Brexit Has Intensified U.S. REIT Trends

chart01Friday morning we woke up to shocking news. Not only had the British people voted to quit the European Union, but Prime Minister David Cameron had announced his resignation because he didn’t feel that he could “steady the ship” any longer.

Great Britain is not the largest economy in the European Union (Germany is greater), nor has it ever abandoned its own currency, the sterling pound, in favor of the euro. However, it is impossible to deny that the British rejection vote has affected the financial markets as a whole.

Before internet experts jump off and try to explain the British Brexit development from a U.S. reality perspective, this is our attempt to assess the impact on what we know the most about – U.S. equity REITs.

We have observed a flight to quality. Investors have flocked to the U.S. and under this context, U.S. equity REITs have performed better than the remaining equities. Within U.S. equity REIT, some net lease retail REITs, such as Realty Income, National Retail Properties, and STORE Capital, jumped.

Turmoil is the U.S. equity markets was visible, as the S&P500 went down by almost 4% and the volatility index (VIX) went up by 50%. Despite an initial fall, the biggest ETF REIT (VNQ) quickly rebounded and closed just slightly down by 0.9%.

The U.S. dollar surged once again, affecting U.S. lodging and hotel stocks. Not only has the U.S. dollar appreciated by 9% against the British pound, but it also appreciated against other major currencies. While the U.S. Dollar Index (DXY) increased by around 2%, the Dow Jones U.S. Hotel & Lodging (^DJUSHL) saw a 5% decrease.

Timber REITs were another sector that suffered. In fact, all four timber stocks went down. Weyerhaeuser saw the biggest decline at 6%.

In summary, the Brexit vote intensified trends that we had identified over the first half of 2016 with net lease retail on the rise and hotels and timber on the decline.

Source: Weyerhaeuser Co. (NYSE:WY), Realty Income Corporation (NYSE:O), National Retail Properties, Inc. (NYSE:NNN), STORE Capital Corporation (NYSE:STOR)

Disclaimer: This newsletter is not engaged in rendering tax, accounting, or other professional advice through this publication. No statement in this issue is to be construed as a recommendation to buy or sell any security or other investment. Please do your own due diligence before making any investment decision. Some information presented in this publication has been obtained from third-party sources considered to be reliable. Sources are not required to make representations as to the accuracy of the information, however, and consequently the publisher cannot guarantee accuracy.

Disclosure: The author has no positions in any shares mentioned, and no plans to initiate any positions within the next 72 hours.

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