Mid 12 months 2022 Portfolio Overview

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 durations 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 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.”  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 stream optimistic and fairly area of interest, probably solely leaving a restricted pool of strategic patrons that might be all for it.  The delay could possibly be blamed on a timing subject because it must be the suitable worth for ADES and the suitable time/worth for the handful of potential acquirers.  This isn’t so simple as promoting an house advanced was in 2021.  The worth has are available fairly a bit from my authentic publish and stays moderately 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 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 strategic 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 Could, 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 options course of, perhaps I am reaching, however it not less than 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 are 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 many others.), because the world is normalizes, each from covid and UBER/LYFT not being irrationally enterprise capital sponsored, one may envision a world the place taxis and limos exist alongside journey sharing providers.  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 Customary Normal blew up in my face, the impartial members of the board could not come to phrases with Chairman Soo Kim from SG.  Whether or not this was ever an actual provide is up for debate, however the provide was made proper earlier than the financial outlook acquired dicey.  Since then, the inventory has tanked to ~$20, regardless of the market response, a number of good items of reports have come out: 1) BALY’s received the downtown Chicago bid (nonetheless must be authorized 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 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 three 12 months money stream projections in an 8-Okay that’s value enjoying round with in the event you’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 belongings: 1) $115MM in money; 2) $50MM word 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, however 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 authorized 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 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 house advanced nicely above their value foundation, this 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 totally remodeled into another asset supervisor centered on the “digital infrastructure” sector, a time period that CEO Marc Ganzi popularized.  They’ve achieved just a few probably worth creating actions these days, 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 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 to date, with all digital infrastructure theme tailwinds, I believe it is good to imagine he continues to ship.  The bear case is charges growing carry down the cap charges on digital infrastructure belongings, hurting returns in DBRG’s funds and limiting their potential to lift future capital.
• We’re nonetheless awaiting the result of Franchise Group (FRG) doubtlessly shopping for Kohl’s Corp (KSS), the three week exclusivity interval got here and went with out both facet saying a peep.  CNBC reported that Franchise Group was attempting to re-cut their bid from $60 to $50, taking $50 may be unacceptable for the KSS board after they stated the inventory was value $70 just a few months in the past.  It could possibly be Brian Kahn’s (FRG CEO) diplomatic method of getting out of the working for KSS.
• Inexperienced Brick Companions (GRBK) is a homebuilder and land developer that is primarily centered on the Dallas metroplex (with extra publicity to Atlanta, Austin, Colorado Springs and Vero 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 determination final 12 months that does not look so nice now, limiting pre-orders to construct extra spec properties to be able to seize increased margins and have extra worth certainty round prices.  They’re probably caught with a excessive stage of stock and might want to slash costs.  Shares are down -34% this 12 months 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 e book worth and a bit of 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 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 not too long ago been an aggressive purchaser of the inventory at ~$95/share, the inventory now trades for ~$65/share reflecting traders issues in regards to 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 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 increased inflation is right here to remain, laborious to consider a greater hedge than land banks in low value of dwelling progress markets.
• INDUS Realty Belief (INDT) is a small cap industrial/logistics REIT that is led by just a few members of the outdated GPT administration workforce.  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.  Nevertheless, 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 commercial and multi-family REITs.  Shares have are available a bit, I’ve the inventory buying and selling at a couple of 5.5% cap fee, fairly low cost for a top quality portfolio and presently with minimal internet debt.
• Jackson Monetary (JXN) is the variable annuity supplier that was spun from Prudential PLC final fall, the construction of the spinoff attracted me in {that a} international listing firm was spinning a a lot smaller U.S. listed firm.  That is 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 interested by 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 firms however that solely makes the buyback math extra enticing, I am content material to carry for now.
