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

[matts]

YOu're all right - not a landlord, never been a landlord, never want to be a landlord (at least directly).  Also never missed rent when I was renting, so total ignorance here for sure. 

Is internet access considered essential service?  Is there nothing that is available to a landlord outside of the courts? 

BTW - renting was when I lived in TX, so maybe the laws / enforcement is different from rest of the country.  I just remember even getting some basic stuff fixed was a real pain.  Perhaps this is also because the apartments were very cheap, so you sort of get what you pay for, and I certainly had no money to go sue...

In many homes, internet goes beyond just browsing (think alarm systems, Alexa, etc.). In many locales tenants sign up and pay for utilities and cutting that off can be challenging (have to validate identify) and all. Long way of saying, landlords should stick to courts.

So perhaps I could have clarified that my comments are for the securities listed in the title of this thread.  If it's a single family it's a different story.  However, if it's a high rise in NY it's very likely that tenants do not have a choice on their internet provider.  It's either bundled in rent, or it runs through the central infrastructure of the building (with one provider and zero choice unless cellular).  Having listed in 6 different buildings in NY that has consistently been the case (4 bundle with cable, 2 individually billed, but zero choice on provider).

If it's bundled in rent it would most likely be classified as a utility by the tenant-landlord bylaws. If it's zero choice, that's still not building infrastructure. The equipment belongs to verizon. The building has an agreement with verizon to host the equipment and that's it. The individual service agreements to the units don't include the building as a party. You would have no legal right to mess with it. 

[Kaegi2011]

This roleplaying is fun. All of the above assumes the guy even takes your calls.

Fair.  Perhaps professionally managed buildings are different. 

In my experience in lower income housing growing up, the landlord isn't without leverage.  That's why I even brought up the point around negotiating a bit. 

Anyway, we've gotten off track on topic.  Apologies for the detour. 

[matts]

BSR REIT (sunbelt multifamily) gave an update

https://web.tmxmoney.com/article.php?newsid=6676403039637442&qm_symbol=HOM.U

As of April 15, 2020, the REIT has collected 93.3% of total revenue for the month. Historically, by the 15th of the month the REIT has collected 97.0% of its total revenue. Total revenue includes rental income, fees associated with moving in or out such as application and cleaning fees, parking fees, renters' liability insurance and utility charges.

To date, the REIT has received 100 requests from residents for a deferral of April rent payments. This represents approximately 1.1% of the apartment units in the portfolio and is not expected to materially impact the REIT's financial performance. The REIT will continue to monitor the situation closely and provide a further update if it receives a material increase in rent deferral requests in the weeks ahead.

[BG2008]

This roleplaying is fun. All of the above assumes the guy even takes your calls.

Fair.  Perhaps professionally managed buildings are different. 

In my experience in lower income housing growing up, the landlord isn't without leverage.  That's why I even brought up the point around negotiating a bit. 

Anyway, we've gotten off track on topic.  Apologies for the detour.

What kind of leverage are you talking about?  Do tell.

[LC]

What kind of leverage are you talking about?  Do tell.

You're a NYC landlord and don't know any slumlord tactics? C'mon

[matts]

Rent strike groups are starting to pop up

https://therealdeal.com/2020/04/16/tenant-groups-set-rent-strike-for-may-1/

any thoughts on how widespread the movement will get? and then how successful?

My answer would be pretty widespread in the large blue cities and will be meaningful on the margins for large landlords in those cities and a much bigger deal to small landlords.

[matts]

Looks like the stimulus is working. From the Firstcash (pawn shops) call on April 21:

“Our U.S. business has been further impacted in April as customers started receiving federal stimulus payments, which are in effect a “second tax refund,” assuming a stimulus payment of $3,400 for the typical family of four. Despite the severe and broad-based economic impacts of COVID-19 on so many businesses and individuals, many of our U.S. customers appear to be somewhat more liquid than would be expected given increased unemployment rates. In addition to stimulus payments, we believe that many of our customers have temporarily reduced their normal levels of spending significantly, as they adhere to strict “shelter-in-place” regulations resulting in reduced expenditures on gasoline, dining out, travel, entertainment, childcare and other services.

“Accordingly, the U.S. results so far in April have seen both extremely strong retail sales and loan redemptions, coupled with a lower than normal volume of new loans being written. Currently, U.S. pawn loans are down 14% since the beginning of April, when normal seasonal trends for the month would typically see flat to slightly increased pawn balances. While the increased volume of loan redemptions is to date driving a 12% increase in collected pawn fees for April compared to last year, expected fee income after April will be impacted by the reduced loan balances.

“Offsetting much of the near term impact of lower pawn balances is the strength of the U.S. retail business, where same-store retail sales in the first three weeks of April are up approximately 29% versus the same period last year while being able to maintain margins consistent with the first quarter. Much of the retail sales growth has been driven by strong demand for essential “stay at home” product categories, including electronics utilized for remote work or online learning and other “home-based” recreational products, such as gaming consoles and sporting goods."

