UIUC Investment Management Academy

Today, Clare Prilutsky and George Shiakallis pitched IIPR, a specialized industrial REIT situated in the cannabis industry. Danny(Sibo) Wang and Nandil Patel updated EPRT, a diversified REIT that was pitched last semester. IIPR operates in 19 states with 100+ properties leased to state-licensed operators for regulated cannabis facilities. IIPR boasts a WALT of 14 years, providing a triple-net lease structure to its tenants through its sale-leaseback acquisition strategy. As a result, IIPR maintains lower than industry average leverage that allows it to maintain a strong financial position. The latest election results and regulatory uncertainty caused the most recent stock tumble, making it an attractive investment point for IMA as risk can be arguable priced in. Future rescheduling and the safer Marijuana act are key policies that can positively impact IIPR. EPRT 's portfolio focuses on service and experience-oriented properties like car washes, education, and medical facilities. Similar to IIPR, they boast a WALT of 14 years with a NNN lease structures. EPRT boasts a natural hedge to the e-commerce market and has a healthy balance sheet, but the team argues that industry rent growth, and risk is not strong enough to offset the higher cost of capital. The class voted in favor of IIPR.

Payoneer Global (PAYO) vs. Preferred Bank (PFBC) – IMA Portfolio Update On Tuesday, David Fayn and Timur Polishchuk pitched Payoneer Global Inc. (NASDAQ: PAYO), a fintech innovator in the B2B payments space, against the portfolio update on Preferred Bank (NASDAQ: PFBC), a high-efficiency regional bank operating in Southern California, presented by Josh Sorkin and Tyler Fields. Payoneer (PAYO) Overview PAYO specializes in cross-border payments, focusing on underpenetrated SMBs in emerging markets. Its revenues are derived from transaction fees, interest income, and foreign exchange (FX) charges, with a unique competitive edge in the B2B payments segment. PAYO’s transition to targeting larger Ideal Customer Profiles (ICPs)—clients processing over $250,000 in monthly volumes—has been a strategic success, driving revenue and client stickiness. The team highlighted PAYO’s interest-rate resilience, with hedging strategies mitigating the impact of anticipated rate cuts, alongside sustained revenue growth driven by strategic acquisitions like Skuad, expanding its payroll capabilities. PAYO’s wide geographic presence in 190 countries and its dominance in high-growth regions such as LATAM and APAC further reinforce its leadership in the cross-border payment space. However, challenges remain. Over 40% of its revenues originate from Greater China, exposing it to geopolitical risks, while the valuation (31x P/E) trades at a premium to its financial peers. Preferred Bank (PFBC) Overview PFBC is a regional bank with a strong niche in real estate and commercial loans, specializing in mini-perm financing. Its operational efficiency, with a 27% ratio, positions it as a leader among U.S. regional banks. PFBC’s focus on high-quality underwriting (55% LTV ratios) has safeguarded asset quality, even as one criticized loan relationship emerged in Q3 2024. The team emphasized PFBC’s stable asset performance, supported by disciplined cost management and its geographic expansion into Silicon Valley and Manhattan, diversifying beyond its historical Chinese American base. Management’s strategic focus on floating-rate loans with interest-rate floors enhances profitability amidst Fed rate cuts. Key risks include its limited adoption of AI technologies, potentially hindering future competitive positioning, and its heavy reliance on the real estate sector, which could face pressures in a recessionary environment. The class vote will take place this Thursday after all portfolio updates and presentations have been reviewed.

On Thursday, Riya Dass and Mayling Alonso updated Axos Financial (NASDAQ: AX) against our new pitch, The Bancorp (NASDAQ: TBBK), updated by Ian Jesionek and Tyler Fields. AX is a technology-driven financial services firm focused on digital banking and securities. Its main segments are single-family, multifamily, and commercial real estate. Following a controversial report from Hindenburg Research this summer alleging high-risk lending practices in commercial real estate (CRE), Axos saw a dip in its share price. However, the market quickly looked past these claims, driven by Axos’ strong fundamentals, which include a 21.89% ROE and consistent Net Interest Income (NII) growth. The team argued that Axos’s fully online, cost-efficient model and use of AI in credit risk assessment strengthen its competitive advantage in targeting younger demographics. Furthermore, a strategic partnership with Envestnet and recent loan acquisitions reinforce its expansion potential in the digital banking and wealth management spaces. The team noted that despite Axos’s strength, its high exposure to CRE and reliance on interest income could present challenges, particularly if there is further compression in NII under lower rate scenarios. Nonetheless, the team remains confident that Axos’s fundamentals and recent initiatives position it for continued outperformance. TBBK operates with a niche focus on specialty finance like bridging loans and line of credit, distinguishing it from traditional banks. Its primary revenue drivers are incremental specialty loans and payments via its Fintech Solutions segment, with services ranging from card processing to regulatory compliance, in partnerships with firms like Chime. TBBK’s loan portfolio includes securities-backed lines of credit (SBLOC) and real estate bridge loans (REBLs), which cater to underserved segments and offer high-margin lending. This unique positioning has allowed TBBK to consistently deliver strong financial results, with a ROE of 25.48% and ROA of 2.67%. Recently, TBBK shifted from variable- to fixed-rate lending, a strategy that the team argued would safeguard the bank’s high net interest margin as rates decline, while supporting profitability and stability. However, TBBK’s reliance on fintech partnerships introduces regulatory risks that could affect growth if increased compliance requirements are imposed on the fintech space. The team concluded that TBBK’s differentiated strategy and strong partnerships in fintech, combined with its specialized loan portfolio, position the bank for success in both high-growth and low-rate environments. The class vote will take place next Thursday after all portfolio updates and presentations have been reviewed.

