Thursday, December 1, 2022
HomeValue Investing12 months Finish 2021 Portfolio Assessment

12 months Finish 2021 Portfolio Assessment

Thanks for studying, hope you are having a great vacation season and because of those that have reached out with concepts, commented on write-ups, advised me I am silly, or corrected me over time, 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 a great steady day job, I do not stay off of this portfolio (by no means pulled cash from it, though I’ll probably need to withdraw funds early subsequent 12 months to pay taxes), so my threat tolerance goes to be naturally larger than others.  

With that preamble out of the best way, 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 greatest greenback weighted winners had been BRG calls, LAUR (largely additionally through calls which have since expired), after which holdover concepts written up in earlier years like FRG, DBRG, and MMAC.  My greatest greenback weighted losers had been LYLT (caught that falling knife put up spin a bit of too fast), APVO and CMCT.

Shocked myself on how a lot I wrote/posted this 12 months, perhaps not precisely a great signal as its result in plenty of turnover, probably overdiversification, however I simply discovered so many attention-grabbing particular conditions (or not less than I assumed so on the time) and proceed to take action. It will probably’t be this straightforward sooner or later, there’s plenty of speculative exercise in markets, some may (rightfully) accuse me of that as nicely.  Nice outcomes by no means actually really feel “actual” till the subsequent downturn, however I am going to preserve my technique going and proceed to push ahead.

Ideas on Present Holdings

I wrote these intermittently over the past two weeks, if a few of 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 type:

