Thursday, September 29, 2022
HomeValue Investing12 months Finish 2021 Portfolio Overview

12 months Finish 2021 Portfolio Overview

Thanks for studying, hope you are having vacation season and because of those that have reached out with concepts, commented on write-ups, advised me I am silly, or corrected me through the years, I genuinely respect it.  Once more, I do not handle outdoors capital, the weblog portfolio is my private taxable account and is managed as such, my outcomes aren’t corresponding to any skilled’s efficiency and I merely use the S&P 500 as a reference level, not an actual benchmark.  I’ve steady day job, I do not dwell off of this portfolio (by no means pulled cash from it, though I’ll probably should withdraw funds early subsequent yr to pay taxes), so my danger tolerance goes to be naturally larger than others.  

With that preamble out of the way in which, my account returned 74.99% in 2021 versus 28.71% for the S&P 500, and an IRR since inception of 29.12%.  

A few of my largest greenback weighted winners have been BRG calls, LAUR (largely additionally by way of calls which have since expired), after which holdover concepts written up in earlier years like FRG, DBRG, and MMAC.  My largest greenback weighted losers have been LYLT (caught that falling knife submit spin a bit of too fast), APVO and CMCT.

Shocked myself on how a lot I wrote/posted this yr, perhaps not precisely signal as its result in quite a lot of turnover, probably overdiversification, however I simply discovered so many attention-grabbing particular conditions (or at the least I assumed so on the time) and proceed to take action. It may possibly’t be this straightforward sooner or later, there’s quite a lot of speculative exercise in markets, some might (rightfully) accuse me of that as nicely.  Nice outcomes by no means actually really feel “actual” till the subsequent downturn, however I will preserve my technique going and proceed to push ahead.

Ideas on Present Holdings

I wrote these intermittently over the past two weeks, if among the share costs/valuations are stale, I apologize however they need to be directionally proper, largely simply in random order in simply fast elevator pitch fashion:

  • BBX Capital (BBXIA) continues to look too low-cost regardless of surly administration, proforma for the current personal market buy of Angelo Gordon’s shares (barely disappointing since they may have been retaining administration trustworthy right here), I’ve the e-book worth someplace round $21/share and it trades for $10/share.  For that worth, even after all of the buybacks, you get ~$6.50 in money plus one other ~$4.80 within the receivable from BVH which needs to be cash good, that greater than covers the market worth with out all of the Florida actual property and different companies.  They just lately put out a new investor presentation that shined mild on the Florida actual property that is price , however once more, market cap is roofed by money and securities right here.
  • Accel Leisure (ACEL) is the perfect a part of regional casinos, the slot machines with out the worst half, all of the capex and lease funds.  Their acquisition of Century Gaming sadly did not shut this yr, to me it seemed like a administration misstep or unfamiliarity with cross state border acquisitions.  However ACEL introduced an enormous buyback ($200MM on a $1.2B market cap), it trades at roughly 8x EBITDA proforma for the acquisition, wage inflation ought to put extra discretionary {dollars} of their shopper’s pockets, just a few extra states are speaking about legalizing VGTs, the shares appear fairly low-cost to me.
  • Howard Hughes Company (HHC) is my perennial worth lure, however the pitfall of their diversified actual property mannequin can also be a profit, the corporate is making an attempt to reposition the narrative again to a land developer for dwelling builders and constructing sunbelt flats.  They just lately bought an enormous plot of land west of Phoenix that apparently has a 50 yr improvement life and can add probably logistics/warehouse and single household leases (they’re additionally constructing these of their Bridgeland MPC) to their product combine.  In disposition information, this week the Wall Road Journal is reporting that they’ve offered 110 N Wacker in Chicago for greater than $1B (HHC has JV companions right here, the property has debt, however that exceeded my expectations for a covid workplace sale).  They’re nonetheless too heavy on workplace for my liking (about 50% of NOI) however have basically stopped new improvement in that sector in favor of covid beneficiaries.
  • PhenixFin (PFX) is irritating to me, this firm should not exist, activists received management of the corporate final yr (then known as Medley Capital or MCC) and internalized the BDC.  Since then, they’ve largely let their legacy investments roll off and invested the proceeds into mREITs.  My authentic thesis was me speculating that this could be offered to a different BDC, that hasn’t occurred, of their current FY22 outcomes press launch PFX introduced the formation of an “asset-based lending enterprise engaged within the gem and jewellery business” and highlighted $490MM in web capital loss carryforwards for the primary time that I can bear in mind.  Neither is an indication that they are promoting sadly, however I could be, that is not a robust conviction holding however not costly at ~70% of e-book worth (basically unlevered, small web debt place).
  • NexPoint Diversified Actual Property Belief (NXDT) is sadly nonetheless within the technique of changing from a closed finish fund to a REIT, the method has dragged on a bit longer than anticipated, however the backdrop for NXDT’s belongings continues to enhance within the meantime and NAV continues to march barely larger (~$23, trades for roughly 60% of NAV).  The thesis stays largely the identical, this may beginning reporting as a REIT, be eligible for index inclusion (together with broad indices, BDCs and CEFs are typically excluded from market indices since they’re thought of funds), and begin attracting a REIT investor base and a number of.  On the damaging aspect, that is one other supervisor with a poor repute, and probably has some governance points with NXDT proudly owning different NexPoint associates and a few charge double dipping.  NXDT continues to be one among my favourite concepts.
  • Jackson Monetary (JXN) has gone up in a straight line since its spin from Prudential PLC in September.  Jackson is the most important variable annuity supplier within the U.S., it ought to have robust demographic tailwinds as child boomers retire and rollover their 401(ok)s, however the financials are a complete black field and these annuity corporations normally commerce extraordinarily low-cost for that motive.  One technique to get a valuation re-rating is by way of share repurchases and money dividends, JXN was buying and selling at simply 28% of e-book worth on the time of my write-up, since then they’ve purchased again roughly $185MM in inventory and introduced a $0.50/share quarterly dividend (~5% yield).  I am not a robust sufficient at accounting to determine JXN’s financials, the inventory is up 55% for the reason that spin (could be some extra close to time period upside by way of index shopping for, this was a foreign-to-US spin), I am not in a rush to promote it however I am not a long run holder both.
  • Orion Workplace REIT (ONL) is a shaky low conviction maintain for me, the setup of being a merger-spin out of a closely retail owned inventory and the ensuing pressured promoting tempted me sufficient to start out a place.  A dividend initiation ought to assist recruit a bit of wider investor base within the close to future, however my present thought is I am unlikely to personal this for the long run as I am nonetheless personally bearish about return to workplace.  There are numerous examples, however close to me, Allstate just lately offered their suburban headquarters campus to traders who plan on turning it into logistics/warehouses  — when previous line kind corporations are making drastic switches away from massive company campuses, makes me nervous for the sector, particularly with a mean lease time period beneath 3.5 years.
