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

[thepupil]

18 minutes ago, realassetsvalue said:

Have been thinking about ELME because when @thepupil gets serious about a real estate name, you should too.

 

I have been thinking about this and the discount to NAV / peer set thesis here. It feels like relative to the private the assets, while not of the highest quality (we all know this) are undeniably cheap both on an implied cap rate and price / unit basis. The metrics below exclude the 600 Watergate office, which I value at an 8% cap rate so we can try to get closer to an apples to apples comparison for the multifamily assets.

 

When comparing across the peer set, ELME is also cheaper from a portfolio point of view but a good amount of that cheapness is reduced by the scale of their business vs. their operating costs. For example, while not a perfect comparison, UDR trades at a 6.2% cap rate (~170 bps inside ELME) but a 14.8x FFO multiple / 4.7% dividend yield vs. ELME's 14.3x FFO multiple / 5.2% dividend yield. I'd argue that UDR has a better operating platform and you don't have to believe that UDR's same store rent growth / OPEX / CAPEX is much better than ELME's to make up that difference.

 

 

Continuing the arbitrary comparison, there's also a cost of capital difference between the two companies. ELME doesn't have balance sheet issues and is arguably underleveraged but UDR has a very good balance sheet and greater access to lower cost capital through both debt and JV markets. I'd guess they have a better opportunity to play offense in the current cycle vs. ELME.

 

This is a long-winded way to get at I think one has to take a view on the potential for either some sort of change in the market's evaluation of the company, its assets, markets, etc. or more likely, M&A to close the valuation gap between the portfolio valuation and private market / peers. I am not sure I am positive on management's desire to do this given they've staked their reputation and investing a lot of time, energy, and money into moving towards a pure play multifamily platform but the board may decide they've run out of rope at some point.

 

A major reason I've gone through this exercise is trying to think through listed real estate positioning in this environment as opposed to the pre- and post- COVID low interest rate environment... As a recovering "NAV boi" who saw success seeing discounted small REITs get acquired by PE, now that the spigot of very cheap debt has been turned off, maybe the better hunting grounds are in larger, higher-quality (and as a result, more expensive) REITs with an operating platform / cost of capital advantage instead of deep discount to NAV / M&A targets. Definitely not arguing for all one or the other - and the best opportunities can offer both - but wanted to try to refine my thinking on this a little through the multifamily lens.

 

I think this is a great point and to be clear, I have positions in CPT, ESS, MAA, etc that are more in line with this thinking. In steady state, I'd probably expect them to grow in value at greater rates than ELME.

 

But I think at this price, recognizing it could and probably will get cheaper, one should also mix in some ELME. the low leverage is such that you'll start to get pretty wild headline per units/cap rates with another 10/20% down.

 

Like these folks may not be super wealthy yuppies, but new renters in their washington metro area apartments make $92K/year...the per unit value ($170K/unit to $200K depending on watergate) seems pretty darn low in that respect, right?.

 

also with rates are, people who make $92K have to save a hell of a lot of money to be able to buy a home. renting is much more affordable than buying.

Edited September 25, 2023 by thepupil

[Gregmal]

Is there really a take private angle here for most of these though? Largely in the reit space I see so much rhetoric that looks anchored to misunderstood biases developed in 2021. What made the 21 small cap reit trade so easy was management incentives and having BX in the process of ramping up a fresh new vehicle with seemingly unlimited capital. 
 

I see few REITs that have a management incentive to sell. Most acquirers have stepped aside. On top of this there’s just the historic footnote that these have poor governance laws being in Maryland. 
 

Seen a lot of people rush into large-cap reit like it’s 2021 but the problem is it’s not and few really seem to recall what it was like evaluating REITs in say 2014….anyone remember? Of course not because it was boring and your return profile was like 5-10% annually. REITs in a normal market are kinda like longer dated bonds and the only difference between them all Id argue is management quality. 
 

Does anyone think any of the bigger ones have a legit shot at going private? The draw is still there and yes these are not efficiently priced at all….but again, this has almost always been the case. REITs and public real estate is never priced accurately. But partly that’s because few of them have the incentive to make it accurate.  And of those that do, even fewer actually do it. 

[thepupil]

8 minutes ago, Gregmal said:

Is there really a take private angle here for most of these though? Largely in the reit space I see so much rhetoric that looks anchored to misunderstood biases developed in 2021. What made the 21 small cap reit trade so easy was management incentives and having BX in the process of ramping up a fresh new vehicle with seemingly unlimited capital. 
 

