Wednesday, March 29, 2023

Mid 12 months 2022 Portfolio Assessment

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 evaluation, on their Q1 convention name in Could, CEO Greg Marken responded to a evaluation standing query with: “whereas the method has drawn out, the very fact stays that we’re happy with the place issues stand inside the course of are hopeful that we will present an replace quickly.”  This can be 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 circulate optimistic and fairly area of interest, possible solely leaving a restricted pool of strategic consumers that may be occupied with it.  The delay might be blamed on a timing subject because it must be the proper worth for ADES and the proper time/worth for the handful of potential acquirers.  This isn’t so simple as promoting an condo advanced was in 2021.  The worth has are available fairly a bit from my original post and stays moderately engaging.  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 a substitute 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 options.  The RemainCo lost a significant contract with Humana not too long ago 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 presently 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 options course of, possibly I am reaching, but it surely at the least holds with the story that they’re going to promote.
  • Atlas Monetary Holdings (CUSIP 049323AB4) accomplished the restructuring of their outdated child bonds and issued new senior unsecured PIK toggle notes which might be denominated in $1 increments to the outdated child bond holders.  I do not consider these have traded palms but within the secondary market, so unsure how related the story is anymore, however the fairness does commerce as AFHIF for many who like option-like bets on turnaround tales.  Atlas acts as an agent for insurance coverage carriers within the mild business auto market (assume taxis, limos, shuttle buses, and many others.), because the world is normalizes, each from covid and UBER/LYFT not being irrationally enterprise capital sponsored, one might envision a world the place taxis and limos exist alongside journey sharing companies.  The corporate nevertheless continues 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 supply from 22% proprietor Commonplace Normal blew up in my face, the unbiased members of the board could not come to phrases with Chairman Soo Kim from SG.  Whether or not this was ever an actual supply is up for debate, however the supply was made proper earlier than the financial outlook received dicey.  Since then, the inventory has tanked to ~$20, regardless of the market response, a number of good items of reports have come out: 1) BALY’s won the downtown Chicago bid (nonetheless must be accepted by the Illinois Gaming Board), the mock-up of the on line casino seems nice and its within the good location; 2) BALY’s announced a $190 dutch tender offering for between $19.25-$22.00; and three) simply this week, they entered into a sale leaseback with GLPI to purchase their Rhode Island casinos for $1B or a 7.8% cap charge, a lot of this will probably 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 year cash flow projections in an 8-K that’s value enjoying round with for those who’re within the story.  The bear case is the influence of a possible recession and draining of liquidity from the system, however regional casinos proceed to point out 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 notice 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, but it surely’s presently buying and selling within the $7s, beneath $8 where the company completed a tender offer last July and $11.10 where they bought out Angelo Gordon in November.  The company approved a 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?  Perhaps they will deploy capital someplace or they’re prepping for an additional giant tender supply.  I cringe a bit after I sort this, however they do appear to be fairly good capital allocators and so they’ve hit a house run of their actual property improvement enterprise, each few months they promote an condo advanced effectively above their price foundation, here’s the latest example.  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 virtually totally remodeled into another asset supervisor centered on the “digital infrastructure” sector, a time period that CEO Marc Ganzi popularized.  They’ve completed a number of possible worth creating actions recently, they purchased AMP Capital for 8.4x EBITDA, reacquired 100% ownership of their investment management business from Wafra (switching from a REIT to a C-Corp within the course of) and sold a stake in their DataBank position for effectively above carrying worth.  Time is beginning to tick on Ganzi’s $100MM incentive bundle, he must get the inventory to commerce above $10 for 90 buying and selling days previous to the summer season of 2024.  I’ve purchased Jan ’24 $5 name choices to juice the upside, he is delivered on all the things up to now, with all digital infrastructure theme tailwinds, I feel it is sensible to imagine he continues to ship.  The bear case is charges growing convey down the cap charges on digital infrastructure belongings, hurting returns in DBRG’s funds and limiting their capacity to boost future capital.
  • We’re nonetheless awaiting the result of Franchise Group (FRG) probably 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 trying to re-cut their bid from $60 to $50, taking $50 is likely to be unacceptable for the KSS board after they mentioned the inventory was value $70 a number of months in the past.  It might 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 further publicity to Atlanta, Austin, Colorado Springs and Vero Seashore FL), David Einhorn stays the Chairman and Jim Brickman, a very long time Dallas developer, is the CEO.  Issues have modified shortly for homebuilders in the previous couple of months, mortgage charges have mainly doubled, however demographics and migration traits ought to be in GRBK’s favor.  Sadly, Inexperienced Brick made a strategic resolution final yr that does not look so nice now, limiting pre-orders to construct extra spec houses in an effort to seize greater margins and have extra worth certainty round prices.  They’re possible caught with a excessive degree of stock and might want to slash costs.  Shares are down -34% this yr in anticipation of the housing slowdown, we’ll learn the way unhealthy issues are on the subsequent quarterly earnings name.  The inventory trades for 1.1x ebook worth and a bit greater than 4x an more and more cloudy estimated earnings.
