NEW ORLEANS (WVUE) – Commercial real estate experts said two major companies in New Orleans moving out of the tallest building in the state would be a devastating blow to the CBD.
Many New Orleans businesses in the area depend on employees of other companies for a business lunch rush and shopping.
Empire State Delicatessen is concerned.
“It’s just hard to see the buildings be so empty and all the large corporations and businesses pulling out. It’s not helping everyone that’s staying,” said Paul Tufaro, owner of Empire State Delicatessen.
Harvey Gulf and now Shell plan to pull out of their building, the Hancock Whitney Center.
RELATED STORY: Shell plans new headquarters in New Orleans River District
“I’ve been here 19 years now, and I’ve you know I’ve relied on this building, across the way, you know PANAM, just the surrounding hotels and everything to be able to pull my customer base from,” Tufaro said.
Paul Tufaro said his saving grace is delivery through third-party apps.
“Things have been on the steady decline since the pandemic starting since everything’s been moving to remote. It’s been one of those situations where we’re seeing a lot more businesses go than arrive, so it is causing a strain on small businesses down this way,” Tufaro said.
With two large businesses pulling out of the high rise, experts said that’s a 40% vacancy at the Hancock Whitney Center. Real estate analysts told Fox 8 a lot of small businesses will likely have to come in and at that’s a lot of floors to fill.
“It’s going to take a long time to absorb that, that big of a footprint,” said Arthur Sterbcow, real estate analyst in Louisiana.
Real Estate Analyst Arthur Sterbcow said he doesn’t foresee any large businesses of the same size move into the region.
“Anything’s possible. But we have not been really attractive. Unfortunately, our tax laws are not as competitive,” Sterbcow said.
Sterbcow said it’ll impact property value for surrounding landlords.
He expects some retail rates and rental rates in the region to stabilize or come down a little bit.
“They’re probably going to appeal to the assessor and try to get their value of their buildings reduced, because buildings certainly are not worth what they weren’t with a 40% vacancy,” Sterbcow said.
He said there are many reasons people are moving out of downtown.
They need more or less space, a different floorplan, cost plays a big roll and so does crime.
“They know how to dot their i’s and cross the T’s and they’re jobs to make sure that they run lean in me,” Sterbcow said.
Sterbcow told Fox 8 no matter where companies go, they’re faced with already high and rising commercial insurance rates.
“Just scratching their heads that they’re absolutely having a real tough time getting renewals on their, on their office, and retail spaces,” Sterbcow said.
Sterbcow said there’s a bright side to Shell relocating to the River District development to open in late 2024 or early 2025.
“It’s been kind of derelict over there, just kind of empty, empty land. Now what’s going to come into commerce,” Sterbcow said.
Harvey Gulf previously told Fox 8 it had plans to demolish the former Texas Motel on Airline Drive and move there.
The owner has since told nola.com that Harvey Gulf is moving in mid-2024 to the Galleria in Metairie and plans to redevelop the Airline Drive property, possibly building an indoor pickleball facility there.
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An Hour Ago
Packaging firms Smurfit Kappa and WestRock to combine
Paper and packaging businesses Smurfit Kappa and WestRock on Tuesday announced they had agreed to combine.
The companies will form Smurfit WestRock, run through a holding company incorporated and domiciled in Ireland, with global headquarters in Dublin, and North and South American operations headquartered in Atlanta, Georgia. It will be led by CEO Tony Smurfit.
Dublin-based Smurfit Kappa said the deal was “expected to be high single digit accretive” to its earnings per share on a presynergy basis, and “in excess of 20% including run-rate synergies by the end of first full year following completion.”
Shareholders of U.S.-based WestRock will receive one Smurfit WestRock share and $5 cash, equivalent to $43.51 per share.
The merger is expected to be completed in the second quarter of 2024, subject to shareholder and regulatory approval.
— Jenni Reid
An Hour Ago
UK unemployment rises in line with expectations
The U.K. unemployment rate rose 0.5 percentage points to 4.3% in the May to June period, official figures showed Tuesday, in line with expectations.
Economic activity rose 0.1 percentage points, to 21.1%, driven by 16-24 year olds. The number of people inactive owing to long-term sickness hit another record high.
In news that will be closely watched by the Bank of England, annual growth in pay excluding bonuses remained steady at 7.8%, the highest on record.
“The tightness of the labour market continued to ease in July,” said Ashley Webb, U.K. economist at Capital Economics, in a note.
“But the further rise in wage growth will only add to the Bank of England’s unease and supports our view that the Bank will raise interest rates once more, from 5.25% currently to a peak of 5.50%, next week,”
— Jenni Reid
8 Hours Ago
CNBC Pro: Apple bear says he’s not shorting the stock just yet despite China concerns. Here’s why
Apple shares fell sharply last week on reports that China is restricting government employees from using iPhones and other Apple devices for work purposes.
