1 00:00:00,160 --> 00:00:03,800 Speaker 1: Uma Moriarity, investment strategist analysts at E s G and 2 00:00:03,920 --> 00:00:06,760 Speaker 1: E s G Lead at Center Square Investment Management, to 3 00:00:06,800 --> 00:00:10,160 Speaker 1: discuss the latest on the markets. Uma, Good morning, good 4 00:00:10,160 --> 00:00:13,239 Speaker 1: evening to you. Um. I'm just looking at the notes 5 00:00:13,320 --> 00:00:17,439 Speaker 1: here in your big picture outlook, you say recession is coming? 6 00:00:17,760 --> 00:00:21,319 Speaker 1: How deep and dark do you see it? Being? Great 7 00:00:21,320 --> 00:00:23,880 Speaker 1: to be here? Um? And you know, in terms of 8 00:00:23,920 --> 00:00:26,960 Speaker 1: what's coming from a recessionary perspective, I mean, we've been 9 00:00:27,000 --> 00:00:29,320 Speaker 1: looking at Center Square use in just in general, right, 10 00:00:29,360 --> 00:00:33,080 Speaker 1: You've seen this yield curve continuing to invert, and we've 11 00:00:33,120 --> 00:00:35,919 Speaker 1: been in this kind of deep inverted state for for 12 00:00:35,960 --> 00:00:38,199 Speaker 1: a while now, and we've never not had a recession 13 00:00:38,200 --> 00:00:41,000 Speaker 1: when this has happened. You're seeing some pretty drastic corrections 14 00:00:41,000 --> 00:00:43,120 Speaker 1: that are happening in real time, whether it's happening in 15 00:00:43,159 --> 00:00:46,159 Speaker 1: the housing market, whether it's happening in the jobs market, 16 00:00:46,520 --> 00:00:48,600 Speaker 1: and all of these things kind of adding up. I 17 00:00:48,600 --> 00:00:51,360 Speaker 1: I think there, you know, there's more likely than not 18 00:00:51,479 --> 00:00:53,959 Speaker 1: a chance that we are we're headed towards the assessin 19 00:00:54,960 --> 00:00:57,720 Speaker 1: so normally in a time like this, I might be 20 00:00:57,760 --> 00:01:01,920 Speaker 1: buying utilities and reads and and perhaps consumers stables, some 21 00:01:03,040 --> 00:01:07,720 Speaker 1: reats are an interesting concept in that, you know, foreseeing 22 00:01:07,720 --> 00:01:11,480 Speaker 1: a lot of weakness in the property market, both residential 23 00:01:11,560 --> 00:01:15,360 Speaker 1: and likely commercial, that reads might not be so well 24 00:01:15,400 --> 00:01:19,000 Speaker 1: supported by see here that you like them. You know, 25 00:01:19,120 --> 00:01:22,360 Speaker 1: rets look really attractive here for a couple of different reasons. 26 00:01:22,720 --> 00:01:26,800 Speaker 1: I think for investor portfolios, they provide that defensive, stable 27 00:01:26,840 --> 00:01:30,280 Speaker 1: cash flow growth in the context of an impending recession. 28 00:01:30,600 --> 00:01:33,440 Speaker 1: And also you get that inflation protection given the exposure 29 00:01:33,480 --> 00:01:36,440 Speaker 1: to the underlying royal state assets. But the more unique 30 00:01:36,440 --> 00:01:38,880 Speaker 1: thing about reads today, and you mentioned right, rates in 31 00:01:38,880 --> 00:01:41,919 Speaker 1: the public markets have really corrected from a price perspective 32 00:01:42,480 --> 00:01:46,679 Speaker 1: and are currently trading at close to discount to the 33 00:01:46,760 --> 00:01:50,480 Speaker 1: value of their underlying role state portfolios. In the last 34 00:01:50,520 --> 00:01:53,440 Speaker 1: twenty five years, reats have only traded at deeper than 35 00:01:54,400 --> 00:01:58,760 Speaker 1: discounts like this seven times and have performed phenomenally well 36 00:01:58,920 --> 00:02:01,320 Speaker 1: six out of those seven times, the one exception being 37 00:02:01,320 --> 00:02:05,760 Speaker 1: the GFC. But historically the returns after these deep discount 38 00:02:05,760 --> 00:02:10,320 Speaker 1: periods about twenty one year after about fifty in three years. 