US REITs Equity preferences | 13 September 2018 - UBS
←
→
Page content transcription
If your browser does not render page correctly, please read the page content below
US REITs
Equity preferences | 13 September 2018
Chief Investment Office Americas, Wealth Management
Jonathan Woloshin, CFA, Head Americas Equities, jonathan.woloshin@ubs.com
Name Ticker Price
Sector View: Neutral Most Preferred
Strategy: After receiving little respect by the stock market for much Alexandria Real Estate EquitiesARE 127.64
of the past two years, REITs have finally begun to garner at least American Tower Corp. AMT 147.31
a modicum of it. Over the past six months the total return for the AvalonBay Communities Inc. AVB 183.72
REIT sector has outpaced the S&P 500 by some 800 bps. We believe Camden Property Trust CPT 94.62
that the combination of attractive absolute and relative valuation, Corp. Office Properties Tr. OFC 30.42
strong (and growing) dividends, generally solid operating funda- Duke Realty DRE 28.72
mentals and a more sanguine outlook for long-term interest rates Equinix Inc. EQIX 439.43
has made the sector more attractive to generalist investors. Based Hudson Pacific Properties HPP 32.64
on consensus 2019 FFO estimates the REIT sector trades a 10.4% ProLogis PLD 66.43
discount to the S&P 500. This compares to an historical forward Rexford Industrial Realty Inc REXR 31.58
FFO/EPS premium of 11% between 2010 and 2016. In addition, Simon Property Group SPG 184.94
REITs trade at an approximate 6% discount to consensus net asset Vornado Realty Trust VNO 75.68
value and has a current dividend yield of 4.3% - or 240 bps higher Bellwether List
than the S&P 500. Boston Properties BXP 127.50
Equity Residential EQR 67.76
Our positioning within the sector: We believe multifamily and Essex Property Trust Inc. ESS 248.00
industrial are best positioned to capitalize on strong operating fun- Extra Space Storage EXR 90.37
damentals, demographic and secular growth trends. We are also Healthcare Trust of America HTA 27.56
constructive on Class A malls, towers and data centers and select Macerich Company MAC 56.93
office markets. Public Storage PSA 209.77
Taubman Centers Inc. TCO 62.30
Multifamily: Most Preferred Ventas Corp VTR 58.91
Drivers: Millennials, housing affordability, lending standards. Recent W. P. Carey Inc. WPC 65.33
tax law changes could make renting favorable to buying in higher Welltower WELL 66.67
priced markets. Source: FactSet, UBS as of 12 September 2018
Sector Benchmark: S&P REIT Index
Industrial: Most Preferred
Drivers: e-commerce, global trade, shifting supply chain dynamics,
widening the Panama Canal, legalization of marijuana for
recreational use in a number of states.
Office: Neutral
Drivers: Re-urbanization, creative office space, remote addressing,
increasing CAPEX and leasing costs, rise of co-working. We are
more favorably disposed to office companies that operate in
specialty niches such as cyber security/defense/cyber warfare and
life sciences.
This report has been prepared by UBS Financial Services Inc. (UBS FS). Analyst certification and required disclosures
begin on page 35.
UBS does and seeks to do business with companies covered in its research reports. As a result, investors should be aware
that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this
report as only a single factor in making their investment decision.US REITs | Equity preferences
Retail: Least Preferred
Drivers: e-commerce, bifurcation of 'A' vs 'B & C' malls, insulation of
needs-based strip centers, changing landscape of big boxes. Impact of
Amazon buying Whole Foods on grocery anchored shopping centers.
Specialized: Neutral
Drivers: Fragmentation, consolidation, new construction lag, com-
pressed cap rates/valuation, investor expectations. Constructive on
wireless towers and data centers.
Healthcare: Neutral
Drivers: Aging population, impact of affordable care act and its poten-
tial repeal, rising hospital care costs, new senior housing construction,
interest rates.
Sector overview
After receiving little respect by the stock market for much of the past
two years, REITs have finally begun to garner at least a modicum of
it. Although the sector has lagged the S&P 500 by 3,500 bps - on a
total return basis - over the past two years REITs began to make up
some ground recently. Over the past six months the total return for
the REIT sector (as measured by the VNO, the Vanguard Real Estate
ETF) has outpaced the S&P 500 by some 800 bps. We believe that
the combination of attractive absolute and relative valuation, strong
(and growing) dividends, generally solid operating fundamentals and
a more sanguine outlook for long term interest rates has made the
sector more attractive to generalist investors.
Despite the recent recovery in REIT share prices the sector continues
to trade at an attractive relative valuation to the broad market. Based
on consensus 2019 FFO estimates the REIT sector trades a 10.4%
discount to the S&P 500 (based on UBS CIO's S&P 2019 EPS estimate
of USD 167/share). This compares to an historical forward FFO/EPS
premium of 11% between 2010-2016. In addition, projected 2019
FFO for the REIT sector is roughly in line with 2019 projected S&P 500
EPS growth. This normalization following the outsized S&P 500 2018
EPS growth arising from the corporate tax cuts further highlights the
attractive relative valuation of the REIT sector. Further REITs trade at
an approximate 6% discount to consensus net asset value (NAV) and
has a current dividend yield of 4.3% - or 240 bps higher than the
S&P 500.
The urge to merge?
The silver lining in the lackluster performance of the REIT sector over
the past two years is the significant disconnect between public and
private market values. Based on consensus estimates, REITs are trad-
ing upwards of a 6% discount to NAV with some sectors trading at
substantially higher NAV discounts. As a result there have been several
high profile REIT mergers and acquisitions announced or completed
YTD as well capitalized private buyers and stronger positioned REITs
take advantage of discounted valuations and a low cost of capital.
The longer the public/private market valuation gap persists the more
likely it is that we could see increased M&A activity in the REIT sector.
CIO Americas, WM 13 September 2018 2US REITs | Equity preferences
Did the Supreme Court help save brick & mortar retail?
On 21 June 2018, the Supreme Court (SCOTUS) ruled that state gov-
ernments can compel retailers to collect and remit applicable sales
taxes, regardless of whether they have a physical presence in the state.
The decision clears the way to allow states to collect sales taxes on a
greater array of online purchases. We view the SCOTUS ruling as an
incremental positive for B&M retailers. Although we do not believe
the ruling will lead to a seismic shift back towards B&M retailers,
the leveling of the playing field in terms of tax collection could alter
consumer's perception that e-commerce consistently has an econom-
ic advantage. Meanwhile, a number of pure e-tailers are recogniz-
ing the benefits of operating B&M stores to better showcase their
offerings, while many B&M retailers have successfully implemented
omnichannel strategies that blend the benefits and convenience of
the e commerce and physical store experience. The incremental ben-
efits of these trends will likely accrue to B&M retailers, and by exten-
sion, to retail real estate companies.
