A New Sell And Buy Alert: Net Lease REITs

Summary

• We recently entered a phase of capital recycling.
• We are selling a few positions that had limited upside left and reinvesting the proceeds in our highest convictions.
• Recently, we sold Spirit Realty Capital to buy more VICI Properties. Here is why.
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Over the past months, the REIT (VNQ) market has strongly recovered, and as a result, our portfolio is now hitting new-all-time-highs:

Source: Interactive Brokers

For this reason, we are now shifting from a phase of aggressive accumulation to a phase of portfolio recycling to make sure that our capital is invested in the most optimal way possible.

We generally avoid selling positions and take a long-term-oriented approach to investing, but market conditions have changed materially over the past months and we see some opportunities to consolidate capital towards our highest-conviction positions.

So far, we have locked gains in Urstadt Biddle Properties (UBA) and Hersha Hospitality (HT) and recently, we sold a third position in Spirit Realty Capital (SRC) to double down on another REIT that's called: VICI Properties (VICI).

Here is why:

Spirit Realty Capital vs. VICI Properties

We first invested in Spirit Realty in May of 2017.

Back then, it was hated by most analysts and offered at a 2x lower valuation multiple than its higher-quality net lease peers Realty Income (O) and National Retail Properties (NNN).

SRC deserved to trade at a discount because of its worst track record, but the discount was excessive, and therefore, SRC was the best value pick in the net lease sector.

We invested heavily in it and for a long time, it was our largest holding at High Yield Landlord.

But times have changed, and SRC is not as opportunistic as it used to be.

Since then, SRC has handily outperformed its close peers and returned closer to fair value:

After this surge, SRC is not offered at a 2x lower valuation multiple anymore.

The difference in pricing is now much smaller.

In fact, some of SRC's peers are priced at the same valuation multiple or only slightly higher, despite enjoying much better business

Analyst’s Disclosure:I am/we are long VICI; NNN; O. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.