Market Commentary | September 19, 2022

by | Sep 19, 2022 | Market Commentary

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.

Notes and Disclosure

Articles are provided for informational purposes only. They are not recommendations to buy or sell any security and are strictly the opinion of the writer. The information contained in these articles is impersonal and not tailored to the investment needs of any particular person. It does not constitute a recommendation that any particular security or strategy is suitable for a specific person.

Investing in publicly held securities is speculative and involves risk, including the possible loss of principal. The reader must determine whether any investment is suitable and accepts responsibility for their investment decisions.

Commentary may contain forward-looking statements that are by definition uncertain. Actual results may differ materially from our forecasts or estimations, and 2MCAC and its affiliates cannot be held liable for the use of and reliance upon the opinions, estimates, forecasts, and findings in this article.

Past performance does not guarantee future results. Investing in publicly held securities is speculative and involves risk, including the possible loss of principal. Historical returns should not be used as the primary basis for investment decisions. Although the statements of fact and data in this report have been obtained from sources believed to be reliable, 2MCAC does not guarantee their accuracy and assumes no liability or responsibility for any omissions/errors.

We routinely own and trade the same securities purchased or sold for advisory clients of 2MCAC. This circumstance is communicated to clients on an ongoing basis. As fiduciaries, we prioritize our clients’ interests above those of our corporate and personal accounts to avoid conflict and adverse selection in trading these commonly held interests.

Hypertext links to other sites are provided strictly as a courtesy. When you link to any of the sites provided on our website, you are leaving this website. We make no representation as to the completeness or accuracy of information provided on these websites. Nor is the company liable for any direct or indirect technical or system issues or any consequences arising out of your access to or your use of third-party technologies, websites, information, and programs made available through this website. When you access one of these websites, you are leaving our website and assume total responsibility and risk for your use of the websites to which you are linking.

Share This