High Quality Multi-family REITs - EQR, CPT, ESS, AVB

[thepupil]

we are thinking about it the same way.

haven't pulled trigger on HST or anything hospitality related. There I think the EV / Key comparison is a harder to make at this time because you could be looking at a (maybe only slightly) different cap structure.

Big picture, if on January 1 you knew this was going to happen and you asked how much would EQR/HST/VNO be down, I would think that most would guess HST would be down the most (75-100% of its tenants aren't paying rent for the next 2-undefined months)

In actuality, HST is down 45%, VNO is down 51% and EQR is down 32%.

Now YTD stock moves is not indicative of price to "value" gap. HST traded at a discount to replacement costs beforehand and had issues beforehand (EQR arguably did not) and Host now trades at a (using a sell side estimate) 50-60% discount to replacement cost.

I'm not saying that HST isn't cheaper than the other two on a very long term basis, but I think the others (just using them as proxies for other type of RE and because I know VNO to an unfortunate degree) are safer and still offer upside.

In a year, stodgy institutional investors will be bidding for / lending to EQR type of properties, but I think hospitality will have a longer and stronger taint/increase in the cost of capital

[matts]

we are thinking about it the same way.

haven't pulled trigger on HST or anything hospitality related. There I think the EV / Key comparison is a harder to make at this time because you could be looking at a (maybe only slightly) different cap structure.

Big picture, if on January 1 you knew this was going to happen and you asked how much would EQR/HST/VNO be down, I would think that most would guess HST would be down the most (75-100% of its tenants aren't paying rent for the next 2-undefined months)

In actuality, HST is down 45%, VNO is down 51% and EQR is down 32%.

Now YTD stock moves is not indicative of price to "value" gap. HST traded at a discount to replacement costs beforehand and had issues beforehand (EQR arguably did not) and Host now trades at a (using a sell side estimate) 50-60% discount to replacement cost.

I'm not saying that HST isn't cheaper than the other two on a very long term basis, but I think the others (just using them as proxies for other type of RE and because I know VNO to an unfortunate degree) are safer and still offer upside.

In a year, stodgy institutional investors will be bidding for / lending to EQR type of properties, but I think hospitality will have a longer and stronger taint/increase in the cost of capital

Agreed. I only mentioned HST due to the method.

Have you looked at the manufactured housing space?

By that simple approach:

ELS - 12.2Bn EV / 156,513 sites = 78k per site (but 80k of the 156k sites is RV)   -  average rent $675, sites mostly on the coasts. 90% of revenue is annual recurring. only 10% is seasonal/transient RV.

SUI 14Bn EV / 141k sites = 99k per site        -  average rent 997, site mostly on coasts. half the communities are age restricted

UMH 1.3Bn EV/ 23,100 sites = 56k per site  - average rent $447, sites mostly in Pennsylvania and Ohio. UMH also has a growing business of buying and owning the homes in order to rent them. This speeds up the turnaround of their communities since they tend to buy crappy parks that are ~60% occupied when acquired. They demolish the old houses, stick their brand new houses for rent, and that then make the community much more appealing for regular clients who buy their own home. On the negative side, UMH is family-controlled and shareholders have been complaining about the value leakage to the family for years.

UMH and ELS look most attractive to me depending on your risk tolerance. The cheaper tenants at UMH are more likely to lose jobs, go delinquent etc.  ELS also has better management and shareholder track record.
 

[thepupil]

I would like to buy ELS at an $8 billion EV, but Bloomberg says $9.6 billion market cap and $12 billion EV. Likewise SUI is at $14 billion EV.

Is there some discrepancy on BBG or subtlety/ adjustment here that I’m missing or are your EV’s off?

[matts]

No. I just used a bad source. I'll update the post above

[rb]

Well EQR took in 2.7 billion in rents last year. At an EV of 30 billion. That's a 9% gross rent yield.

Now if you found a property in EQR's markets that gives you a 9% gross yield don't you buy it in a nanosecond?


I'm asking for a friend   

[thepupil]

potentially so. I'll give you an example in my backyard.

Behold this Zillow listing:

https://www.zillow.com/homedetails/5500-Friendship-Blvd-APT-817N-Chevy-Chase-MD-20815/37195057_zpid/

this is in a well-located but tired building, it is spitting distance from Whole Foods the Friendship Heights metro, etc.

$500K gets you a 1200 sq foot 2/2 with some outdoor space that would rent for $2,500 - $3000 (the listing shows a rental at $2,950, I assume someone would rent a little lower than that). If you paid cash, you'd still have a $1000 / month HOA. this is a decent albeit somewhat unhip location. the building was built in 1968. I think its a terrible investment proposition. $2600 /month rent less $1000 HOA = $1600 / month before any other expenses. We're already at an extremely low cap rate. Maybe it goes for lower, but I happen to know a lot of investors own units in this building (let's just say I know a former tenant very well); the units seem to move slowly but they do sell at prices indicating ridiculously low cap rates.

