Tropicana in Las Vegas.  BALY’s additionally put out a three yr money movement projections in an 8-Okay that’s value taking part in round with in case you’re within the story.  The bear case is the affect of a possible recession and draining of liquidity from the system, however regional casinos proceed to indicate their resilience and Bally’s appears to be a rational actor within the sports activities betting/igaming area.
  • BBX Capital (BBXIA) is a $117MM market cap holding firm run by the controversial Levan household, BBX has 5 core belongings: 1) $115MM in money; 2) $50MM be aware from Bluegreen Holidays Holding (BVH); 3) Florida multi-family actual property/developer; 4) Renin, a producer of doorways; 5) IT’SUGAR, the sweet retailer.  The honest worth of all that’s most likely within the low-to-mid $20s per share, nevertheless it’s at present buying and selling within the $7s, beneath $8 the place the corporate accomplished a young provide final July and $11.10 the place they purchased out Angelo Gordon in November.  The firm accepted a brand new $15MM share repurchase program in January, however have not appeared to make use of it.  So the query is why is not the corporate shopping for again shares right here?  Possibly they are going to deploy capital someplace or they’re prepping for one more massive tender provide.  I cringe a bit once I sort this, however they do appear to be fairly good capital allocators they usually’ve hit a house run of their actual property growth enterprise, each few months they promote an house complicated properly above their value foundation, this is the newest instance.  The bear case is pretty apparent, it’s the Levan household low cost and whether or not that ever closes.
  • DigitalBridge Group (DBRG) has now nearly totally reworked into another asset supervisor centered on the “digital infrastructure” sector, a time period that CEO Marc Ganzi popularized.  They’ve completed a couple of possible worth creating actions recently, they bought AMP Capital for 8.4x EBITDA, reacquired 100% possession of their funding administration enterprise from Wafra (switching from a REIT to a C-Corp within the course of) and bought a stake of their DataBank place for properly above carrying worth.  Time is beginning to tick on Ganzi’s $100MM incentive package deal, he must get the inventory to commerce above $10 for 90 buying and selling days previous to the summer time of 2024.  I’ve purchased Jan ’24 $5 name choices to juice the upside, he is delivered on every little thing to this point, with all digital infrastructure theme tailwinds, I believe it is good to imagine he continues to ship.  The bear case is charges rising carry down the cap charges on digital infrastructure belongings, hurting returns in DBRG’s funds and limiting their capability to lift future capital.
  • We’re nonetheless awaiting the result of Franchise Group (FRG) doubtlessly shopping for Kohl’s Corp (KSS), the three week exclusivity interval got here and went with out both facet saying a peep.  CNBC reported that Franchise Group was making an attempt to re-cut their bid from $60 to $50, taking $50 is perhaps unacceptable for the KSS board after they stated the inventory was value $70 a couple of months in the past.  It could possibly be Brian Kahn’s (FRG CEO) diplomatic means of getting out of the working for KSS.
  • Inexperienced Brick Companions (GRBK) is a homebuilder and land developer that is primarily centered on the Dallas metroplex (with extra publicity to Atlanta, Austin, Colorado Springs and Vero Seaside FL), David Einhorn stays the Chairman and Jim Brickman, a very long time Dallas developer, is the CEO.  Issues have modified rapidly for homebuilders in the previous few months, mortgage charges have mainly doubled, however demographics and migration developments ought to be in GRBK’s favor.  Sadly, Inexperienced Brick made a strategic determination final yr that does not look so nice now, limiting pre-orders to construct extra spec properties as a way to seize greater margins and have extra worth certainty round prices.  They’re possible caught with a excessive stage of stock and might want to slash costs.  Shares are down -34% this yr in anticipation of the housing slowdown, we’ll learn how unhealthy issues are on the subsequent quarterly earnings name.  The inventory trades for 1.1x ebook worth and a little bit greater than 4x an more and more cloudy estimated earnings.
  • Howard Hughes Corp (HHC) is an actual property developer with their main belongings positioned in Las Vegas, Houston, Columbia MD, Honolulu, New York and the current addition of Phoenix.  The corporate put out an investor day in April that laid out a $170/share NAV together with company overhead, they’ve lately been an aggressive purchaser of the inventory at ~$95/share, the inventory now trades for ~$65/share reflecting buyers issues in regards to the firm as we head into a possible recession.  Throughout peak covid fears, Invoice Ackman did a capital increase with himself at advantageous costs, let’s hope that does not occur once more.  HHC has comparable housing concern headwinds, they fund new business actual property growth with the sale of land to homebuilders, if homebuilders cease shopping for land of their communities, the event engine grinds to a halt.  However trying long term, if greater inflation is right here to remain, exhausting to consider a greater hedge than land banks in low value of residing development markets.
