Earnings season is kicking off at full velocity but as smaller cap REITs tend to report later in the season, only 2 of 2CHYP’s REITs have reported; WPG and SLG.  Please check out our analysis of their earnings in the portfolio analytics section of the website.

In addition to the stocks in 2CHYP, we like to pay close attention to the industry bell-weathers to get a pulse for what is going on in each property sector.  I found the reports of Ventas and Cubesmart to be rather illuminating.

There is a reason 2CHYP is not invested in senior housing or self-storage and the conference calls of these companies demonstrated that reason perfectly; oversupply.

Round after round of development deliveries is starting to take its toll in both sectors.  CUBE, which is often among the best performers in the sector has been knocked down to flat NOI and it looks like it will turn negative going forward.  Ventas had a disastrous report and outlook which took the stock down 9% on the day.  For a company as large as VTR, 9% is an enormous move, so what happened?

New supply in senior housing is taking market share from Ventas and just about all incumbents.  This simultaneously pressures rates and occupancy.  When the revenue troubles are combined with increased operating costs from labor inflation, NOI is suffering.

Our healthcare investments, GMRE and MPW are in medical office and acute care hospitals.  Each of these sectors are performing well and medical office was the single bright spot in Ventas’ portfolio with strongly positive organic growth.   VTR does not have a significant presence in hospitals with MPW being the only major REIT player in the space.

This earnings season has brought a healthy dose of reality back to investors.  Fundamentals matter.  Supply and demand matter.  Endless development takes its toll.

We prefer to invest in sectors where the supply is constrained.  Malls have negative supply growth.  Private prisons are only being developed by 2 or 3 companies and on an as-needed basis.  Manufactured housing is constrained by an excessive amount of red tape involved in zoning.  Fiberoptic cables are prohibitively time consuming to bury in many areas leaving existing fiber as the only option. Over the long run, limited supply will help these properties pull ahead.

2CHYP Portfolio Snap Shot

2CHYP Performance: Inception through September 2019

2CHYP Weekly Trade Confirmation Report