Itau BBA analyst Thiago Kapulskis, an Apple bear, said in a note to clients that China concerns were proving to be a catalyst that could bring down Apple’s “hard-to-understand valuation” to more reasonable levels.
However, Kapulskis said he was holding off on shorting the stock for now.
CNBC Pro subscribers can find out why.
— Ganesh Rao
5 Hours Ago
Arm IPO’s price could top $51 per share: Reuters
Chip designer Arm is reportedly “getting close” to securing enough investor support to attain the fully diluted valuation of $54.5 billion it seeks in its initial public offering, Reuters reported, citing sources familiar with the matter.
This means Arm will likely be able to price the IPO “at the top or above” the $47-to-$51-per-share range, the report said.
The sources said Arm is also discussing the possibility of raising the price range and seeking a valuation of more than $54.5 billion, in light of strong investor interest.
However, Arm will not offer more shares, as SoftBank wants to retain a 90.6% stake in Arm following the IPO, the sources said.
— Lim Hui Jie, Reuters
8 Hours Ago
CNBC Pro: Top tech investor Paul Meeks says he’d buy these tech stocks once the dip runs its course
Tech investor Paul Meeks said he’s looking to buy into the weakness surrounding tech stocks — once the correction has run its course.
The S&P 500 has rallied hard for most of this year on the strength of tech stocks. But in August, the Wall Street index fell 1.8%, snapping a five-month winning streak. The tech-heavy Nasdaq Composite fell more than 2%.
He names nine tech stocks — including his favorite mega-cap U.S. tech stock — as well as some smaller, “contrarian” picks.
CNBC Pro subscribers can read more here.
— Weizhen Tan
21 Hours Ago
Fed officials feeling less urgency for another rate hike, WSJ report says
Federal Reserve officials are growing less certain about the need for more interest rate hikes, marking a significant shift in their inflation-fighting policy, according to a Wall Street Journal report.
The central bank’s rate-setting Federal Open Market Committee is still likely to pass on an increase at its meeting next week while indicating that one more move is likely before the end of the year.
However, as inflation data has improved, the willingness of committee members to do too much to fight inflation as opposed to too little is beginning to shift, the report states. In recent statements, a number of officials say the balance of risks has shifted and they are now feeling less urgency to tighten.
Market pricing points to a 44.6% chance of a final rate hike at the November meeting, according to CME Group data.
—Jeff Cox
8 Hours Ago
CNBC Pro: HSBC names its ‘must see stocks’ in the UK with substantial upside
British bank HSBC has revealed a bucket list of “must see stocks,” in the U.K. regardless of how market conditions pan out over the rest of the year.
The stocks were selected based on factors such as price, growth prospects and value.
CNBC Pro subscribers can read more here.
— Amala Balakrishner
4 Hours Ago
European markets: Here are the opening calls
European markets are expected to open higher Tuesday.
The U.K.’s FTSE 100 index is expected to open 10 points higher at 7,512, Germany’s DAX up 20 points at 15,825, France’s CAC 18 points higher at 7,297 and Italy’s FTSE MIB up 30 points at 28,551, according to data from IG.
Data releases include the ILO unemployment rate for July.
— Holly Ellyatt
- Landlords can secure close to double-digit returns
- Buy-to-let yields climbing in some parts of the country
- Yields are eight per cent or higher in areas around Glasgow
Landlords can secure close to double-digit returns as buy-to-let yields are climbing in some parts of the country, new data for Wealth & Personal Finance reveals.
Yields are eight per cent or higher in areas around Glasgow in Scotland, including West Dunbartonshire, Renfrewshire, East Ayrshire and North Lanarkshire. Renfrewshire has seen yields rise by 13 per cent in the past year alone and West Dunbartonshire by seven per cent.
Even in parts of the country where yields are the lowest, it is still possible to make a positive return, the data for Wealth from property portal Zoopla reveals.
Yields in the affluent London boroughs of Kensington and Chelsea, Richmond upon Thames and Westminster are among the lowest in the country – all at under 4.5 per cent. However, yields in these areas rose by nine, 11 and 13 per cent respectively in the past year.
Up and down the country, tens of thousands of buy-to-let landlords are selling up as it gets increasingly difficult to make a good return from property. Rising mortgage rates are piling further pressure on landlords who are already struggling with increasingly onerous regulations and a less generous tax regime. Around 40,000 have sold up over the past five years since valuable tax reliefs were withdrawn in 2018.
However, our figures show there are bright spots amid the overwhelming gloom. Furthermore, as landlords sell up, it increases scarcity of rental properties, which helps to boost yields for those remaining.
In demand…the areas seeing sharp rises
Areas around Glasgow have some of the most resilient yields thanks to a concoction of factors. Stephen McGlone, lettings manager at Westgate Estate Agents, says: ‘Demand for rental properties is increasing as Glasgow University is rapidly expanding and bringing in a lot of new people looking for accommodation.