39 00:02:10,400 --> 00:02:12,160 Speaker 1: And so we're looking at reats here as a really 40 00:02:12,200 --> 00:02:16,120 Speaker 1: interesting way to gain exposure across portfolios for these various reasons. 41 00:02:16,480 --> 00:02:19,240 Speaker 1: Would you be worried though, uma that interest rates stay 42 00:02:19,320 --> 00:02:21,880 Speaker 1: high for a longer period of time and that maybe 43 00:02:21,880 --> 00:02:24,480 Speaker 1: over the past thirty years we haven't seen that, and 44 00:02:24,520 --> 00:02:28,760 Speaker 1: that could be problematic for reads. Yeah, from a from 45 00:02:28,800 --> 00:02:32,240 Speaker 1: a yield perspective, that is something that I think from 46 00:02:32,280 --> 00:02:34,960 Speaker 1: a rural state standpoint, provides you with a little bit 47 00:02:34,960 --> 00:02:37,600 Speaker 1: of protection, right, So, even though you do see interest 48 00:02:37,680 --> 00:02:40,840 Speaker 1: rates rising, you're also looking at cash flows and yields 49 00:02:40,919 --> 00:02:44,000 Speaker 1: from dividends, especially in the reach space, as well as 50 00:02:44,040 --> 00:02:46,600 Speaker 1: just the underlying steady cash flow of that rural state 51 00:02:46,680 --> 00:02:49,560 Speaker 1: that you're operating. So I think despite what might happen 52 00:02:49,840 --> 00:02:53,040 Speaker 1: from the interest rate perspective, you're still able to get 53 00:02:53,080 --> 00:02:56,440 Speaker 1: really strong yields from that rural state portfolio that might 54 00:02:56,440 --> 00:02:58,280 Speaker 1: be able to offset some of what you might be 55 00:02:58,360 --> 00:03:00,959 Speaker 1: seeing from that interest rate side of things. And we've 56 00:03:00,960 --> 00:03:04,040 Speaker 1: seen continued strength, haven't we In the rental housing market. 57 00:03:04,080 --> 00:03:06,720 Speaker 1: I know in coastal cities, I mean my home of Seattle, 58 00:03:07,360 --> 00:03:12,160 Speaker 1: the rental market is still staying pretty strong. Absolutely, we 59 00:03:12,240 --> 00:03:17,320 Speaker 1: have seen rental rates for residential really really rise in 60 00:03:17,360 --> 00:03:20,960 Speaker 1: the last couple months in the coastal markets. Like you mentioned, 61 00:03:21,040 --> 00:03:23,600 Speaker 1: some of that was kind of a recovery from COVID, 62 00:03:23,680 --> 00:03:26,720 Speaker 1: where you saw some weakness in those markets, but we've 63 00:03:26,760 --> 00:03:29,280 Speaker 1: in many of these markets really surpassed where we were 64 00:03:29,400 --> 00:03:32,920 Speaker 1: pre COVID and continue to see those rates rise because 65 00:03:32,960 --> 00:03:36,600 Speaker 1: we are struggling with a fundamental undersupply of housing, right, 66 00:03:36,640 --> 00:03:38,760 Speaker 1: and so those are the types of places that we 67 00:03:38,880 --> 00:03:42,560 Speaker 1: look to deploy capital on. Behalf of our investors is 68 00:03:42,960 --> 00:03:45,760 Speaker 1: where do we find some of those structural supply constraint 69 00:03:45,800 --> 00:03:50,520 Speaker 1: markets with really strong structural demand as well that can 70 00:03:50,600 --> 00:03:53,960 Speaker 1: weather the storm of economic cycles and ups and downs. 