Alluvial Capital Management, an investment advisory firm, released its fourth-quarter 2024 investor letter. A copy of the letter can be downloaded here. The fund had a quiet fourth quarter rising 0.7% bringing the yearly returns to 16.4% beating benchmarks. Small-cap indexes swung drastically, surging 11% in November before falling 8% in December, despite the slight rise that may indicate calmness prevailed over the quarter. In contrast, Alluvial Fund was plodding, rising 3.3% in November and falling 0.3% in December. This stable performance despite significant volatility is in line with Alluvial’s eight-year history. In addition, you can check the fund’s top 5 holdings to determine its best picks for 2024.
Alluvial Capital Management highlighted stocks like CBL & Associates Properties, Inc. (NYSE:CBL) in its Q4 2024 investor letter. CBL & Associates Properties, Inc. (NYSE:CBL) owns and manages a national portfolio of market-dominant properties. The one-month return of CBL & Associates Properties, Inc. (NYSE:CBL) was -5.11%, and its shares gained 18.17% of their value over the last 52 weeks. On January 24, 2024, CBL & Associates Properties, Inc. (NYSE:CBL) stock closed at $28.23 per share with a market capitalization of $868.053 million.
Alluvial Capital Management stated the following regarding CBL & Associates Properties, Inc. (NYSE:CBL) in its Q4 2024 investor letter:
“Our other notable new holding is CBL & Associates Properties, Inc. (NYSE:CBL). I consider CBL another expression of our “long-term commercial property recovery” theme, where we seek to buy fundamentally sound real estate that will benefit from gradually improving sentiment. CBL is an operator of traditional malls, outlet malls, open air shopping centers, and lifestyle properties. CBL entered bankruptcy during the COVID crisis, shedding debt and reemerging in 2021. There’s no question that the mall business is not what it used to be, but CBL has done an admirable job in reducing leverage, investing in its best properties, and returning capital to shareholders. Today, CBL owns a portfolio of 87 properties and manages 4 others for third parties. The portfolio ranges in quality from “Class A-ish” malls doing $500+ of annual sales per square foot, to challenged properties in tertiary markets. CBL’s value is concentrated in its best properties, but the lower[1]quality properties still produce cash and the company is actively marketing some for sale.
I value CBL shares at $40-45. At $28, CBL trades at an attractive discount to fair value, but I am also attracted by the low downside risk. The company has almost $9 per share in excess cash and owns a collection of properties totally unencumbered by debt. These properties produced $66 million in 2023 cash flow. At 7x cash flow, these properties are worth another $15 per CBL share. Together with the cash, that’s value of $24 per share before considering any of the debt-encumbered properties. And there is plenty of value there, too. Some of CBL’s properties are owned by a holding company that carries a term loan of $730 million. As long as these properties are worth more than 5.5x cash flow, CBL’s equity in the holding company has value. CBL also has numerous properties with non-recourse property debt. Some of these properties are not currently cash-flowing for CBL because their cash flow is insufficient to satisfy their debt service ratios. These represent pure optionality for CBL. Either things don’t improve and CBL hands the keys to the lenders, the lenders agree to restructure the debt and the properties become cash-flowing again, or property performance improves and the debt service issue is resolved. There’s no way these properties can be actual liabilities for CBL, and plenty of ways they can have value again. CBL’s best properties are mainly held through joint ventures with other operators. The company is working to consolidate some of these, and just announced the purchase of its JV partners’ interests in three malls in Nashville, Kansas City, and St. Louis…” (Click here to read the full text)
A leasing agent walking through a newly renovated property, symbolizing the company’s commitment to reinvestment.
CBL & Associates Properties, Inc. (NYSE:CBL) is not on our list of 30 Most Popular Stocks Among Hedge Funds. As per our database, 20 hedge fund portfolios held CBL & Associates Properties, Inc. (NYSE:CBL) at the end of the third quarter which was 11 in the previous quarter. While we acknowledge the potential of CBL & Associates Properties, Inc. (NYSE:CBL) as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is as promising as NVIDIA but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
In addition, please check out our hedge fund investor letters Q3 2024 page for more investor letters from hedge funds and other leading investors.
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Disclosure: None. This article is originally published at Insider Monkey.