Perhaps the mall is NOT dead after all
Most Preferred recommended Simon
One of the frequent refrains we have heard in the market over the past Propert ies (SPG) has continued to deliver
several years is that the mall is dead. A funny thing happened on the strong operating metrics despite retail's
way to the funeral – retail sales began to strengthen and better-posi- challenges. SPG has the management,
tioned retail real estate properties continued to generate strong oper- access to capital and operating expertise
ating results. We wish to be clear that retail and retail real estate both
to adapt to the evolving retail world.
face a number of challenges from the continued growth in e-com-
merce and the fact that the US is over-retailed on both an absolute
and relative basis. That said, we have argued vociferously over the
past several years that not all B&M retail is destined for oblivion and
that there is a place for well-located, well-capitalized retail real estate.
E-commerce notwithstanding, we believe select investment opportu-
nities to invest in well positioned, strongly capitalized retail real estate
exists in REIT land.
Rising risks in drug store real estate investing
One of the most popular commercial real estate (CRE) investments
with individual investors over the years has been investing in stand-
alone triple net lease (NNN) retail properties. The popularity of these
investments is usually driven by an attractive going in yield, a steady
income stream, the long duration nature of many NNN leases and the
low ongoing maintenance/administration of NNN assets. One subset
of the NNN landscape that has been of particular interest to investors
is the drug store sector. This is largely a function of the strong credit
nature of the corporate guarantor as well as the perceived defensive
nature of the asset class.
The drug store sector received a shot across the bow this past June
when Amazon announced it was buying online drug retailer Pillpack.
The near-term impact is likely to be minimal. However the disrup-
tive impact over the longer-term could be significant. It is important
to note that profit margins on nonprescription items are significantly
higher for B&M drug stores as compared to that of prescriptions. As
such, a steady flow of foot traffic is essential for the financial health
of a drug store.
CIO Americas, WM 13 September 2018 3US REITs | Equity preferences
Implications for NNN real estate: Although every deal has its unique
characteristics a significant portion of the NNN drug store leases are
long-term in duration - upwards of 15-20 years consisting of multiple
5 year renewal options. In many of these deal structures the rent only
resets at the point of a renewal. As such the NNN investor can earn
higher returns - as measured by internal rate of return or IRR - over
a longer duration holding period. Historically the biggest risk to long-
duration NNN investors was the risk of rising interest rates, particu-
larly if the lease had infrequent rent bumps. For example a 10-year
lease under which the rent increases once every five years by 7.5%
will represent a revenue CAGR of just 0.8%. As such there is very little
in the way of inflation protection built into the lease. Amazon's entry
into the business has introduced a second, and potentially substantial,
risk to the NNN drug store segment. Should Amazon be successful
in growing the online drug store business, thus leading to decreased
foot traffic in B&M locations, profitability for B&M drug stores, partic-
ularly those in secondary and tertiary locations could be at risk. Should
this materialize we believe it will put upward pressure on cap rates
for NNN drug store assets.
Although we believe it is too early to call this a trend, transactional
cap rates for drug stores recently began to turn up while cap rates
for overall retail assets and single tenant have remained relatively flat
or continued to decline. After peaking at almost USD 4.5 billion of
transactions in 2014, retail drug store transaction volume has declined
precipitously in conjunction with the sector's cap rate compression
through 2017. Interestingly, despite the decline in overall transaction
volume the price/square foot that investors have been willing to pay
for drug store assets is near an all time high. As such we believe
investor risk levels are elevated.
Beware rising real estate taxes
The significant recovery in commercial real estate (CRE) values follow-
ing the 2008/2009 recession has been a welcome relief to investors.
Two property segments in particular that have experienced substantial
value appreciation in both the public and private markets are multi-
family and industrial. The value creation in these asset classes has not
gone unnoticed by the local and municipal taxing authorities. On its
recent Q2 2018 earnings conference call Camden Properties said the
following regarding property taxes: Turning to property taxes. Fulton
County in Georgia, which includes Atlanta, significantly raised their
valuations for residential assets. The valuation increase for our entire
Atlanta Metro portfolio was approximately 28% with a 41% increase
for our Fulton County communities. This Atlanta evaluation increase
was not anticipated and will result in USD 2 million of additional prop-
erty tax expense in 2018. As is our policy, we accrued six months of
this increase or USD 1 million in the second quarter as a catch-up. The
remaining USD 1 million will be booked over the rest of 2018. We are
now anticipating full-year property taxes for our same-store portfolio
to increase approximately 6%.
- Source: Camden Properties 2Q 2018 earnings transcript
CIO Americas, WM 13 September 2018 4US REITs | Equity preferences
Is rent control for California in the cards in 2018?
The Costa-Hawkins Rental Housing Act (CH), implemented in Califor-
nia in 1995, was enacted in response to rent control provisions enact-
ed in a number of California cities. The key provisions of CH are 1)
to allow landlords to raise rent to market rate once a tenant vacates;
2) require local rent control laws to contain a 'vacancy decontrol' pro-
vision, thus allowing rents to increase upon a tenant move out; 3)
prevents rent control (or rent caps) on rental units built after February
1995. In addition, the key rent control law in the city of Los Angeles is
the Rent Stabilization Ordinance (RSO). The RSO, which caps annual
rent increases at 3%-8% is effective only for units built prior to Octo-
ber 1978.
The significant increase in both home prices and rental costs in Cali-
fornia pursuant to the recovery from global financial crisis has strained
shelter affordability for owners and renters alike. This led to the Feb-
ruary 2017 introduction of the Affordable Housing Act (AHA) in the
California Assembly, which would have overturned CH. The bill ulti-
mately failed to pass the legislature. As a result in October 2017 sev-
eral tenant advocate groups and the AIDS Healthcare Foundation pro-
posed ballot initiative to repeal CH in 2018. It remains to be seen if
the ballot initiative is successful in overturning CH. Should the initia-
tive be successful we believe there could be significant near/mid-term
and long-term implications for California rental properties.
