Price movement

The first week of 2017 has been characterized by unusually rapid price movement with holdings fluttering from substantially up to substantially down intraday and vice versa.  This exaggerates the value of diligence in watching the markets and timeliness in trading.  We have been and continue to try our best to catch the intraday peaks and troughs on sales and purchases respectively.

With traditional REITs pricing up, we have expanded our search to some unique small-cap REITs.  Generalist investors who entered the REIT arena since the GICS change in August (REITs became the 11th sector) seem to be more accepting of the traditional REIT sectors.  Thus, more mispricing, and therefore more opportunity may exist in the specialty REIT areas.

Jernigan Capital (JCAP) is a financier of self-storage development.  Its management team has extensive experience in the space and our analysis suggests their business model produces outsized returns relative to the risk.

CorEnergy (CORR) finances energy infrastructure, generally through sale-leaseback.  It was tested in the recent energy recession and seems to have made it through with minimal damage.  Going forward, we see substantial FFO/share growth as it uses its underlevered balance sheet on new acquisitions.

It may take a while before the market begins to see the value of oddball REITs, so we are agnostic on the outlook for near term price movement.  These were largely purchased on a longer term outlook backed up by opportunistic valuation with each REIT trading at less than half the multiple of the REIT index.

Commentary may contain forward looking statements which are by definition uncertain.  We retain no obligation to update or correct forward looking statements should the available information change. Actual results may differ materially from our forecasts or estimations.

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1/5/17 2CHYP Performance since inception

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