‘Morgan Stanley and Barclays are growing their workforce in the city, so there are a lot of staff looking for accommodation.’
McGlone adds that there is also demand for Airbnb rentals as Glasgow is a popular place to visit.
Ross McMillan, of Glasgow-based mortgage adviser Blue Fish Mortgage Solutions, adds that although there are challenges in the area, as with buy-to-let across the country, landlords are faring well. ‘Landlords here are mostly resilient and holding on to their portfolios with a long-term perspective,’ he says.
Toby Parsloe, analyst for estate agent Savills, explains that areas with the highest yields tend to be those where property prices are lower, but where there is a strong employment market where some workers can afford comparatively high rents. Parts of Scotland and areas such as Middlesbrough and Sunderland fit the bill, the latter of which have yields of 8.2 and 8.4 per cent respectively.
He adds that Glasgow in particular has seen ‘substantial rental growth of 33.5 per cent since March 2020, while the number of new rental listings is down by 15 per cent, increasing competition’.
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…but high yields aren’t everything
There are two main ways to make a profit from buy to let: the income you achieve from renting out a property; and the capital gain you can make if its value rises.
Ideally, landlords look for investment properties that can achieve both. Vanessa Warwick, co-founder of landlord network PropertyTribes and a landlord herself, says there are no areas that currently offer both, but individual properties do. However, investors will have to do their homework to find them.
‘Finding an area that has high yields and high capital growth is the holy grail but I am not sure that such a place exists,’ she says. ‘Every location, every street, every property will each have a different set of metrics that need to be researched and understood.’
Ashley Thomas, director at mortgage broker Magni Finance, says that investors shouldn’t necessarily be put off by areas with low yields.
‘Prime London will always have low yields, but properties in these areas have seen some of the strongest capital growth,’ he says. ‘London is still seen as a resilient and profitable market, especially for foreign investors.’
However, Warwick believes that landlords should focus more on what they can achieve through rents. ‘Yield is money in your pocket that you can spend, whereas capital growth is speculative and takes many years to accumulate,’ she says. ‘It should not be the main focus for most landlords unless they have significant other income.’
Why it can still be hard to make a profit
A near double-digit yield may look good at first, as it outpaces the best savings rates (now at around six per cent) and average returns on equities and bonds.
However, even for landlords seeing the best yields, it is still a very difficult environment to make a good return.
In addition to the usual running costs that eat into returns, landlords are having to invest to ensure their properties meet new standards of minimum energy efficiency from 2028 – or else face fines.
But perhaps the greatest strain is soaring buy-to-let mortgage rates. The average two-year fix was 4.04 per cent in August last year but now stands at 6.64 per cent, according to data scrutineer MoneyfactsCompare. Landlords who are remortgaging are seeing their profits decimated.
Peter Gettins, product manager at L&C Mortgages, says: ‘In August 2022, you could get a two-year fix with no fee at 3.89 per cent.
‘Today the equivalent product is 7.22 per cent, so for a £150,000 loan that means payments go from £486 a month last year to £903 now.’
Lewis Shaw, mortgage broker at Mansfield-based Shaw Financial Services, believes that rising interest rates make it impossible to make a profit from buy-to-let in most areas unless you own your investment properties outright or have a lot of equity.
‘Unless you’ve got a 50 per cent deposit, in most parts of the country buy-to-let is dead,’ he says.
Some lenders are also tightening their affordability rules for landlords, which piles on even more pressure. These rules require landlords to show they can pay a higher mortgage rate and then make a higher income on top of that.
For example, last Wednesday, Santander increased its affordability rate by almost one percentage point, from 7.59 per cent to 8.52 per cent. That means that a landlord with a £100,000 buy-to-let mortgage would have to show they have a rental income of £994 a month – up from £885 as a result of the changes. Imogen Sporle, managing director at London-based Finanze Property, said: ‘Contrary to popular belief landlords do not rub their hands together in glee as they increase their tenant’s rent.
‘They know this is a difficult time for many and increasing the rent could lose them the tenant altogether.
‘But not increasing the rent could render the property unmortgageable, meaning the only option is to evict the tenant and sell up.’
So, is buy-to-let still worth doing?
Even though there are some great yields to be found, growing numbers of landlords are questioning whether it is worth the effort compared to other options available. When interest rates on savings were low, it was worth additional effort to get a much better return through buy-to-let.
But now savings rates have hit six per cent, it no longer makes as much sense to spend time finding tenants, fixing broken boilers and dealing with complex taxes for an additional percentage point or two of income.
Shaun Robson, head of wealth planning at Killik & Co, says: ‘Many of our clients are looking at the numbers and deciding that it is just not worth it, even if they are getting a reasonable yield.