On Tuesday, the class heard two new ideas: $BLMN, pitched by Tiffany Trujillo and Alejandro Yepes, and $UPBD, pitched by Ilya Vynnyk and Sudeep Sundar. BLMN owns and operates restaurants in the casual dining industry, with its main brands being Outback Steakhouse, Carrabba's Italian Gril, and Bonefish Grill. The biggest driver that that the team argued will help the stock catch up with both the restaurant industry and broader consumer discretionary is the involvement of Starboard, an activist investor with an exceptional track record in the restaurant industry (PZZA and DRI) that took a ~10% stake in BLMN in August 2023. The team argued that a series of strategic initiatives that have been undertaken by Starboard, such as the appointment of a new CEO and re-franchising plans in Brazil, are what will eventually drive the stock. UPBD specializes in lease-to-own solutions, targeting customers with limited credit access who need durable goods but can't afford upfront payments. The company is well-positioned to serve a substantial market, as roughly a quarter of U.S. consumers have credit scores below 660, and over a third earn less than $50,000 annually. The business operates through two key segments: the expanding Acima division, which is gaining momentum through new retail partnerships and a strategic alliance with Concora Credit, and the established Rent-A-Center (RAC) segment. While Acima drives growth, RAC's proven profitability provides the stable cash flow necessary to fund the company's market expansion initiatives. Three out of the following six names needed to be selected by the class: $GRBK, $DORM, $CSV, $SAH, $BLMN, and $UPBD. Lev Teriukhov, portfolio manager, recommended retaining GRBK and CSV in the portfolio, and adding BLMN. The class vote ended in favor of GRBK, CSV and DORM.

On Thursday, Qemal Ramadani and Boyang Zhao pitched Sonic Automotive ($SAH), against our current holding Carriage Services ($CSV), updated by Shrey Patel and Robert Zhang. CSV’s business is divided into two main segments: Funeral Home Operations and Cemetery Operations. In Funeral Home Operations, it offers a range of services including consultations, facility use for visitation and memorial services, transportation, and the sale of burial and cremation services and related merchandise. The Cemetery Operations segment deals with the provision of interment rights, cemetery merchandise, and services related to burial. The company has experienced strong performance since purchase last semester, returning nearly 42%. The team argued that the company is well equipped to continue executing on the recently published 10-year plan, which is supported by massive share price appreciation following the management decision to turn down a recent take-private offer. Additionally, an anticipated decrease in leverage should provide liquidity for growth investments in attractive markets where local managers’ significant autonomy is expected to drive value. SAH is an automotive retailer that runs a large network of car dealerships, selling new and used vehicles while also providing car repairs, parts, and financing options to customers. The team argued that Sonic’s diversified portfolio, consisting of new and used vehicles of different premium tiers, will provide stability as well as allow the company to fully capture all facets of demand for automobiles. The overall increase in the volume of vehicles sold amid falling interest rates will also allow Sonic to continue integrating its high Finance & Insurance offerings. Lastly, the team is confident in the company’s ability to sustain a recent uptick in performance within the Echopark segment that sells used vehicles at significantly lower rates compared to peers. The class vote will take place next Tuesday after the class hears all six consumer discretionary presentations.

