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

[Cigarbutt]

...
Be trigger warned of my overprivileged statements below, but just to give some anecdotal flavor
I live in wealthy DC Burbs. Two software engineers from NYC just bought a $2mm+ house down the street from me. they aren't going back. the headwinds are real as it relates to the 30+ year old accelerating their moves to the burbs. EQR has also noted international students as an issue. My sister went to school in Boston and rented at an Archstone owned apartment (now owned by EQR). She rented a $2K / month apartment. to the extent college kids aren't going back (temporarily) that hurts. I know some investment banking graduates that are training remotely. There's a a big disruption coming. Will this be important in 3 years or 5 years, maybe not (I would wager not). But we should acknowledge the headwinds. The 30+ year olds are buying houses and the 23 year olds are at their parents' house.

More anecdotal flavor.
i typically rent an apartment close to a metropolitan university that has a significant international student participation. Every year, at this time of year, the apartment is offered. Typically, there is significant pricing power and a very large number of applicants and it's possible to use a multi-layer filter process. This year: minimal "views" and zero demand. FWIW, i think this short term noise is likely to accelerate underlying trends, for the longer term.
https://www.spglobal.com/ratings/en/research/articles/200709-student-housing-in-the-covid-19-pandemic-era-school-s-out-but-for-how-long-11566259
---) back to REITs etc

[CorpRaider]

Any idea why EQR appears to be the dog in the apartment Reit space? MAA seems to be the top performer.

My (casual/tourist to the space) understanding is that EQR is perceived as more exposed to the urban flight risk/covid impacts and MAA is more exposed to second and third tier cities in the sun-belt which are perceived to be increasing in desirability if remote work truly comes to pass.

I haven't yet figured out who, if anyone, is in control/behind MAA.  I don't love rolling with organizations controlled by hired hand, sales guys.

I agree with the general sentiment in the thread that the sector ain't cheap enough now.

In my opinion, this covid, remote work, protests combo could really touch of a feedback loop of urban flight (maybe like in the 70's); this could include clobbered state and local budgets and ham handed (or otherwise) attempts to fix that with taxes combined with "eating the rich."  The covid thing and protests are almost worst case scenario for cities...like almost every reason to live there is moot right now, but we will just have to see if it touches off a little (or big) feedback loop. 

All that said, I guess I'm saying I could see it being an "intermediate term" problem; but I wouldn't bet against the power of the network effects of cities long term.  Can you imagine how awesome they could be with real live-work-play design and no commuter car infrastructure?  Oh yeah, sort of like Europe, but bigger and more functional.

[thepupil]

https://www.google.com/amp/s/therealdeal.com/2020/08/07/kkr-teams-up-with-dalan-on-big-brooklyn-multifamily-buy/amp/

KKR buying shiny new Brooklyn portfoli for $675K/ unit. It was rumored to be in talks originally at $980K/ unit. It didn’t mention average rent/unit.

Just a data point / context for EQR at $370K EV / unit and the type of haircut people are taking. Of course only 9000 of EQR’s 78K are in NYC they are at average $3900/month versus total EQR of $2800.  I’m not saying all of EQR is “worth” $675K just pointing out that there’s a real post COVID trade at that level.

[CorpRaider]

Alright, I'ma buy a little EQR. 

[thepupil]

https://seekingalpha.com/news/3612778-manhattan-rental-market-sinks-number-of-empty-apartments-triple
Manhattan rental market sinks as number of empty apartments triple
Sep. 10, 2020 5:19 AM ET|About: Equity Residential (EQR)|By: Yoel Minkoff, SA News Editor
There were more than 15,000 empty rental apartments in Manhattan in August, up from 5,600 a year ago, as more New Yorkers fled the city amid the coronavirus crisis, according to a report by Douglas Elliman and Miller Samuel.

The inventory of empty units is the largest ever recorded since data started being collected 14 years ago, dashing hopes for a rebound in the fall or the end of 2020.

Rental prices have come down - median rental prices fell 4% in August - but the discounts don't appear steep enough yet to lure new renters back to the city. The average rental price for a two-bedroom in Manhattan is still $4,756/month.

While REITs and real estate companies have more access to capital, smaller landlords with just one or two buildings may have trouble paying their mortgages and property taxes, which could impact banks and lenders.

Related: Equity Residential, (NYSE:EQR), AvalonBay (NYSE:AVB), UDR (NYSE:UDR), Apartment Investment and Management (NYSE:AIV), Essex Property Trust (NYSE:ESS), Camden Property Trust (NYSE:CPT), Mid-America Apartments (NYSE:MAA), Invitation Homes (NYSE:INVH)

[CorpRaider]

Thanks for head's up on this JGBS.  I am thinking about their focus on walkability.  In my ideal personal scenario, I have enough personal capital to justify an office space (maybe with a BBG) a couple of blocks away from my home, where I can walk or bike when I want (and store my junk, some books, and other stuff there).  As a compromise, working for someone else, I still like having that space, preferably with a view and some people standing by that I can get to help do stuff when I want/need.  If they are going to take that away, I'ma need a raise dawg (or I'm likely to look to hop to somewhere that does offer it that....all else being equal). 

