Midweek update

I talk frequently about how volatile the market is and how much mispricing there is, so today I want to highlight an instance of the market getting it exactly right.  In the screenshot below, notice SOHO in red against the sea of green.

REITs are simply having a good day, so ignore the green.  More important is why SOHO is down.  Hurricane Irma is set to hit the southeast where a large portion of SOHO’s properties are located.  Last week I discussed why the market was wrong to sell off Whitestone REIT (WSR) based on Hurricane Harvey, so one may expect me to say this drop in SOHO is wrong too.

Hotels are different.  Where WSR had locked in leasing revenues, SOHO has daily rentals which will likely take a hit from those who simply don’t want to travel to an area with a near-term hurricane threat.  While SOHO has similar insurance to cover potential property damage, there is no reimbursement for foregone stays.

We are traveling down to SOHO’s Savannah hotel later this month to do some due diligence on the property which is rebranded as an independent boutique, but I must admit there is a part of my mind that is hesitant to go due to the hurricane.  I suspect other travelers have similar apprehensions.

Thus, I think the market got it right in both direction and magnitude.  SOHO is down just over a percent relative to the REIT market today which seems like the right amount to me.  The hurricane will likely not be a big deal long term, but it could take a chunk out of 3rd quarter revenues.

We are holding our SOHO because the value is still there even with this bump in the road.

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.