  • INDUS Realty Belief (INDT) is a small cap industrial/logistics REIT that is led by a couple of members of the previous GPT administration staff.  There may be some concern round logistics properties being overbuilt and information popping out that Amazon is pulling again on constructing/occupying new warehouses after their huge covid development spurt.  Nonetheless, INDT is small and may be selective of their new markets and new developments and there is at all times the Blackrock BREIT bid within the background of commercial and multi-family REITs.  Shares have are available in a bit, I’ve the inventory buying and selling at a few 5.5% cap charge, fairly low cost for a top quality portfolio and at present with minimal internet debt.
  • Jackson Monetary (JXN) is the variable annuity supplier that was spun from Prudential PLC final fall, the construction of the spinoff attracted me in {that a} international listing firm was spinning a a lot smaller U.S. listed firm.  That is a variety of potential index associated promoting adopted by shopping for.  Shares ran up as the corporate has purchased again a big quantity of inventory out of the gates after which has fallen proper again down given the financial backdrop and opaque nature of their monetary statements.  A method I am enthusiastic about the corporate is on a shareholder yield foundation, JXN has dedicated to returning $425-$525MM in capital to shareholders this yr.  On the mid-point, that is 20% of the present market cap.
  • Liberty Broadband’s (LBRDK) main holding is a 50+ million share funding in Constitution Communications (CHTR) alongside a small working enterprise in GCI.  Assigning a 7x EBITDA a number of to GCI, I get an NAV of ~$140/share whereas the inventory trades at $115/share, they proceed to take part in CHTR’s buyback on a pro-rata foundation then turnaround and buyback their very own inventory, about 15% of the shares have been retired within the final yr.  Sentiment is fairly poor across the huge cable firms however that solely makes the buyback math extra enticing, I am content material to carry for now.
  • LMP Automotive Holdings (LMPX) is a shaky microcap auto supplier that’s doubtlessly within the strategy of promoting themselves.  LMPX has delayed their financials and must restate earlier ones however has offered some monetary updates, together with a money steadiness of $30MM on the finish of three/31 in opposition to $85MM of debt, the market cap is $50MM, so the EV is barely $112MM in opposition to an EBITDA of ~$40-50MM (my estimate, could possibly be completely incorrect).  There is perhaps some working capital shenanigans of their money construct, they may have simply liquidated stock, we do not know.  I evaluate this one to a REIT promoting their portfolio, auto dealerships are fairly ubiquitous and get purchased/bought usually.  LMPX does have a barely totally different mannequin the place they do not personal 100% of the dealerships and have some non-controlling pursuits remaining with the operators of the dealerships.  Bear case is fairly scary, this could possibly be a dumpster fireplace, they’ve accounting points and a weak board, energy is concentrated within the fingers of the CEO who acquired the corporate on this mess. 
  • NexPoint Diversified Actual Property Belief (NXDT) is a closed finish fund that’s nonetheless within the strategy of changing to a REIT, however the finish ought to be imminent because the fund has obtained all of the proceeds from Amazon shopping for MGM Holdings, the film studio not the on line casino operator, eradicating a big securities place from NXDT’s steadiness sheet which was one of many SEC’s points with the conversion.  With REIT standing comes index inclusion, not simply from REIT indices however from broad indices as properly that do not embody CEFs or BDCs.  The inventory trades for $16.50/share, the printed NAV is $26.26/share, so it’s buying and selling for 63% of NAV.  I anticipate that low cost to slender as the corporate converts to a REIT and tells their story to the market.  The controversial James Dondero has been usually shopping for shares within the open market forward of the conversion. 
