巴克莱-美股-房地产行业-美国REITs：2019年前瞻-2019.2.4-137页.pdf

Equity Research 4 February 2019 FOCUS Barclays Capital Inc.and/or one of its affiliates does and seeks to do business with companies covered in its research reports.As a result,investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report.Investors should consider this report as only a single factor in making their investment decision.PLEASE SEE ANALYST CERTIFICATION(S)AND IMPORTANT DISCLOSURES BEGINNING ON PAGE 131.U.S.REITs The Year Ahead:2019 Outlook Its Time Still:Upgrading REITs.REITs have underperformed the broader market for the past four years.Notwithstanding an 11.6%move in January,(after an 8.8%decline in December)we are upgrading our sector rating on U.S.REITs from Neutral to Positive.This move,in the face of current market volitility is challenging;we may be a bit late,or we may be a bit early,but we think our call will have legs longer term.At the same time,it is a bit contrarian.Late cycle concerns slowing growth,rising interest rates and full asset values are still a perceputal overhang for REITs.We have long thought those concerns are overdone,and that real estate fundamentals have a good runway for continued strength,particularly compared to the slowing broader market.REITs have proven to be relatively defensive,which given current macro and global uncertainty should support our upgrade.Total return vehicles,REITs provide moderate earnings growth,underpinned by long duration contracts,and a solid current yield.Finally,REIT earnings growth will be steady,and may inflect positively,even as S&P expectations fall.Valuations though less compelling than at year-end are attractive;we expect a 10.0%total return from our coverage universe.But its a stock picking game our OW REITs are expected to return an average of 12.1%including a 3.6%dividend yield.Subsector/Stock Selection is Key.Our upgrade only works with the right stocks.We still think there is money to be made,with a longer term perspective,as follows:Multifamily:Upgrading to Positive driven by long term secular trends/upside potential and downside protection.We reiterate OW on ESS and MAA,upgrade CPT to OW for exposure to 18 hour cities and downgrade AIV to EW on slowing growth.Office:Neutral with a Positive tilt.Our outlook for the office sector is improving given healthy underlying fundamentals and attractive valuations.We are upgrading both SLG and BDN to Overweight,and DEI to Equal Weight,and maintain our Overweight ratings on ARE,BXP and HPP.Retail:Still a very tough sector be selective.We prefer larger companies with better-quality assets,balance sheet flexibility,the ability to take share and grow earnings even as retailers evolve and rationalization store counts.We are upgrading REG to OW,reaffirm our OWs on both KIM and SPG,and downgrading KRG to EW.Industrial:Still Positive on the subsector and on PLD even at current levels.E-commerce combined with data analytics should drive market share gains and accelerating growth.Technology:Secular cloud and earnings growth.DLR remains our Top Pick.Valuation Update.In this report,we are also updating our coverage universe valuation framework,refreshing key underlying assumptions in our DCF,NAV and sentiment/regression methodologies.RATING CHANGE U.S.REITs POSITIVE from Neutral For a full list of our ratings,price target and earnings changes in this report,please see table on page 2.U.S.REITs Ross L.Smotrich+1 212 526 2306 BCI,US Linda Tsai+1 212 526 9937 BCI,US Dan Occhionero,CFA+1 212 526 7164 Dan.O BCI,US Trevor Young,CFA+1 212 526 3098 BCI,US Brendan Lynch,CFA+1 212 526 9428 BCI,US Upal Rana+1 212 526 4887 BCI,US Barclays|U.S.REITs 4 February 2019 2 Summary of our Ratings,Price Targets and Earnings Changes in this Report(all changes are shown in bold)Company Rating Price Price Target EPS FY1(E)EPS FY2(E)Old New 31-Jan-19 Old New%Chg Old New%Chg Old New%Chg U.S.REITs Neu Pos Alexandria Real Estate Equities Inc.