Cantor Fitzgerald - Takeaways from REITWeek 2017

Cantor Fitzgerald
Equity Research
June 12, 2017

Gaurav Mehta, CFA | 212-915-1221 |


Takeaways from REITWeek 2017
Adjusting Estimates, Industry Update, Raising Price Target

Investment Summary. We attended REITWeek 2017 in New York, NY, from June 6-8, and held meetings with management teams in Industrial, Lodging, Multifamily, Manufactured Homes and Self-Storage sectors. Below we highlight sector-level themes based on those discussions.

  • Industrial REITs. Positive demand drivers include e-commerce (e.g., products staying in warehouses, last mile delivery), shortening of supply chain and an increase in manufacturing activity. Markets that could have supply pressure include Atlanta, Dallas, Miami, and Inland Empire. For 2017, we expect supply and demand to be in equilibrium. STAG (Neutral) continues to experience product flow in the acquisition market that should drive external growth, and it expects rent growth in the secondary markets to exceed that in primary markets.

  • Lodging REITs. There is cautious optimism about lodging demand. Debt markets, including CMBS lending, are relatively open, although lending is challenging for construction. Asset recycling continues for Summit Hotels (Overweight), with the company seeing products in the acquisition market, while Chatham Lodging (Neutral) could sell older assets and redeploy capital into relatively new assets.

  • Multifamily REITs. Post 1Q trends are in line or slightly ahead of multifamily REITs expectations. Although there was a decline in transaction volume in 1Q, there could be some increase in activity. Construction costs have increased and lending standards remain tight. By markets, Seattle remains strong. MAA (Overweight) continues to experience an improvement in new leasing trends and expects further improvement during the peak leasing season. Outside of acquisitions and developments, external growth includes redevelopments for MAA and preferred equity investment program for ESS (Overweight) - both at attractive returns, in our view.

  • Manufactured Homes REITs. Trends remain stable for Equity LifeStyle (Neutral), with increases in occupancy and steady rent growth and with availability of financing from Life Insurance companies, GSEs and secured lenders.

  • Self-Storage REITs. Post 1Q operating trends are in line with the companies' expectations. Same-store growth continues to moderate, but the rate of deceleration has slowed. Public Storage (Neutral) is experiencing some softness in demand, while CUBE (Overweight), EXR (Neutral) and LSI (Neutral) view demand as steady. New rent growth is modest and depends on selected markets (e.g., according to PSA (Neutral), Houston asking rents are down 20.0%, while West Coast markets are strong). Renewal rates remain stable at 8-10%. Product flow in the acquisition market is slow, reflecting a disconnect between buyer and seller expectations, and it is of lower quality. As a result, acquisition volumes could fall in 2017. Cap rates have likely expanded by 50-75bps (vs. 2016), according to PSA. Private equity remains active in the self-storage transaction market, however, and could lead to acquisitions via JV (e.g., LSI has acquired assets in a JV for $493m YTD). There is an increase in demand for third-party management, reflecting moderating growth for the private operators, and, as a result, we expect continued expansion. New supply estimates include 600-800 stores to be delivered in 2017, followed by 600-800 stores in 2018 vs. approximately 600 stores delivered in 2016, according to EXR.


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