  • Par Pacific Holdings (PARR) is a distinct segment downstream vitality firm, they function three refineries in small markets (Hawaii, Tacoma WA, Wyoming) and associated logistics/retail networks.  As anybody that has crammed up their fuel tank lately is aware of, refining margins have blown out considerably and there is a variety of discuss in regards to the U.S. not having sufficient refining capability after a number of refineries had been mothballed throughout covid.  PARR has accomplished their current rounds of upkeep turnarounds and ought to be working at full utilization throughout this excessive tide interval.  Moreover, PARR owns a 46% curiosity in Laramie Power, an upstream pure fuel firm in Colorado, given the pure fuel worth backdrop, the corporate is lastly taking a look at strategic alternate options for his or her funding.  It has been utterly written down of their financials for a while they usually nonetheless have their large NOL to protect any taxable features.  Talking of the NOL which is about $1.6B and begins to run out in 2027, CEO Invoice Pate stated of their current convention name “primarily based on our outlook for the enterprise, we actually do not see NOLs expiring.  We anticipate that we’ll be utilizing these tax attributes to offset earnings.”  The corporate has but to hit the NOL after a few years, so take that with a grain of salt.  The opposite factor value mentioning, Sam Zell’s fund has come to the top of its life and has been promoting/distributing shares to buyers, offering an overhang to the inventory.  PARR has below carried out the sector, a part of that’s their area of interest place which possible will not totally take part within the business tailwinds, a part of it is perhaps the promoting strain from Zell’s fund.
  • PFSweb Inc (PFSW) is an analogous concept as ADES, PFSW beforehand operated two companies, it bought one final yr and is now sitting on $155MM in money with no debt and a $265MM market cap.  The remaining enterprise is a subscale third get together logistics (3PL) supplier to principally client retail firms needing an e-commerce logistics supplier.  The corporate was late on their financials due to the difficult nature of their asset sale, they’re now present and in response to CEO Michael Willoughby on their current earnings name: “We continued to work with Raymond James on the evaluate of a full vary of strategic alternate options for PFS.  As we have beforehand communicated, we consider that finishing a second transaction represents essentially the most environment friendly approach to return the numerous capital we maintain to shareholders… finishing this course of stays our prime precedence.”  I am guessing there ought to be extra strategic consumers of a small 3PL enterprise than for ADES’s activated carbon plant, however equally, right here we’re a yr after the preliminary strategic alternate options announcement with no deal.  Hopefully the M&A market unfreezes a bit quickly, however with the large money pile and marginally worthwhile 3PL enterprise, the draw back appears fairly minimal right here apart from alternative value.
  • The one replace since my Could put up on Radius World Infrastructure (RADI) is it seems that DigitalBridge is definitely thinking about shopping for RADI, only a ready recreation now to see if a transaction materializes.
  • Regional Well being Properties (RHE PRA) is a struggling lessor/operator of expert nursing and assisted residing amenities, the corporate’s steadiness sheet is the wrong way up and they’re making an attempt to alternate their current most well-liked right into a inventive new most well-liked safety, however have not gotten the votes essential to date and have pushed the newest vote off to 7/25.  It is exhausting to handicap if they will ever get the votes, the frequent inventory solely has a ~$4MM market cap, so its honest to say that no establishments personal it, most likely simply sitting in some Robinhood accounts the place the house owners deleted their app after every little thing crashed.
  • Sonida Senior Dwelling Inc (SNDA) is an proprietor operator of primarily mid-priced impartial residing and assisted residing amenities.  The corporate did an out-of-court restructuring with Conversant Capital in 2021 offering an injection of capital and successfully taking management.  Sonida has a big quantity of monetary leverage (via mortgage debt, they personal, do not lease their properties) and the senior housing enterprise mannequin options a variety of working leverage (occupancy and margin are the KPIs), a potent upside cocktail recipe if the business recovers (or the alternative if it does not).  Senior housing ought to have important tailwinds: 1) restoration from covid; 2) demographic tailwinds, SNDA operates the entry care stage amenities (somewhat than nursing properties) which ought to profit first; 3) restricted new building/provide given covid and with inflation, any new building can be pricey and focused on the upper-price factors, away from SNDA’s mid-priced place.  On the bear facet, the business continues to be stricken by rising labor prices and the usage of contract labor, doubtlessly squeezing the stabilized margin profile of the enterprise.  Shares commerce at a reduction to the place Conversant invested ($25) and the following rights providing ($30), in the meantime the corporate’s occupancy numbers proceed to climb.
  • I lately re-wrote up Transcontinental Realty Traders (TCI) after the corporate bought their JV creating a variety of liquidity, now the query is whether or not the 85% controlling shareholder will tender for the remaining 15%?  Shares at present commerce at roughly 50% of proforma ebook worth after the JV deal closes.

