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 Net Lease Office Properties (NYSE:NLOP) in the fourth quarter 2024 investor letter. Net Lease Office Properties (NYSE:NLOP) is a publicly traded real estate investment trust. The one-month return of Net Lease Office Properties (NYSE:NLOP) was 1.23%, and its shares gained 23.23% of their value over the last 52 weeks. On January 24, 2024, Net Lease Office Properties (NYSE:NLOP) stock closed at $31.19 per share with a market capitalization of $461.144 million.
Alluvial Capital Management stated the following regarding Net Lease Office Properties (NYSE:NLOP) in its Q4 2024 investor letter:
“Alluvial Fund’s largest holding remains Net Lease Office Properties (NYSE:NLOP), an ongoing liquidation story. The speed with which Net Lease has sold off properties and paid down its debt is impressive. Just six months ago, the company owned 47 properties and carried recourse debt of $215 million. Today, Net Lease is down to 39 properties and $61 million in recourse debt. I expect the company’s remaining recourse debt to be extinguished this quarter or next, allowing the company to begin distributing the proceeds of its property sales to shareholders. Net Lease shares have performed very well since we first started buying them one year ago, but their price remains deeply discounted against any reasonable estimate of asset value. The headwinds facing the office market have scarcely abated, and interest rates are being stubbornly slow to decline, but if Net Lease can continue selling its properties at 8-12% cash flow yields, eventually there will be nothing left to sell and shareholders will have received far more than the current trading price in distributions.
Lest anyone think I am being too sanguine about Net Lease’s prospects, I do make allowance for the fact that some lower quality or “quirkier” properties may prove difficult to sell or fetch disappointing prices. The company’s largest remaining property, a 1 million square foot Houston building leased to KBR, might be one such property. It’s an older building in an office market with high vacancy. Hard to imagine the list of interested buyers is currently very long or feeling very spendy. On the plus side, KBR’s lease runs for another 5.4 years, and Net Lease will receive another $115 million in rents. Discounted at 10%, that’s a present value of $86 million. It’s very possible that the Houston office market will improve by 2030 and that the building will have significant terminal value. But even if the property is totally worthless in five years (unlikely), the present value of remaining contractual rent payments alone is $80 per square foot. If I repeat this process with Net Lease’s other “difficult” properties, applying punitive outcomes, I still get to a value per Net Lease Office Properties share in the high $30s. My “realistic scenario” valuation remains $45 per share…” (Click here to read the full text)
A manager of Equity Real Estate Investment Trusts and Real Estate Management and Development Companies, overseeing investments.
Net Lease Office Properties (NYSE:NLOP) is not on our list of 30 Most Popular Stocks Among Hedge Funds. As per our database, 17 hedge fund portfolios held Net Lease Office Properties (NYSE:NLOP) at the end of the third quarter which was 15 in the previous quarter. While we acknowledge the potential of Net Lease Office Properties (NYSE:NLOP) 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 another article, we discussed Net Lease Office Properties (NYSE:NLOP) and shared list of best 52-week high stocks to buy according to analysts. In the previous quarter, Alluvial Fund highlighted Net Lease Office Properties’ (NYSE:NLOP) property sales as a strategy to reduce its debt. 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.