‘Some landlords whose mortgage deals are ending are deciding it is a good time to sell up.’
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The offshore wind sector is navigating uncharted waters with a new set of challenges emerging. While governments have set ambitious targets for the buildout of the sector, many of the leading developers are citing the changing economics of the market, which is causing some of them to review their plans in part due to supply chain pressures with are contributing to cost escalations.
In a new analysis, energy consultancy Wood Mackenzie provides insights into the current supply chain constraints in the offshore wind sector. They conclude that the global offshore wind supply chain will require $27 billion of secured investment by 2026 if it is to meet a fivefold growth in annual installations (excluding China) by 2030.
This figure is based on Wood Mackenzie’s base outlook, which forecasts annual capacity additions to hit 30 GW by 2030. This however they acknowledge is lower than the policymakers’ offshore wind targets, which would require nearly 80 GW per year. To hit this goal set by governments across the world, Wood Mackenzie reports the supply chain would require more than an estimated $100 billion in investment.
“Nearly 80 GW of annual installations to meet all government targets is not realistic, even achieving our forecasted 30 GW will prove unrealistic if there is no immediate investment in the supply chain,” said Chris Seiple, Vice Chair, Power and Renewables at Wood Mackenzie and the co-author of the report.
Some 24 GW of projects scheduled to come online between 2025 and 2027 have secured a route to market, through either some form of subsidy or power purchase agreement. The report however highlights that many projects are yet to make financial investment decisions (FID), where developers look to firm up projects and confirm that they will proceed with construction.
Some of the major developers have said that the supply chain challenges and cost increases have dramatically changed the finances of their projects. Some of the developers have delayed their FID as they seek to renegotiate offtake contracts given the inflationary pressures. Two of the leading projects planned for Massachusetts found themselves in a struggle last year with state regulators when they called for changes to their power agreements. Government officials demanded that the companies proceed under their agreements, while in July 2023 Vattenfall, the major Swedish energy company, announced it was shelving the Norfolk Boreas project in the UK due to the changing economics. The company chose to take a $500 million impairment charge instead of proceeding with the project which called for 1.4 GW as part of a 3.6 GW zone.
Even where companies are not delaying their projects, some are experiencing increasing delays and shortages in the supply chain. As a result, the average lead time of a new offshore project is typically five years.
According to Wood Mackenzie, delaying these projects at the FID stage will shift anticipated equipment demand from 2025-27 to 2028- 30. If this occurs, it means certain projects might not be built at all in 2028-30.
Some of the solutions the report offers on scaling offshore wind supply chains revolve around government policy.
“The opportunity to invest is often driven by government offtake remuneration schemes, legislation enabling utilities to recover their purchase power costs, and the sale of leasing rights and plans to build out the transmission system. In addition, governments could also dictate that some portion of a project’s equipment be manufactured locally,” notes the report.
The Southeast had the biggest spike in house prices over the past year with a 5.5% rise, the latest data show, as overall prices throughout the country continued upwards, albeit at a slower pace.
The Central Statistics Office (CSO) national Residential Property Price Index (RPPI) rose by 2.2% in the 12 months to June 2023, with prices in Dublin decreasing by 0.9% but prices outside Dublin up by 4.5%.
The Residential Property Price Index (RPPI) measures the change in the average level of prices paid for residential properties sold in the country.
CSO statistician Viacheslav Voronovich said: “Residential property prices rose by 2.2% in the 12 months to June 2023, down from 2.6% in the year to May 2023. The region outside of Dublin that saw the largest rise in house prices was the Southeast (Carlow, Kilkenny, Waterford, Wexford) at 5.5%, while at the other end of the scale, the Border region (Cavan, Donegal, Leitrim, Monaghan, Sligo) saw a 3% rise.”
In Cork, Kinsale continued to have the highest median price in the county at €410,000.
New homes in the second quarter of 2023 were 11% higher than the same period last year, compared to a 0.6% increase in existing homes. Some 4,025 house sales were registered with Revenue in June at a cost of around €1.5bn, decreasing 1.7% on the same month a year earlier.
The most expensive Eircode area over the 12 months to June 2023 was Blackrock in Dublin with a median price of €735,000, while Ballyhaunis in Mayo had the least expensive price of €127,500, Mr Voronovich said. The median is the middle figure in a row of numbers sorted from top to bottom, as opposed to the average.
The national index is now 2.1% above its highest level at the peak of the property boom in April 2007 and have increased by 127.5% from their lowest in early 2013.
The national Residential Property Price Index increased by 2.2% in the 12 months to June 2023https://t.co/RnxcZvfKvV#CSOIreland #Ireland #Housing #NewDwellings #PropertyPrices #HousePrices #IrishBusiness #BusinessStatistics #BusinessNews pic.twitter.com/OKaGNZwQ9I
— Central Statistics Office Ireland (@CSOIreland) August 16, 2023
Director of auctioneering and estate agent firm Auctioneera, Helen O’Keeffe, said it is an ongoing trend in the last number of months to see the growth of property prices stabilise.