I see few REITs that have a management incentive to sell. Most acquirers have stepped aside. On top of this there’s just the historic footnote that these have poor governance laws being in Maryland. 
 

Seen a lot of people rush into large-cap reit like it’s 2021 but the problem is it’s not and few really seem to recall what it was like evaluating REITs in say 2014….anyone remember? Of course not because it was boring and your return profile was like 5-10% annually. REITs in a normal market are kinda like longer dated bonds and the only difference between them all Id argue is management quality. 
 

Does anyone think any of the bigger ones have a legit shot at going private? The draw is still there and yes these are not efficiently priced at all….but again, this has almost always been the case. REITs and public real estate is never priced accurately. But partly that’s because few of them have the incentive to make it accurate.  And of those that do, even fewer actually do it. 

 

I don't think outright take privates will occur, without a change in the  cost of financing. 

 

I think most of these are likely to return high single digit IRR's with relative safety, with a degree of optionality. I think they offer a return profile that is higher than say 10 yr TIPS. You're buying <40% (in some cases <30%) levered diverse portfolios. I don't think one should expect to get paid anymore absent panic in the market causing lower prices.  I think that's attractive. 

 

As an illustration of the type of things that can occur, UDR sold in JV a portion of its older properties at low 5's to cash institutional buyer. REITS can slowly JV/sell assets, buy back stock (or one can buy back w/ divvies), provide capital to overlevered owners, etc). they're cheaper / better capitalized than anyone. but that doesn't mean they're going to provide crazy high returns. the math isn't there and leverage not high enough. 

 

 

https://www.businesswire.com/news/home/20230629089950/en/UDR-Announces-Formation-of-510-Million-Joint-Venture

 

 

Edited September 25, 2023 by thepupil

[lnofeisone]

1 hour ago, thepupil said:

 

ELME used to be called "Washington REIT". It was (is) a perennial underperformer and was previously a multi-asset, regional focused REIT, an oddball in world where REIT mafia wants large liquid single asset, but multi-geography REITS. In the 10 years before covid (12/31/2009-12/31/2019) Washington REIT returned 5.5% whereas REIT index returned 12.5%. 1999-2009 it atually slightly OP'd (12.3%.yr vs 10.9%). 

00/month...that just feels too afforable to me. housing shouldn't be that cheap. 

Helpful! I remember Washington REIT. I'll start some thinking here. 

[thepupil]

55 minutes ago, Gregmal said:

 

Does anyone think any of the bigger ones have a legit shot at going private? The draw is still there and yes these are not efficiently priced at all….but again, this has almost always been the case. REITs and public real estate is never priced accurately. But partly that’s because few of them have the incentive to make it accurate.  And of those that do, even fewer actually do it. 

 

I disagree with this. It's not a given that there is a public market discount. It's cyclical and the LT average is actually a slight premium (of 2%) according to Green Street. 

 

REITs do not have an incentive to go private. I'll concede that, but most studies suggest public core RE outperforms similarly levered private core real estate. The idea that a) public REITS "always" trade at a discount and "always" underperform is not supported by data. 

 

So in terms of optionality, I'd say there's scenarios where in 1,3,5,10 years thinks look different and you trade at NAV for whatever reason. obviosuly a 1x big move up on a take private has its appeal, but you could just have something more mundane happen (like record outflows stop happening) or whatever.

 

I think there's plenty of ways for the HSD IRR to become a LDD IRR (but only one way for them to become short term 50%+ whcih is take private which can't happen at current financing)

 

[Gregmal]

I guess put a little differently, in 2021 you had both a relative rerating occurring, and also a sort of get out of jail free moment for a huge part of the sector, especially non traded.
 

The first part happened and still stuck. More evidently displayed in SFH but there was no reason for the spreads between say a 3/2 in Connecticut vs a similar home in Austin or Tampa. That’s happened and the rerate is done. The latter is really where almost all of us here made tons of money because it was obvious as day. You had these guys who were running small cap reit and non traded just raping shareholders for years. They get an opportunity to basically cash in and boy did they. Would be like granting immunity to any criminal who decides to go to confession next week. What would anyone with a brain do? Bet on people going to confession next week. Those two things were the catalysts for the trades all of us were banking for the 18 months it was occurring. 
 

