Mid Yr 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 robust intervals earlier than, here 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 Might, CEO Greg Marken responded to a evaluation standing query with: “whereas the method has drawn out, the actual fact stays that we’re happy with the place issues stand inside the course of are hopeful that we are able to 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 circulate optimistic and fairly area of interest, doubtless solely leaving a restricted pool of strategic consumers that will be all for it.  The delay might be blamed on a timing difficulty because it must be the precise value for ADES and the precise time/value for the handful of potential acquirers.  This isn’t so simple as promoting an house advanced was in 2021.  The value has are available fairly a bit from my authentic publish and stays fairly 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 usually 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 major contract with Humana lately that made up ~30% of the pro-forma income, however the market would 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 Might, the CEO who was beforehand on sick go away 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 not less than holds with the story that they will 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 imagine these have traded palms but within the secondary market, so undecided 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 (assume taxis, limos, shuttle buses, and so on.), because the world is normalizes, each from covid and UBER/LYFT now not being irrationally enterprise capital backed, one may 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 would not flip comparatively quickly.
• The proposed Bally’s (BALY) $38 go-private provide from 22% proprietor Commonplace Basic 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 provide is up for debate, however the provide was made proper earlier than the financial outlook obtained 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 seems to be 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 price, a lot of this might 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 12 months money circulate projections in an 8-Okay that’s price enjoying round with in the event you’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 house.
• BBX Capital (BBXIA) is a $117MM market cap holding firm run by the controversial Levan household, BBX has 5 core property: 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 truthful worth of all that’s most likely within the low-to-mid $20s per share, nevertheless it’s presently buying and selling within the $7s, under $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’ll deploy capital someplace or they’re prepping for one more giant tender provide.  I cringe a bit once I kind 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 advanced nicely above their value foundation, here 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 absolutely reworked into another asset supervisor centered on the “digital infrastructure” sector, a time period that CEO Marc Ganzi popularized.  They’ve achieved a couple of doubtless worth creating actions currently, 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 nicely 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 season of 2024.  I’ve purchased Jan ’24 $5 name choices to juice the upside, he is delivered on all the pieces up to now, with all digital infrastructure theme tailwinds, I feel it is good to imagine he continues to ship.  The bear case is charges rising convey down the cap charges on digital infrastructure property, hurting returns in DBRG’s funds and limiting their skill to lift 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 making an attempt to re-cut their bid from $60 to $50, taking $50 could be unacceptable for the KSS board after they mentioned the inventory was price $70 a couple of months in the past.  It might be Brian Kahn’s (FRG CEO) diplomatic means of getting out of the operating 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 rapidly for homebuilders in the previous couple of months, mortgage charges have mainly doubled, however demographics and migration tendencies needs to be in GRBK’s favor.  Sadly, Inexperienced Brick made a strategic determination final 12 months that does not look so nice now, limiting pre-orders to construct extra spec properties to be able to seize greater margins and have extra value certainty round prices.  They’re doubtless caught with a excessive degree of stock and might want to slash costs.  Shares are down -34% this 12 months in anticipation of the housing slowdown, we’ll learn how dangerous issues are on the subsequent quarterly earnings name.  The inventory trades for 1.1x guide worth and slightly greater than 4x an more and more cloudy estimated earnings.
• Howard Hughes Corp (HHC) is an actual property developer with their major property 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 considerations concerning the firm as we head into a possible recession.  Throughout peak covid fears, Invoice Ackman did a capital elevate 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, arduous to think about a greater hedge than land banks in low value of residing progress markets.
• INDUS Realty Belief (INDT) is a small cap industrial/logistics REIT that is led by a couple of members of the outdated GPT administration crew.  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 large covid progress spurt.  Nonetheless, INDT is small and will be selective of their new markets and new developments and there is all the time the Blackrock BREIT bid within the background of commercial and multi-family REITs.  Shares have are available a bit, I’ve the inventory buying and selling at a few 5.5% cap price, fairly low-cost for a top quality portfolio and presently with minimal web 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} overseas checklist firm was spinning a a lot smaller U.S. listed firm.  That is a whole lot 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 excited about the corporate is on a shareholder yield foundation, JXN has dedicated to returning $425-$525MM in capital to shareholders this 12 months.  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 12 months.  Sentiment is fairly poor across the large cable corporations 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 supplier that’s probably within the strategy of promoting themselves.  LMPX has delayed their financials and must restate earlier ones however has supplied some monetary updates, together with a money stability of $30MM on the finish of three/31 towards $85MM of debt, the market cap is $50MM, so the EV is just $112MM towards an EBITDA of ~$40-50MM (my estimate, might be completely fallacious).  There could be some working capital shenanigans of their money construct, they may have simply liquidated stock, we do not know.  I examine this one to a REIT promoting their portfolio, auto dealerships are fairly ubiquitous and get purchased/bought usually.  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 obtained 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 needs 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 stability 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 nicely that do not embody 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 usually shopping for 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 lately is aware of, refining margins have blown out considerably and there is a whole lot of discuss concerning 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 needs to be operating at full utilization throughout this excessive tide interval.  Moreover, PARR owns a 46% curiosity in Laramie Vitality, an upstream pure gasoline firm in Colorado, given the pure gasoline value 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 positive factors.  Talking of the NOL which is about $1.6B and begins to run out in 2027, CEO Invoice Pate mentioned of their current 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 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 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 doubtless will not absolutely take part within the business tailwinds, a part of it could be the promoting strain from Zell’s fund.
