Mid 12 months 2022 Portfolio Evaluate

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 durations earlier than, here is a fast abstract thesis of every of my present holdings (in largely 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 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 movement optimistic and fairly area of interest, doubtless solely leaving a restricted pool of strategic patrons that may be focused on it.  The delay could possibly be blamed on a timing situation because it must be the proper value for ADES and the proper time/value for the handful of potential acquirers.  This isn’t so simple as promoting an residence complicated was in 2021.  The worth has are available fairly a bit from my unique put up and stays fairly enticing.  The bear case from right here could 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 alternate options.  The RemainCo misplaced a big contract with Humana not too long ago 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, however it a minimum of 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 fingers 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 mild industrial 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 might envision a world the place taxis and limos exist alongside experience sharing companies.  The corporate nonetheless continues to be on questionable footing, it is burning money and may 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 Normal Basic 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 reports have come out: 1) BALY’s gained the downtown Chicago bid (nonetheless must be authorised by the Illinois Gaming Board), the mock-up of the on line casino seems to be nice and its within the good 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 fee, 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 yr money movement projections in an 8-Okay that’s price taking part in round with if you happen to’re within the story.  The bear case is the impression 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 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 in all probability within the low-to-mid $20s per share, however it’s presently 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 authorised 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 an additional massive tender provide.  I cringe a bit once 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 growth enterprise, each few months they promote an residence complicated nicely above their value foundation, here is the most recent 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 remodeled into an alternate asset supervisor targeted on the “digital infrastructure” sector, a time period that CEO Marc Ganzi popularized.  They’ve performed a number 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 offered a stake of their DataBank place for nicely 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 time of 2024.  I’ve purchased Jan ’24 $5 name choices to juice the upside, he is delivered on the whole lot thus far, 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 property, hurting returns in DBRG’s funds and limiting their potential to boost 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 aspect 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 price $70 a number of months in the past.  It could possibly be Brian Kahn’s (FRG CEO) diplomatic approach of getting out of the working for KSS.
• Inexperienced Brick Companions (GRBK) is a homebuilder and land developer that is primarily targeted 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 principally doubled, however demographics and migration traits 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 with the intention to seize greater margins and have extra value certainty round prices.  They’re doubtless 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 e book worth and slightly greater than 4x an more and more cloudy estimated earnings.
• Howard Hughes Corp (HHC) is an actual property developer with their main property 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 traders 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 industrial 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, onerous 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 number of members of the outdated GPT administration group.  There’s 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 progress 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 fee, 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 listing firm was spinning a a lot smaller U.S. listed firm.  That is lots 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 excited 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 corporations 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 technique 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 towards $85MM of debt, the market cap is $50MM, so the EV is barely $112MM towards an EBITDA of ~$40-50MM (my estimate, could possibly be completely mistaken).  There is perhaps some working 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 fairly ubiquitous and get purchased/offered commonly.  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 could possibly be a dumpster hearth, 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 technique 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 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 nicely 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 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 commonly 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 stuffed up their gasoline tank not too long ago is aware of, refining margins have blown out considerably and there is lots of discuss concerning 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 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 and so they nonetheless have their large NOL to defend any taxable good points.  Talking of the NOL which is about $1.6B and begins to run out in 2027, CEO Invoice Pate stated of their latest 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 price mentioning, Sam Zell’s fund has come to the top of its life and has been promoting/distributing shares to traders, 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 trade tailwinds, a part of it is perhaps the promoting strain from Zell’s fund.