Outside of that though, it’s less clear to me where value was being created. Ignore the COVID period and go back 5-10 years, brainlessly picking a date say to say 2014…I don’t have numbers off hand, but how well has something just run of the mill normal, not good but not bad, say ESS done annualized? Camden and MAA got most of their outperformance from rerating, not anything operational really. AVB and EQR have been a waste of time. 
 

So I suppose asking differently, where does the outperformance going forward come from? Is there another rerate on the horizon? Does the management teams do something differently than they’ve done the last 5-10? What gets this working? This is totally a trade or investment I could dig if we were funding it with 3% margin, but at 6-8%? 

[thepupil]

from 1993 to 2021 apartment REIS returned 12%/yr / 23x w/ divvies reinvested. if you end at 8/2023 it goes to 10%/yr and 17x. 

 

I don't really know which start date to pick, but 1/2014 to 12/2019 is 14-16%/yr for apartment REITS, 16%/yr for ESS, 16% / yr for CPT, 14%/yr for EQR. it's 11-12%/yr if I start on 12/2016, 9-14%/yt if i start 12/2011. 

 

it's weird to me you think apartment REITs didn't do well pre-covid. They did spectacularly in the 2010's. I wouldn't expect that going forward. I think right now, they are (without re-rating) HSD IRR's which offers a premium to bonds and TIPS for very low levered properties. Good stay rich stocks. They're not gonna be get rich stocks unless something changes with financial conditions.  

 

most NAV's / green street stuff at peak was like 4% cap rate, 6% unlevered IRR assumption. No we're like 6-7%+ cap rate and 8%+ unlevered IRR assumption. that's a meaningful change. but the ability to flip to BREIT at some stupid price is no longer there. 

 

 

Edited September 25, 2023 by thepupil

[Gregmal]

1 minute ago, thepupil said:

don't really know which start date to pick, but 1/2014 to 12/2019 is 14-16%/yr for apartment REITS, 16%/yr for ESS, 16% / yr for CPT, 14%/yr for EQR. it's 11-12%/yr if I start on 12/2016, 9-14%/yt if i start 12/2011. 

Was referring to 2014- today cus it’s basically 10 years. Why stop at 12/19?

 

Looking at 3/5/10 year for a handful nothing really stands out. 

[thepupil]

9 minutes ago, Gregmal said:

Was referring to 2014- today cus it’s basically 10 years. Why stop at 12/19?

 

Looking at 3/5/10 year for a handful nothing really stands out. 

i thought we were talking "pre-covid". Of course everything is going to look bad bringing to today. We've had cap rate expansion of 200-350 bps and drawdowns of 40%+. that's the appeal right? a nice reset of expectations and pricing which works at low rates of rental growth.

 

the way we lose substantial money from here is if we get MANY years of negative rents/big declines in occupancy. 

 

the 10 yr return on bloomberg apartment REIT index is 7.8%/yr, 5 yr is 3.4%, 2 yr is -10.5%/yr

Edited September 25, 2023 by thepupil

[Gregmal]

Just now, thepupil said:

i thought we were talking "pre-covid". Of course everything is going to look bad bringing to today. We've had cap rate expansion of 200-350 bps and drawdowns of 40%+. that's the appeal right? a nice reset of expectations and pricing which works at low rates of rental growth. 

 

the 10 yr return on bloomberg apartment REIT index is 7.8%/yr, 5 yr is 3.4%, 2 yr is -10.5%/yr

One year charts I never look at because anything can happen short term. It’s useless. But 3/5/10 I think reduces the impact of short term events. 3 years ago for instance was near the COVID bottom. 5 years ago anything worth a damn should be able to demonstrate value creation regardless of the macro. That statement is doubly true over 10. 
 

That’s all I’m trying to gauge. If there’s no take private then from the current base you need long term value creation to do the job. What’s managements record? Will I be diluted? Is it a kingdom builder? Is there a regional angle? These are the questions I’m asking myself. 

[Dinar]

@thepupil, why would you own ELME rather than SUI?  Thank you.

[thepupil]

1 minute ago, Gregmal said:

One year charts I never look at because anything can happen short term. It’s useless. But 3/5/10 I think reduces the impact of short term events. 3 years ago for instance was near the COVID bottom. 5 years ago anything worth a damn should be able to demonstrate value creation regardless of the macro. That statement is doubly true over 10. 
 

That’s all I’m trying to gauge. If there’s no take private then from the current base you need long term value creation to do the job. What’s managements record? Will I be diluted? Is it a kingdom builder? Is there a regional angle? These are the questions I’m asking myself. 