• PFSweb Inc (PFSW) is the same thought as ADES, PFSW beforehand operated two companies, it bought one final 12 months 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 corporations 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 current earnings name: “We continued to work with Raymond James on the evaluation of a full vary of strategic alternate options for PFS.  As we have beforehand communicated, we imagine that finishing a second transaction represents probably the most environment friendly technique to return the numerous capital we maintain to shareholders… finishing this course of stays our high precedence.”  I am guessing there needs to be extra strategic consumers of a small 3PL enterprise than for ADES’s activated carbon plant, however equally, right here we’re a 12 months after the preliminary strategic alternate options announcement with no deal.  Hopefully the M&A market unfreezes a bit quickly, however with the massive money pile and marginally worthwhile 3PL enterprise, the draw back appears fairly minimal right here aside from alternative value.
• The one replace since my Might publish on Radius International Infrastructure (RADI) is it seems that DigitalBridge is definitely all for shopping for RADI, only a ready sport 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 stability sheet is the other way up and they’re making an attempt to change their present 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 arduous to handicap if they’re going to ever get the votes, the frequent inventory solely has a ~$4MM market cap, so its truthful to say that no establishments personal it, most likely simply sitting in some Robinhood accounts the place the homeowners deleted their app after all the pieces crashed.
• Sonida Senior Residing Inc (SNDA) is an proprietor operator of primarily mid-priced unbiased 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 major quantity of monetary leverage (by way of mortgage debt, they personal, do not lease their properties) and the senior housing enterprise mannequin options a whole lot of working leverage (occupancy and margin are the KPIs), a potent upside cocktail recipe if the business recovers (or the alternative if it would not).  Senior housing ought to have important tailwinds: 1) restoration from covid; 2) demographic tailwinds, SNDA operates the entry care degree amenities (somewhat than nursing properties) which ought to profit first; 3) restricted new development/provide given covid and with inflation, any new development can be expensive 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 rising 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 lately re-wrote up Transcontinental Realty Buyers (TCI) after the corporate bought their JV creating a whole lot 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 guide 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) hardly ever trades and sometimes solely in tiny quantities as we await the dismissal of a shareholder lawsuit.  The major asset at HMG was lately bought, hopefully we’ll see a distribution this 12 months, however there’s restricted to no disclosures now, so a bit at nighttime.
Bought positions
Alternative Price 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 companion 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 progress story appears slightly cloudier than it did a number of years in the past, new states aren’t lining as much as cross VGT legalization laws practically as enthusiastically as they’re prepared to cross cellular 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 telephone which immediately creates tax income.  Possibly recognizing this pattern, 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 could be 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 nicely 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 whole lot of these in the meanwhile!), they went darkish and IR by no means responded to my inquiries, some buyers are completely snug with darkish shares, I have a tendency to not be one among 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 initiatives, the inventory tanked following Russia’s invasion of Ukraine resulting from uncertainty round their a venture within the Russian artic, and if TE would be capable to 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 12 months they returned money to shareholders through a pair particular dividends.  The inventory might be nonetheless low-cost, I do not assume it would 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 could be attention-grabbing however the inventory has held up nicely this 12 months and I bought it to put money into new concepts.
• ECA Marcellus Belief I (ECTM) is a tiny pure gasoline belief, I bought this one early within the 12 months because the rally was simply getting began in pure gasoline, thus I missed a lot of the run up.  I am not an excellent commodities investor and simply obtained fortunate with this one within the first place, nevertheless it was an enormous 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 could be 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 Development (BRG), each nice wins.
• My speculative BRT Residences (BRT) calls weren’t as nice of a name and expired nugatory, BRT is buying and selling a major low cost to personal market worth, they’re pursuing a technique of shopping for out their JV companions which ought to simplify the story a bit.  May be price taking a look at in the event 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 guide, this story has the makings of an amazing learn.

Errors:

• 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 instances 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 should squint to see the upside, most likely time to only sit on my palms.  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 tooth.
• 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 as a result of merger-spin setup which has labored nicely prior to now.  Repurposing workplace actual property goes to require a whole lot of time (decade plus?) and capital, one thing public REIT buyers shun.

Present bullpen/watchlist:

Present Portfolio:

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

As traditional, all the time on the lookout for new concepts, be happy 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 property.  In consequence, using margin debt, choices, focus would not absolutely characterize my threat tolerance.