Let's walk across the street, to EQR's property (formerly owned by Archstone), Wisconsin Place. Wisconsin Place sits atop Whole Foods (shared parking garage) which also connects to the Friendship Heights metro, which connects to a little retail center that includes movie theater, department store, restaurants, gyms, etc. This was built in 2009 and is in good shape.

https://www.equityapartments.com/washington-dc/friendship-heights/wisconsin-place-apartments
https://www.equityapartments.com/washington-dc/friendship-heights/wisconsin-place-apartments##bedroom-type-section-2

A 1000 square foot two bedroom is listed for $3600 / month and up. studio's and one bedrooms $2,100-$2,200 and up.

this is kind of a contrived comparison using anecdotes, but the first one trades at an 6%-7% rental yield or so and as you point out EQR is closing in on a 9%. But the maintaince and capex and running cost of that 9% are LOWER because the building is newer and the room for error is higher because the rents are high because of the quality.

you are buying property in areas where even old kind of tired buildings still command high prices because (in this instance) this is metro-accessible high rent areas with amenities and stuff.

and jsut for shits and giggles, you all will be happy to know that GEICO's corporate headquarters is right next to both buildings:

[matts]

Someone sent me a private message about UMH, asking about their occupancy during the GFC. I'm posting my response in case others are looking at it.


Hey,

Please post in the thread so we can all benefit from the info.

congrats on the great entry. I also own the D prefs.

You can look at the occupancy disclosed in the annual 10-k report on sec edgar

the occupancy did not fall significantly in 2009, 2010, or 2011. I was surprised myself. Some people moved out but many moved in to replace them. I was likely because it's so expensive to move these "mobile" homes.

The provisions for doubtful accounts did go up during that time, however. They are not a bank so their disclosures don't make it easy to see how those accounts resolved.

I think what is different this time vs 08 is that many more people are losing their jobs all at the same time and politicians like Chuck Schumer are on tv telling people they don't have to pay rents.

UMH has a significant amount of Fannie/Freddie guaranteed mortgages which allow them to defer mortgage payments if they agree not to evict. I forget if I ever found a % number for guaranteed mortgages but the 10-k shows most of the recent refinances have been with Fannie.

[HalfMeasure]

Well EQR took in 2.7 billion in rents last year. At an EV of 30 billion. That's a 9% gross rent yield.

Now if you found a property in EQR's markets that gives you a 9% gross yield don't you buy it in a nanosecond?


I'm asking for a friend   

This is a great point.

[thepupil]

Initial look shows big drop in those paying rent

Only 69% tenants paid any of their rent in April's first five days, according to the National Multifamily Housing Council. That compares to 81% in March's first week, and 82% in April's first week one year ago.
• The actual situation for most (tenants and landlords) may be somewhat worse as the data is from a survey of 13.4M investment-grade rental apartments, i.e. likely to be occupied by higher-income tenants.
• While this doesn't necessarily mean a wave of evictions (new laws around the country kind of prevent this), the delinquent rent is likely to move up the chain as landlords then struggle with mortgage payments, possibly setting off a wave of losses in CMBS-land.

[lnofeisone]

potentially so. I'll give you an example in my backyard.

Behold this Zillow listing:

https://www.zillow.com/homedetails/5500-Friendship-Blvd-APT-817N-Chevy-Chase-MD-20815/37195057_zpid/

this is in a well-located but tired building, it is spitting distance from Whole Foods the Friendship Heights metro, etc.

$500K gets you a 1200 sq foot 2/2 with some outdoor space that would rent for $2,500 - $3000 (the listing shows a rental at $2,950, I assume someone would rent a little lower than that). If you paid cash, you'd still have a $1000 / month HOA. this is a decent albeit somewhat unhip location. the building was built in 1968. I think its a terrible investment proposition. $2600 /month rent less $1000 HOA = $1600 / month before any other expenses. We're already at an extremely low cap rate. Maybe it goes for lower, but I happen to know a lot of investors own units in this building (let's just say I know a former tenant very well); the units seem to move slowly but they do sell at prices indicating ridiculously low cap rates.

Let's walk across the street, to EQR's property (formerly owned by Archstone), Wisconsin Place. Wisconsin Place sits atop Whole Foods (shared parking garage) which also connects to the Friendship Heights metro, which connects to a little retail center that includes movie theater, department store, restaurants, gyms, etc. This was built in 2009 and is in good shape.

https://www.equityapartments.com/washington-dc/friendship-heights/wisconsin-place-apartments
https://www.equityapartments.com/washington-dc/friendship-heights/wisconsin-place-apartments##bedroom-type-section-2

A 1000 square foot two bedroom is listed for $3600 / month and up. studio's and one bedrooms $2,100-$2,200 and up.

this is kind of a contrived comparison using anecdotes, but the first one trades at an 6%-7% rental yield or so and as you point out EQR is closing in on a 9%. But the maintaince and capex and running cost of that 9% are LOWER because the building is newer and the room for error is higher because the rents are high because of the quality.

you are buying property in areas where even old kind of tired buildings still command high prices because (in this instance) this is metro-accessible high rent areas with amenities and stuff.

and jsut for shits and giggles, you all will be happy to know that GEICO's corporate headquarters is right next to both buildings:

Few things here to unpack.
1) Many of the new buildings give 2 months free for a 13 month lease.  They don't' advertise it but if you go to the leasing office it's the first thing they bring up. I have friends who are literally moving apartments every 1-2 years. One of them moved within the same buildings 4 times now (around Mt. Vernon in DC).
2) You hit the nail on the head. The premium here is metro accessibility which in DC is paramount. Getting a similar apartment, 15 minute drive/bus ride will be going for 50% off. Check out 7 corners in Virginia where you are 15 minutes to either blue or orange/silver lines.
3) Here is a fun little special situation right next to a metro - https://www.zillow.com/homedetails/1111-Arlington-Blvd-APT-925-Arlington-VA-22209/2080716875_zpid/
there is a reason, of course.