 

I think valuation has a significant impact on returns with a time horizon of even 10 years. for example, if you looked at MAA at the peak, the trailing 10 yr was 18%/yr (12/2011 to 12/2021). Today it's 12.8%/yr. Are they a worse management team because the stock is down 36% from 12/2021? 

 

Generally, I think the large high quality guys (MAA/CPT/ESS/EQR/UDR/AVB) etc should be expected to be run like they always have, which generally provide decent returns to shareholders w/ low risk (but not wild and crazy super high @gregmal returns.

 

 For something like ELME. ELME hasn't existed in its current form until like today. Until 2021 it was a multi-asset regional REIT. Now it's a single property type REIT of decent scale. but the mediocre mgt remains same, but it's probably a slightly easier target. 

 

 

[thepupil]

12 minutes ago, Dinar said:

@thepupil, why would you own ELME rather than SUI?  Thank you.

 

SUI has been a serial issuer of equity (EV from $2.6B 10 or so years ago to $23B today). That's not necessarily a bad thing. But what it means is that it's an ever growing and complex portfolio. Every time I've looked into it, I've had to stop and divert my attention elsewhere. Just never a company I've been able to fully grasp. happy to hear your thoughts on it.

 

 

haven't done any works since wrote this on your thread

 

Quote

•  

some quick thoughts. 

 

- agree manufactured housing / RV parkst are great. Clearly there's institutional bid for marinas right now and these guys have very strong position there. 

- I've never really looked at SUI other than its bonds (they trade a little wide in sell-offs) ). Reason being whenever I look at equity, I always conclude I'd rather own ELS.

- it appears to be at widest discount to ELS in last 10 years on a simple P/FFO basis. (5 second analysis)

- It's hard to call a company that's done 13%/yr for 10 yrs AND 13%/yr since 1994 mismanaged. and that's after a 38% drawdown

- BUT, I'd also note that SUI has historically been much more dependent on accretive issuance to grow value. They'v increased share count from 36mm to 124mm over last 10 years to roughly double ish AFFO/share. ELS has done similar per share growth in per share metrics with 12% cumulative share count growth. So I'd observe that SUI is potentially more dependent on its stock price to create value where with ELS you can take comfort that the actual portfolio created the value. With such a rapidly growing (EV has 8x'd over last 10 years) company, there's also the potential for any bad stuff to be hidden. 

- What I find confusing is the company claims 7%/yr SSNOI growth. which with leverage should lead to > 7% organic equity metric growth, which with accretive issuance should lead to even greater growth, but when I eyeball per share fundamental metrics, I only see about a double over 10 years, which implies either the SSNOI  record is not real, they've issued dilutively, or....something else. I don't know. 

- they have nice debt, 10 yr wgt avg maturity for the mortgage portion, seemingly mostly fixed. 

 

probably nothing new to you if you looked at in depth already, but just took a gander at it for a bit. 

 

Edited September 25, 2023 by thepupil

[thepupil]

28 minutes ago, Gregmal said:

5 years ago anything worth a damn should be able to demonstrate value creation regardless of the macro. 

 

 

perhaps to illustrate better, on 12/31/2021 the trailing 5 year return for CPT was 20%/yr. the trailing 5 yr return now is 5.7%/yr. 

 

changes in valuation have HUGE impacts on 3,5,10 year track records. 

[Gregmal]

7 minutes ago, thepupil said:

 

perhaps to illustrate better, on 12/31/2021 the trailing 5 year return for CPT was 20%/yr. the trailing 5 yr return now is 5.7%/yr. 

 

changes in valuation have HUGE impacts on 3,5,10 year track records. 

I agree, but think in time the context becomes clearer. For instance, even after such a recent decline, who's created more value in the office space? VNO or ARE? The rate stuff has largely impacted public stocks because its where anyone with a few bucks can put on their macro trades. Once things stabilize I would expect the best of breed to again resume their exhibitions of such. 

[Gregmal]

Charts again an example. @thepupil and I and others have discussed Howard Hughes. Based on the last 3/5/10….I have virtually no confidence that higher rates, lower rates, or neutral, that this is a company that will be any better than the average at creating value. Alexandria or say Essex/Avalon/Camden? Sure, once the widespread rainstorm in Reitville stops, I think names like that will again begin the slow march higher, almost near certain of it. From there it’s just about quantifying what “higher” is.

