Karen Clark & Company (KCC), a catastrophe risk management firm based in Boston, estimates that the privately insured loss from Hurricane Ian will be close to $63 billion, with a majority of those losses coming from wind, storm surge, and inland flooding from across the affected areas. The storm began as a tropical depression in the central Caribbean Sea approximately five days before making landfall in southwest Florida just after 3 p.m. ET on Sept. 28, with winds of 150 mph. Hurricane Ian made a second landfall on the afternoon of Sept. 30th near Caines, S.C., as a Category 1 hurricane with winds of 85 mph.
KCC estimates that Ian will be the largest hurricane loss in Florida history, in nominal dollars, with total economic damage in excess of $100 billion – including uninsured properties, damage to infrastructure, and other cleanup/recovery costs. At the time of this writing, the death toll from the storm stood at just over 108 people in Florida. That number is unfortunately expected to rise as recovery efforts continue across the most impacted areas of the state.
Florida Represents a Significant Property Market
Florida is a large and important property market for all subsectors of the REIT universe with meaningful representation on the part of many constituents within our portfolio. Of the top 10 holdings (71% of the total), only two names – Equity Residential Properties (EQR) and Essex Property Trust (ESS) – have essentially no exposure to the Florida markets. Our largest single position, AvalonBay Communities (AVB), has less than 2% of net operating income (NOI) coming from southeast Florida. Rounding out exposure for our “coastal” apartment names, UDR (UDR) generates 10% of total portfolio NOI from two Florida markets, Tampa and Orlando.
Sunbelt Apartment Names Weathered the Storm
As expected, the sunbelt apartment names have sizable Florida exposure, and in most cases that exposure is limited to three high-growth metros within the state: Tampa, Orlando, and Jacksonville. While we take pains not to downplay the significance of Hurricane Ian, it should be noted that while all three of these markets experienced damage and disruption, they were fortunate to not have been in the direct path of the storm and thus fared relatively well.
Mid-America Apartment (MAA) reported Florida exposure at 16.7% of total NOI as of Q2 2022, and this exposure was roughly two-thirds Tampa/Orlando and one-third Jacksonville. The company has yet to put out a statement updating investors on what the longer-term impact will be from the storm, but our expectation is that the damage was relatively limited with only a short-term disruption to operations.
Camden Property Trust (CPT) has Florida exposure that is limited to Orlando and Tampa. Each market represents just over 6% of the total operating portfolio for total Florida exposure of 12.3%. CPT has disclosed that their Florida properties have undergone “minor damage,” and we look forward to additional information when the company reports Q3 2022 earnings around the end of October.
Single-Family Rental REITs
Looking at the two single-family rental companies within our Top 10 holdings, we note that American Homes 4 Rent (AMH) is substantially less exposed to Florida than Invitation Homes (INVH). Based on Q2 2022 supplemental earnings data, AMH generated just over 12% of same-store NOI from their three Florida markets: Jacksonville, Tampa, and Orlando. This market exposure translates to 12.8% of total homes owned. AMH disclosed earlier this week that the Florida portfolio experienced “limited damage” from the hurricane.
INVH owns approximately 25,300 homes in Florida, representing 31.4% of firm revenue per Q2 2022 data. On a same-store NOI basis, 30% comes from the Florida market, with the largest segment being south Florida at 12% of NOI, followed by Tampa at 10% and Orlando at 7%. Jacksonville rounds out the exposure at roughly 2% of same-store NOI. INVH has yet to provide an update on their portfolio.
Manufactured Housing REITs
We round out the discussion with the manufactured housing sector, which has historically had heavy exposure to Florida due to the attractiveness of its climate and water amenities, two characteristics that work against us during hurricane season. Both Sun Communities (SUI) and Equity LifeStyle Properties (ELS) have substantial Florida exposure. SUI owned 129 Florida properties per their Q2 2022 financial disclosure, with a total of 41,000 manufactured housing and recreational vehicle (RV) sites in the state. This represents 31% of total U.S. sites (excluding the United Kingdom). Per the marina business, Florida houses 20 properties with 5,100 boat slips, and this represents 11% of total boat slips owned by the company. SUI provided a disclosure over the past few days stating that three RV properties in the Fort Myers area (where Ian made landfall) suffered “significant flooding and wind damage” from the hurricane. They also disclosed that one marina suffered damage to a seawall and docks. The disclosure goes on to state that other property damage appears “limited to trees, roofs, and fences.”
Florida is ELS’s largest market, with 63,800 manufactured housing and RV sites across the state. The market represents 38% of total sites and 44% of revenue. While we note that a handful of ELS properties appear to be located in close proximity to where Ian made landfall, the company filed a press release reporting “limited impact from the storm.” We look forward to getting a more detailed update on the company’s Q3 2022 earnings call.
A Reasonable Degree of Solace
In aggregating the Florida exposure of our top 10 holdings, we arrive at a number just shy of 10% of the portfolio. We would preface this, as referenced above, with the fact that Florida is a large state and much of the REIT exposure in our portfolio is centered around three major metros – Tampa, Orlando, and Jacksonville – all of which were less severely impacted by the storm than communities centered around Lee County in the southwest quadrant of the state. This discussion provides a reasonable degree of solace that there will not be a lasting financial impact on our constituent companies from the tragic weather event that played out over the course of several days in late September. From a broader perspective, however, we are reminded of the importance of diversification at the portfolio level, and for the need on the part of our constituents to be more diligent than ever as it relates to data and analytics on catastrophe preparedness and planning as “unprecedented” weather events become more frequent.