REIT Market Provides a Window into Future Private Real Estate Values
Andy McCulloch, who manages Green Street's Real Estate Analytics group, expects continued upward pressure on real estate asset values. In a REIT.com interview, he explained that while asset values in all the major property sectors are at or above previous market peaks, real estate returns still look attractive relative to the fixed income market. Andy also spoke about why both public and private real estate investors should follow the REIT market. Public market pricing can provide a window into future private market pricing. Finally, he discussed the systematic mispricing in the market due to most real estate investors’ underestimation of cap-ex requirements. Green Street advises investors to overweight low cap-ex property types, such as apartments, self-storage and manufactured housing.
Green Street Publishes Reports on Two REIT IPOs
Green Street published two in-depth IPO reports this week on Paramount Group and STORE Capital, highlighting key valuation issues for investors to consider. Green Street has written on over 65 REIT IPO/Initiation reports over the past 10 years, making it unique among research providers.
Paramount Group, Inc. (PGRE): A REIT IPO of "Paramount" Importance
Portfolio Value - Overall ($B)
Michael Knott, Jed Reagan and the Office team published a report on the pending >$2.5 billion Paramount IPO, which would be the largest ever for a REIT. Proceeds are intended mainly for debt reduction to create a healthy balance sheet. Paramount is a “real company”.
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STORE Capital (STOR): Like a Kid in a Candy STORE
NL REIT Equity Market Capitalization
STORE (STOR), a $2.8 billion REIT owning mostly retail net lease properties, seeks to raise $530 million in an IPO. The proceeds from the IPO will fund acquisitions. Cedrik Lachance writes that investors should expect a torrid acquisition pace - STORE will be the fastest growing Net Lease REIT as a percentage of assets.
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Heard on the Beach: Prairie Dog Town
New REITs are popping up left and right. Recent results suggest investors would be wise to not play favorites. It's hard to recall a time since the '93/'94 REIT IPO frenzy when more new, credible companies have been slated to soon become publicly traded REITs. Not only is the traditional IPO path to the public market unusually active, an even higher level of activity is taking place in two other, less-traditional channels: 1) C-Corps converting to or spinning out REITs; and 2) Non-Traded REITs (NTRs) listing their shares. REIT investors tasked with familiarizing themselves with the new kids on the block will be pondering where to best devote their energies.
Equity Commonwealth (EQC): What Do They Want to Be When They Grow Up?
Green Street initiated coverage on Equity Commonwealth (EQC), an $8B office REIT now under new management. Activists recently won a heated battle for control of the formerly externally-advised company with REIT Management and Research (RMR) (see Green Street’s special report, The Portnoy REITs, What it Means to be “Uninvestable”
dated 03/01/2013). A new board and management team at EQC is led by Sam Zell, David Helfand, and Adam Markman. They should be counted on to “do the right thing.” Early steps to improve the company have been positive, especially the balance sheet. However, management has not yet outlined its near-term strategy. The report (dated 10/24/14) cited that EQC’s stock was the second-most discounted in the office sector, that the company’s ample challenges warrant one of the larger discounts in office, and that the valuation discount was too wide.
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Single-Family Rental Sector: Growing Up Before Our Eyes
SFR Estimated Median Gross Yields
In a special report and accompanying conference call on the Single-Family Rental (SFR) sector, Dave Bragg and David Segall conclude that a consolidation wave has only just begun and should accelerate. Their report provides highlights from Green Street’s proprietary database of 75,000+ institutionally-owned SFR assets with insights on gross yields, rent growth, and asset quality. It also gives an updated valuation of SFR REIT American Homes 4 Rent (AMH).
2014 U.S. Industrial Outlook
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Green Street published the 2014 U.S. Industrial Outlook, the latest publication as part of the Real Estate Analyticics product line. The report serves as a deep dive into the fundamentals and valuation of the U.S. industrial sector and 30 key markets. It offers insight into the traditional forces driving industrial demand, and the potential impact of emerging ones such as eCommerce and the expansion of the Panama Canal. The report also describes the constant risks including obsolescence which have contributed to teh sector's lackluster NOI growth profile over time.Green Street also published Outlook reports on the Mall, Apartment, Office, and Strip Center sectors.
How to Value REITs: Download Green Street's Updated Guide
*Past performance as of 5/30/14 cannot be used to predict
future performance. Please see our track record disclosure.
Green Street just posted its updated REIT Valuation guide based on its NAV-based pricing model for the general public. The model has been pivotal behind the firm’s superb twenty-year recommendation track record. The guide provides the nuts and bolts of an NAV-based analysis, the factors that impact the premiums at which REITs should trade (franchise value, balance sheet risk, corporate governance, and overhead), and Green Street's relative valuation approach for identifying the most/least attractively valued REITs.
Green Street in the News: Starboard Real Estate Primer on Darden
Green Street's Advisory & Consulting group recently completed an in-depth valuation analysis of Darden Restaurants, Inc.'s (NYSE: DRI) real estate holdings for Starboard, a sophisticated hedge fund client. The analysis included a detailed review of each of Darden's locations. Using Green Street's proprietary data and industry contacts and knowledge, in combination with publicly-available information, our consulting team derived valuation estimates for the company's owned and leased real estate. Starboard used this information as part of a publicly-filed presentation to argue for a sale or spin-off of the Company's real estate to enhance shareholder value.
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Mike Kirby Wins Graaskamp Award
Photo Courtesy of Michael Grecco
The James A. Graaskamp award aims to recognize people who, through significant research, contribute practical insights of immediate use to real estate decision makers.
Barron’s Interviews Mike Kirby
Barron's Interviews Green Street Advisors
Michael Grecco for Barron's
Barron's recently talked with Green Street's president, Craig Leupold, and its director of research, Mike Kirby, about REIT valuations, leading stocks, popular exchange-traded funds and the merits of REITs versus private real-estate investments.
Barrons - REITs with the Right Stuff