[Dinar]

@thepupilSUI has been real good at selling shares....  I agree with you, I hate dilution, but love the assets.  In retrospect, good share sales by the company: 9.2MM at $139.5 on 09/30/2020, 8.05MM at $140 on 03/04/2021, and 4.03MM at $185 on 11/15/2021.   I just think on a same store basis, it can raise prices at 1% above inflation, so call it inflation + 1.5% EBITDA growth, so say inflation + 2-3% FFO growth per year, assuming no acquisition, so total return = 8-9% + inflation per annum.

[thepupil]

16 minutes ago, Dinar said:

@thepupilSUI has been real good at selling shares....  I agree with you, I hate dilution, but love the assets.  In retrospect, good share sales by the company: 9.2MM at $139.5 on 09/30/2020, 8.05MM at $140 on 03/04/2021, and 4.03MM at $185 on 11/15/2021.   I just think on a same store basis, it can raise prices at 1% above inflation, so call it inflation + 1.5% EBITDA growth, so say inflation + 2-3% FFO growth per year, assuming no acquisition, so total return = 8-9% + inflation per annum.

not sure I understand this math. if FFO is going to grow by inflation +2-3%/yr, then wouldn't total return be 8-9% inclusive of inflation? 

 

Let's say inflaiton = 3%. So FFO growth = 6%. So at a constant FFO payout ratio, wouldn't dividend growth be 6%? Ergo wouldn't total return be current yield of 3% + 6% growth = 9% (just simplified DDM, assuming no kind of re-rating). 

 

how do you get to 8-9% + inflation? 

 

Edited September 25, 2023 by thepupil

[Dinar]

2 minutes ago, thepupil said:

not sure I understand this math. if FFO is going to grow by inflation +2-3%/yr, then wouldn't total return be 8-9% inclusive of inflation? 

 

Let's say inflaiton = 3%. So FFO growth = 6%. So at a constant FFO payout ratio, wouldn't dividend growth be 6%? Ergo wouldn't total return be current yield of 3% + 6% growth = 9% (just simplified DDM, assuming no kind of re-rating). 

 

how do you get to 8-9% + inflation? 

 

You are right, I should have been more explicit.  I am assuming that all FFO gets paid out as either dividends or share buy-backs, and there will be no more acquisitions.  In reality, they have opportunities to  invest some capital at 10%+ yield on development, and they will probably acquire property over time.  Assuming acquisitions are not very big and value destroying my approximation should hold.

[realassetsvalue]

20 hours ago, Gregmal said:

Was referring to 2014- today cus it’s basically 10 years. Why stop at 12/19?

 

Looking at 3/5/10 year for a handful nothing really stands out. 

 

I think this view is going to help improve potential REIT returns over the next decade as the sector is going to screen terribly and is already looking very unloved by generalist managers. After this sell-off the backward looking returns are definitely bad and most REITs will look like they've added no value. A good exercise, which I am stealing from Rob the REIT guy at Hedgeye is to look at NAV per share over time based on a static cap rate. I haven't done this for ARE vs. VNO but I imagine it will reveal the difference in value creation between the two names.

 

I suppose what I am grappling with is how to evaluate buying the smaller, less efficient, less well-manged but deeply discounted REITs today vs. the highest quality, slightly discounted REITs. ELME vs. the blue chip MF REITs is one example but there are many. If we are U/W ELME to a HSD / LDD IRR and say AVB to 100 or 150 bps inside of that is a base case, how much upside optionality from a buyout or other big change do we need to decide on the deep discount vs. the blue chip? The larger, well-managed, better capitalized REITs also have some optionality in this environment through growing externally through lower cost of capital. Also in a mean reversion to NAV or close to NAV (or slightly above based on the GS data), they're likely to revert faster than the smaller REITs due to flows?

 

I am digging into this because buying the deeper discount has been a strategy that has worked for me but I am trying to refine my thinking and have a framework of weeding out value traps as there are many in small REIT land as we all know... This has been a thought provoking exchange and I am still figuring out where I come down.

 

With the SUI vs. ELS debate (and there are some other smaller REITs in the space, albeit I think management and asset quality are way, way lower) - I also have come down on ELS, which I think is truly one of the few "never sell REITs" due to its regulatory barriers to entry of new supply in the MHC and to a lesser extent, RV and Marinas space. Good report on this out recently from Fannie Mae, the highlights of which are in this twitter thread.

