Mid Yr 2022 Portfolio Assessment

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Making an investment is a humbling enterprise.  For the primary part of 2022, my non-public account is down -27.26% as opposed to the S&P 500 being down -19.96%.

Ideas on Present Holdings
As I’ve all through tricky classes sooner than, here is a fast abstract thesis of every of my present holdings (in most commonly alphabetical order):

  • Complex Emissions Answers (ADES) is a ~$90MM marketplace cap corporate with NCAV of ~$70MM plus their activated carbon industry/plant.  The corporate is now previous month 13 in their strategic overview, on their Q1 convention name in Might, CEO Greg Marken answered to a overview standing query with: “whilst the method has drawn out, the truth stays that we’re happy with the place issues stand inside the procedure are hopeful that we will supply an replace quickly.”  This can be a commonplace theme in my portfolio at this time, ready on M&A in a semi-frozen surroundings for M&A.  Their activated carbon industry is only money drift certain and lovely area of interest, most likely handiest leaving a restricted pool of strategic patrons that may be enthusiastic about it.  The prolong may well be blamed on a timing factor because it must be the suitable charge for ADES and the suitable time/charge for the handful of possible acquirers.  This isn’t so simple as promoting an rental advanced was once in 2021.  The cost has are available slightly a bit of from my authentic submit and stays fairly horny.  The endure case from right here could be if they are not able to promote themselves, control then comes to a decision they would be too small in the event that they returned money to shareholders and as an alternative transform an acquirer.
  • ALJ Regional Holdings (ALJJ) can be a money shell now run by way of the arguable Jess Ravich, each asset gross sales have closed, the NOLs are exhausted and now the corporate is having a look at strategic choices.  The RemainCo misplaced a vital contract with Humana not too long ago that made up ~30% of the pro-forma earnings, however the marketplace does not appear to be pricing in a lot if any price to the rest operations.  NCAV is one thing like $2.70/percentage and the inventory these days trades for $1.90 with the chance of a catalyst at the horizon.
  • The one factor that has reasonably modified for Argo Team Global Holdings (ARGO) from my write-up in early Might, the CEO who was once in the past on ill go away has formally resigned and the Chairman and interim-CEO, Thomas Bradley, now loses the meantime designation.  Bradley is the only main the strategic choices procedure, possibly I am attaining, however it no less than holds with the tale that they’re going to promote.
  • Atlas Monetary Holdings (CUSIP 049323AB4) finished the restructuring in 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 those have traded palms but within the secondary marketplace, so no longer positive how related the tale is anymore, however the fairness does industry as AFHIF for many who like option-like bets on turnaround tales.  Atlas acts as an agent for insurance coverage carriers within the gentle business auto marketplace (suppose taxis, limos, go back and forth buses, and so forth.), as the sector is normalizes, each from covid and UBER/LYFT now not being irrationally challenge capital backed, one may just envision an international the place taxis and limos exist along trip sharing products and services.  The corporate on the other hand remains to be on questionable footing, it is burning money and may finally end up desiring to restructure once more if the turnaround does not flip moderately quickly.
  • The proposed Bally’s (BALY) $38 go-private be offering from 22% proprietor Usual Basic blew up in my face, the impartial contributors of the board could not come to phrases with Chairman Soo Kim from SG.  Whether or not this was once ever an actual be offering is up for debate, however the be offering was once made proper sooner than the commercial outlook were given dicey.  Since then, the inventory has tanked to ~$20, in spite of the marketplace response, a number of just right items of stories have pop out: 1) BALY’s gained the downtown Chicago bid (nonetheless must be licensed by way of the Illinois Gaming Board), the mock-up of the on line casino appears nice and its in the easiest location; 2) BALY’s introduced a $190 dutch delicate providing for between $19.25-$22.00; and three) simply this week, they entered right into a sale leaseback with GLPI to shop for their Rhode Island casinos for $1B or a 7.8% cap fee, a lot of this shall 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 3 yr money drift projections in an 8-Ok this is price enjoying round with in case you are within the tale.  The endure case is the affect of a possible recession and draining of liquidity from the machine, however regional casinos proceed to turn their resilience and Bally’s appears to be a rational actor within the sports activities making a bet/igaming area.
