Trading a REIT with contractual cashflows

Gladstone Commercial (GOOD) is one of the most reliable stocks we trade with a consistent dividend and slow yet steady earnings growth.  Its straight line fundamentals are not matched by its market price which is all over the place from as low as $12 to the mid $20s.  Given the contractual nature of future cashflows it is reasonably easy to calculate its fundamental value which makes it reasonably easy to trade the stock.  Below $18, GOOD is a steal and around $20 it approaches fair value and above $23 it approaches overvaluation.  These numbers are of course subject to change with the relative value of peers and the broader market, but for now it is how I see the trading ranges.

Not too long ago the market gifted us an opportunity to buy GOOD at $17.76 so we scooped it up.  I would encourage modeling out the contractual cashflows of GOOD and looking at the assumptions that would go into a market price of $17.76.  It takes extreme pessimism or an extreme discount rate to make that a fair value and neither of these assumptions would be consistent with a company that has had a long history of steady performance.

At $19.59 where GOOD sits today, it is still a fine stock to hold, but no longer the obvious opportunity.  We are essentially holding GOOD in place of cash so as to collect the dividend while waiting for a bigger opportunity to present itself, and there are a few we are looking at.

The data center sector is getting fairly cheap relative to where it has been trading and we are considering CONE or QTS.

Office remains a troubled sector, but certain high quality companies within it have gotten overly punished.  CIO and BDN look interesting.

We are waiting on a few data points and market pricing to pull the trigger, and we are happy to keep collecting GOOD’s dividend until that time.

2CHYP Portfolio Snap Shot

1/10/19 2CHYP Performance since inception

2CHYP Weekly Trade Confirmation Report:  No trades this week.