71 00:03:55,440 --> 00:03:58,520 Speaker 1: I'm a little puzzled though, because you say that you 72 00:03:58,560 --> 00:04:01,440 Speaker 1: think people should avoid high leverage and that you don't 73 00:04:01,440 --> 00:04:04,880 Speaker 1: like office. Here. If you don't like office, then why 74 00:04:04,880 --> 00:04:09,600 Speaker 1: do you like reads. The office space within the real 75 00:04:09,880 --> 00:04:12,920 Speaker 1: market is such a small part of of what you 76 00:04:12,920 --> 00:04:17,479 Speaker 1: can get exposure to reads. Twenty years ago, office was 77 00:04:17,520 --> 00:04:20,560 Speaker 1: a much bigger part of the overall real world. Today, 78 00:04:20,600 --> 00:04:22,800 Speaker 1: office is a very very small part of the real 79 00:04:22,839 --> 00:04:25,960 Speaker 1: world today. Within reats, you're able to get exposure to 80 00:04:26,120 --> 00:04:32,400 Speaker 1: really fantastic growth opportunities like rental housing, like data centers, towers, 81 00:04:32,720 --> 00:04:36,080 Speaker 1: some of these really great niche areas where you're seeing 82 00:04:36,120 --> 00:04:39,560 Speaker 1: some of that structural demand that has really evolved over 83 00:04:39,640 --> 00:04:42,760 Speaker 1: time as consumer preferences have change and how we actually 84 00:04:43,040 --> 00:04:46,080 Speaker 1: use and to utilize real estate. And so even though 85 00:04:46,440 --> 00:04:49,159 Speaker 1: exactly as you mentioned, don't like high leverage, don't like 86 00:04:49,279 --> 00:04:52,120 Speaker 1: office really here, but within the reat space you have 87 00:04:52,320 --> 00:04:54,640 Speaker 1: the ability to gain exposure to a lot of really 88 00:04:54,760 --> 00:04:59,599 Speaker 1: unique and interesting property types today. That's very interesting. That 89 00:04:59,839 --> 00:05:02,080 Speaker 1: is something that I was not aware of. That's what 90 00:05:02,120 --> 00:05:03,880 Speaker 1: I love about this job. You can be a journalist 91 00:05:03,960 --> 00:05:06,240 Speaker 1: and just ask stupid questions. Well, I can tell you 92 00:05:06,279 --> 00:05:09,400 Speaker 1: that the Reeds here and and Steve would would support 93 00:05:09,400 --> 00:05:13,240 Speaker 1: the rets in Hong Kong mainly office. So, um, thank 94 00:05:13,279 --> 00:05:15,720 Speaker 1: you for that. That's interesting. What else do you like? 95 00:05:15,760 --> 00:05:19,720 Speaker 1: I mean I mentioned before staples utilities. If you you know, 96 00:05:19,960 --> 00:05:23,880 Speaker 1: with your mindset, I'm sure you don't like profitless profitless 97 00:05:23,960 --> 00:05:29,720 Speaker 1: tech absolutely, you know, we're really looking for things that 98 00:05:29,839 --> 00:05:34,679 Speaker 1: provide cash flows, real tangible cash flows and cash flows 99 00:05:34,680 --> 00:05:37,760 Speaker 1: that are growing along with areas where you're seeing some 100 00:05:37,839 --> 00:05:40,119 Speaker 1: that lower leverage. And so those would be the types 101 00:05:40,160 --> 00:05:43,200 Speaker 1: of defensive place that will be looking for here. And 102 00:05:43,240 --> 00:05:46,840 Speaker 1: then also thinking about the types of structural demand patterns 103 00:05:46,880 --> 00:05:49,680 Speaker 1: like I mentioned that are emerging. E commerce being one 104 00:05:49,720 --> 00:05:51,559 Speaker 1: of them. One of the ways that we think about 105 00:05:51,600 --> 00:05:54,200 Speaker 1: that here at Center Square is actually through the industrial 106 00:05:54,279 --> 00:05:58,039 Speaker 1: real estate market. Right. We have a structurally undersupplied supply 107 00:05:58,120 --> 00:06:01,880 Speaker 1: chain today and in order to actually facilitate this growth 108 00:06:01,880 --> 00:06:05,039 Speaker 1: in e commerce, we're seeing a really great growth opportunity 109 00:06:05,120 --> 00:06:08,240 Speaker 1: with an industrial real estate provides you again with that 110 00:06:08,400 --> 00:06:12,039 Speaker 1: cash flow, It provides you with that defensiveness of being 111 00:06:12,040 --> 00:06:14,920 Speaker 1: a real estate asset while also playing into some of 112 00:06:14,920 --> 00:06:18,200 Speaker 1: that structural demand that we're seeing coming through from e 113 00:06:18,360 --> 00:06:23,320 Speaker 1: commerce growth. So where does the the average portfolio look 114 00:06:23,440 --> 00:06:26,120 Speaker 1: or what does it look like, say six months down 115 00:06:26,160 --> 00:06:28,520 Speaker 1: the road, if we are going into recession when we 116 00:06:28,600 --> 00:06:33,200 Speaker 1: come out of it, where should we be positioned? Great question, 117 00:06:33,360 --> 00:06:35,360 Speaker 1: you know, and that's something that we really think about 118 00:06:35,360 --> 00:06:40,040 Speaker 1: here pretty consistently. Right. We are in in the public markets. 