“Several factors are at play at the moment in property. For example in 2022, many borrowers were getting interest rates of 2%. Now, the minimum is 3.5%. This significantly reduces the buying power of the average couple and unfortunately, we have no insight as to when that will change — what a difference a year makes.
“In terms of housing supply, there is still a shortage across the country — as of June 1, housing supply was at 13,000, still well below the 2019 average of 24,200. It is likely that this continued reduction in the rate of growth as shown in the CSO index up to June highlights that we’ve reached the upper limits of the market and there is no upside from here.
“For buyers, that might be good news, but those heightened mortgage rates are an issue. For sellers, it might be further incentive to put their properties on the market sooner rather than later.”
Managing director of Lotus Investment Group, Ian Lawlor, said all the indications are that house prices will remain resilient.
“While we are experiencing a period of price stabilisation in the housing markets, we are still seeing average prices across the country continue to tick up. This is in spite of significant increases in mortgage rates over the course of the last year.
“As a lender to developers, we underwrite new loans assuming no further price growth — but we do not envisage a weakening of house prices. This view is informed by the velocity of sales across all new housing schemes we are currently funding, which demonstrates continuing strong demand, particularly for housing schemes that qualify for the government’s assistance measures such as the Shared Equity and Help to Buy schemes in the Dublin and Greater Dublin Area.
“Nationally we went from building almost 90,000 housing units a year to less than 30,000 annually, with an annual requirement of between 35,000 to 45,000. There are massive issues, from the availability of construction skills and labour to material cost inflation and the added stresses put on the housing market with the arrival of thousands of Ukrainians displaced by the war.”
US shares to dip
Wall Street shared are set to open slightly lower this morning, with futures for all three major indices down 0.2%.
Dow Jones futures are at 34,952.00, while S&P 500 ufutres are at 4,445.00 and Nasdaq futures at 15,068.50.
Target is among the big premarket risers, after strong results this morning.
United Utilities fined £800,000 for over-abstracting water in Lancashire
United Utilities has been fined £800,000 after illegally abstracting 22 billion litres of water in Lancashire five years ago, the Environment Agency (EA) has said.
It caused a significant decline in the Fylde Aquifer, which is an important public water supply for residents in the North West and also helps the flows of local rivers.
The over-abstraction during a period of very dry weather in 2018 means the aquifer will take years to recover, the EA said.
Carlsberg boss ‘shocked’ by seizure of Russian business
The chief executive of brewing giant Carlsberg has said he was “shocked” when Russian President Vladimir Putin seized its business there.
Cees ’t Hart said the company had agreed a deal to sell its Russian operations in late June, but just weeks later a presidential decree transferred the business to the Russian Federal Agency for State Property Management.
“In June, we were pleased to announce the sale of the Russian business. However, shortly afterwards, we were shocked that a presidential decree had temporarily transferred management of the business to a Russian federal agency,” he said.
Balfour Beatty cheers revenue growth but order book value falls
The value of Balfour Beatty’s order book has lost £1 billion it has emerged, but the construction group remained upbeat as it defied economic gloom to record improved sales and declare a dividend.
The UK’s largest contractor said the order book reduced to £16.4 billion in the six months to June 30 compared with £17.4 billion at the end of the prior financial year.
That was due to some projects progressing well, but also the impact of economic conditions delaying some US commercial office work.
London’s dedicated student housing shortage laid bare in new research
Around four students are chasing every purpose built room in London amid a shortage of accommodation, new research has revealed.
On the eve of A-level results the figures from property consultancy Savills suggest many school leavers who have not secured dedicated student digs will struggle to get some, forcing them into the general private rental sector.
Savills estimates there are 3.8 people chasing each purpose-built student bed in the capital. Its data showed 344,065 undergraduate and postgraduate students in London compared with 91,351 beds in 2021-22.
City Comment: Inflation may be down, but it is far from out
There is much fat to chew on in today’s inflation figures. On the face of it there should be at least two cheers for the moment when headline CPI falls below wage growth. It has been a long time coming.
But the reaction from the City was pretty underwhelming, little more than a “meh” shrug. That is partly because the CPI figure came in bang on forecast. But also it did not take much of a drill down into the data to realise that the inflation war is a long way from won.
Today represents one battle, albeit a significant and symbolic one, in a long campaign that is far from played out.
City warns on ‘sticky’ core inflation after drop in CPI
The City today welcomed the sharp fall in the Consumer Price Index but warned that “sticky” core inflation means it is too early to call the peak of the interest rate cycle.
