Macroeconomic patterns

We uploaded earnings updates on all 8 of the 2CHYP REITs that have reported so far.  Please check them out in the portfolio analytics section of the website to see our take on each report.

In this update, I want to discuss the patterns that are emerging among the earnings reports.  REITs, depending on their property type, are directly involved in certain areas of the economy, so the REITs of each sector are exposed to similar underlying factors.

Timber REITs, for example, are struggling in unison as supply of timber remains strong as demand falters due to low housing starts.  Both WY and CTT are good operators, but the macro environment is proving quite challenging.

Retail REITs seem to all share the opinion that the great wave of bankruptcies is nearing its end.  2020 looks much brighter, with many even calling for positive growth.  I cannot stress enough how close this is temporally.  In about 5 months, this will be a growing sector and it is priced for doom.  Sales per square foot is already at an all time high for many REITs, including MAC, PEI and CBL. Tenants will want access to those sales which will restore pricing power to the REITs.

Gaming in Macau is faltering with the Chinese economy, but gaming in Vegas is booming.  VICI’s Caesar’s Palace is increasing in value along with its pending acquisitions from Eldorado Resorts.

UMH has not yet reported, but manufactured housing peers have and the results look strong.  UMH will likely come in ahead of its peers due to the location of its properties in areas that are most positively impacted by the strong economy.

Triple net REITs are benefiting from the reduced ten-year Treasury yield.  With nowhere else to find yield, money continues to pour into GOOD and GNL.

Hotels look a bit rough with costs rising across the board.  Labor is getting pricey, remodeling is getting pricey and flagging fees remain a problem.  Private market prices for hotels remains high, however, and certain REITs like RLJ are capitalizing by selling assets at favorable cap rates.

2CHYP Portfolio Snap Shot

End of July, 2019 2CHYP Performance since inception

2CHYP Weekly Trade Confirmation Report