  • BBX Capital (BBXIA) is a $117MM marketplace cap keeping corporate run by way of the arguable Levan relations, BBX has 5 core belongings: 1) $115MM in money; 2) $50MM observe from Bluegreen Holidays Keeping (BVH); 3) Florida multi-family actual property/developer; 4) Renin, a producer of doorways; 5) IT’SUGAR, the sweet retailer.  The truthful price of all this is most likely within the low-to-mid $20s according to percentage, however it is these days buying and selling within the $7s, under $8 the place the corporate finished a young be offering remaining July and $11.10 the place they purchased out Angelo Gordon in November.  The corporate licensed a brand new $15MM percentage repurchase program in January, however have not looked as if it would use it.  So the query is why is not the corporate purchasing again stocks right here?  Possibly they are going to deploy capital someplace or they are prepping for any other huge delicate be offering.  I draw back a bit of once I sort this, however they do appear to be lovely just right capital allocators and they have hit a house run of their actual property building industry, each few months they promote an rental advanced neatly above their price foundation, here is the most recent instance.  The endure case is rather obtrusive, it’s the Levan relations cut price and whether or not that ever closes.
  • DigitalBridge Team (DBRG) has now virtually absolutely reworked into another asset supervisor centered at the “virtual infrastructure” sector, a time period that CEO Marc Ganzi popularized.  They have got executed a couple of most likely price growing movements in recent times, they bought AMP Capital for 8.4x EBITDA, reacquired 100% possession in their funding control industry from Wafra (switching from a REIT to a C-Corp within the procedure) and bought a stake of their DataBank place for neatly above sporting price.  Time is beginning to tick on Ganzi’s $100MM incentive package deal, he must get the inventory to industry above $10 for 90 buying and selling days previous to the summer time of 2024.  I have purchased Jan ’24 $5 name choices to juice the upside, he is delivered on the whole lot up to now, with all virtual infrastructure theme tailwinds, I believe it is good to think he continues to ship.  The endure case is charges expanding carry down the cap charges on virtual infrastructure belongings, hurting returns in DBRG’s finances and proscribing their skill to boost long run capital.
  • We are nonetheless anticipating the result of Franchise Team (FRG) probably purchasing Kohl’s Corp (KSS), the 3 week exclusivity length got here and went with out both sides pronouncing a peep.  CNBC reported that Franchise Team was once looking to re-cut their bid from $60 to $50, taking $50 could be unacceptable for the KSS board when they mentioned the inventory was once price $70 a couple of months in the past.  It may well be Brian Kahn’s (FRG CEO) diplomatic approach of having out of the working for KSS.
  • Inexperienced Brick Companions (GRBK) is a homebuilder and land developer that is essentially centered at the Dallas metroplex (with further 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 temporarily for homebuilders in the previous few months, loan charges have principally doubled, however demographics and migration tendencies will have to be in GRBK’s want.  Sadly, Inexperienced Brick made a strategic determination remaining yr that does not glance so nice now, proscribing pre-orders to construct extra spec properties in an effort to seize upper margins and feature extra charge walk in the park round prices.  They are most likely caught with a prime stage of stock and can wish to slash costs.  Stocks are down -34% this yr in anticipation of the housing slowdown, we will learn the way dangerous issues are on the subsequent quarterly profits name.  The inventory trades for 1.1x e book price and slightly greater than 4x an increasingly more cloudy estimated profits.
  • Howard Hughes Corp (HHC) is an actual property developer with their number one belongings situated in Las Vegas, Houston, Columbia MD, Honolulu, New York and the hot addition of Phoenix.  The corporate put out an investor day in April that laid out a $170/percentage NAV together with company overhead, they have not too long ago been an competitive purchaser of the inventory at ~$95/percentage, the inventory now trades for ~$65/percentage reflecting buyers considerations in regards to the corporate as we head into a possible recession.  All the way through height covid fears, Invoice Ackman did a capital carry with himself at superb costs, let’s hope that does not occur once more.  HHC has identical housing worry headwinds, they fund new business actual property building with the sale of land to homebuilders, if homebuilders prevent purchasing land of their communities, the advance engine grinds to a halt.  However having a look long run, if upper inflation is right here to stick, arduous to think about a greater hedge than land banks in low price of residing expansion markets.