  • BBX Capital (BBXIA) continues to look too low-cost regardless of surly administration, proforma for the latest personal market buy of Angelo Gordon’s shares (barely disappointing since they could have been retaining administration trustworthy right here), I’ve the ebook worth someplace round $21/share and it trades for $10/share.  For that value, 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 value with out all of the Florida actual property and different companies.  They not too long ago put out a new investor presentation that shined gentle on the Florida actual property that is price taking a look at, 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 12 months, to me it seemed like a administration misstep or unfamiliarity with cross state border acquisitions.  However ACEL introduced a giant 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 consumer’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 entice, however the pitfall of their diversified actual property mannequin can also be a profit, the corporate is trying to reposition the narrative again to a land developer for residence builders and constructing sunbelt residences.  They not too long ago bought an enormous plot of land west of Phoenix that apparently has a 50 12 months growth life and can add doubtlessly 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 growth in that sector in favor of covid beneficiaries.
  • PhenixFin (PFX) is irritating to me, this firm should not exist, activists gained management of the corporate final 12 months (then referred to 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 unique thesis was me speculating that this may be offered to a different BDC, that hasn’t occurred, of their latest FY22 outcomes press launch PFX introduced the formation of an “asset-based lending enterprise engaged within the gem and jewellery trade” and highlighted $490MM in web capital loss carryforwards for the primary time that I can keep in mind.  Neither is an indication that they are promoting sadly, however I is likely to be, that is not a robust conviction holding however not costly at ~70% of ebook worth (basically unlevered, small web debt place).
  • NexPoint Diversified Actual Property Belief (NXDT) is sadly nonetheless within the means 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 property 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, it will 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-about funds), and begin attracting a REIT investor base and a number of.  On the unfavorable aspect, that is one other supervisor with a poor fame, and doubtlessly has some governance points with NXDT proudly owning different NexPoint associates and a few payment double dipping.  NXDT continues to be one in every of my favourite concepts.
  • Jackson Monetary (JXN) has gone up in a straight line since its spin from Prudential PLC in September.  Jackson is the biggest variable annuity supplier within the U.S., it ought to have robust demographic tailwinds as child boomers retire and rollover their 401(okay)s, however the financials are a complete black field and these annuity firms often commerce extraordinarily low-cost for that purpose.  One method to get a valuation re-rating is through share repurchases and money dividends, JXN was buying and selling at simply 28% of ebook 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 (is likely to be some extra close to time period upside through 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 compelled promoting tempted me sufficient to begin 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 not too long ago offered their suburban headquarters campus to traders who plan on turning it into logistics/warehouses  — when outdated line sort firms are making drastic switches away from giant company campuses, makes me apprehensive for the sector, particularly with a median lease time period underneath 3.5 years.
  • Sonida Senior Dwelling (SNDA) is a latest purchase after they accomplished an out of court docket restructuring transaction, this can be a little bit of a jockey guess in that I just like the Conversant Capital group and what they’ve achieved to this point 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 plenty of working leverage, if occupancy ranges get better to normalized ranges and the demographic wave lastly materializes, Sonida may 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 the same out of court docket restructuring by proposing to alternate the popular inventory for widespread.  The most important most popular shareholder comically shot it down.  This firm is a little bit of a large number, they not too long ago had the State of Alabama pull the license of one in every of their greatest tenants a pair weeks in the past, appears like RHE is likely to be taking up the administration of one other one in every of their amenities right here shortly.  That momentary measure seems to changing into extra everlasting of their different managed amenities.  The corporate is in a troublesome spot, it’s not bankrupt however the capital construction would not work and there isn’t any straightforward method to repair it for the reason that nugatory widespread inventory have to approve of an alternate.
  • Sadly, as quickly as I hit publish on my Altisource Asset Administration (AAMC) write-up, the shares had been delisted from the NYSE (no direct purpose given) and have but to commerce since.  I am a bit stunned/disenchanted that the corporate hasn’t made any public bulletins relating to 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 will 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 not too long ago 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 believe the worth is nearer to $30 (though I in all probability would not advocate 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 an extended historical past, it pivoted from an electronics producer to a property developer when Shenzhen skilled exploding progress.  IsZo Capital gained their 12 months lengthy authorized battle in opposition to prior administration, they’ve put out quite a lot of $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 plenty of threat right here, China actual property is clearly shaky, excuse my playing, once more its a private account, do not advocate this for others.
  • Bluerock Residential Progress REIT (BRG) entered right into a transaction with Blackstone to purchase their multi-family properties and lending ebook for $24.25 per share, plus BRG goes to spinoff a single household rental REIT, “Bluerock Houses Belief”, the place BRG acquired a 3rd celebration valuation agency to place a $5.60 NAV per share on it.  BRG is at the moment buying and selling for $26.36, the cope with Blackstone is sort of sure to shut, thus the market is making use of a fairly steep low cost on the one household REIT.  It would revert to being an externally managed by Bluerock (BRG began as externally managed, later pseudo-internalized), who previous to this transaction did not have an amazing fame, however clearly this was an amazing consequence for shareholders and merger arb sorts may 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 mum or dad American Realty (ARL) earlier this week.  I had one massive mistake, I assumed the $134MM of notes receivable had been simply mortgage loans consolidated from Earnings Alternative Realty (IOR), that is not the case, so the honest 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 all the property of the corporate are a mortgage to Pillar, IOR’s exterior advisor, undecided how that is okay legally and is likely to be why it’s being challenged in a shareholder lawsuit.  IOR might be price a more in-depth 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 attributable to “extra time and work wanted to fulfill 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 Training (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 finest guess is this isn’t the top state and we’ll see a closing sale of the remaining property 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 remainder 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 in opposition to a $6.50 inventory value.  They state that strategic alternate 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 price foundation.  The latest estimate of liquidation proceeds is $3.00/share, shares commerce barely under that estimate, others have prompt there is a honest quantity of juice left (this writer thinks a base case of $3.30, which sounds cheap), I am prepared to only let it play out as the corporate has indicated it needs to be largely wrapped up by mid-2022.