  • Howard Hughes Corp (HHC) is an actual property developer with their major belongings situated in Las Vegas, Houston, Columbia MD, Honolulu, New York and the latest 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 not too long ago been an aggressive purchaser of the inventory at ~$95/share, the inventory now trades for ~$65/share reflecting buyers considerations 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 related housing concern headwinds, they fund new business actual property improvement 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, arduous to consider a greater hedge than land banks in low price of residing development markets.
  • INDUS Realty Belief (INDT) is a small cap industrial/logistics REIT that is led by a number of members of the outdated GPT administration staff.  There’s some concern round logistics properties being overbuilt and information coming out that Amazon is pulling back on building/occupying new warehouses after their massive covid development spurt.  Nonetheless, INDT is small and might be selective of their new markets and new developments and there is all the time the Blackrock BREIT bid within the background of business and multi-family REITs.  Shares have are available 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 presently with minimal web debt.
  • Jackson Monetary (JXN) is the variable annuity provider that was spun from Prudential PLC last fall, the construction of the spinoff attracted me in {that a} overseas 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 major 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 technique I am fascinated by 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) major 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 massive cable firms however that solely makes the buyback math extra engaging, I am content material to carry for now.
  • LMP Automotive Holdings (LMPX) is a shaky microcap auto dealer that is potentially in the process of selling themselves.  LMPX has delayed their financials and must restate earlier ones however has supplied 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, might be completely improper).  There is likely to be 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 frequently.  LMPX does have a barely completely 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 might be a dumpster hearth, they’ve accounting points and a weak board, energy is concentrated within the palms of the CEO who received 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 acquired all of the proceeds from Amazon shopping for MGM Holdings, the film studio not the on line casino operator, eradicating a major 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 effectively that do not embrace CEFs or BDCs.  The inventory trades for $16.50/share, the revealed NAV is $26.26/share, so it’s buying and selling for 63% of NAV.  I count on 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 regularly buying shares within the open market forward of the conversion. 
  • Par Pacific Holdings (PARR) is a distinct segment downstream power firm, they function three refineries in small markets (Hawaii, Tacoma WA, Wyoming) and associated logistics/retail networks.  As anybody that has crammed up their gasoline tank not too long ago is aware of, refining margins have blown out considerably and there is a variety of speak in regards to the U.S. not having sufficient refining capability after a number of refineries have been mothballed throughout covid.  PARR has accomplished their latest 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 gasoline firm in Colorado, given the pure gasoline worth backdrop, the corporate is lastly taking a look at strategic options for his or her funding.  It has been fully written down of their financials for a while and so they nonetheless have their huge 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 mentioned of their latest convention name “based mostly 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 tip of its life and has been promoting/distributing shares to buyers, offering an overhang to the inventory.  PARR has underneath 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 likely to be the promoting strain from Zell’s fund.
  • PFSweb Inc (PFSW) is the same 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 celebration 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 keeping with CEO Michael Willoughby on their recent earnings call: “We continued to work with Raymond James on the evaluation of a full vary of strategic options for PFS.  As we have beforehand communicated, we consider that finishing a second transaction represents probably the most environment friendly method to return the numerous capital we maintain to shareholders… finishing this course of stays our high 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 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 aside from alternative price.
  • The one replace since my May post on Radius Global Infrastructure (RADI) is it seems that DigitalBridge is actually interested in buying 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 services, the corporate’s steadiness sheet is the wrong way up and they’re trying to exchange their existing preferred into a creative new preferred security, however have not gotten the votes essential to date and have pushed the most recent vote off to 7/25.  It is arduous 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 all the things crashed.
  • Sonida Senior Residing Inc (SNDA) is an proprietor operator of primarily mid-priced unbiased residing and assisted residing services.  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 major 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 vital tailwinds: 1) restoration from covid; 2) demographic tailwinds, SNDA operates the entry care degree services (reasonably than nursing houses) which ought to profit first; 3) restricted new development/provide given covid and with inflation, any new development 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 suffering from growing labor prices and using contract labor, probably 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 not too long ago re-wrote up Transcontinental Realty Investors (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 presently 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 throughout the first half of 2022, the third, Sandridge Mississippian Belief I (SDTTU) hardly ever trades and sometimes solely in tiny quantities as we await the dismissal of a shareholder lawsuit.  The primary asset at HMG was recently sold, hopefully we’ll see a distribution this yr, however there’s restricted to no disclosures now, so a bit at nighttime.
Offered positions
Alternative Value Gross sales:

