Close of quarter

The first quarter of 2018 was a rough one, but it finished much better than it looked in January and February.  Interest rates have fallen back down as turmoil among tech stocks has spooked the market.  As the tech bubble expanded it pulled money out of REITs and the worse tech does, the more money will flow back into real estate.  This is a trend that has persisted since around 1998 and it appears we are finally on the favorable side of the correlation.

Positioned for income

With the price volatility of recent months, it has provided an opportunity to buy some stocks with relatively safe dividends at yields that should not exist for fully covered dividends.  Off the top of my head, I am fairly confident that 2CHYP’s portfolio dividend yield has increased both as a percentage of assets and in absolute dollars.  We will get the exact figures to you in the quarterly analytics which are in production presently.

Importantly, the dividend yield, which has become rather extreme, is fully covered by FFO and AFFO indicating some degree of reliability.  Further, our fundamental exposure is widely varied such that problems in one area of the economy will only affect a select group of holdings with mitigated contagion to others.

I do not believe dividend yields of this magnitude can remain for extended periods of time.  Either the market will recognize the opportunity and bid the stocks up, or I am horribly wrong and the dividends will be cut.   It will likely be some mix of the two.  We are constantly monitoring for threats or any indication that our research is wrong.

A preferred approach on the horizon

Looking beyond common stock in the capital structure, there are a number of preferreds trading at sizable discounts to par.  We are evaluating these as possible additions to 2CHYP.  BlueRock Residential preferred D (BRG-D), for example, offers a current yield over 8% along with a potential 16% capital appreciation to redemption.  It strikes us as unlikely that multifamily fundamentals could crash hard enough that the preferred would be endangered.  High-end and well located properties tend to rent well, even during economic downturns.

In the coming days and weeks, we will be uploading profile sheets on each company held in 2CHYP along with quarterly analytics detailing our returns, positioning, and strategy.  With the ample opportunities in the present environment, we are excited about the future prospects of 2CHYP.

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.

2CHYP Portfolio Snap Shot

3/28/18 2CHYP Performance since inception

2CHYP Weekly Trade Confirmation Report:  No trades this week