  • I personal two tiny pure fuel trusts, with ECA Marcellus Belief I (ECTM) I acquired fortunate and now have acquired over half my foundation out of the partnership this 12 months in distributions, it wasn’t my unique thesis of a liquidation, however I am content material for now letting it runoff through distributions a lot the identical approach as a liquidation.  With SandRidge Mississippian Belief I (SDTTU) the property 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 closing 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 truthfully form of forgot about in Technip Energies (THNPY).  Technip Energies is the E&C for lots of the largest LNG initiatives around the globe, and will profit from lots of the similar LNG as a transition gasoline themes.  There are two remaining catalysts put up spin, first mum or dad FTI does nonetheless personal ~12% of TE and plans to promote (removes the overhang as soon as they do), and second, Technip Energies will probably be initiating a dividend subsequent 12 months (that was the plan all alongside) which may open it as much as a wider shareholder base and semi-similar to JXN, chilly exhausting money may relieve some considerations across the difficult accounting.
  • Logan Ridge Finance Company (LRFC) is much like PFX in that it’s a BDC that does not pay a dividend (I imagine 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 exhausting to draw common yield-focused retail traders, so its restricted to a small subset of traders prepared to play in these ponds.  LRFC was not too long ago taken over by BC Companions, they’re within the means of repositioning the portfolio to generate yield and restore the dividend, that’ll probably occur within the first half of 2022 and I count on the low cost to NAV to lower (trades for 58% of NAV immediately).
  • 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 threat 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 completely satisfied to vary my thoughts and help the RSA right here though 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 tendencies 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 accessible on the later.  These MPC calls expire subsequent month and I am going to take earnings, with PARR I’ve lowered my place all year long and may promote the remainder early subsequent 12 months, I’ve owned it for 6-7 years and it has gone nowhere, they have not touched the NOLs, only a tough enterprise that I in all probability do not perceive in addition to I ought to.
  • I’ve held Liberty Broadband (LBRDK) by way of just a few iterations, purchased in previous to the Common Communications cope with the outdated LVNTA as a merger arb, owned it by way of its time as GLIBA, I am going to proceed to carry.  Possibly that is the 12 months 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 overlook about it pile for now, it’s a logistics/warehouse REIT that has recruited a lot of the outdated Gramercy Property Belief (GPT) group, with the previous CFO, Jon Clark, taking up at 12 months finish to spherical out issues out.  The tailwinds are fairly clear, and with a comparatively small asset base and skilled group, 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” a great administration group), Inexperienced Brick Companions (GRBK) continues to develop like a weed, CEO Jim Brickman manages the enterprise like a personal firm, he isn’t afraid to change methods, currently meaning closely investing in land in 2020 and constructing plenty of properties on hypothesis in 2021 to reap the benefits of 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 only to go alongside for the trip.  Franchise Group (FRG) has grown into my largest place, it’s exhausting to imagine that CEO Brian Kahn has created a lot worth in a brief time frame, particularly after his gaff with Lease-A-Middle (RCII) when he forgot to ship in an extension discover triggering the termination of that deal.  I am content material to only 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 acquired sliced up making an attempt to catch the falling knife, it ended up being my greatest single efficiency detractor for the 12 months.  However it’s too early to inform if I fully misjudged the enterprise high quality however the inventory was punished early, offered off from practically $50 within the when issued market till under $30.  The CEO has been shopping for shares, I am going to revisit it in some unspecified time in the future.
  • I additionally solely briefly owned Franklin BSP Realty (FBRT) following their reverse merger with Capstead Mortgage Corp (CMO), my math was mistaken and the upside was too small within the first place.  FBRT might be an attention-grabbing purchase for some revenue traders, the administration group has a great fame 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 may have traded round it higher.  After solely promoting their property 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 may 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 cost 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 will probably be personal once more as I’ve had it mistaken now a number of occasions.
  • LGL Group (LGL) acquired caught up within the “excessive redemption, low float SPAC” development that lasted just a few weeks.  LGL was invested within the SPAC sponsor of DFNS, DFNS had choices accessible on it and when 90+% of the SPAC’s shareholders redeemed for belief worth, the newly public IronNet (IRNT) grew to become a meme inventory attributable to restricted float and choices/gamma squeeze prospects.  I offered my warrants I held into that insanity for a achieve.  The corporate is doing a derivative of their working enterprise in Q1, I plan to revisit early subsequent 12 months and may re-take a place.
  • Communications Methods 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 acquired as excessive as $10 the week after that.  I did not high tick it or something, however did reap the benefits of that little bit of luck and offered my shares.  The corporate nonetheless hasn’t full its merger with Pineapple Power, having not too long ago moved their outdoors merger date to three/31/22.  The shares commerce fairly cheaply immediately if issues go to plan (however to this point they have not), I plan to revisit it once more early in 2022.
  • Retail Worth (RVI) I offered shortly after the big liquidating dividend as I did not really feel like I had a great 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’d 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 in the course of the 12 months (however I’ll probably have to withdraw funds in 2022 for taxes).  My leverage is especially excessive in the meanwhile, not a market name, extra a results of making an attempt to delay some positive factors into the brand new 12 months 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 property (I even have a steady job, not residing off this cash).  Because of this, the usage of margin debt, choices, focus would not totally signify my threat tolerance.



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