Moreover, I’ve a a number of true liquidations, each Luby’s (LUB) and HMG Courtland (HMG) went non-traded through the first half of 2022, the third, Sandridge Mississippian Belief I (SDTTU) not often trades and usually solely in tiny quantities as we await the dismissal of a shareholder lawsuit.  The main asset at HMG was lately bought, hopefully we’ll see a distribution this yr, however there’s restricted to no disclosures now, so a bit in the dead of night.
Offered positions
Alternative Value Gross sales:

  • Accel Leisure (ACEL) is an effective enterprise mannequin, they’re in distributed gaming the place ACEL owns the video gaming terminals (aka slot machines) and accomplice with bars or taverns who then function them (legacy operations are all in IL) as mini-casinos.  It ought to mint free money movement.  Nonetheless, their development story appears a little bit cloudier than it did a number of years in the past, new states are not lining as much as go VGT legalization laws practically as enthusiastically as they’re keen to go cell sports activities gaming and icasino laws.  One is form of an eye fixed sore that takes time to rollout, the opposite is a downloadable app in your cellphone which immediately creates tax income.  Possibly recognizing this development, ACEL purchased Century Gaming in a deal that simply closed, Century is a longtime operator in Montana and Nevada, two mature distributed gaming states.  That is perhaps the play from right here, simply consolidate the legacy states.  Regardless of holding for ~2.5 years, I by no means had an enormous place and ACEL’s inventory has held up properly on this downturn, I bought to re-allocate elsewhere however will proceed to observe the enterprise.  
  • Odonate Therapeutics (ODTC) is a failed biotech money shell (there are a variety of these in the intervening time!), they went darkish and IR by no means responded to my inquiries, some buyers are completely comfy with darkish shares, I have a tendency to not be one in every of them.  Particularly when it’s run by a CEO I do not belief, so I bought my shares.
  • Technip Energies (THNPY) is an engineering and building agency centered on massive vitality infrastructure tasks, the inventory tanked following Russia’s invasion of Ukraine resulting from uncertainty round their a mission within the Russian artic, and if TE would have the ability to end the mission or get their cash in another country.  The shares have recovered some, the corporate is a serious participant in LNG facility building which ought to have some tailwinds as Europe must rethink their vitality technique.
  • Laureate Schooling (LAUR) runs 5 for-profit universities in Mexico and Peru, final yr they returned money to shareholders through a pair particular dividends.  The inventory might be nonetheless low cost, I do not suppose it can final lengthy in its present kind, however any M&A might be postpone for some time.  Refinitiv did report that Laureate was trying to take out a time period mortgage for a dividend recap and put leverage again on the corporate, that is perhaps attention-grabbing however the inventory has held up properly this yr and I bought it to spend money on new concepts.
  • ECA Marcellus Belief I (ECTM) is a tiny pure fuel belief, I bought this one early within the yr because the rally was simply getting began in pure fuel, thus I missed many of the run up.  I am not a very good commodities investor and simply acquired fortunate with this one within the first place, nevertheless it was an enormous win for me total.
  • Logan Ridge Finance Corp (LRFC) and PhenixFin (PFX) are two small BDCs within the midst of a transition, I nonetheless suppose PFX ought to promote itself however the firm is not doing that, each of those is perhaps revisits for me sooner or later however there are extra attention-grabbing concepts on the market than proudly owning a subscale BDC at a reduction to NAV heading into a possible recession.