  • INDUS Realty Accept as true with (INDT) is a small cap commercial/logistics REIT that is led by way of a couple of contributors of the outdated GPT control group.  There may be some worry round logistics houses being overbuilt and information popping out that Amazon is pulling again on construction/occupying new warehouses after their large covid expansion spurt.  Then again, INDT is small and can also be selective of their new markets and new traits and there may be at all times the Blackrock BREIT bid within the background of commercial and multi-family REITs.  Stocks have are available a bit of, I’ve the inventory buying and selling at a few 5.5% cap fee, lovely reasonable for a prime quality portfolio and these days with minimum web debt.
  • Jackson Monetary (JXN) is the variable annuity supplier that was once spun from Prudential PLC remaining fall, the construction of the by-product attracted me in {that a} overseas record corporate was once spinning a way smaller U.S. indexed corporate.  That is a large number of possible index similar promoting adopted by way of purchasing.  Stocks ran up as the corporate has purchased again a vital quantity of inventory out of the gates after which has fallen proper backtrack given the commercial backdrop and opaque nature in their monetary statements.  A technique I am fascinated 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 marketplace cap.
  • Liberty Broadband’s (LBRDK) number one keeping is a 50+ million percentage funding in Constitution Communications (CHTR) along a small working industry in GCI.  Assigning a 7x EBITDA a couple of to GCI, I am getting an NAV of ~$140/percentage whilst the inventory trades at $115/percentage, 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 stocks were retired within the remaining yr.  Sentiment is lovely deficient across the large cable firms however that handiest makes the buyback math extra horny, I am content material to carry for now.
  • LMP Car Holdings (LMPX) is a shaky microcap auto broker this is probably within the procedure of promoting themselves.  LMPX has not on time their financials and must restate earlier ones however has equipped some monetary updates, together with a money stability of $30MM on the finish of three/31 in opposition to $85MM of debt, the marketplace cap is $50MM, so the EV is handiest $112MM in opposition to an EBITDA of ~$40-50MM (my estimate, may well be utterly flawed).  There could be some running capital shenanigans of their money construct, they might have simply liquidated stock, we do not know.  I examine this one to a REIT promoting their portfolio, auto dealerships are lovely ubiquitous and get purchased/bought incessantly.  LMPX does have a reasonably other style the place they do not personal 100% of the dealerships and feature some non-controlling pursuits last with the operators of the dealerships.  Endure case is lovely frightening, this can be a dumpster fireplace, they’ve accounting problems and a susceptible board, energy is targeted within the palms of the CEO who were given the corporate on this mess. 
  • NexPoint Diverse Actual Property Accept as true with (NXDT) is a closed finish fund this is nonetheless within the means of changing to a REIT, however the finish will have to be coming near near because the fund has won all of the proceeds from Amazon purchasing MGM Holdings, the film studio no longer the on line casino operator, disposing of a vital securities place from NXDT’s stability sheet which was once one of the crucial SEC’s problems with the conversion.  With REIT standing comes index inclusion, no longer simply from REIT indices however from huge indices as neatly that do not come with CEFs or BDCs.  The inventory trades for $16.50/percentage, the printed NAV is $26.26/percentage, so it’s buying and selling for 63% of NAV.  I be expecting that cut price to slender as the corporate converts to a REIT and tells their tale to the marketplace.  The arguable James Dondero has been incessantly purchasing stocks within the open marketplace forward of the conversion. 
  • Par Pacific Holdings (PARR) is a distinct segment downstream power corporate, they perform 3 refineries in small markets (Hawaii, Tacoma WA, Wyoming) and similar logistics/retail networks.  As someone that has crammed up their gasoline tank not too long ago is aware of, refining margins have blown out considerably and there may be a large number of communicate in regards to the U.S. no longer having sufficient refining capability after a number of refineries have been mothballed all through covid.  PARR has finished their contemporary rounds of repairs turnarounds and will have to be working at complete usage all through this prime tide length.  Moreover, PARR owns a 46% hobby in Laramie Power, an upstream herbal gasoline corporate in Colorado, given the herbal gasoline charge backdrop, the corporate is in the end having a look at strategic choices for his or her funding.  It’s been totally written down of their financials for a while they usually nonetheless have their large NOL to defend any taxable positive factors.  Talking of the NOL which is ready $1.6B and begins to run out in 2027, CEO Invoice Pate mentioned of their contemporary convention name “in line with our outlook for the industry, we actually do not see NOLs expiring.  We watch for that we will be the use of the ones tax attributes to offset income.”  The corporate has but to hit the NOL after a few years, so take that with a grain of salt.  The opposite factor price bringing up, Sam Zell’s fund has come to the tip of its existence and has been promoting/distributing stocks to buyers, offering an overhang to the inventory.  PARR has below carried out the field, a part of this is their area of interest place which most likely may not absolutely take part within the business tailwinds, a part of it could be the promoting drive from Zell’s fund.