• PFSweb Inc (PFSW) is an identical thought as ADES, PFSW beforehand operated two companies, it offered 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 occasion logistics (3PL) supplier to largely 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 response to CEO Michael Willoughby on their latest 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 consider that finishing a second transaction represents essentially the most environment friendly method 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 patrons 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 massive money pile and marginally worthwhile 3PL enterprise, the draw back appears fairly minimal right here apart from alternative value.
• The one replace since my Might put up on Radius International Infrastructure (RADI) is it seems that DigitalBridge is definitely focused on 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 services, the corporate’s steadiness sheet is the other way up and they’re making an attempt to trade their present most well-liked right into a artistic new most well-liked safety, however have not gotten the votes essential to date and have pushed the most recent vote off to 7/25.  It is onerous to handicap if they’re going to ever get the votes, the frequent inventory solely has a ~$4MM market cap, so its honest to say that no establishments personal it, in all probability simply sitting in some Robinhood accounts the place the homeowners deleted their app after the whole lot crashed.
• Sonida Senior Dwelling Inc (SNDA) is an proprietor operator of primarily mid-priced impartial 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 big quantity of monetary leverage (via mortgage debt, they personal, do not lease their properties) and the senior housing enterprise mannequin options lots of working leverage (occupancy and margin are the KPIs), a potent upside cocktail recipe if the trade recovers (or the alternative if it would not).  Senior housing ought to have vital tailwinds: 1) restoration from covid; 2) demographic tailwinds, SNDA operates the entry care stage services (relatively than nursing properties) which ought to profit first; 3) restricted new building/provide given covid and with inflation, any new building could be expensive and focused on the upper-price factors, away from SNDA’s mid-priced place.  On the bear aspect, the trade continues to be affected by growing 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 next rights providing ($30), in the meantime the corporate’s occupancy numbers proceed to climb.
• I not too long ago re-wrote up Transcontinental Realty Traders (TCI) after the corporate offered their JV creating lots 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 e book 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 usually solely in tiny quantities as we await the dismissal of a shareholder lawsuit.  The main asset at HMG was not too long ago offered, hopefully we’ll see a distribution this yr, however there’s restricted to no disclosures now, so a bit at nighttime.
Bought 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 companion 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 progress story appears slightly cloudier than it did a number of years in the past, new states are not lining as much as cross VGT legalization laws almost as enthusiastically as they’re prepared to cross cellular 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.  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 a giant place and ACEL’s inventory has held up nicely on this downturn, I offered to re-allocate elsewhere however will proceed to comply with the enterprise.  
• Odonate Therapeutics (ODTC) is a failed biotech money shell (there are lots of these in the mean time!), they went darkish and IR by no means responded to my inquiries, some traders are completely comfy 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 offered my shares.
• Technip Energies (THNPY) is an engineering and building agency targeted on massive power infrastructure initiatives, the inventory tanked following Russia’s invasion of Ukraine as a consequence of uncertainty round their a venture within the Russian artic, and if TE would have the ability to end the venture 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 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 would final lengthy in its present type, 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 nicely this yr and I offered it to spend money on new concepts.
• ECA Marcellus Belief I (ECTM) is a tiny pure gasoline belief, I offered this one early within the yr because the rally was simply getting began in pure gasoline, thus I missed many of the run up.  I am not commodities investor and simply acquired fortunate with this one within the first place, however it was a giant win for me total.
• 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 perhaps revisits for me in some unspecified time in the future 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 Residences (BRT) calls weren’t as nice of a name and expired nugatory, BRT is buying and selling a big low cost to personal market worth, they’re pursuing a method of shopping for out their JV companions which ought to simplify the story a bit.  May be price taking a look at if you happen to’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 searching for new materials for a e book, this story has the makings of an excellent learn.

Errors:

• My write-ups on Altisource Asset Administration (AAMC) and Armstrong Flooring (AFI) each learn nearly like a brief thesis, in all probability an indication of the occasions as these have been each close to the highest of the market, lesson realized, once I begin reaching for the actually dicey concepts the place it’s essential squint to see the upside, in all probability time to only sit on my fingers.  Armstrong ended up submitting for chapter, there are nonetheless patrons within the firm however Pathlight grew impatient, one to watch 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 that their convertible most well-liked has no tooth.
• I offered 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 because of the merger-spin setup which has labored nicely previously.  Repurposing workplace actual property goes to require lots of time (decade plus?) and capital, one thing public REIT traders shun.

Present bullpen/watchlist:

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 opening.

As standard, all the time searching 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 property.  Consequently, the usage of margin debt, choices, focus would not absolutely characterize my threat tolerance.