A messy trading environment
Correlations are up with groups trading as one. Triple net REITs have traded down in unison as retail fears expand. Interestingly, this concern has dominated as interest rates fell which would usually make NNN REITs go up. This creates opportunity for 2 reasons:
- With NNN REITs going down as interest rates dropped, the spread to treasuries widened.
- Some NNN REITs have minimal retail exposure yet fell with the group.
Specifically, WPC, GNL and GPT have minimal retail exposure making them particularly opportunistic at the moment. Since the nature of the mispricing is a lump-in with other companies that are potentially troubled, time will be the cure. Strong earnings reports fueled by unscathed underlying businesses will differentiate these from the pack and the market will eventually catch on.
While I cannot determine how long of a wait it will be to get the capital gains, we can afford to wait as each company pays a sizable and well covered dividend.
The largest holding in 2CHYP, Medical Properties Trust, just made a sizable acquisition of IASIS run facilities that will be converted to Steward as the operator. It should be immediately accretive with material FFO/share growth and it further improves MPW’s dominance in hospital ownership. We continue to be pleased with the way MPW is run.
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.