In the near-/mid-term, a successful repeal of CH could put pressure
A successful repeal of CH could be a
on apartment values as investors negatively react to the potential near-term headwind for Essex Propert y
for rent growth limits. Over the longer term, we believe rent control Trust (ESS - Bellwether) as more than
could actually be positive for apartment values. Although this appears 80% of ESS' net operating income is
counter-intuitive, we believe statewide rent control would significant- generated in California.
ly limit new construction, thus further exacerbating the current lack
of affordable rental housing. This could ultimately lead to a scarcity
value premium for existing buildings. In addition, it is possible that the
repeal of CH could lead owners of rental units to convert their proper-
ties to condos or other forms of ownership, thus further shrinking the
rental pool. Should the ballot initiative successfully overturn CH, it is
likely not much would happen in the near term. According to Assem-
bly Member Richard Bloom - the sponsor of the aforementioned AHA
eliminating CH would merely provide individual cities with increased
flexibility in setting rent control policies. Mr. Bloom indicated that indi-
vidual cities would still be required to pass new legislation before the
repeal would truly become effective.
Will California step on the third rail of commercial real estate
taxation in 2020?
According to an article in the 15 August 2018 issue of the Real Deal,
proponents of a 2020 ballot initiative to substantially limit the benefits
of Proposition 13 (Prop 13) tax protection for commercial real estate
have secured more than enough signatures to qualify for the 2020
ballot. Since becoming law in 1978 Prop 13 has afforded owners of
both residential and commercial real estate protection from rapidly
rising real estate taxes. The adoption of Prop 13 rolled back property
assessments by 57%, limited tax rates to 1% of assessed value and
limited annual property tax increases to two percent. Pursuant to the
passage of Prop 13 there have been several false starts to institute
CIO Americas, WM 13 September 2018 5US REITs | Equity preferences
what is known as a "split roll" whereby Prop 13 protection would
remain in place for residential properties but be phased out for com-
mercial properties.
We believe the Initiative will meet very stiff resistance from the Cali-
fornia business community. California is already home to the highest
marginal state income tax rates in the U.S. In our opinion a successful
implementation of a split roll would not only be negative for commer-
cial real estate values in the state, it could lead to further out-migra-
tion of businesses to more tax-friendly localities. In addition, backers
of the Initiative are likely not considering the reality that many com-
mercial leases are structured as net leases whereby many operating
costs - including real estate taxes - are passed through directly to ten-
ants. As such this would effective become a tax increase on many
small business and individuals - something the backers of the Initiative
claim they are not trying to do. Combining the potential for a Prop
13 split roll with the recent commercial real estate tax increases in
San Francisco and the 2018 ballot initiative to repeal Costa-Hawkins
(which would pave the way for a significant expansion of rent control
authority at the local level), California runs the risk negatively impact-
ing what has been a very bright spot in the post-recession recovery:
commercial real estate. This takes on additional urgency when the
tenuous financial condition of a number of municipalities is factored
into the calculations.
Key Themes
Multifamily & Millennials: The millennial generation is facing a set
of opportunities and challenges that differ significantly from previ-
ous generations. A globally integrated world, a business and product
cycles that seem to evolve more rapidly each day and uncertainties
regarding job security and wage growth all point to a need for more
flexibility among millennials when considering their shelter decisions.
Coupling this with very elevated levels of student debt, a single fam-
ily housing market that is increasingly un-affordable in many urban
areas and/or where down payment and financing cannot be obtained
and the fact that millennials are marrying and having children later in
life points to what we believe will be a robust renting environment
for a longer period than many contemplated coming out of the eco-
nomic downturn. In addition many retiring baby boomers are gravi-
tating towards renting in the urban core as they no longer need the
large suburban home and appreciate the benefits and simplicity of
the urban lifestyle.
Industrial, e-commerce & global trade: The continued evolution of
e-commerce is not only driving the additional warehouse and logis-
tics facilities, the impact on the supply chain is such that newer, more
modern warehouse space is required in higher population densities.
In addition, as the world becomes more integrated and global trade
continues to grow, we believe this bodes well for growing industri-
al demand. Further we believe the widening of the Panama Canal
will represent increased demand for Gulf Coast and East Coast ports.
Finally, the legalization of marijuana for recreational use in a num-
ber of states will likely lead to increased demand for industrial real
CIO Americas, WM 13 September 2018 6US REITs | Equity preferences
estate (although we are cognizant of the risks to this industry posed
by recent statements by Attorney General Sessions).
The evolving dynamics of office space: Two of the key impacts
emerging from the millennial generation entering the workforce are
re-urbanization and creative office space. More and more businesses
are re-locating to urban centers from suburban office parks in order
to accommodate the work and lifestyle needs of millennials. In addi-
tion, the push by companies to more creative, open-plan type space
is significantly changing the per square footage needs for employees.
In addition trends such as remote addressing (no assigned desk) are
also impacting square footage needs. We believe these trends bode
poorly for many of the suburban office markets in the country. In
addition, there are some interesting dynamics across submarkets of
central business district (CBD) as a number of business are seeking
hipper, edgier locations as opposed to more traditional midtown loca-
tions. Office stocks have performed quite post the election of Don-
ald Trump. Despite the potential for better economic growth under a
Trump administration, the trend towards more efficient use of office
space, remote addressing, telecommuting, etc is likely to continue.
We are more favorably disposed to office companies that operate in
specialty niches such as cyber security/defense/cyber warfare and life
sciences.
Storage (specialized) fundamentals solid but softening: The self
storage market had been one of the strongest sub-sectors in the REIT
and commercial real estate market. Occupancy rates are near all time
highs and the market remains very fragmented. This provides signif-
icant consolidation opportunities. Our enthusiasm for the sector is
only tempered by the extreme compression in storage cap rates that
has followed the flood of capital that surged into the asset class. In
addition it appears that SSNOI growth rates peaked in 2015/2016 and
the negative second derivative in SSNOI results appears to be contin-
uing so far in 2018. In addition, significant new capacity remains an
overhang on the sector. Although we believe storage remains a good,
longer-term business the stocks will likely have difficulty outperform-
ing until sell side estimates stop going down and SSNOI trends stabi-
lize.
The mall is dead - or not?: This is a refrain we heard as far back
as 1999. We did not agree with it then and we do not agree with it
now. What we do agree with is that marginal mall properties in non-
core markets have a poor fundamental outlook. However, those class
A malls that are well located in stronger geographies and have the
capital to invest in technology, entertainment, pack & ship and are
able to partner with their retailers in embracing e-commerce (rather
than hide from it) are well positioned to thrive in this environment.
One of the key phrases we hear frequently in conjunction with shop-
ping is 'experience'. We believe the malls that are able to deliver an all
encompassing shopping experience and will be well positioned going
forward.