  • PFSweb Inc (PFSW) is the same concept as ADES, PFSW in the past operated two companies, it bought one remaining yr and is now sitting on $155MM in money and not using a debt and a $265MM marketplace cap.  The remainder industry is a subscale 3rd birthday party logistics (3PL) supplier to most commonly client retail firms desiring an e-commerce logistics supplier.  The corporate was once past due on their financials on account of the difficult nature in their asset sale, they are now present and in step with CEO Michael Willoughby on their contemporary profits name: “We endured to paintings with Raymond James at the overview of a complete vary of strategic choices for PFS.  As now we have in the past communicated, we consider that finishing a 2d transaction represents the best approach to go back the numerous capital we hang to shareholders… finishing this procedure stays our best precedence.”  I am guessing there will have to be extra strategic patrons of a small 3PL industry than for ADES’s activated carbon plant, however in a similar fashion, right here we’re a yr after the preliminary strategic choices announcement and not using a deal.  Confidently the M&A marketplace unfreezes a bit of quickly, however with the large money pile and marginally successful 3PL industry, the drawback turns out lovely minimum right here instead of alternative price.
  • The one replace since my Might submit on Radius International Infrastructure (RADI) is apparently that DigitalBridge is if truth be told enthusiastic about purchasing RADI, only a ready recreation now to look if a transaction materializes.
  • Regional Well being Homes (RHE PRA) is a suffering lessor/operator of professional nursing and assisted residing amenities, the corporate’s stability sheet is the wrong way up and they are looking to alternate their present most popular into an artistic new most popular safety, however have not gotten the votes important so far and feature driven the most recent vote off to 7/25.  It is arduous to handicap if they’re going to ever get the votes, the typical inventory handiest has a ~$4MM marketplace cap, so its truthful to mention that no establishments personal it, most likely simply sitting in some Robinhood accounts the place the house owners deleted their app after the whole lot crashed.
  • Sonida Senior Dwelling Inc (SNDA) is an proprietor operator of essentially 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 keep watch over.  Sonida has a vital quantity of economic leverage (thru loan debt, they personal, do not rent their houses) and the senior housing industry style options a large number of working leverage (occupancy and margin are the KPIs), a potent upside cocktail recipe if the business recovers (or the other if it does not).  Senior housing will have to have important tailwinds: 1) restoration from covid; 2) demographic tailwinds, SNDA operates the access care stage amenities (moderately than nursing properties) which will have to get advantages first; 3) restricted new development/provide given covid and with inflation, any new development could be pricey and focused on the upper-price issues, clear of SNDA’s mid-priced place.  At the endure aspect, the business remains to be plagued by way of expanding hard work prices and using contract hard work, probably squeezing the stabilized margin profile of the industry.  Stocks industry at a cut price to the place Conversant invested ($25) and the next rights providing ($30), in the meantime the corporate’s occupancy numbers proceed to climb.
  • I lately re-wrote up Transcontinental Realty Buyers (TCI) after the corporate bought their JV growing a large number of liquidity, now the query is whether or not the 85% controlling shareholder will delicate for the rest 15%?  Stocks these days industry at roughly 50% of proforma e book price 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 all through the primary part of 2022, the 3rd, Sandridge Mississippian Accept as true with I (SDTTU) hardly trades and normally handiest in tiny quantities as we watch for the dismissal of a shareholder lawsuit.  The number one asset at HMG was once not too long ago bought, with a bit of luck we will see a distribution this yr, however there may be restricted to no disclosures now, so a bit of at nighttime.
Bought positions
Alternative Value Gross sales:

  • Accel Leisure (ACEL) is a superb industry style, they’re in disbursed gaming the place ACEL owns the video gaming terminals (aka slot machines) and spouse with bars or taverns who then perform them (legacy operations are all in IL) as mini-casinos.  It will have to mint unfastened money drift.  Then again, their expansion tale turns out slightly cloudier than it did a number of years in the past, new states aren’t lining as much as move VGT legalization law just about as enthusiastically as they are keen to move cell sports activities gaming and icasino law.  One is more or less an eye fixed sore that takes time to rollout, the opposite is a downloadable app to your telephone which immediately creates tax earnings.  Possibly spotting this pattern, ACEL purchased Century Gaming in a deal that simply closed, Century is a longtime operator in Montana and Nevada, two mature disbursed gaming states.  That could be the play from right here, simply consolidate the legacy states.  In spite of keeping for ~2.5 years, I by no means had a large place and ACEL’s inventory has held up neatly on this downturn, I bought to re-allocate somewhere else however will proceed to practice the industry.  
  • Odonate Therapeutics (ODTC) is a failed biotech money shell (there are a large number of those in this day and age!), they went darkish and IR by no means answered to my inquiries, some buyers are completely pleased with darkish shares, I generally tend to not be one in all them.  Particularly when it’s run by way of a CEO I do not agree with, so I bought my stocks.
  • Technip Energies (THNPY) is an engineering and development company inquisitive about huge power infrastructure initiatives, the inventory tanked following Russia’s invasion of Ukraine because of uncertainty round their a challenge within the Russian artic, and if TE would have the ability to end the challenge or get their cash abroad.  The stocks have recovered some, the corporate is a significant participant in LNG facility development which will have to have some tailwinds as Europe must reconsider their power technique.
  • Laureate Training (LAUR) runs 5 for-profit universities in Mexico and Peru, remaining yr they returned money to shareholders by the use of a pair particular dividends.  The inventory is most likely nonetheless reasonable, I don’t believe it’s going to remaining lengthy in its present shape, however any M&A is most likely dispose of for some time.  Refinitiv did document that Laureate was once having a look to take out a time period mortgage for a dividend recap and put leverage again at the corporate, that could be attention-grabbing however the inventory has held up neatly this yr and I bought it to put money into new concepts.
  • ECA Marcellus Accept as true with I (ECTM) is a tiny herbal gasoline agree with, I bought this one early within the yr because the rally was once simply getting began in herbal gasoline, thus I overlooked many of the run up.  I am not a just right commodities investor and simply were given fortunate with this one within the first position, however it was once a large win for me general.
  • Logan Ridge Finance Corp (LRFC) and PhenixFin (PFX) are two small BDCs in the middle of a transition, I nonetheless suppose PFX will have to promote itself however the corporate is not doing that, either one of those could be revisits for me sooner or later however there are extra attention-grabbing concepts available in the market than proudly owning a subscale BDC at a cut price to NAV heading into a possible recession.

