2 weeks Ago
InterNetwork Media/DigitalVision via Getty Images Hurricane Helene has proven to be a particularly damaging hurricane, with wind destruction and widespread flooding. Loss of life and injury are of course the primary concern, and we wish the best for all involved. I do not mean to diminish the human tragedy by analyzing property damage, but as a real estate analyst, I feel some duty to discuss the investment implications of the event.
REIT-owned properties in hardest-hit markets The New York Times put together an informative piece discussing the path of the hurricane New York Times It is a significantly different path than recent hurricanes, which have tended to mostly hit the East Coast. Helene went the entire vertical of Georgia before delivering floods to Western North Carolina. Thousands of REIT owned properties were hit by the hurricane.
S&P Global Market Intelligence Most of the state of course just had wind and some rain, so the majority of these properties will be undamaged. Let’s narrow our property search to some of the most damaged/flooded MSAs. Among the hardest hit were: Ashville, NC Atlanta, GA Both areas had severe flooding.
Here are the REIT-owned properties in Ashville: S&P Global Market Intelligence Despite being a smaller market, there are quite a few REIT-owned properties. The most exposed REITs in Ashville are: Realty Income ( O ) – 17 properties in the MSA Omega Healthcare ( OHI ) – 10 properties Global Net Lease ( GNL ) – 17 properties NNN REIT ( NNN ) – 14 properties Atlanta is even more of a REIT target market: S&P Global Market Intelligence Atlanta flooding is perhaps a bit less severe than Ashville, but still quite devastating . The REITs most exposed to Atlanta are: Invitation Homes ( INVH ) 12,712 single family homes in the Atlanta MSA American Homes 4 Rent ( AMH ) 5,911 single family homes Extra Space Storage ( EXR ) 122 storage facilities Blackstone REIT ( BX ) 69 industrial properties Brixmor ( BRX ) 23 shopping centers Agree Realty ( ADC ) 34 freestanding retail Four Corners ( FCPT ) 26 restaurants EastGroup Properties ( EGP ) 15 distribution warehouses REITs will usually take a while to assess damages before putting out press releases, so anticipate damage reports coming in the following days and weeks.
Investment implications of Hurricane Helene If there is just a single take home point from this article, it would be that the financial impact on the REITs is likely less significant than it initially seems. REITs will sometimes sell off when they announce property damage or even in anticipation of property damage, but in my experience, these knee-jerk selloffs are almost always over-reactions and get reversed over time. There are 2 key mitigating factors: 1) Durable structures minimize impact Most commercial real estate is steel framed, which makes it substantially more resilient than the standard single-family home.
As such, a higher percentage of REIT-owned properties in the hurricane path likely sustained less damage. The exceptions to this rule would be the properties of INVH and AMH, as these are just typical wood framed single-family homes. INVH could potentially be one of the more at-risk REITs from Helene, as nearly 15% of its portfolio is in Atlanta, which experienced significant flooding.
S&P Global Market Intelligence 2) Full reimbursement REITs are overwhelmingly well insured. To the extent that they do sustain property damage, they will typically be fully reimbursed for the damage itself, as well as business interruption. One of the risks, however, is that after major insurance draws, insurance rates can go up.
Rates could even go up for REIT properties in the areas that were not impacted, as the historical damage is viewed by insurance actuarial teams as increased forward risk. Higher insurance costs tend to increase expenses for apartment REITs while retail REITs and triple net REITs are less directly impacted as their insurance is paid for by tenants. Properties that could potentially benefit Hotels will potentially experience significantly higher demand in the weeks following disaster.
There are 2 incremental sources of demand: Residents displaced by disaster will need somewhere to stay until their homes are recovered Emergency response crews often come from other areas to help. In both cases, the incremental demand would be more likely for hotels at a lower price point. In my opinion, the 2 biggest beneficiaries are Service Properties Trust ( SVC ) which has 7 reasonably low-cost hotels in the Atlanta MSA and Apple Hospitality ( APLE ) with 3.
APLE also has multiple locations in North Carolina. Perhaps there will be a few weeks of higher-than-normal occupancy. Actionable items Fair value changes are likely to be small in magnitude.
It is only a small portion of company portfolios potentially affected, and most of the damage gets reimbursed. The REITs most impacted on a fair value basis in my opinion are INVH and AMH as a slight negative and APLE/ SVC as a slight positive. The main point is that fair values are largely stable through events like this, which is important to know because news announcements can cause irrational swings in market prices as they come out.
If there are big sell-offs on announcements of property damage, it may be an opportunistic entry point. At Portfolio Income Solutions we do ad hoc analysis of special situations as well as full reports on specific stock. If you found this analysis compelling please check out our library of work which you can access at a discounted rate through this link.
https://seekingalpha.com/affiliate_link/40Percent I hope you enjoy the plethora of data tables, sector analysis and deep dives into opportunistic stocks. Dane Bowler is the Chief Investment Officer and a registered investment adviser at the 2nd Market Capital Advisory Corporation.
He has over a decade of experience running a proprietary portfolio with a specialization in REITs. On-site property tours and critical analysis of REIT management help inform his selection process. Dane leads the investing group Portfolio Income Solutions along with Simon and Ross Bowler.
Features of the service include: a diversified high-yield REIT portfolio, data tables on every REIT, tax guidance, macro analysis, fair value estimates, and quick updates via chat on breaking news. Learn More . Analyst’s Disclosure: I/we have a beneficial long position in the shares of BRX, SVC, GNL.
PR.A, GNL.PR.
D, GNL.PR.E either through stock ownership, options, or other derivatives.
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