Healthcare: solid demographics, however: One of the familiar
refrains we hear is that healthcare REITs are a must own due to the
aging of the population and the attendant demand for senior housing
CIO Americas, WM 13 September 2018 7US REITs | Equity preferences
and other healthcare related facilities. We absolutely agree that over
the long term demographic forces will be a key demand driver. That
said the fact that people are living healthier, more active lives longer
than in previous generations there will be periods where supply of
senior-oriented healthcare facilities will exceed demand. In addition,
given the long-duration nature of leases, the healthcare REIT stocks
will be very susceptible to rising interest rates. In our view select expo-
sure to best-in-class operators with diversified portfolios and strong
balance sheets and/or that focus on medical office buildings are the
preferred ways to invest in the sector. We believe medical office (MOB)
remains well positioned as rising cost pressures at hospitals will lead
to shorter lengths of stay in the hospital increased demand for less
expensive MOB centers.
Towers and Data Centers (specialized) - the new 'growth' areas:
The continued growth in E-commerce, mobile transaction, mobile
video, big data, outsourcing and wireless technology in emerging
markets is a key driver in the demand for towers and data centers. In
addition, the ultimate migration to 5G wireless should be a positive
for both asset classes. We continue to see these sectors as prime areas
of focus for REIT investors.
Capital remains cheap and plentiful despite back up in yields:
Since 2009 more than USD 1 trillion in capital has been raised in the
commercial real estate market by REITs and private equity. The low
interest rate environment, strength of the unsecured debt market, the
resurgence of the CMBS market and the wall of private equity and
foreign capital have created a very robust flow of attractively priced
capital that is helping keep cap rates compressed. Of this capital raised
USD 287 billion has come from the unsecured debt market where
spreads remain relatively tight and another USD 256 billion came in
the form of common and preferred equity. In fact at USD 90 billion
2017 was the biggest year for REIT raising capital from the public
markets pursuant to the global financial crisis.
Limited new capacity - generally: One of the hallmarks of the post
recession environment is the dearth of new commercial real estate
construction. With the exception of the multifamily market (which is
responding to demand needs), self storage, industrial (where demand
is still outstripping supply) and select CBD office markets (New York,
San Francisco) that is seeing new office construction, there is little
new capacity being built. As we have witnessed in previous cycles,
excess construction is one of the key industry killers. Despite the flood
of capital we discussed previously, access to development capital is
largely relegated to well capitalized, responsible builders.
CIO Americas, WM 13 September 2018 8US REITs | Equity preferences
Alexandria Real Estate Equities: Most Preferred
Alexandria Real Estate Equities provides real estate and technical infrastructure services and capital for the life sciences
industry. It acquires, develops, owns and manages real estate with office or laboratory space for clients primarily in the
research, biopharmaceutical, medical device and government sectors. Alexandria Real Estate Equities was founded in 1994
and is headquartered in Pasadena, CA.
Key Metrics
Dividend Enterprise Total Market What drives our opinion
Yield (%) Value ($M) Assets ($M) Value ($M)
Alexandria Real Estate (ARE) is the leading owner of Class A properties
2.83 16,534 12,104.0 12,579
Consensus Forecasts (FY end) Dec 2017 Dec 2018E Dec 2019E
dedicated to life sciences, biotechnology, pharmaceutical and medical
Sales ($M) 1,115 998 1,197 technology research. ARE has a best-in-class portfolio that is clustered
Net Income ($M) 164.2 226.5 258.6 in several key research markets including Boston, San Francisco, New
AFFO ($) 4.34 5.27 5.78 York, San Diego and Seattle. ARE has consistently generated indus-
P/AFFO (x) 28.7 23.6 21.5 try leading margins, same store NOI growth, occupancy and ROIC.
Consensus Rating Distribution Buy Hold Sell
ARE's majority net lease structure leads to the lowest maintenance
9 4 0
CAPEX among office peers. 94% of ARE's leases have annual esca-
Source: FactSet, UBS, as of 12 September 2018 lations and tenant retention exceeds 80%. Risks include rising inter-
est rates, declining research budgets, tenant bankruptcies and lower
development returns.
ARE has a very strong balance sheet with limited near-term debt matu-
rities, a well-covered dividend and broad access to capital. ARE has
a demonstrated of history of developing assets that are well pre-
leased and deliver strong yields. We estimate that ARE's developments
completed in 2017 could add USD 18/share in NAV upon stabiliza-
tion while developments slated to come on line in 2018 and 2019
could add another USD 10.50 in GAV upon stabilization (excluding
in-process re-development projects). ARE has a well diversified tenant
base with 50%+ of annual revenue derived from investment grade
tenants. The de minimus amount of new development in ARE's sub-
sector has allowed the company realize strong re-leasing spreads and
maintain occupancy of more than 96% in its core markets. We believe
demand for life sciences facilities will remain strong as private industry
continues to innovate and the NIH research budget continues to grow.
Despite ARE's strong intern and external growth drivers, stronger pro-
jected growth and better fundamental drivers the shares trades at an
AFFO multiple discount to CBD office peers based on 2018 consensus
estimates.
CIO Americas, WM 13 September 2018 9US REITs | Equity preferences
American Tower Corp.: Most Preferred
American Tower is a leading independent owner, operator, and developer of wireless and broadcast communications real
estate. Its global portfolio includes some 147,000 communications sites and is experiencing steady growth. In addition to
leasing space on towers, AMT provides customized collocation solutions through in-building systems, outdoor distributed
antenna systems, and other right-of-way options, managed rooftops, and services that speed network deployment.
Key Metrics
Dividend Enterprise Total Market What drives our opinion
Yield (%) Value ($M) Assets ($M) Value ($M)
AMT's investment attributes include the largest global tower foot-
1.86 81,839 33,214.3 62,274
Consensus Forecasts (FY end) Dec 2017 Dec 2018E Dec 2019E
print, a high-barrier-to-entry business, significant operating leverage
Sales ($M) 6,664 7,159 7,623 with low maintenance CAPEX, a well-covered dividend, significant
Net Income ($M) 1,238.9 1,406.2 1,615.8 projected growth in mobile data and video, low wire line penetration
AFFO ($) 6.72 7.32 8.15 in many global markets, a strong balance sheet and liquidity profile
P/AFFO (x) 21.0 19.3 17.3 with well-laddered debt maturities, and strong, long-duration con-
Consensus Rating Distribution Buy Hold Sell
tracts with annual rent escalators. In addition, despite recent rising
19 3 0
customer churn in India, AMT maintained its full year 2018 AFFO
Source: FactSet, UBS, as of 12 September 2018 guidance. Risks include a strengthening USD, emerging market risks,
tenant concentration, wireless consolidation, and rising interest rates.