  • Sonida Senior Residing (SNDA) is a current purchase after they accomplished an out of court docket restructuring transaction, this can be a little bit of a jockey wager in that I just like the Conversant Capital workforce and what they’ve carried out up to now at INDT, right here they management the corporate and have began to implement their new marketing strategy with the acquisition of two Indianapolis space senior housing properties.  Senior housing has quite a lot of working leverage, if occupancy ranges recuperate to normalized ranges and the demographic wave lastly materializes, Sonida might do very nicely over the subsequent 3-4 years.
  • My different senior housing play is the popular inventory of Regional Well being Properties (RHE-A), which briefly tried an analogous out of court docket restructuring by proposing to trade the popular inventory for frequent.  The biggest most popular shareholder comically shot it down.  This firm is a little bit of a large number, they just lately had the State of Alabama pull the license of one among their largest tenants a pair weeks in the past, seems like RHE could be taking up the administration of one other one among their amenities right here shortly.  That short-term measure seems to changing into extra everlasting of their different managed amenities.  The corporate is in a tricky spot, it’s not bankrupt however the capital construction would not work and there is not any straightforward technique to repair it for the reason that nugatory frequent inventory have to approve of an trade.
  • Sadly, as quickly as I hit publish on my Altisource Asset Administration (AAMC) write-up, the shares have been delisted from the NYSE (no direct motive given) and have but to commerce since.  I am a bit shocked/upset that the corporate hasn’t made any public bulletins concerning an try and regain NYSE (or different itemizing) eligibility.  One can solely hope (pray?) that they are working behind the scenes on an acquisition and settlement with Luxor that may get the shares buying and selling once more.
  • HMG/Courtland Properties Inc (HMG) is a nano cap liquidation the place their largest asset is a newly developed Class A multi-family property in Fort Myers, FL.  The corporate just lately launched a proxy assertion to approve the plan of liquidation and quoted a $20-$30/share liquidation worth, the shares nonetheless commerce in the midst of that vary, however I feel the worth is nearer to $30 (though I in all probability would not suggest initiating a place right here, the liquidation might take a very long time).
  • The one beforehand undisclosed holding I’ve are some recklessly speculative close to time period name choices in Nam Tai Property (NTP).  Nam Tai has a protracted historical past, it pivoted from an electronics producer to a property developer when Shenzhen skilled exploding progress.  IsZo Capital received their yr lengthy authorized combat towards prior administration, they’ve put out numerous $40/share in intrinsic worth, the inventory trades at $11/share after prior administration skilled a margin name and DB foreclosed on their shares.  IsZo in contrast has been including to their stake.  There’s quite a lot of danger right here, China actual property is clearly shaky, excuse my playing, once more its a private account, do not suggest this for others.
  • Bluerock Residential Development REIT (BRG) entered right into a transaction with Blackstone to purchase their multi-family properties and lending e-book for $24.25 per share, plus BRG goes to spinoff a single household rental REIT, “Bluerock Properties Belief”, the place BRG bought a 3rd occasion valuation agency to place a $5.60 NAV per share on it.  BRG is presently buying and selling for $26.36, the take care of Blackstone is nearly sure to shut, thus the market is making use of a fairly steep low cost on the only household REIT.  It is going to revert to being an externally managed by Bluerock (BRG began as externally managed, later pseudo-internalized), who previous to this transaction did not have a fantastic repute, however clearly this was a fantastic end result for shareholders and merger arb varieties would possibly wish to have a look at the spin (anticipated Q2 shut).
  • I wrote up the mess of a state of affairs at Transcontinental Realty (TCI) and father or mother American Realty (ARL) earlier this week.  I had one massive mistake, I assumed the $134MM of notes receivable have been simply mortgage loans consolidated from Earnings Alternative Realty (IOR), that is not the case, so the truthful worth of TCI is ~$15 larger than the $60/share I threw on the market.  IOR is perhaps the strangest little micro cap I’ve checked out, virtually the entire belongings of the corporate are a mortgage to Pillar, IOR’s exterior advisor, undecided how that is okay legally and could be why it’s being challenged in a shareholder lawsuit.  IOR might be price a better look (will not take you lengthy).
  • There’s not a lot to replace on PFSweb (PFSW) which I wrote up in August, however solely as a result of the corporate hasn’t filed its Q2 or Q3 financials resulting from “extra time and work wanted to satisfy the SEC reporting and accounting necessities for its LiveArea divestiture.”  That is not confidence inspiring, however that is like a few of my different “casual liquidations” the place they’ve offered one enterprise unit, the opposite is on the market, the state of affairs is pretty de-risked with a big money place.  I proceed to carry awaiting information however my conviction has lessened.
  • One other casual liquidation, Laureate Schooling (LAUR), has largely labored out to plan, the sale of Walden College closed they usually’ve since paid out $7.59/share in particular dividends.  They’ve additionally collapsed the twin share construction.  It’s now a purer play on Mexico and Peru, my greatest guess is this isn’t the tip state and we’ll see a remaining sale of the remaining belongings as soon as covid subsides and/or the political local weather in Latin America improves.  Most of my publicity rolled off earlier in December when my calls expired, now simply hanging onto a smallish place to see how the remaining performs out.
  • Rounding out the casual liquidations, not a lot has modified at Superior Emissions Options (ADES) since my write-up, the did report Q3 earnings and have an adjusted ~$5/share in web money towards a $6.50 inventory worth.  They state that strategic options are persevering with for the remaining activated carbon enterprise, hopefully meaning a sale and never some transaction involving ADES utilizing the money for an acquisition.