While headline inflation dropped in line with forecasts to 6.8%, core CPI, which excludes energy, food, alcohol and tobacco and is seen as a better indicator of underlying prices, rose by a higher than expected 6.9%, unchanged from June.
Analysts were also alarmed by the services consumer price index, which rose slightly from 7.2% to 7.4%. The economics team at Nomura said in a note: “July inflation data printed stronger than expected, driven almost entirely by an upside surprise to services prices, and excess core momentum rose on the month.
Challenging conditions set to continue, warns Marshalls
Marshalls,the building products specialist that has seen business hurt by the UK housing market slowdown, today warned challenging conditions are expected to continue into 2024.
Chief executive Martyn Coffey said there was a “material reduction” in first half volumes at the firm. That came as housebuilders responded to weaker demand arising from higher mortgage rates, by slowing build programmes.
The update comes just weeks after Marshalls warned on profits and said it was cutting around 250 jobs, with the workforce now standing at 2,700.
Revenue in the six months to June 30 dropped 13% on a like for like basis to £354.1 million. Pre-tax profit fell 30% to £16.7 million.
M&S up another 4%, Direct Line shares on recovery trail
Fresh support for Marks & Spencer shares today boosted hopes that the resurgent retailer is close to ending its four-year exile from the FTSE 100 index.
M&S’s market value now stands at around £4.5 billion after yesterday’s surprise profits upgrade caused the City to take another look at the turnaround story.
The shares surged 8% by last night’s close and rallied another 4% or 9.2p to 230.8p today, meaning the widely-held stock has jumped more than 80% this year.
However, analysts at Deutsche Bank reckon the shares are still too cheap after reiterating their “buy” recommendation and new 260p price target. They said yesterday’s update was further evidence that the business has “fundamentally changed”.
The momentum means M&S is among the top three stocks in the FTSE 250 and a contender for promotion in next month’s reshuffle of FTSE benchmarks.
The company is a founder member of the FTSE 100 but in September 2019 lost its blue-chip status for the first time after shares hit their lowest in over two decades.
After several false dawns, the turnaround efforts finally look to be paying off with profits set to grow this year and dividends poised to resume after a three-year gap.
M&S ranked second on today’s FTSE 250 risers board, only beaten by a surge of 7% or 10.65p for Direct Line Insurance on the read-across from results by rival Admiral.
Churchill and Green Flag owner Direct Line traded at 134p in January after pulling its dividend but now stands at 161.8p ahead of its own results in early September.
The FTSE 250 index was 46.02 points higher at 18,705.77, compared with the top flight’s decline of 2.04 points to 7387.60 as the mood calmed after yesterday’s interest rate jitters.
Mining stocks, however, sustained further losses as Chile’s Antofagasta retreated another 19.5p to 1433p. Among the best performing stocks, British Gas owner Centrica rose 2.4p to 144.4p.
UK catching up to peers on inflation
Inflation in the UK remains above most other rich countries, but the rate of price rises here is at the closest its been to the G20 average in almost a year.
Economist Simon French says the gap should narrow further in October.
At +6.8% YoY (+7.9% prev.) UK CPI remains 220bp above the G20 average. But this spread is the smallest for 11 months – having peaked out at +440bp in March. This spread should narrow further in October as the outsized role of UK domestic energy prices wanes further pic.twitter.com/UFbauUJKBu
— Simon French (@shjfrench) August 16, 2023
- The proposed millage rate to be considered by the Thomasville City Council is 5.000 mills.
- The COVID-19 pandemic, inflation and a higher overall cost of goods and services are partly to blame.
- Neighbors worry there isn’t enough time to prepare before property tax begins.
BROADCAST TRANSCRIPT:
“Our sales are down, the cost is up. How do we combat that,” said Heather Abbott, Co-Owner of Southlife Supply Co.
That’s Heather Abbott. Co-owner of Southlife Supply Co. Abbott also owns another commercial property and is a homeowner in Thomasville. Soon, she may be required to pay a property tax for all three.
The City of Thomasville recently announced a proposed property tax. The first one in over a decade. The millage rate starting at 5.0 mills.
The city touting the need to make the change to help supply money for its general fund.
What does that mean for you?
According to the city, if a home’s fair market value is 150 thousand dollars, the proposed property tax would be 300 dollars.
“It just seems like this is all of a sudden an issue,” said Abbott.
City manager Alan Carson said in a press release, reading in part, “our community has struggled with the impacts of the COVID-19 pandemic, inflation and a higher overall cost of goods and services.”
Adding the proposed property tax would be to support its general fund without having to raise utility bills. Nearly 70% of that fund is used to pay for public safety expenses.
Abbott tells me she is worried that this is only the beginning to an ongoing issue.
“My biggest question is when will it be enough? Especially after everything we’ve all experienced over the past couple of years. With school taxes increasing, and now there’s a property tax, now we’ve got inflation, now interest rates,” said Abbott.
