Hotels and industrial

We were traveling this week to meet with Sotherly Hotel’s management team at the reopening of the DeSoto hotel in Savannah.  Overall we were pleased with both the property and management’s strategy going forward.

In trading this week, we are excited to have added Plymouth Industrial REIT (PLYM) to the 2CHYP portfolio as it provides exposure to logistics properties in an intelligent way.  E-commerce is booming and logistics facilities are winning as a result.  Quite simply, each sale that takes place through e-commerce requires significantly more logistics space than an equivalent sale through standard retail.  While supply is coming in, land availability has thus far prevented supply from keeping up with demand growth.  Logistics facilities require specific transportation access points so they cannot just be built anywhere.  As a result, incumbent facilities are experiencing tremendous rate growth and nearly full occupancy.

We like industrial REITs and would prefer to have more exposure than we do.  The problem, however, is that the market seems to know about the fundamental strength of the sector and has bid up the industrial REIT stocks to what are in some cases extreme multiples.  As I see it today, there are only 2 that remain an appropriate value, STAG and PLYM.  STAG is not as cheap as PLYM, but it is a proven management team and its strategy has shown uninterrupted success.  We feel comfortable holding STAG until it gets a few dollars more expensive.

PLYM is cheaper as it is unproven and too small for most institutions to invest in.  The proposed strategy makes sense to us as tier 2 and 3 logistics locations have significantly higher cap rates due to less competition for these properties.  I consider it riskier than STAG, but the deeper value and higher upside make it worth it on a risk adjusted basis, in my opinion.

Some of PLYM’s recent purchases appear to be at excellent values as measured by price per square foot.  We find this encouraging as a sign that the capital raised in the IPO is being put to good use.

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

9/22/17 2CHYP Performance since inception

2CHYP Weekly Trade Confirmation Report