119 00:06:40,040 --> 00:06:42,600 Speaker 1: We are forward thinking. We are thinking about what happens 120 00:06:42,600 --> 00:06:44,920 Speaker 1: when we are coming out of that recession. What does 121 00:06:44,920 --> 00:06:48,040 Speaker 1: it look like from a consumer standpoint? Right, So we 122 00:06:48,120 --> 00:06:51,680 Speaker 1: have really been thinking about the way that consumers are 123 00:06:51,720 --> 00:06:55,160 Speaker 1: looking for let's call it experiences more so compared to 124 00:06:55,440 --> 00:06:58,320 Speaker 1: goods and services. What are the areas that we really 125 00:06:58,360 --> 00:07:01,960 Speaker 1: like here is actually in the retail space, believe it 126 00:07:02,040 --> 00:07:05,080 Speaker 1: or not, but thinking about service retail, So where are 127 00:07:05,440 --> 00:07:11,000 Speaker 1: the areas of growth within service providers call it coffee shops, 128 00:07:11,200 --> 00:07:13,920 Speaker 1: hair salons, nail salons, things like that that are being 129 00:07:13,960 --> 00:07:18,000 Speaker 1: facilitated facilitated through that retail landscape. Those are the types 130 00:07:18,040 --> 00:07:20,520 Speaker 1: of things that we're thinking about as we move forward 131 00:07:20,560 --> 00:07:24,240 Speaker 1: and come past out of this recession. So, Uma, are 132 00:07:24,280 --> 00:07:26,400 Speaker 1: you concerned that just as we're at the end of 133 00:07:26,440 --> 00:07:29,160 Speaker 1: summer here and we had the holiday and normally this 134 00:07:29,200 --> 00:07:32,040 Speaker 1: is when traders will come back and you might see 135 00:07:32,080 --> 00:07:34,840 Speaker 1: a lot of downside volatility in the short term. Does 136 00:07:34,880 --> 00:07:38,760 Speaker 1: that concern you? You know, we have had a lot 137 00:07:38,800 --> 00:07:41,520 Speaker 1: of volatility and it seems like it's been to two 138 00:07:41,560 --> 00:07:44,480 Speaker 1: plus two plus years of volatility in the market, right Um. 139 00:07:44,560 --> 00:07:47,680 Speaker 1: I do think that once we do get more volume 140 00:07:47,720 --> 00:07:50,080 Speaker 1: back into the market, we're going to be able to 141 00:07:50,120 --> 00:07:53,000 Speaker 1: see a little bit of that bifurcation happening as the 142 00:07:53,000 --> 00:07:58,000 Speaker 1: fundamental investors think about really what is going to survive, thrive, 143 00:07:58,280 --> 00:08:00,720 Speaker 1: and and be a great place to be on the 144 00:08:00,720 --> 00:08:02,480 Speaker 1: other side of the recession. So I do think we'll 145 00:08:02,520 --> 00:08:04,480 Speaker 1: see a little bit of volatility as we see a 146 00:08:04,480 --> 00:08:06,920 Speaker 1: bifurcation between kind of the haves and have nots within 147 00:08:06,960 --> 00:08:10,840 Speaker 1: the market. All right, Dumma, thanks very much, really appreciate 148 00:08:10,920 --> 00:08:15,360 Speaker 1: the spring in your step. It's really quite interesting. Thanks 149 00:08:15,360 --> 00:08:18,000 Speaker 1: for a nice session with this. We'll definitely have you back. 150 00:08:18,320 --> 00:08:21,760 Speaker 1: Uma Moriarity investment strategy analysts and E. S. G Lead 151 00:08:21,800 --> 00:08:24,360 Speaker 1: at Center Square Investment Management.