City Manager Alan Carson noted, “Implementing this property tax, while difficult, will help to ensure the future financial stability of the City of Thomasville.”
However Abbott is not so sure and calls for more transparency from the City’s council.
“Worst case scenario is it’s not enough,” said Abbott.
The next public hearing, to discuss the property tax proposal, will be held August 23rd at 6pm. The event will take place at the Thomasville Municipal Building.
- The outlook for residential mortgage REITs may soon perk up due to a slew of economic data pointing toward a so-called soft landing for the U.S. becoming more plausible.
- If the Fed can tame inflation without sparking a recession, interest rates will presumably begin to retreat in 2024.
- Here’s a look at two mortgage-backed REITs worth consideration.
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Income-hungry investors have long flocked to mortgage-backed real estate investment trusts — and why not? Many of them pay a handsome, double-digit dividend. But such vehicles haven’t done so well lately.
That’s because when interest rates rise and yields balloon, their valuations tend to suffer, which is what happened after it became clear in 2021 that the U.S. Federal Reserve would embark on an aggressive, multiyear tightening campaign. Many REITs experienced declines of more than 50% after that point.
Yet, unlike the commercial-focused portion of this market — which continues to face steep headwinds in the wake of pandemic-induced changes to the American workplace — the outlook for residential mortgage REITs may soon perk up. That’s due to a slew of economic data pointing toward a so-called soft landing, a slowdown in economic growth that avoids a recession, becoming more plausible.
Inflation is at its lowest level in more than two years. The labor market has settled into a Goldilocks zone — that is, one that is not too hot or cold, but just right — of slowing but still has solid job gains, with the unemployment rate at historic lows. Meanwhile, second-quarter gross domestic product figures blew past estimates and consumer sentiment last month notched its highest reading since October 2021.
None of this is to say that a soft landing is a sure thing — far from it. Notably, inflation data will start to go against harder-to-beat annual comparisons beginning with the U.S. Department of Labor’s upcoming consumer price index report due out this week.
Also, keep in mind that it takes time for rate hikes to make their way through the system. The labor market has held up until now, but who is to say that cracks won’t emerge soon?
Still, were the Fed able to tame inflation without sparking a recession, interest rates would presumably begin to retreat in 2024. Importantly, that scenario would also help the residential mortgage REIT industry avoid what most at the beginning of the year thought was a certainty: widespread defaults.
Together, that sequence of events would initiate about an 18-month cycle where the book values of mortgage REIT companies spike, juicing their stock prices. What’s more, by getting in during the embryonic stages of this trade, investors can secure an opportunity to collect outsize income payments, just as other yield-producing investments may face challenges due to the prospect of declining rates.
To clarify, mortgage REITs don’t own the mortgages themselves. Instead, they invest in mortgage-backed securities, collect the interest and then return those income streams to investors. Two REITs to consider include AGNC Investment Corp (NASDAQ: AGNC) and Annaly Capital Management Inc. (NYSE: NLY).
Beyond the favorable dynamics described above, the two companies share several commonalities that make them potentially attractive:
- Each currently trades at a discount relative to their current book values.
- Both fell off a cliff in 2021, just as the Fed began to put an end to years of easy-money policies, giving them plenty of room to run.
- Each began to stabilize earlier this summer after the Fed opted against increasing rates in June and speculation began to ramp up that the tightening cycle could end soon.
- Both pay an enormous dividend. Annaly’s is 13.15%, while AGNC’s is 14.5%.
Investing has many hard and fast rules. One of the most important rules may be that there’s a time and a place for everything.
Over the past two years, residential mortgage REITs, despite the dividends, were not a great place to be. But if it becomes more apparent that the Fed can thread the needle and engineer a soft landing, it will be the right time to add mortgage REITs to your portfolio.
— By Andrew Graham, founder and managing partner of Jackson Square Capital
Americans are paying more to rent or insure their homes than a few years ago and much more to buy one with a mortgage, but there’s a silver lining in that hardship: A cool-down could help convince the Federal Reserve to pause its series of interest rate hikes.
Americans are paying more to rent or insure their homes than a few years ago and much more to buy one with a mortgage, but there’s a silver lining in that hardship: A cool-down could help convince the Federal Reserve to pause its series of interest rate hikes.
Thursday’s report from the Labor Department on inflation showed that more than 90% of the increase in prices in July came from shelter. Other big contributors were things like motor vehicle insurance. The overall rate of inflation in July was in line with the expectations of economists polled by The Wall Street Journal, rising 0.2% on a seasonally-adjusted basis—the same as June. That puts the 12 month increase at 3.2%, down from the multidecade peak of 9.1% hit in June 2022.
