Market Commentary | December 15, 2021
Surviving Inflation
Investor fears and anticipations were confirmed when the U.S. Bureau of Labor Statistics announced that the November 2021 Consumer Price Index rose 6.8% from the prior year period, the largest 12-month increase since June 1982. Ex food and energy, all prices were up 4.9%.
In contrast to the CPI news, S&P Capital IQ reported that same-store net operating income (NOI) across publicly traded U.S. equity REITs improved year over year at a median 7.1% as of September-end. These numbers are even stronger on an earnings/share basis when you factor in the cost of capital improvements REITs have enjoyed with sustained access to easy credit.
What this implies is that real estate investments can effectively capture inflation in their cash flows and help to sustain purchasing power. This translates in the form of increased dividends, of which there have been at least 126 this year, including MGM Growth Properties’ (MGP) boost this morning (its 4th hike in 2021).
The higher cash flows and dividends in turn translate to higher property values and share prices. With more than $1T of newly raised, uninvested private equity capital earmarked for real estate and infrastructure investment waiting on the sidelines, we can anticipate that 2022 will be a record year for mergers and acquisitions.
Our portfolios are well positioned in this environment.
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