AMT's business model has significant operating leverage. In the US,
the average gross margin for a tower with one tenant is 40%. Adding
tenants two and three raises per-tower GMs to 70% and 83%,
respectively. These figures are higher globally given lower construc-
tions costs. Per-tower tenant penetration in the US is 2.2 vs 1.6 for
global markets. Given the low wire line penetration globally, it is like-
ly that per-tower density will grow. As international represents 70%
of towers but only 35% of revenues, significant operating leverage
potential exists. A study by Cisco projected US mobile data/video to
grow six times between 2014 and 2020. This will likely drive the need
for further tower equipment density.
AMT has grown its dividend at a CAGR of 24% since 2012 and is pro-
jecting to increase its dividend at least 20% per annum over the longer
term. It has limited maintenance capex requirements, and the majority
of capex is oriented toward revenue-producing initiatives. AMT's con-
tracts are generally non-cancellable, contain annual rent escalators,
have historically had low churn, and have the ability to pass through
a portion of operating costs in international markets.
CIO Americas, WM 13 September 2018 10US REITs | Equity preferences
AvalonBay Communities Inc.: Most Preferred
AvalonBay Communities is in the business of developing, redeveloping, acquiring, and managing high-quality apartment
communities in high-barrier-to-entry markets. These markets are located in the Northeast, Mid-Atlantic, Midwest, Pacific
Northwest, and Northern and Southern California regions of the country. The company was founded in 1978 and is
headquartered in Alexandria, VA.
Key Metrics
Dividend Enterprise Total Market What drives our opinion
Yield (%) Value ($M) Assets ($M) Value ($M)
We believe AVB has a best-in-class management team, property port-
3.43 30,207 18,414.8 23,077
Consensus Forecasts (FY end) Dec 2017 Dec 2018E Dec 2019E
folio, and development pipeline. AVB's portfolio is concentrated in
Sales ($M) 2,148 2,256 2,344 some of the highest job-growth markets in the US. AVB has one
First Call EPS ($) 8.51 8.94 9.34 of the highest 2018 projected AFFO growth rates in its peer group,
AFFO ($) 8.13 8.50 8.86 yet it trades at a slight discount to its peers based on consensus
P/AFFO (x) 20.5 19.6 18.9 AFFO estimates and at a discount to consensus NAV estimates. Risks
Consensus Rating Distribution Buy Hold Sell
include rising interest rates, migration to single-family homes from
8 14 0
apartments, lower-than-expected development returns, and slow-
Source: FactSet, UBS, as of 12 September 2018 ing/declining rents.
Despite being located in strong job-growth markets, some two-thirds
of AVB's portfolio is located in suburban markets. As such, they should
be less impacted by the new capacity additions being witnessed in
many core urban markets. AVB has a long track record of exceeding
projected development yields and leasing up new developments in an
expeditious manner. We remain constructive on the apartment sector
as we believe the demographic makeup of the US and the econom-
ics of the Millennial generation continue to favor renting vs. owner-
ship. There have been few opportunities to own AVB at a discount
to NAV and peers. Given AVB's high-quality balance sheet, portfolio,
management team, consensus projected AFFO growth rates, devel-
opment pipeline, and attractive valuation, we believe the risk/reward
appears attractive at current levels.
CIO Americas, WM 13 September 2018 11US REITs | Equity preferences
Camden Property Trust: Most Preferred
Camden Property Trust develops, owns, and manages multifamily apartment communities. Organized as a real estate
investment trust, the company owns or holds an interest in more than 180 properties across the United States containing
over 60,000 residences. It also provides consulting services on real estate development and operation to third-party clients.
Camden Property Trust is headquartered in Houston, Texas.
Key Metrics
Dividend Enterprise Total Market What drives our opinion
Yield (%) Value ($M) Assets ($M) Value ($M)
CPT has one of the most respected management teams in the entire
3.50 9,884 6,173.7 8,246
Consensus Forecasts (FY end) Dec 2017 Dec 2018E Dec 2019E
REIT sector. CPT has a demonstrated history of astute capital recycling,
Sales ($M) 929 806 855 value-added redevelopment, and value-enhancing ground-up devel-
First Call EPS ($) 4.53 4.75 5.02 opment. CPT has a geographically diversified portfolio composed of
AFFO ($) 3.84 4.06 4.31 Class A/B urban and suburban units located predominantly in high job
P/AFFO (x) 22.5 21.2 20.0 and population growth states/cities. CPT boasts a strong, investment
Consensus Rating Distribution Buy Hold Sell
grade balance sheet and a solid dividend that is well covered with
10 11 0
ample room for further increases. Risks include rising interest rates,
Source: FactSet, UBS, as of 12 September 2018 declining job growth, additional new construction, select geographic
concentration, and increased move-outs to purchase homes.
Since 2011 CPT has significantly enhanced the quality of its portfo-
lio by divesting USD 3bn of assets with an average age of 23 years
while adding USD 3.6bn of assets with an average age of 3.3 years.
The increased quality of the portfolio has led to stronger occupancy
and rent growth. In addition, over the past several years, CPT has
invested USD 290mn in redeveloping some 25,500 older assets that
have generated a cash-on-cash return of 10%. Further, despite boast-
ing one of the highest projected consensus AFFO growth rates in
2018 and 2019, the stock trades in line with it multifamily peers and
at a discount to consensus NAV estimates. We estimate more than
50% of CPT's net operating income is generated in cities that are on
Amazon's 20-city finalist list for its HQ2. We believe a significant per-
centage of these estimated 50,000 employees will be renters. Finally,
the new constructive wave in the apartment market is likely to peak
in 2018 in many markets. Combining this with the tightening in con-
struction lending standards and the significant increase in construc-
tion costs, we believe it is likely that excess supply issues will begin to
fade as an area of concern for investors.
CIO Americas, WM 13 September 2018 12US REITs | Equity preferences
Corp. Office Properties Tr.: Most Preferred
Corporate Office Properties Trust, Inc. is a real estate investment trust. It acquires, develops and manages properties in
large office parks and primarily leases to federal government, defense information technology and data sector customers.
The company has approximately 250 properties located in Maryland, Virginia, Colorado, Texas, Pennsylvania and New
Jersey. Corporate Office Properties Trust was organized in 1988. It is headquartered in Columbia, MD.
