It was a rough week for 2CHYP as REITs tanked and 2CHYP underperformed, falling further than the REIT market. In times like this we like to take a step back and try to ascertain the cause of failure. Specifically whether it is a market phenomenon or fundamental in nature. If we see fundamental concern we may cut our losses and exit positions, but in this particular instance, I think it is a market pricing phenomenon so we have not sold at the reduced prices and in the case of Uniti, we bought more.
Our underperformance this week was largely caused by the following: UMH, MPW, UNIT, Retail.
UMH: Manufactured housing represents one of the strongest remaining growth areas among REITs and UMH is growing faster than its peers despite trading at a lower multiple. Its 2nd quarter report was quite strong and we have seen no trouble fundamentally.
MPW: I do not like to blindly trust management teams, but MPW has a history of consistently growing FFO per share so I am inclined to believe their fresh 2018 guidance which shows substantial growth. Healthcare is a tricky environment right now so I expect pricing will remain quite volatile, but at the end of the day acute care hospitals are necessary facilities and MPW’s are among the highest quality.
UNIT: I’ve already said this, but it’s true so I’ll say it again. A tenant cutting its dividend is good for Uniti because it retains more capital for paying the Uniti lease. While Windstream may be experiencing churn, we see no near term or mid term solvency issues.
Retail: Market sentiment remains low on retail holdings but it may have gotten a bit better just before close today as Bill Miller, son of the legendary investor Bill Miller pitched WPG on CNBC. Our investment process is such that we are not going to make decisions simply because some guru makes a call, but it is still rather nice when a reputable investment team talks up a stock we already own.
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