Riding the M&A wave

REIT M&A continues at a breakneck pace and this week it hit one of 2CHYP’s holdings with GPT getting bought out by Blackstone at $27.50 per share.  The 15% bump on the day was a nice gain and we decided to lock it in by swapping the GPT shares out for more Iron Mountain.

I generally think it is a foolish idea to buy stocks in anticipation of them getting bought out.  Unless one has very specific reasons to believe a stock will be bought, it can be quite unpredictable.  GPT was certainly in a category of undervalued stocks that had an elevated chance of being an M&A target, but it would be lying to suggest I saw it coming.  Instead of buying stocks and praying for a buyout, I like to think of the M&A wave as merely an extra lever for value realization.

There were already great reasons to invest in value stocks, and now there is one more.

Multiple pathways of reward for value investors

  • Cashflow yield is definitionally higher for value stocks, but presently it is higher by a greater magnitude.
  • Dividend yields are significantly higher for value stocks as the higher cashflows support bigger dividends.
  • Discounted REITs are more likely to be takeover targets and the takeout premium can be larger.

In other words, we are continuing investing with our same fundamental analytical process and we are merely making sure our buckets are turned open side up so that we can catch whatever M&A falls out of the sky.

More buyouts of our companies would be nice, and I think there is a decent chance of such an event, but we are not relying on it.  The regular dividend growth engine on which 2CHYP has always run will continue to be the driving force of long term returns.

2CHYP Portfolio Snap Shot

5/10/18 2CHYP Performance since inception

2CHYP Weekly Trade Confirmation Report