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Thursday’s report from the Labor Department on inflation showed that more than 90% of the increase in prices in July came from shelter. Other big contributors were things like motor vehicle insurance. The overall rate of inflation in July was in line with the expectations of economists polled by The Wall Street Journal, rising 0.2% on a seasonally-adjusted basis—the same as June. That puts the 12 month increase at 3.2%, down from the multidecade peak of 9.1% hit in June 2022.
As the Fed mulls its next steps, there will be two features of the Labor Department’s CPI calculation that pull Fed rate-setters in opposite directions. On the hawkish side, the so-called base effect will mean that, even if the monthly figures are fairly tame, they will be compared with year-ago figures that contributed to the sharp cooling in inflation from the June 2022 peak. That could keep the 12-month increase well above the 2% target the Fed would prefer before it declares victory.
But housing costs could ride to the rescue and even allow for some easing by next year. A letter this week from the Federal Reserve Bank of San Francisco notes that all sorts of private sector indicators of rents and house prices are slowing. These include things such as Zillow’s Home Value Index, the Apartment List Vacancy Index and the S&P/Case-Shiller U.S. National Home Price Index.
If that collection of private sector data is to be believed, and if those measures’ past ability to predict government shelter prices was no fluke, then shelter costs are headed down—way down. The model sees shelter’s contribution to 12-month CPI going from the high single digits to possibly negative by the middle of next year in what the letter’s authors say could be the most severe contraction in that component of inflation since the 2007-2009 financial crisis.
Needless to say, Fed-watchers who haven’t crunched the numbers as finely are aware of the sharp slowdown and the fact that shelter makes up more than 40% of the “core” CPI basket that is most-closely-watched by government economists. The latest implied odds from CME FedWatch give about one-third odds that the Fed’s overnight rate will be lower by January and about 50% odds they will be in the same 5.25% to 5.5% range as today.
The headline numbers from July’s CPI data weren’t much to write home about, but the outsize role of housing has given stock and bond bulls some cause for optimism. Landlords might not be feeling as buoyant.
China’s slowdown is actually helping the West
During July, falling demand for credit intensified among Chinese firms and households. Exports are down 15pc year-on-year, hit by the West’s cost of living crisis. And Beijing has stopped publishing data on youth unemployment, after the jobless rate among 16 to 24-year-olds topped 20pc.
Some say the Chinese economy itself is suffering from long Covid, with growth falling to 3pc in 2022 and a forecast expansion of 5.2pc this year. More than respectable elsewhere, these are low growth figures for China. And that’s raising concerns that the People’s Republic will cease being a major growth engine, causing the global economy to slump.
Such concerns have lately begun to crystallise. Hong Kong’s Hang Seng Index slid into “bear market” territory over recent weeks, down over 20pc from its previous peak back in January. The yuan just hit a 16-year low against the US dollar, prompting the central bank to spend heavily propping the currency up.
Now it’s all eyes on China’s vast real estate sector, accounting for 25 to 30pc of GDP – a major economic driver, given the extent of the construction and related services involved. But after years of fast growth built on local government and private-sector debt, the recent property slowdown has seen some big developers fold.
Property giant Country Garden is on the brink of collapse while heavily-indebted Evergrande just filed for bankruptcy protection in the US. With around 70pc of household wealth tied up in real estate, signs the property bubble could burst have hammered business sentiment, causing the world’s second-largest economy to stall. And that’s been noticed – with China’s woes now looming large over financial markets across the world.
During the global financial meltdown of 2008, China launched the largest stimulus package in history and was, under Hu Jintao, the first major economy to emerge from the crisis. President Xi, in contrast, has been reluctant to launch massive fiscal rescue measures.
One reason is that government debt, while the numbers are opaque, has spiralled above 140pc of GDP – much of it at the local government level. So the authorities have instead launched waves of smaller measures to boost demand – including less stringent mortgage conditions – as the Bank of China has slashed interest rates.
I read a research note last week claiming that China’s predicament is now “100 times worse than Lehman”, posing a much greater threat to global stability than the US banking and property sector before the 2008 collapse.
I’m not so sure. Ahead of 2008, US real estate was booming, with lots of homes bought on deposits of 5pc or less. So when an overvalued market started to turn, countless distressed sellers emerged who couldn’t afford their mortgage payments. That lowered prices even more – turning a lurch into a downward spiral.
Lending rules in China have typically set minimum down-payment ratios for first-time buyers up at 30-40pc in large cities, rising to 80pc for investors. That points to a residential property market less brittle than its 2008 US counterpart. And while the rules were recently eased, in a bid to boost confidence, first-time buyers and investors still require relatively stringent 20-40pc down-payments.
What’s more likely than a 2008-style collapse in China, in my view, is a drawn-out period of sluggish growth. China’s economic travails are being compared to Japan in the early 1990s, when its huge asset bubble burst, sparking a decades-long cycle of deflation and, at best, insipid economic expansion.
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