Market Commentary | September 19, 2022
Groundhog Day Headwinds Déjà vu
It seems that in each and every one of the last five months, I’ve performed the same mantra. High inflation. Rising interest rates. Markets sell off.
We are here in September and I’m repeating myself. 8.1% YOY inflation. Interest rates are soaring. The stock and bond markets deflate.
While we are stuck in a Bill Murray moment, and face a daunting future, our experience demonstrates that within all the gloom, we are presented with opportunities every day.
On August 26th, S&P Capital IQ reported that 94 out of 130 analyzed REITs beat consensus earnings estimates for 2Q22. They described the incongruity of the strong earnings performance as contrasted against the REIT sector Index’s 6.0% August decline.
Even stranger, the report disclosed that BRT Apartments (BRT) reported earnings 25.9% below consensus estimates, but BRT’s stock price actually rose 10% in the month. BRT was our largest multifamily position and we still like their value but presented with the opportunity to sell for 25% to 35% higher than our cost, we sold.
The decision to sell was consistent with what we are always trying to accomplish and that is to achieve the highest total return in the form of dividend yield and capital appreciation potential. We took our appreciated capital and redeployed it into issues of well-run companies whose shares have been mercilessly beaten down in today’s stock market.
- Plymouth Industrial (PLYM) is down 35% year to date. PLYM just completed a transformative recapitalization, but its shares are trading at a 40% discount to its net asset value and half of the industrial sector’s Price to FFO.
- Postal Realty Trust (PSTL) is the U.S Postal Service’s landlord and the most recession-proof company we can find. Despite raising its dividend for 12 consecutive quarters, PSTL shares are down 26% through the end of August.
- We sold our Kite Realty Group (KRG) shares at ~$23 back in the first quarter. The grocery-anchored shopping center REIT has raised its earnings guidance in each of the last three quarters and boosted its dividend by at least 5% after each report. We bought shares in the $17 to $20 range with the anticipation that we will see $23 again in the not-too-distant future.
As depressing as the news is, we’ll do well to keep our eyes open, look around, and act when opportunity strikes.
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