[thepupil]

Speaking of Sam Zell...


EQR reported yesterday. I think it illustrates what's good/bad about these things generally. what's good is that nothing looks dire and they are keeping the buildings relatively full, NOI flat-ish, the exodus from the $2,800 / month (EQR's average) apartments hasn't started just yet. they sold $370mm of apartments at good cap rates (4.5-5.0%) of course that's 1% of their asset base and printed a nice $450mm secured loan at 2.6% interest only for 10 years (that's 4-5% of their debt).

this was a lower conviction basket for me that has already been sized down significantly (AVB is gone, CPT/ESS are trimmed, and EQR has not been touched).

I think these guys have a big cost of capital advantage and are well positioned to step in and buy assets if things get worse, but don't see them as super "cheap" at this time (18x annualized 1Q FFO with guidance withdrawn)

my thoughts remain unchanged. Using EQR as a proxy, the sharp move from $90 to $50 was an opportunity (really it was a REIT-wide opportunity as IYR gave up 9 years of price appreciation as of March 23rd) even the darling-est of darlings (industrial bellwether PLD) went down a lot. it still wasn't all that cheap on an absolute basis given multifamily has been a darling for a decade, but if you don't buy anything when prices go down by an almost unlevered 35%, I don't think you'll buy if/when they're down 50% (if you think that they're going down 80%, well you can look at me in pity while I'm in the soup line).

the move from $50 to $70 was adjusting to a more appropriate move down (in my humble opinion).

I think they're kind of myeh and will wait for more clarity on fundamentals and / or lower prices. i think they are far superior to investment in private residential real estate.

insert folksy metaphor about a manic depressive neighboring farmer offering to buy your farm for wildly different prices here.



Collections were good, but even EQR's affluent tenants have had some issues with delinquency going to 5.4% (up from 2.5% last year)

The Company’s Residential collections are strong. During April 2020, Residential Cash Collections were approximately 97% of Residential Cash Collections in March 2020. As of the end of April 2020, current residents at same store properties had cumulative outstanding Residential Delinquency balances of approximately $11.0 million, representing a same store Residential Delinquency percentage of 5.4%. This compares to cumulative outstanding same store Residential Delinquency balances of approximately $5.4 million, representing a same store Residential Delinquency percentage of 2.6% at the end of March 2020, prior to the impact of COVID-19. The Company continues to work with residents to collect these outstanding balances including through the establishment of payment plans

Sold $478 million of property weighted toward San Francisco at 4.5% - 5.0% cap rates (prices agreed to pre-covid I assume)

The Company sold two wholly-owned properties in the San Francisco Bay Area and one partially-owned consolidated property in Phoenix during the first quarter of 2020, totaling 897 apartment units, for an aggregate sale price of approximately $370.2 million at a weighted average Disposition Yield of 5.0%, generating an Unlevered IRR of 12.9%. The Company did not acquire any apartment properties during the first quarter of 2020.
Subsequent to quarter-end, the Company sold one wholly-owned property located in the San Francisco Bay Area for approximately $108.0 million at a Disposition Yield of 4.5%.

Borrowed at 2.6% interest only 10 years....as The Mask would say...Smoooookin! $2 bilsky's of revolver and de minims maturities/development commitments..though given where rates are you'd want more maturities.

On April 30, 2020, the Company closed on a $495.0 million secured loan. The loan has a ten-year term, is interest only, and carries a fixed interest rate of 2.60%.

[Kaegi2011]

What kind of leverage are you talking about?  Do tell.

Growing up my neighbor's kid (same age as me so we were friends) always complained about not getting cable and spotty telephone connection.  He'd come over to watch batman after school.  We never had an issue nor did I hear about it from others in the small complex.  When his apt would have issues it seems that maintenance always takes forever to fix issues.  Again, nothing to definitively prove that it's related to payments but it's strange when there was a guy on premise to do this type of stuff.  His family was basically living paycheck to paycheck but we were not. 

When I was in NY I complained about my heater for a month to the landlord b/c it was working intermittently (and I was in banking working 18 hours a day, so it wasn't a huge deal).  Then I wrote him a letter stating that I'm paying someone else to fix it and taking it out of next month's rent.  Guy shows up in two days to fix the issue with a new radiator. 

Lastly, while it's not my personal experience, you can go and look at the netflix show on the kushners.  That's some shady shit. 

Again, I don't expect you to acknowledge that these are tactics that you're using as it's a public board.  However, if you're a small time landlord (and not EQR...) and you feel like you have no lever to collect rent then you're the exception, not the rule, based my experience. 

[matts]

Pupil, I think i remember reading you owned RESI in the past.

you said you're not a fan of SFR but what do you think of it at 7.15 after the takeover fell through?

someone wrote up a decent thesis here:

http://yetanothervalueblog.com/2020/05/quickie-idea-renting-some-resi.html