Grocers and prisons
Amazon has blown up REITs yet again. It wasn’t enough that they were a competitor for the malls and the shopping centers, but they are now a competitor to grocery stores with their purchase of Whole Foods. Kroger and the other grocers are down massive amounts while the grocery anchored REITs are down as much as 5%.
Kite is handling it far better than Brixmor as it is mostly power centers so the grocery is a smaller component. Time will tell what the real fundamental impact is, but I anticipate it could increase the percentage of grocery sales that take place via delivery. This could potentially reduce foot traffic to the grocery anchored shopping centers.
Having sold our other grocery exposed REIT, Armada Hoffler, our exposure to the space is quite minimal.
The New York City pension fund announced that it is liquidating its position in Core Civic and Geo Group for moral reasons. This tanked both stocks and we took the opportunity to buy some CXW. I fully understand that this is a hot button issue that some people will feel uncomfortable buying, which is fine. We at 2nd Market Capital are non-political and invest strictly for financial fundamental reasons. In buying CXW we are not making a statement about our opinion on the matter, it is simply cheap and financially opportunistic.
With public prison funding getting cut we suspect more prisoners will be routed to private prisons, with CXW being the primary beneficiary. This upside potential is not yet priced in to the stock and it has a solid yield while we wait.
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