 

I have also not done deep work on SUI. It has gotten significantly cheaper than ELS - while has historically traded at a discount, this has widened (see below). I think their geographies in the US are not as good as ELS and the international and aggressive marinas expansion has lowered the earnings quality of their business. The international businesses in the UK and AUS are very different and don't have the same dynamics as US MHC. They made a play to be the biggest player in the Marinas business by acquiring Safe Harbor with less of a focus on annual revenue streams and including some super luxury yacht marinas that they bought for like $1m per slip. Someone who knows that business may have a better view than I but I think it's less stable and resilient (but am a tourist in the space).

 

 

 

[Gregmal]

5 minutes ago, realassetsvalue said:

 

I think this view is going to help improve potential REIT returns over the next decade as the sector is going to screen terribly and is already looking very unloved by generalist managers. After this sell-off the backward looking returns are definitely bad and most REITs will look like they've added no value. A good exercise, which I am stealing from Rob the REIT guy at Hedgeye is to look at NAV per share over time based on a static cap rate. I haven't done this for ARE vs. VNO but I imagine it will reveal the difference in value creation between the two names.

 

I suppose what I am grappling with is how to evaluate buying the smaller, less efficient, less well-manged but deeply discounted REITs today vs. the highest quality, slightly discounted REITs. ELME vs. the blue chip MF REITs is one example but there are many. If we are U/W ELME to a HSD / LDD IRR and say AVB to 100 or 150 bps inside of that is a base case, how much upside optionality from a buyout or other big change do we need to decide on the deep discount vs. the blue chip? The larger, well-managed, better capitalized REITs also have some optionality in this environment through growing externally through lower cost of capital. Also in a mean reversion to NAV or close to NAV (or slightly above based on the GS data), they're likely to revert faster than the smaller REITs due to flows?

 

I am digging into this because buying the deeper discount has been a strategy that has worked for me but I am trying to refine my thinking and have a framework of weeding out value traps as there are many in small REIT land as we all know... This has been a thought provoking exchange and I am still figuring out where I come down.

 

With the SUI vs. ELS debate (and there are some other smaller REITs in the space, albeit I think management and asset quality are way, way lower) - I also have come down on ELS, which I think is truly one of the few "never sell REITs" due to its regulatory barriers to entry of new supply in the MHC and to a lesser extent, RV and Marinas space. Good report on this out recently from Fannie Mae, the highlights of which are in this twitter thread.

 

I have also not done deep work on SUI. It has gotten significantly cheaper than ELS - while has historically traded at a discount, this has widened (see below). I think their geographies in the US are not as good as ELS and the international and aggressive marinas expansion has lowered the earnings quality of their business. The international businesses in the UK and AUS are very different and don't have the same dynamics as US MHC. They made a play to be the biggest player in the Marinas business by acquiring Safe Harbor with less of a focus on annual revenue streams and including some super luxury yacht marinas that they bought for like $1m per slip. Someone who knows that business may have a better view than I but I think it's less stable and resilient (but am a tourist in the space).

 

 

 

Agree with a lot of your points. Ive lived well singling out hairballs that are maybe a bit less hairy than advertised in the smallcap space. Especially last few years with REITs. In fact the only two, non trackers I own now, are AIV and some CLPR. But its clear to me ones probably not gonna lose money on the bigger bluechips at these prices. What Im struggling with is pinpointing where those returns lie....5-10% in a world with 6-8% margin costs and 5-7% bonds/notes, doesnt really stand out to me. Im trying to see the angle where maybe Im missing a path to say, 12-15%.

[thepupil]

Camden raising $500mm of 3 year money at tsy+95 (5.85% ish), pay off floating rate  revolver w/ rate of 6.2%. 

 

CPT had weighted average rate of 4.1% as of Q3. This will decrease that slightly, though it's shorter term $$$.

 

Illustrates the ease with which these IG MF guys raise capital...$500mm at drop of a hat. 

 

If CPT had to refi its debt stack at 6%, here's how long it'd take to get there.  Still at a quite reasonable 4.5% 5 years from now. They'd be able to pay 6% today because of their low leverage (3.5x ND/EBITDA), but wont' have to for 5+ years even if rates remain where are. 

 

 

 

Quote

LAUNCH: Camden Property $500m 3Y +95

By Brian Smith and Bloomberg Automation

(Bloomberg) -- 

Deal upsized to $500m from $300m.