Key Metrics
Dividend Enterprise Total Market What drives our opinion
Yield (%) Value ($M) Assets ($M) Value ($M)
OFC is one of the more unique stories in the office sector as its pre-
4.23 4,494 3,578.5 2,642
Consensus Forecasts (FY end) Dec 2017 Dec 2018E Dec 2019E
dominant focus is leasing to tenant (both government and non-gov-
Sales ($M) 610 445 475 ernment) that are focused on defense, cyber warfare and mission crit-
Net Income ($M) 59.8 79.9 86.3 ical IT installations. Since 2012 management has divested virtually all
AFFO ($) 1.47 1.50 1.56 non-core assets, significantly lowered leverage, sharpened its focus
P/AFFO (x) 17.7 17.4 16.6 on the high growth portion of the nation's military needs and has
Consensus Rating Distribution Buy Hold Sell
successfully pre-leased a bulk of its new developments. In addition,
4 9 1
further upside could come from its data center development business.
Source: FactSet, UBS, as of 12 September 2018 Risks include exposure to US government tenants, defense tenant
concentration, rising interest rates, development risks and a shrinking
military budget.
After contracting between 2010-2016 the DOD base budget is pro-
jected to increase on average 4%-5% per annum through 2021. A
significant portion of this spending is directed towards growth areas
of defense (including cyber command, counter terrorism and equip-
ment maintenance & strength) where OFC has substantial assets. OFC
boasts occupancy rates in stabilized buildings of 93%, very strong ten-
ant retention rates (despite built in lease escalators) and an investment
grade balance sheet with significant flexibility and no debt maturi-
ties until 2020. In addition although 36% of leases roll over between
4Q 2017-2019, the vast majority of these leases are to mission criti-
cal defense and defense-related IT companies. Further OFC's 2.6mm
square feet of development projects are 78.5% pre-leased. Upon sta-
bilization they are estimated to generate USD 42mm in cash NOI. At
a 6.5% cap rate, this translates into incremental GAV/share of USD
6.40. With the stock currently trading at an 11% discount to consen-
sus NAV and a 9% discount to office peers based on consensus 2018
FFO estimates, we believe OFC is attractively valued, particularly when
the earnings from current developments begin to flow through. The
dividend is well covered and offers ample room for future increases.
CIO Americas, WM 13 September 2018 13US REITs | Equity preferences
Duke Realty: Most Preferred
Duke Realty Corporation invests in the real estate markets of the United States. It offers a single point of responsibility for
all aspects of a project, including leasing, asset management, construction, and development. The firm primarily invests
in the commercial real estate sector. It was founded in 1972 and is headquartered in Indianapolis, Indiana.
Key Metrics
Dividend Enterprise Total Market What drives our opinion
Yield (%) Value ($M) Assets ($M) Value ($M)
With the May 2017 sale of its MOB portfolio DRE became a pure play
2.99 11,559 7,388.2 9,310
Consensus Forecasts (FY end) Dec 2017E Dec 2018E Dec 2019E
industrial company with the youngest portfolio of its peers. Pursuant
First Call EPS ($) 1.24 1.27 1.36 to the MOB sale DRE shares have lagged its peers as DRE reinvest-
Sales ($M) 782 747 757 ed the sale proceeds in higher cost coastal markets, continued devel-
AFFO ($) 1.10 1.13 1.22 opment and a tenant bankruptcy negatively impacted SSNOI by 80
P/AFFO (x) 23.7 23.1 21.4 bps. In our view the market is not giving DRE sufficient credit for the
Consensus Rating Distribution Buy Hold Sell
better than expected acquisition returns, the additional development
4 11 1
NOI potential, the number of below marker leases and the successful
Source: FactSet, UBS, as of 12 September 2018 releasing of the bankrupt facilities. Risks include rising interest rates,
excess capacity, development risk, exposure to AMZN and reduced
capital access.
Fundamentals in the industrial sector remain very robust. With 55%
of its portfolio exposed to tier 1 markets we believe DRE is well posi-
tioned to capitalize on the myriad drivers of industrial demand. One
of the key drivers of value that we believe the market is missing is
that only 83% of DRE's NOI comes from its same store pool. Based
on expected yields we believe development alone could add upwards
of USD 4/share in GAV. This does not include the 20% of the port-
folio that renews through 2019 where rents are almost 20% below
market. In addition the acquired Bridge portfolio is generating returns
in excess of initial expectations. Further, DRE has released one of the
bankrupt facilities at significantly higher rents and is finalizing leas-
ing on the other two units. Finally with its 45 year track record of
development DRE estimates that the current 9.5mm square feet under
development (63% pre-leased) will have a stabilized yield >7%. DRE
has a strong, investment grade balance sheet with minimal near-term
debt maturities and has a well covered dividend that has grown at
a CAGR of almost 6% since 2012. We believe that DRE is poised to
close the valuation and NAV gap with its peers as it delivers on its
multiple avenues of NOI growth.
CIO Americas, WM 13 September 2018 14US REITs | Equity preferences
Equinix Inc.: Most Preferred
Equinix, Inc. provides global data center services to global enterprises, content companies, neutral data centers, financial
companies, and internet exchange services for enterprises to protect and connect their most valued information assets.
The company was founded in June 1998 and is headquartered in Foster City, CA.
Key Metrics
Dividend Enterprise Total Market What drives our opinion
Yield (%) Value ($M) Assets ($M) Value ($M)
EQIX's investment attributes include the largest global interconnec-
2.02 40,383 18,691.5 32,464
Consensus Forecasts (FY end) Dec 2017 Dec 2018E Dec 2019E
tion profile among its peers, a high degree of recurring revenue
Sales ($M) 4,368 5,042 5,580 (around 95%), very low customer churn, and a network- and cloud-
First Call EPS ($) 17.90 20.77 23.71 neutral business model that offers customers direct interconnection
AFFO ($) 18.53 20.73 23.70 across EQIX's five key verticals – network and mobile providers, cloud
P/AFFO (x) 22.1 19.8 17.3 and IT services, content providers, enterprise customers, and financial
Consensus Rating Distribution Buy Hold Sell
companies/exchanges. In addition EQIX recently named a permanent
22 2 0
CEO, further bolstering its strong management team. Risks include ris-
Source: FactSet, UBS, as of 12 September 2018 ing interest rates, acquisition integration, potential future stock offer-
ings, currency swings, technological obsolescence, and country-spe-
cific risks.