  • Now to a proper liquidation, Luby’s (LUB) has exceeded my expectations, shareholders acquired a $2.00 preliminary distribution on 11/1, which was most of my value foundation.  The latest estimate of liquidation proceeds is $3.00/share, shares commerce barely beneath that estimate, others have recommended there is a truthful quantity of juice left (this writer thinks a base case of $3.30, which sounds affordable), I am keen to simply let it play out as the corporate has indicated it needs to be largely wrapped up by mid-2022.
  • I personal two tiny pure gasoline trusts, with ECA Marcellus Belief I (ECTM) I bought fortunate and now have acquired over half my foundation out of the partnership this yr in distributions, it wasn’t my authentic thesis of a liquidation, however I am content material for now letting it runoff by way of distributions a lot the identical approach as a liquidation.  With SandRidge Mississippian Belief I (SDTTU) the belongings have all been offered again to SandRidge (SD) however there’s a shareholder lawsuit holding up the ultimate distribution of proceeds to unitholders.  The belief has since delisted and stopped submitting with the SEC, so its fallen into that darkish stage and trades erratically at irrational costs whereas we await remaining decision.
  • I discovered the Golar LNG (GLNG) pitch on Andrew Walker’s podcast attention-grabbing, however in all probability not for me, however did make me take into consideration my very own holding that I’ve actually form of forgot about in Technip Energies (THNPY).  Technip Energies is the E&C for most of the largest LNG tasks around the globe, and may profit from most of the similar LNG as a transition gas themes.  There are two remaining catalysts submit spin, first father or mother FTI does nonetheless personal ~12% of TE and plans to promote (removes the overhang as soon as they do), and second, Technip Energies might be initiating a dividend subsequent yr (that was the plan all alongside) which might open it as much as a wider shareholder base and semi-similar to JXN, chilly onerous money would possibly relieve some issues across the sophisticated accounting.
  • Logan Ridge Finance Company (LRFC) is much like PFX in that it’s a BDC that does not pay a dividend (I consider they’re the one two credit score BDCs that do not pay dividends).  BDCs aren’t included in indices and if it would not pay a dividend, it’s onerous to draw common yield-focused retail traders, so its restricted to a small subset of traders keen to play in these ponds.  LRFC was just lately taken over by BC Companions, they’re within the technique of repositioning the portfolio to generate yield and restore the dividend, that’ll probably occur within the first half of 2022 and I anticipate the low cost to NAV to lower (trades for 58% of NAV at present).
  • Atlas Monetary (AFHBL for the bonds) is a covid restoration play on taxis, limos and trip sharing drivers returning to work and a enterprise change from a danger taking insurance coverage supplier to extra of an asset-lite company mannequin.  I initially did not just like the RSA plan for the bonds, however the various plans do not appear to have gone anyplace, so I am pleased to alter my thoughts and assist the RSA right here despite the fact that it bifurcated the creditor group.  The important thing line within the Q3 earnings launch was “Our present in-force enterprise is roughly 6% of what we underwrote as a service in 2018, and given present developments we really feel there may be appreciable room to recapture enterprise over time”.  Even when they get solely a portion of that enterprise again, ought to make the bonds cash good over time.  
  • Throughout the worst of covid, I purchased some LEAPs on Marathon Petroleum (MPC) as a proxy for Par Pacific (PARR) since lengthy dated choices weren’t obtainable on the later.  These MPC calls expire subsequent month and I will take income, with PARR I’ve diminished my place all year long and would possibly promote the remaining early subsequent yr, I’ve owned it for 6-7 years and it has gone nowhere, they have not touched the NOLs, only a troublesome enterprise that I in all probability do not perceive in addition to I ought to.
  • I’ve held Liberty Broadband (LBRDK) via just a few iterations, purchased in previous to the Common Communications take care of the previous LVNTA as a merger arb, owned it via its time as GLIBA, I will proceed to carry.  Possibly that is the yr CHTR cleans up their possession construction and takes out Liberty Broadband?
  • INDUS Realty Belief (INDT) will equally simply be in my tuck it away and neglect about it pile for now, it’s a logistics/warehouse REIT that has recruited a lot of the previous Gramercy Property Belief (GPT) workforce, with the previous CFO, Jon Clark, taking up at yr finish to spherical out issues out.  The tailwinds are fairly clear, and with a comparatively small asset base and skilled workforce, they are often “sharp shooters” as they describe it, decide and select smaller offers the likes of Blackstone cannot be bothered with to assemble a portfolio.
  • A few of my larger positions now are simply semi-jockey performs in industries I semi-understand (begin out as particular conditions however then “tripped into” administration workforce), Inexperienced Brick Companions (GRBK) continues to develop like a weed, CEO Jim Brickman manages the enterprise like a personal firm, he is not afraid to modify methods, currently meaning closely investing in land in 2020 and constructing quite a lot of properties on hypothesis in 2021 to benefit from rising costs.  With DigitalBridge (DBRG), there’s continued M&A within the digital infrastructure house and its looks like CEO Marc Ganzi can increase limitless quantities of cash at this level, so I am content material to simply to go alongside for the trip.  Franchise Group (FRG) has grown into my largest place, it’s onerous to consider that CEO Brian Kahn has created a lot worth in a brief time frame, particularly after his gaff with Hire-A-Middle (RCII) when he forgot to ship in an extension discover triggering the termination of that deal.  I am content material to simply sit on these three for the long run and defer the taxes.

