McIntyre Capital Management, a private investment company, released its first quarter 2023 investor letter. A copy of the same can be downloaded here. The strategy returned 35% gross and 28% net in the first quarter, compared to the Russell 2000 Value’s decline including dividends of -1%. The year started with a strong market but bank failures and rising cyclical risks pulled back the performance. In addition, please check the fund’s top five holdings to know its best picks in 2023.
McIntyre Partnership highlighted stocks like Star Holdings (NASDAQ:STHO) in the first quarter 2023 investor letter. Based in New York, New York, Star Holdings (NASDAQ:STHO) engages in non-ground lease-related commercial real estate business. On May 26, 2023, Star Holdings (NASDAQ:STHO) stock closed at $15.03 per share. One-month return of Star Holdings (NASDAQ:STHO) was -4.21%. Star Holdings (NASDAQ:STHO) has a market capitalization of $200.194 million.
McIntyre Partnership made the following comment about Star Holdings (NASDAQ:STHO) in its Q1 2023 investor letter:
“Star Holdings (NASDAQ:STHO) is a recent spinoff of a liquidating portfolio from the STAR/SAFE merger. As a quick back story, STAR was a financial business and REIT that made some poorly timed investments prior to the Great Financial Crisis. The business and stock eventually recovered, and the company spent the bulk of the 2010s cleaning up the prior mess and searching for new business ideas. During this time, the company started a business focused on ground leases, which eventually was IPOed under ticker SAFE with STAR retaining a majority ownership in SAFE and operating as its third-party manager. As SAFE successfully executed and grew, the value of SAFE eclipsed that of all STAR’s other assets and the decision was made to merge the entities and internalize the manager. However, a small portfolio of workout assets from STAR’s prior businesses remained, and STAR spun these assets out prior to the merger to clean up SAFE’s balance sheet. That portfolio of workout assets is STHO. However, complicating matters, the workout assets may have some capital needs, and STHO has agreed to effectively cover the cost of SAFE’s internalized manager for the first three years, which means STHO has modest cash needs initially. As STAR had minimal assets beyond its significant holdings in SAFE, management decided to capitalize STHO with a small cash buffer and a significant number of SAFE shares.
I believe STHO’s odd structure has a resulted in an opportunity to buy an orphaned security at an attractive price. While STHO’s history is convoluted, its current assets are straight forward. For every one share of STHO, we own one share of SAFE, $360MM in book value real estate, and $250MM in “effective” net debt. At current prices for STHO and SAFE, that implies STHO’s NAV is ~$35/sh. compared to STHO’s current price of $16. We have hedged some of our position by shorting SAFE shares, partially locking in this spread.
I believe STHO’s odd structure has a resulted in an opportunity to buy an orphaned security at an attractive price. While STHO’s history is convoluted, its current assets are straight forward. For every one share of STHO, we own one share of SAFE, $360MM in book value real estate, and $250MM in “effective” net debt. At current prices for STHO and SAFE, that implies STHO’s NAV is ~$35/sh. compared to STHO’s current price of $16. We have hedged some of our position by shorting SAFE shares, partially locking in this spread.”
Photo by Breno Assis on Unsplash
Star Holdings (NASDAQ:STHO) is not on our list of 30 Most Popular Stocks Among Hedge Funds. As per our database, 14 hedge fund portfolios held Star Holdings (NASDAQ:STHO) at the end of the first quarter 2023 which was 0 in the previous quarter. In addition, please check out our hedge fund investor letters Q1 2023 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.