Possibility Positions that Expired:

  • I owned Jan ’22 calls in Marathon Petroleum (MPC) which was a covid disaster leaps proxy for PARR and Bluerock Residential Progress (BRG), each nice wins.
  • My speculative BRT Flats (BRT) calls weren’t as nice of a name and expired nugatory, BRT is buying and selling a big low cost to non-public market worth, they’re pursuing a technique of shopping for out their JV companions which ought to simplify the story a bit.  May be value taking a look at in case you’re nonetheless a believer within the sunbelt multi-family thesis.
  • Nam Tai Property (NTP) has been a whole catastrophe and my name choices expired nugatory, new administration nonetheless hasn’t been in a position to take full possession of the corporate’s properties in Shenzhen.  If there are any authors on the market on the lookout for new materials for a ebook, this story has the makings of an ideal learn.


  • My write-ups on Altisource Asset Administration (AAMC) and Armstrong Flooring (AFI) each learn nearly like a brief thesis, most likely an indication of the occasions as these had been each close to the highest of the market, lesson discovered, once I begin reaching for the actually dicey concepts the place you have to squint to see the upside, most likely time to only sit on my fingers.  Armstrong ended up submitting for chapter, there are nonetheless consumers within the firm however Pathlight grew impatient, one to observe as a restructuring play.  Altisource simply looks as if a clown present, they had been suspended from buying and selling for months, then regained eligibility, now turning into a tough cash lender and a crypto ATM firm, simply all appears haphazardly put collectively.  Luxor nonetheless hasn’t settled, they maintain all of the playing cards and I nonetheless do not buy into the concept their convertible most well-liked has no enamel.
  • I bought Orion Workplace REIT (ONL) at a small loss, ONL is the suburban workplace spinoff from the Realty Earnings merger with VEREIT.  In hindsight I talked myself into liking this one regardless of it being an apparent rubbish barge as a result of merger-spin setup which has labored properly prior to now.  Repurposing workplace actual property goes to require a variety of time (decade plus?) and capital, one thing public REIT buyers shun.

Present bullpen/watchlist:

  • Bluerock Properties Belief (BHM) is the pending spinoff of single household leases simply previous to the shut of Blackrock’s buy of Bluerock Residential Progress (BRG).
  • Uniti Corp (UNIT) is the PropCo spin of Windstream, Windstream went bankrupt a couple of years again and re-cut the lease with Uniti Corp.  Uniti owns a variety of fiber belongings and is one other digital infrastructure M&A candidate that DBRG’s portfolio firm Zayo was rumored to be thinking about shopping for and recombining with Windstream.
  • WideOpenWest (WOW) is a cable overbuilder that has a pair rumored consumers circling, they bought belongings final yr for 10-11x EBITDA and at present commerce for 8x.

Present Portfolio:

Money was withdrawn in early April to pay for 2021 taxes, leverage is excessive as I acquired smoked the final two months, however I can transfer funds over to this account if essential to plug the outlet.

As traditional, at all times on the lookout for new concepts, be at liberty to share yours or critique mine.  Thanks for studying and luxuriate in your vacation weekend (for U.S. readers).

Disclosure: Desk above is my taxable account/weblog portfolio, I do not handle outdoors cash and that is solely a portion of my total belongings.  In consequence, the usage of margin debt, choices, focus does not totally characterize my threat tolerance.



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