• $500m 3Y Fixed (Nov. 3, 2026) at +95
  • Guidance +95#, IPT +115 area
• Issuer: Camden Property Trust (CPT)
• Exp. Ratings: A3/A-/A-
• Format: SEC registered, senior unsecured
• 1-month par call, MWC
• UOP: Intend to use the net proceeds to repay all or a portion of the outstanding balance on the $1.2 billion unsecured revolving credit facility and for GCP, which may include property acquisitions and development in the ordinary course of business, capital expenditures and working capital
• Settlement: Nov. 3, 2023 (T+3)
• Denoms: 2k x 1k
• Bookrunners: BofA, JPM, PNC, TSI, USB
• See security information: 3Y Fixed
• Information from person familiar with the matter, who asked not to be identified because they're not authorized to speak about it

 

Edited October 31, 2023 by thepupil

[thepupil]

CPT with a 

On 10/31/2023 at 1:56 PM, thepupil said:

Camden raising $500mm of 3 year money at tsy+95 (5.85% ish), pay off floating rate  revolver w/ rate of 6.2%. 

 

CPT had weighted average rate of 4.1% as of Q3. This will decrease that slightly, though it's shorter term $$$.

 

Illustrates the ease with which these IG MF guys raise capital...$500mm at drop of a hat. 

 

If CPT had to refi its debt stack at 6%, here's how long it'd take to get there.  Still at a quite reasonable 4.5% 5 years from now. They'd be able to pay 6% today because of their low leverage (3.5x ND/EBITDA), but wont' have to for 5+ years even if rates remain where are. 

 

 

 

 

 

CPT just raised $400mm of 10 year money at t+105, 4.9%. I assume they'll use this to pay off floating debt at >6% coupon which will keep weighted average rate at around 4% ish and significantly extend their weighted average term. This significantly decreases the already low rate/refi risk for CPT and demonstrates the access to debt advantage.

 

S&D Fundamentals, not financing, will be main driver, given low leverage at low rate. 

 

[thepupil]

ESS just raised 10 yr money at 5.5%, 145 bps > 10 yr, very reasonable cost of debt for the high quality REITs

 

[thepupil]

Quote

Blackstone Making $10 Billion Multifamily Purchase, Going on the Real Estate Offensive -- WSJ

By Craig Karmin

(Wall Street Journal) -- Blackstone has agreed to acquire an owner of upscale apartment buildings for about $10 billion, signaling that one of the world's largest real-estate investors is ramping up investments again after a period of moving more cautiously.

Blackstone is taking private Apartment Income REIT, known as AIR Communities, which owns 76 rental housing communities that are primarily in coastal markets, including Miami, Los Angeles, and Boston, according to people familiar with the matter. The firm plans to invest another $400 million to improve these properties, these people said.

The acquisition is Blackstone's largest transaction in the multifamily market. It reflects the firm's bullishness on rental housing and its belief that commercial real estate overall is bottoming and the time is ripe to step up investments.

"We can see the pillars of a real-estate recovery coming into place," Blackstone President Jonathan Gray said on an earnings call earlier this year. "We are, of course, not waiting for the all-clear sign and believe the best investments are made during times of uncertainty."

Blackstone posted lower quarterly earnings in January, and its profit was hit by a decline in the value of its real-estate investments. The firm in recent months has begun to invest more aggressively in the commercial real-estate market, betting that interest rates are stabilizing and access to capital is becoming easier.

Blackstone late last year acquired a stake in a $17 billion loan portfolio from the defunct Signature Bank. In December, Blackstone and Digital Realty agreed to create a new venture to develop $7 billion in data centers that will target the largest providers of online content, cloud services and artificial intelligence.

Earlier this year, Blackstone agreed to acquire Tricon Residential, which owns, operates and develops a portfolio of about 38,000 single-family rental homes in the U.S., for $3.5 billion.

The firm has agreed to acquire AIR Communities at $39.12 a share in an all-cash transaction, which represents a 25% premium to the company's closing share price on Friday, said people briefed on the matter. Blackstone is acquiring the firm through its $30.4 billion global real-estate fund, in a transaction valued at about $10 billion, including the assumption of debt. It is expected to close in the third quarter.

Blackstone considers multifamily, and rental housing in general, one of the best commercial property segments to invest in. While a crush of new supply, especially in the Sunbelt region, and higher interest rates have weighed on the multifamily business, the markets in AIR Communities portfolio have been less impacted.

 

$AIRC