Possibility Positions that Expired:

  • I owned Jan ’22 calls in Marathon Petroleum (MPC) which was once a covid disaster leaps proxy for PARR and Bluerock Residential Enlargement (BRG), each nice wins.
  • My speculative BRT Residences (BRT) calls were not as nice of a decision and expired nugatory, BRT is buying and selling a vital cut price to personal marketplace price, they are pursuing a method of shopping for out their JV companions which will have to simplify the tale a bit of.  Could be price having a look at in case you are nonetheless a believer within the sunbelt multi-family thesis.
  • Nam Tai Belongings (NTP) has been a whole crisis and my name choices expired nugatory, new control nonetheless hasn’t been in a position to take complete possession of the corporate’s houses in Shenzhen.  If there are any authors available in the market on the lookout for new subject material for a e book, this tale has the makings of a perfect learn.

Errors:

  • My write-ups on Altisource Asset Control (AAMC) and Armstrong Floor (AFI) each learn virtually like a brief thesis, most likely an indication of the days as the ones have been each close to the highest of the marketplace, lesson discovered, once I get started attaining for the actually dicey concepts the place you want to squint to look the upside, most likely time to only sit down on my palms.  Armstrong ended up submitting for chapter, there are nonetheless patrons within the corporate however Pathlight grew impatient, one to observe as a restructuring play.  Altisource simply turns out like a clown display, they have been suspended from buying and selling for months, then regained eligibility, now becoming a troublesome cash lender and a crypto ATM corporate, simply all turns out haphazardly put in combination.  Luxor nonetheless hasn’t settled, they hang all of the playing cards and I nonetheless do not purchase into the concept their convertible most popular has no enamel.
  • I bought Orion Administrative center REIT (ONL) at a small loss, ONL is the suburban place of job by-product from the Realty Source of revenue merger with VEREIT.  In hindsight I talked myself into liking this one in spite of it being an obtrusive rubbish barge because of the merger-spin setup which has labored neatly up to now.  Repurposing place of job actual property goes to require a large number of time (decade plus?) and capital, one thing public REIT buyers shun.

Present bullpen/watchlist:

  • Bluerock Houses Accept as true with (BHM) is the pending by-product of unmarried relations leases simply previous to the shut of Blackrock’s acquire of Bluerock Residential Enlargement (BRG).
  • Uniti Corp (UNIT) is the PropCo spin of Windstream, Windstream went bankrupt a couple of years again and re-cut the rent with Uniti Corp.  Uniti owns a large number of fiber belongings and is any other virtual infrastructure M&A candidate that DBRG’s portfolio corporate Zayo was once rumored to be enthusiastic about purchasing and recombining with Windstream.
  • WideOpenWest (WOW) is a cable overbuilder that has a pair rumored patrons circling, they bought belongings remaining yr for 10-11x EBITDA and these days industry for 8x.

Present Portfolio:

Money was once withdrawn in early April to pay for 2021 taxes, leverage is prime as I were given smoked the remaining two months, however I will transfer finances over to this account if important to plug the outlet.

As standard, at all times on the lookout for new concepts, be happy to percentage yours or critique mine.  Thank you for studying and revel in your vacation weekend (for U.S. readers).

Disclosure: Desk above is my taxable account/weblog portfolio, I do not set up outdoor cash and that is just a portion of my general belongings.  In consequence, using margin debt, choices, focus does not absolutely constitute my chance tolerance.

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