In 2017, more than half of EQIX's revenue came from customers
operating in all of EQIX's markets, further highlighting the benefits
of EQIX's global presence. Although some of EQIX's customers oper-
ate their own data centers (DC), these companies rely on EQIX for
many of their mission-critical interconnection relationships. This per-
mits customers to connect with networks they require in one loca-
tion as opposed to across a metro area, thus increasing scalability and
reducing network costs. In addition, as EQIX's customers locate in one
of their data centers, it benefits the customer's suppliers and business
partners to co-locate so as to capture the complete benefits of inter-
connection. EQIX's recently closed acquisition of Verizon's DC assets
adds some 900 customers to EQIX's base of more than 3,800, as well
as increasing the number of EQIX's DCs by 20% to 184 and doubling
the number of metro areas covered in the US to 30.
Other key attributes include very low leverage, well-laddered debt
maturities, a well diversified client base, average lease maturities in
excess of 20 years (with extensions), dividend coverage that leaves
ample room for future increases, and a stock that trades at a discount
to consensus net asset value estimates.
CIO Americas, WM 13 September 2018 15US REITs | Equity preferences
Hudson Pacific Properties: Most Preferred
HPP is a vertically integrated real estate company focused on acquiring, re-positioning, developing, and operating high-
quality office and state-of-the-art media and entertainment properties in high-growth, high-barrier-to-entry submarkets
throughout Northern and Southern California and the Pacific Northwest.
Key Metrics
Dividend Enterprise Total Market What drives our opinion
Yield (%) Value ($M) Assets ($M) Value ($M)
HPP continues to fire on all cylinders. HPP has the second-largest
3.13 7,512 6,622.1 4,954
Consensus Forecasts (FY end) Dec 2017E Dec 2018E Dec 2019E
office presence in the Seattle and San Francisco CBD markets, the
Sales ($M) 706 715 764 largest presence in the Silicon Valley/Peninsula markets and the third-
First Call EPS ($) 0.53 0.53 1.09 largest exposure in the LA Market. All of these markets continue to
AFFO ($) 1.12 1.13 1.32 demonstrate strong job growth, demand for office space, strong val-
P/AFFO (x) 28.6 28.1 24.1 uations and continued investor demand. In addition, HPP is a strong
Consensus Rating Distribution Buy Hold Sell
capital allocator, actively recycling capital via targeted asset disposi-
8 4 0
tions. Risks to our view include a recession, rising interest rates, a
Source: FactSet, UBS as of 12 September 2018 slowdown in technology markets, unfavorable regulatory issues and
reduced access to capital.
HPP has realized significant mark-to-market on the lease-up of much
of the acquired EOP portfolio. In addition, the company should contin-
ue to realize continued strong mark-to market, FFO and AFFO growth
on new leases. The stabilization of the company's prior acquisitions
combined with the faster (and higher return) lease up of the EOP port-
folio should allow AFFO to significantly exceed the dividend in 2018
and beyond. In addition to substantially enhancing HPP's financial and
risk profile, we believe the stage will be set for dividend increases
going forward. Further HPP continues to realize significant mark to
market on its non-EOP office portfolio and it studio assets. Vacated
spaces have either been successfully back-filled or are in advanced
discussions with strong credit tenants. Finally the technology sector
remains very vibrant in HPP's core markets with capital still widely
available for solid business plans.
CIO Americas, WM 13 September 2018 16US REITs | Equity preferences
ProLogis: Most Preferred
ProLogis, Inc. is a global owner, operator, and developer of industrial real estate properties, focused on global and regional
markets across the Americas, Europe, and Asia. The company leases modern distribution facilities to various customers,
including manufacturers, retailers, transportation companies, third-party logistics providers, and other enterprises. Its
portfolio includes high throughput distribution facilities which include industrial properties built for speed located near
key seaports, airports, and major freeway interchanges. ProLogis was founded on 3 June 2011 and is headquartered in
San Francisco, CA.
Key Metrics
Dividend Enterprise Total Market What drives our opinion
Yield (%) Value ($M) Assets ($M) Value ($M)
Fundamentals in the industrial sector remain strong. PLD, the largest
2.76 48,294 29,481.1 34,809
Consensus Forecasts (FY end) Dec 2014 Dec 2015 Dec 2016
owner of industrial properties in the world, recently announced the
Sales ($M) 2,197 2,533 2,533 acquisition of DCT Industrial. Upon closing DCT will add another
First Call EPS ($) 2.21 2.57 2.57 71mn SF to PLD's existing portfolio of 670mn. PLD has a three-
AFFO ($) 1.92 2.19 2.19 prong operating model consisting of owned and operated real estate,
P/AFFO (x) 18.5 23.0 24.9 development, and strategic capital management that provides mul-
Consensus Rating Distribution Buy Hold Sell
tiple avenues of value-creation potential. PLD has a deep manage-
14 4 0
ment team, a strong balance sheet with strong access to capital and
Source: FactSet, UBS, as of 12 September 2018 deep relationships with global institutional investors. Risks to our view
include a recession, excess capacity, rising interest rates, and reduced
access to capital.
Investment attributes include: 1) PLD estimates the average rent on
its existing portfolio is 10–12% below current market rents and the
average of the 131mn square feet KTR & DCT portfolios are similarly
below market; 2) the development pipeline of USD 2.5bn in annual
developments should lead to USD 2–3/share of GAV accretion upon
stabilization. PLD has a sufficiently large land bank to fund develop-
ment for a number of years; 3) continued cap rate compression in
Europe should further increase the value of PLD's portfolio; 4) the
strategic capital business has more than USD 22bn in assets under
management. In addition to being an efficient source of capital, it has
allowed PLD to effectively manage its currency exposure. Further, the
strategic capital business provides annual recurring revenue in excess
of USD 220mn, allows PLD to retain control of the assets, and pro-
vides PLD with the opportunity to earn incremental performance fees;
5) PLD has strong embedded rent growth in its current portfolio and
can grow NOI even if rents remain flat (which we do not expect).
CIO Americas, WM 13 September 2018 17US REITs | Equity preferences
Rexford Industrial Realty Inc: Most Preferred
Rexford Industrial Realty, Inc. is an equity real estate investment trust. The firm invests in the real estate markets of Southern
California. It engages in acquiring, owning, and operating industrial properties. Rexford Industrial Realty, Inc. is based in
Los Angeles, California.