  • Accel Leisure (ACEL) is an efficient enterprise mannequin, they’re in distributed gaming the place ACEL owns the video gaming terminals (aka slot machines) and associate with bars or taverns who then function them (legacy operations are all in IL) as mini-casinos.  It ought to mint free money circulate.  Nonetheless, their development story appears a bit cloudier than it did a number of years in the past, new states aren’t lining as much as go VGT legalization laws almost as enthusiastically as they’re keen to go cell sports activities gaming and icasino laws.  One is form of a watch sore that takes time to rollout, the opposite is a downloadable app in your cellphone which immediately creates tax income.  Perhaps 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 likely to be the play from right here, simply consolidate the legacy states.  Regardless of holding for ~2.5 years, I by no means had a giant place and ACEL’s inventory has held up effectively 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 all 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 development agency centered on giant power infrastructure tasks, the inventory tanked following Russia’s invasion of Ukraine attributable to uncertainty around their a project in the Russian artic, and if TE would be capable of end the venture or get their cash in a foreign country.  The shares have recovered some, the corporate is a significant participant in LNG facility development which ought to have some tailwinds as Europe must rethink their power technique.
  • Laureate Training (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 assume it should 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 likely to be fascinating however the inventory has held up effectively this yr and I bought it to spend money on new concepts.
  • ECA Marcellus Belief I (ECTM) is a tiny pure gasoline belief, I bought this one early within the yr because the rally was simply getting began in pure gasoline, thus I missed a lot of the run up.  I am not a superb commodities investor and simply received fortunate with this one within the first place, but it surely was a giant win for me general.
  • Logan Ridge Finance Corp (LRFC) and PhenixFin (PFX) are two small BDCs within the midst of a transition, I nonetheless assume PFX ought to promote itself however the firm is not doing that, each of those is likely to be revisits for me sooner or later however there are extra fascinating concepts on the market than proudly owning a subscale BDC at a reduction to NAV heading into a possible recession.

Choice 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 Apartments (BRT) calls weren’t as nice of a name and expired nugatory, BRT is buying and selling a major 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 for those who’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 a terrific learn.


  • My write-ups on Altisource Asset Management (AAMC) and Armstrong Flooring (AFI) each learn virtually like a brief thesis, most likely an indication of the instances as these have been each close to the highest of the market, lesson discovered, after I begin reaching for the actually dicey concepts the place it’s essential to squint to see the upside, most likely time to simply sit on my palms.  Armstrong ended up filing for bankruptcy, 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 have 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 popular has no enamel.
  • I bought Orion Workplace REIT (ONL) at a small loss, ONL is the suburban workplace spinoff from the Realty Revenue merger with VEREIT.  In hindsight I talked myself into liking this one regardless of it being an apparent rubbish barge because of the merger-spin setup which has labored effectively up 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 number 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 occupied with 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 presently commerce for 8x.

Present Portfolio:

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

As common, all the time 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 general belongings.  Because of this, using margin debt, choices, focus does not totally symbolize my danger tolerance.

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