Closed Positions since 6/30

  • I briefly owned Loyalty Ventures (LYLT) for a month or so following the spinoff from ADS and bought sliced up making an attempt to catch the falling knife, it ended up being my largest single efficiency detractor for the yr.  However it’s too early to inform if I fully misjudged the enterprise high quality however the inventory was punished early, offered off from almost $50 within the when issued market till beneath $30.  The CEO has been shopping for shares, I will revisit it sooner or later.
  • I additionally solely briefly owned Franklin BSP Realty (FBRT) following their reverse merger with Capstead Mortgage Corp (CMO), my math was fallacious and the upside was too small within the first place.  FBRT might be an attention-grabbing purchase for some revenue traders, the administration workforce has repute and has managed the REIT nicely privately, however for me it was too small of a place and I moved on.
  • Condor Hospitality Belief (CDOR) labored out nicely however I in all probability might have traded round it higher.  After solely promoting their belongings to Blackstone, there was a buying and selling day or two there the place some uncertainty existed across the true web asset worth per share.  After which this week it traded at close to the liquidating dividend, I offered a pair weeks in the past, however those who purchased this week would possibly find yourself with a free have a look at no matter is remaining as soon as the company shell wraps up.
  • CorePoint Lodging (CPLG) did not work out very nicely, I made a mistake and missed the IRS fee that needed to come off the highest in addition to that the brand new purchaser would wish to rid themselves of the Wyndham (WH) administration settlement.  I am form of glad this might be personal once more as I’ve had it fallacious now a number of instances.
  • LGL Group (LGL) bought caught up within the “excessive redemption, low float SPAC” pattern that lasted just a few weeks.  LGL was invested within the SPAC sponsor of DFNS, DFNS had choices obtainable on it and when 90+% of the SPAC’s shareholders redeemed for belief worth, the newly public IronNet (IRNT) turned a meme inventory resulting from restricted float and choices/gamma squeeze prospects.  I offered my warrants I held into that insanity for a acquire.  The corporate is doing a by-product of their working enterprise in Q1, I plan to revisit early subsequent yr and would possibly re-take a place.
  • Communications Programs Inc (JCS) additionally appeared to get caught up in some unusual day buying and selling dynamics on the day it introduced their preliminary pre-merger $3.50 dividend that well-known to anybody following the corporate.  However the inventory spiked from $6.79 the day earlier than to over $9 the subsequent day and bought as excessive as $10 the week after that.  I did not prime tick it or something, however did benefit from that little bit of luck and offered my shares.  The corporate nonetheless hasn’t full its merger with Pineapple Power, having just lately moved their outdoors merger date to three/31/22.  The shares commerce fairly cheaply at present if issues go to plan (however up to now they have not), I plan to revisit it once more early in 2022.
  • Retail Worth (RVI) I offered shortly after the massive liquidating dividend as I did not really feel like I had grasp on the remaining worth of the stub.  There’s been some good dialogue within the feedback part that has continued, which I all the time respect and I would revisit this one in addition to the liquidation is close to its finish.
  • The MMA Capital Holdings (MMAC) deal closed as anticipated.

Efficiency Attribution

Present Portfolio

Moreover, I personal CVRs or non-traded liquidation trusts in BMYRT, OMED, IDSA, PRVL

No cash was added or withdrawn through the yr (however I’ll probably have to withdraw funds in 2022 for taxes).  My leverage is especially excessive in the mean time, not a market name, extra a results of making an attempt to delay some features into the brand new yr for tax planning functions.  On common, I used to be in all probability 115-120% lengthy in 2021.

Disclosure: Desk above is my taxable account/weblog portfolio, I do not handle outdoors cash, and that is solely a portion of my total belongings (I even have a steady job, not residing off this cash).  In consequence, the usage of margin debt, choices, focus would not totally characterize my danger tolerance.



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