Key Metrics
Dividend Enterprise Total Market What drives our opinion
Yield (%) Value ($M) Assets ($M) Value ($M)
The industrial sector remains very strong, particularly in REXR's core
2.02 2,955 2,111.4 2,311
Consensus Forecasts (FY end) Dec 2017 Dec 2018E Dec 2019E
infill Southern California, market. The market is large, home to the
Sales ($M) 158 200 196 two busiest ports in the US, and highly fragmented, and has limit-
First Call EPS ($) 0.04 0.14 0.22 ed new capacity build risk. As such, vacancy rates in the market are
AFFO ($) 0.75 0.83 0.89 below 2%. REXR has developed strong broker relationships in each
P/AFFO (x) 39.2 35.5 33.2 of its sub-markets. These relationships provide REXR with excellent
Consensus Rating Distribution Buy Hold Sell
real-time market color and timely access to potential acquisitions. In
5 3 1
addition, REXR has an active database of virtually every asset in its
Source: FactSet, UBS, as of 12 September 2018 target markets. Risks to our view include a recession, rising interest
rates, integration issues, and reduced access to capital.
We believe REXR's superior access to information is key to getting
access to off-market and lightly marketed deals (which should ulti-
mately lead to more attractive asset pricing and better returns). REXR
has a demonstrated history of value-added acquisitions, something
that has been enhanced by its access to the public capital markets. The
fragmented and non-institutional nature of REXR's target markets has
often led to assets being significantly under-managed. The fragment-
ed nature of its target market allows for significant external growth
potential, in our view. In the past month alone, REXR has announced
and closed several sizable acquisitions of well-located assets with rents
that are well below market. In addition to external growth potential,
REXR should continue to recognize additional growth from the exist-
ing portfolio as recession-era rents and incentives burn off and vacan-
cy continues to lease up. In addition, further acquisitions should allow
REXR to better leverage its SG&A.
CIO Americas, WM 13 September 2018 18US REITs | Equity preferences
Simon Property Group: Most Preferred
Simon Property Group, headquartered in Indianapolis, Indiana, is a real estate investment trust engaged in the ownership,
development, and management of retail real estate, primarily regional malls, premium outlet centers, and community/
lifestyle centers.
Key Metrics
Dividend Enterprise Total Market What drives our opinion
Yield (%) Value ($M) Assets ($M) Value ($M)
We believe SPG has a best-in-class portfolio, balance sheet, and man-
4.80 71,673 32,257.6 47,517
Consensus Forecasts (FY end) Dec 2017 Dec 2018E Dec 2019E
agement team. In addition, although SPG continues to defy "the mall
Sales ($M) 5,532 5,468 5,703 is dying" narrative, several crucial facts continue to elude investors:
First Call EPS ($) 11.21 12.00 12.58 1) Since 2013, SPG has grown its dividend by a CAGR of 12.5%
AFFO ($) 10.31 10.86 11.37 and the stock currently yields almost 5%; 2) Releasing spreads remain
P/AFFO (x) 14.9 14.1 13.5 strong and the quality of SPG's locations have allowed the company
Consensus Rating Distribution Buy Hold Sell
to attract scores of pure e-tailers and experiential retail concepts; and
15 7 0
3) Apparel as a percent of SPG sales has declined significantly. Risks
Source: FactSet, UBS, as of 12 September 2018
include further retail bankruptcies, rising interest rates, and declining
rents.
In addition: 4) There is virtually no new mall capacity under develop-
ment, and class A locations remain essential for e-tailers and retailers.
This, combined with the likelihood of a contraction in secondary and
tertiary retail real estate, further strengthens SPG's position; 5) The
rate of retailer bankruptcies and store closures has declined precipi-
tously; 6) SPG has access to significant amounts of capital that pro-
vide the company the financial wherewithal to engage in high-return
redevelopments; 7) SPG's ownership of both class A malls and pre-
mium outlets provides a natural hedge for the business; 8) SPG is at
the forefront of employing technology in the retail real estate envi-
ronment; and 9) Despite all of its competitive advantages, SPG trades
at one of the highest dividend yields and the lowest forward multi-
ple of 2018 AFFO of the "A" mall companies based on consensus
estimates. In addition, the shares trade at more than a 10% discount
to consensus NAV estimates. For longer-term-oriented investors, we
believe SPG represents an attractive investment opportunity.
CIO Americas, WM 13 September 2018 19US REITs | Equity preferences
Vornado Realty Trust: Most Preferred
Vornado Realty Trust is a fully integrated real estate company, owning and managing approximately 87 million square feet
of real estate. It owns and operates office, retail, and showroom properties with large concentrations in the New York
metropolitan area. It is headquartered in New York, NY.
Key Metrics
Dividend Enterprise Total Market What drives our opinion
Yield (%) Value ($M) Assets ($M) Value ($M)
Since 2012 VNO management has sold USD 5.8 bn in assets and spun
3.78 23,672 17,397.9 12,781
Consensus Forecasts (FY end) Dec 2017 Dec 2018E Dec 2019E
off USD 15.5 bn of underperforming, low return assets. In addition,
Sales ($M) 2,075 2,143 2,191 management is considering separating its 2.7 million square feet of
Net Income ($M) 240.6 269.7 388.3 high quality NYC retail assets. This, combined with the stock's 20+%
AFFO ($) 2.82 2.68 3.10 discount to NAV (based on consensus estimates) and the statement by
P/AFFO (x) 23.8 25.1 21.7 the CEO in his annual shareholder letter "be assured, we will continue
Consensus Rating Distribution Buy Hold Sell
to leave no stone un-turned and everything remains on the table in
8 7 0
pursuit of shareholder value. We are not done yet," lead to a more
Source: FactSet, UBS, as of 12 September 2018 attractive risk/reward outlook for the shares. Risks include falling val-
ues for NYC retail and office assets, a recession, and rising interest
rates.
VNO owns a very strong portfolio of office assets in NYC that, on a per
square foot basis (based on consensus estimates) is valued approxi-
mately 30% below where assets are trading in the private market.
In addition, VNO is the largest owner of office assets in the Penn
Plaza district of NYC (>9 mn square feet). Given Penn Plaza's prox-
imity to the highly successful Hudson Yards development, we believe
the potential value in the redevelopment of the Penn Plaza district is
effectively a free option for shareholders at the current stock price.
Further, VNO owns the highly successful 3.7 mn square foot Chicago
Mart and a 70% interest in 555 California Street in San Francisco -
one of the premiere office assets in the region and the 950 foot luxury
condominium tower at 220 Central Park South that should deliver in
2019. VNO has strong investment grade balance sheet with access
to ample liquidity, a solid dividend several other non-core assets that
will likely be sold, further bolstering the company's strong financial
resources.
CIO Americas, WM 13 September 2018 20You can also read