[thepupil]

https://seekingalpha.com/news/3613573-apartment-investment-and-management-plans-spinoff-jv

https://seekingalpha.com/pr/18004279-aimco-announces-formation-of-apartment-income-reit-self-managed-10-billion-reit-and-closing

AIMCO splitting into a development company / stabilized company, since the market hates development and will probably value the stabilized better.

I'm not really familiar with AIV / AIMCO. Just skimmed.

Also, a nice 4.2% cap rate / $592K / unit california sale in the press release. That's a strong comp as it relates to ESS.

I found this the other day on twitter as it related to ESS.

https://www.privateeyecapital.com/why-would-any-long-term-investor/

Aimco also announced, as part of its longer-term strategy to reduce financial leverage and to rebalance its capital allocation among target markets, that it has entered into a ten-year joint venture with a passive institutional investor to own jointly 12 multi-family properties with 4,051 units located in California. The properties were valued at $2.4 billion, or approximately $592,000 per unit, equivalent to an implied NOI cap rate of ~4.2% and an implied free cash flow cap rate of ~4.0% (based upon NOI and free cash flow annualized for the six months ended June 30, 2020). The properties secure non-recourse property debt of $1.22 billion with a weighted average interest rate of 3.17% and have an implied equity value of $1.18 billion. In exchange for a 39% interest subject to $475 million of property debt, Aimco received $461 million cash plus an additional $24 million for future redevelopment spending. Aimco retains ownership of the remaining 61% interest and is responsible to operate the properties, earning property and asset management fees. The valuation is equal to 97% of the Gross Asset Value (“GAV”), as of 1Q20, previously calculated and published by Aimco.

[BG2008]

Pupil,

We are either on the cusp of making a ton of money investing in these REITs or we are too dumb and too stubborn for our own good

[CorpRaider]

https://seekingalpha.com/news/3613573-apartment-investment-and-management-plans-spinoff-jv

https://seekingalpha.com/pr/18004279-aimco-announces-formation-of-apartment-income-reit-self-managed-10-billion-reit-and-closing

AIMCO splitting into a development company / stabilized company, since the market hates development and will probably value the stabilized better.

I'm not really familiar with AIV / AIMCO. Just skimmed.

Also, a nice 4.2% cap rate / $592K / unit california sale in the press release. That's a strong comp as it relates to ESS.

I found this the other day on twitter as it related to ESS.

https://www.privateeyecapital.com/why-would-any-long-term-investor/

Aimco also announced, as part of its longer-term strategy to reduce financial leverage and to rebalance its capital allocation among target markets, that it has entered into a ten-year joint venture with a passive institutional investor to own jointly 12 multi-family properties with 4,051 units located in California. The properties were valued at $2.4 billion, or approximately $592,000 per unit, equivalent to an implied NOI cap rate of ~4.2% and an implied free cash flow cap rate of ~4.0% (based upon NOI and free cash flow annualized for the six months ended June 30, 2020). The properties secure non-recourse property debt of $1.22 billion with a weighted average interest rate of 3.17% and have an implied equity value of $1.18 billion. In exchange for a 39% interest subject to $475 million of property debt, Aimco received $461 million cash plus an additional $24 million for future redevelopment spending. Aimco retains ownership of the remaining 61% interest and is responsible to operate the properties, earning property and asset management fees. The valuation is equal to 97% of the Gross Asset Value (“GAV”), as of 1Q20, previously calculated and published by Aimco.

Haha!  I was just looking at that.  Terry Considine is CEO/founder (old guy).  Internally managed... AIR will hold stabilized/developed apartments and AIV will take development ops.  Lots of cross rights of refusal (to develop properties; right of first refusal to buy developed properties, etc).

Watched a couple of youtube talks he gave...comes off as a good guy, but is that a toupe'? 

Edit: wow they are doing a reverse (taxable) spin; citing potential changes in tax law...no vote and they are sending people a tax bill. 

I don't get why they are doing the spin.  Their combined estimated NAVs in the presentation are $7.8 billion for AIR (with a woooo 5% increase in distribution) and $1.2 billion for AIV; current EV (admittedly after a ~7% move on announcement) is ~10B.

CEO/Founder is going with AIR (apartment holdco).  Also going to be on board of AIV.

[thepupil]

Jonathan Litt is coming at AIV, speaking to potential motivations on the transaction:

https://landandbuildings.com/land-buildings-sends-letter-to-aiv-board-of-directors/
https://landandbuildings.com/wp-content/uploads/2020/09/LandB-Press-Release-Letter-to-AIV-Board-9-22-20.pdf