• LMP Automotive Holdings (LMPX) is a shaky microcap auto seller 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 stability 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 fallacious).  There may be 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/bought commonly.  LMPX does have a barely totally different mannequin the place they do not personal 100% of the dealerships and have some non-controlling pursuits remaining with the operators of the dealerships.  Bear case is fairly scary, this could possibly be a dumpster hearth, they’ve accounting points and a weak board, energy is concentrated within the palms 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 obtained all of the proceeds from Amazon shopping for MGM Holdings, the film studio not the on line casino operator, eradicating a big securities place from NXDT’s 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 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 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 fuel tank not too long ago is aware of, refining margins have blown out considerably and there is lots of discuss in regards to the U.S. not having sufficient refining capability after a number of refineries had been mothballed throughout covid.  PARR has accomplished their current rounds of upkeep turnarounds and ought to be working at full utilization throughout this excessive tide interval.  Moreover, PARR owns a 46% curiosity in Laramie Power, an upstream pure fuel firm in Colorado, given the pure fuel worth backdrop, the corporate is lastly strategic options for his or her funding.  It has been utterly written down of their financials for a while and so they nonetheless have their huge NOL to defend any taxable beneficial properties.  Talking of the NOL which is about $1.6B and begins to run out in 2027, CEO Invoice Pate stated of their current convention name “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 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 probably will not totally take part within the trade tailwinds, a part of it may be the promoting stress 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 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 sophisticated nature of their asset sale, they’re now present and based on CEO Michael Willoughby on their current earnings name: “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 imagine that finishing a second transaction represents essentially the most environment friendly option 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 patrons 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 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 Could 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 dwelling services, the corporate’s stability sheet is the other way up and they’re attempting to change their current most popular right into a artistic new most popular safety, however have not gotten the votes essential to date and have pushed the most recent vote off to 7/25.  It is laborious 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 house owners deleted their app after the whole lot crashed.
• Sonida Senior Residing Inc (SNDA) is an proprietor operator of primarily mid-priced impartial dwelling and assisted dwelling 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 (by means of 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 other if it would not).  Senior housing ought to have important tailwinds: 1) restoration from covid; 2) demographic tailwinds, SNDA operates the entry care stage services (somewhat 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 facet, the trade continues to be stricken by growing labor prices and using contract labor, doubtlessly squeezing the stabilized margin profile of the enterprise.  Shares commerce at a reduction to the place Conversant invested ($25) and the following rights providing ($30), in the meantime the corporate’s occupancy numbers proceed to climb.
• I not too long ago re-wrote up Transcontinental Realty Traders (TCI) after the corporate bought 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 in the course of 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 not too long ago bought, hopefully we’ll see a distribution this 12 months, however there’s restricted to no disclosures now, so a bit in the dead of night.
Offered positions
Alternative Price 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 companion with bars or taverns who then function them (legacy operations are all in IL) as mini-casinos.  It ought to mint free money stream.  Nevertheless, their progress story appears a bit of cloudier than it did a number of years in the past, new states aren’t lining as much as move VGT legalization laws practically as enthusiastically as they’re keen to move cellular sports activities gaming and icasino laws.  One is type 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 may 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 nicely on this downturn, I bought 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 intervening time!), they went darkish and IR by no means responded to my inquiries, some traders are completely snug with darkish shares, I have a tendency to not be certainly one of them.  Particularly when it’s run by a CEO I do not belief, so I bought my shares.
• Technip Energies (THNPY) is an engineering and building agency centered on giant power infrastructure initiatives, the inventory tanked following Russia’s invasion of Ukraine on account 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 significant 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 12 months they returned money to shareholders through a pair particular dividends.  The inventory might be nonetheless low cost, I do not assume it can 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 may 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 fuel belief, I bought this one early within the 12 months because the rally was simply getting began in pure fuel, thus I missed a lot of the run up.  I am not a superb commodities investor and simply acquired fortunate with this one within the first place, however it 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 may 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.

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 Development (BRG), each nice wins.
• My speculative BRT Flats (BRT) calls weren’t as nice of a name and expired nugatory, BRT is buying and selling a big low cost to non-public market worth, they’re pursuing a technique of shopping for out their JV companions which ought to simplify the story a bit.  Is likely to be value in the event you’re nonetheless a believer within the sunbelt multi-family thesis.
• Nam Tai Property (NTP) has been an entire 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 important 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 occasions as these had been each close to the highest of the market, lesson realized, once I begin reaching for the actually dicey concepts the place that you must squint to see the upside, most likely time to simply sit on my palms.  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 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 that 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 nicely up to now.  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 outlet.

As regular, all the time searching for new concepts, be happy to share yours or critique mine.  Thanks for studying and revel 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.  Consequently, using margin debt, choices, focus would not totally characterize my danger tolerance.