On Tuesday, Om Badiyani and Taronish Warsi pitched Dorman Products ($DORM), against our current holding Green Brick Partners ($GRBK), updated by Benjamin Berkeley and Asher Kubly. DORM makes and sells replacement parts and accessories for cars (main business), trucks, and specialty vehicles, offering these products through auto part retailers like O’reily and AutoZone and distributors under various brand names like Dorman and OE Solutions. The team argued the DORM’s superior product product portfolio positions it to capture growth from aging vehicles, which require increasingly sophisticated replacement parts. Additionally, the team’s reverse DCF analysis suggests the market undervalues DORM’s capacity to maintain its elevated margins. GRBK is a diversified homebuilding and land development company. It has been a stellar performer in IMA’s portfolio, outperforming ITB and returning 17% since purchase. GRBK’s business model includes developing residential neighborhoods and master-planned communities, focusing on land acquisition, development, construction, and sales of homes. The main regions of operations are Texas, Georgia, and Florida. The team argued that GRBK’s strategic capital allocation and disciplined management will allow the company to maintain its industry-leading gross margins. Furthermore, GRBK’s strong market positioning in desirable regions and opportunities for expansion into attractive geographies like Houston and Austin position the company to continue outperforming its peers on sales. The class vote will take place next Tuesday after the class hears all six consumer discretionary presentations.

Today, Clare Prilutsky and Danny(Sibo) Wang pitched Shutterstock (SSTK) against our current communication services holding Tegna (TGNA), updated by Eric Yang and George Shiakallis SSTK is a leading content licensing company that makes money by collecting images, footage, music, and 3D models and selling them to organizational and individual users. The team recommended we buy SSTK due to its extensive database of 450+ million digital assets and recent resilience with large enterprise customers. Additionally, the Data, Distribution, and Services offering has experienced strong growth in recent quarters which is expected to continue following the recent launch of SSTK’s generative AI subscription. TGNA is a media company that makes money through advertising on its local television broadcasts and from monthly subscription fees charged to cable and satellite providers. TGNA is the largest group owner of NBC-affiliated stations and the fourth-largest group owner of ABC affiliates. The team believes that TGNA will be able to maintain its strong free cash flow yield given the recurring revenue model of its contracts and management’s resilience in adapting to industry changes. The class voted to keep TGNA as our communication services holding.

Yesterday, Natalie Heth and Nandil Patel pitched PriceSmart, Inc. (PSMT) against our current consumer staples holding, Interparfums, Inc. (IPAR), which was updated by Timur Polishchuk and Alex Unes. IPAR is a global fragrance company headquartered in New York City. IMA’s initial thesis included points on the company’s strong balance sheet and cash flows as well as its successful brands. While the cash balance has been reduced since then, the team still believes that the company will outperform given the sustained consumer demand for the company’s products through times of economic uncertainty, the success of new product launches, and the opportunity for further gross margin expansion. PSMT is a U.S.-style membership shopping warehouse club company whose locations are purely situated throughout Latin America. The team was bullish on the company because of its continued expansion throughout the region, all-time-high membership renewal rate, and new e-commerce segment. Additionally, the Latin American middle class, the target consumer group for PSMT, is expected to expand in the coming years. The class voted to keep IPAR as our consumer staples holding.

Today, Robert Zhang and Ian Jesionek pitched Chesapeake Utilities Corporation (CPK) against our current utilities holding, NorthWestern Energy (NWE), updated by Josh Sorkin and Tyler Fields. NWE is a provider of electricity and natural gas to the areas of Montana, South Dakota, Nebraska, and Yellowstone National Park. Our initial thesis was focused on NWE's ability to win successful rate cases which has played out correctly recently, allowing NWE to raise prices. Our team believes that NWE will be able to continue these successful rate cases and also benefit from decreasing interest rates. CPK is a distributor of natural gas, electricity, and propane to the areas of Delaware, Maryland, and Florida. The team recommended we buy CPK due to it's geographical expansion to high growth population markets like Florida. Additionally, CPK has received recently regulatory approvals which can help grow their shift towards renewable natural gas. The class voted in favor of NWE

Today, Christopher Stefani and Riya Dass updated Progyny, Inc. ($PGNY) against one of our other industry holdings, The Ensign Group, Inc. ($ENSG), updated by Josh Sorkin and Alejandro Yepes. ENSG focuses on skilled nursing and rehabilitation services across the U.S. Our initial thesis last semester emphasized its strong acquisition strategy and the growing demand for senior care services. However, the team now believes that the company is trading at an unsustainable valuation multiple. Additionally, ENSG is facing challenges integrating newly acquired facilities while maintaining operational efficiency. Progyny, Inc. ($PGNY), offers fertility and family-building benefits to large employers. The original thesis was based on PGNY's potential for growth, driven by increased demand for fertility services and its strong market position. However, recent developments, including the loss of its largest client and heightened competition from more cost-effective alternatives, have raised concerns about the sustainability of PGNY's premium pricing model. With the stock down 57% YTD and questions surrounding the company’s growth strategy, the team is less confident in PGNY's ability to outperform. The class voted to keep PGNY and PBH as the healthcare holdings for the portfolio.