(ARE)OW OW 131.71 125.00 130.00 4 6.60 6.60-6.97 6.97-Apartment Investment&Management Co.(AIV)OW EW 49.52 46.00 49.00 7 2.56 2.56-2.53 2.53-Apollo Commercial Real Estate Finance Inc.(ARI)EW EW 18.20 19.00 19.00-1.81 1.81-2.07 2.07-Avalonbay Communities Inc.(AVB)EW EW 192.92 182.00 203.00 12 8.83 8.83-9.40 9.38 0 Boston Properties Inc.(BXP)OW OW 131.87 125.00 135.00 8 6.34 6.34-6.88 6.88-Brandywine Realty Trust(BDN)EW OW 15.05 17.00 17.00-1.38 1.38-1.42 1.42-Brixmor Property Group Inc.(BRX)EW EW 17.13 16.00 17.00 6 1.84 1.84-1.94 1.94-Camden Property Trust(CPT)EW OW 96.95 87.00 106.00 22 4.77 4.77-4.98 5.06 2 CBL&Associates Properties Inc.(CBL)EW EW 2.49 4.00 4.00-1.72 1.72-1.40 1.40-CBRE Group,Inc.(CBRE)OW OW 45.75 56.00 60.00 7 3.21 3.21-3.49 3.45-1 Cushman&Wakefield plc(CWK)OW OW 17.24 20.00 20.00-1.67 1.60-4 1.77 1.55-12 Digital Realty Trust Inc.(DLR)OW OW 108.34 131.00 137.00 5 6.60 6.60-6.79 6.79-Douglas Emmett Inc.(DEI)UW EW 37.83 37.00 39.00 5 2.02 2.02-2.19 2.13-3 Duke Realty Corp.(DRE)EW EW 29.24 26.00 27.00 4 1.33 1.33-1.40 1.40-Equity Residential(EQR)EW EW 72.56 65.00 73.00 12 3.16 3.16-3.47 3.47-Essential Properties Realty Trust(EPRT)EW EW 15.90 15.00 16.00 7 N/A N/A-1.14 1.14-Essex Property Trust Inc.(ESS)OW OW 271.20 262.00 296.00 13 12.92 12.92-13.14 13.14-Hudson Pacific Properties(HPP)OW OW 32.47 37.00 38.00 3 1.87 1.87-2.07 2.07-Iron Mountain Inc.(IRM)EW EW 37.20 36.00 38.00 6 2.14 2.14-2.25 2.25-Jones Lang LaSalle Inc.(JLL)OW OW 143.41 167.00 173.00 4 11.16 11.16-11.24 11.24-Kimco Realty Corp.(KIM)OW OW 17.01 17.00 18.00 6 1.45 1.45-1.43 1.43-Kite Realty Group Trust(KRG)OW EW 16.63 15.00 16.00 7 2.01 2.01-1.85 1.85-KKR Real Estate Finance Trust Inc.(KREF)OW OW 20.62 21.00 21.00-1.87 1.87-1.87 1.87-Lexington Realty Trust(LXP)UW UW 9.61 9.00 10.00 11 0.94 0.94-0.80 0.80-Macerich Company(MAC)EW EW 46.16 49.00 49.00-3.73 3.73-3.73 3.73-Mack-Cali Realty Corp.(CLI)UW UW 20.60 18.00 18.00-1.83 1.83-1.68 1.55-8 Mid-America Apartment Communities,Inc.(MAA)OW OW 101.28 105.00 112.00 7 6.03 6.03-6.23 6.22 0 Pennsylvania Real Estate Investment Trust(PEI)UW UW 7.37 6.00 6.00-1.53 1.53-1.42 1.42-Prologis(PLD)OW OW 69.16 68.00 71.00 4 3.02 3.02-3.15 3.15-Public Storage Inc.(PSA)EW EW 212.52 193.00 212.00 10 10.53 10.53-10.87 10.87-Regency Centers Corp.(REG)EW OW 65.00 63.00 69.00 10 3.79 3.79-3.89 3.89-Safety,Income and Growth,Inc.(SAFE)EW OW 17.64 21.00 22.00 5 1.16 1.13-3 1.69 1.53-9 Simon Property Group Inc.(SPG)OW OW 182.12 186.00 199.00 7 12.13 12.13-12.50 12.50-SL Green Realty Corp.(SLG)EW OW 92.43 97.00 100.00 3 6.60 6.60-6.91 6.91-UDR,Inc.(UDR)EW EW 43.75 39.00 44.00 13 1.94 1.94-2.07 2.07-Vornado Realty Trust(VNO)EW EW 69.91 68.00 69.00 1 3.66 3.66-4.10 4.10-Source:Barclays Research.Share prices and target prices are shown in the primary listing currency and EPS estimates are shown in the reporting currency.FY1(E):Current fiscal year estimates by Barclays Research.FY2(E):Next fiscal year estimates by Barclays Research.Stock Rating:OW:Overweight;EW:Equal Weight;UW:Underweight;RS:Rating Suspended Industry View:Pos:Positive;Neu:Neutral;Neg:Negative Barclays|U.S.REITs 4 February 2019 3 CONTENTS THE YEAR AHEAD 2019 OUTLOOK.6 Executive Summary.6 Portfolio Positioning,Subsector Views&Ratings Changes.10 Valuation Summary.15 2018:YEAR IN REVIEW.19 Implications for 2019.19 REITs Underperformed in 2018.19 2019 OUTLOOK.28 2019 Outlook:Key Catalysts,Debates and Concerns.28 Late Cycle Implications.28 Capital Market Outlook.31 Balance Sheet Efficiency.36 Implications of Rising Interest Rates 2019 Update.41 PORTFOLIO POSITIONING.51 Multifamily(Upgrade to Positive).51 Office(Neutral with a Positive Tilt).61 Real Estate Services(Positive).69 Retail(Malls:Neutral/Shopping Centers:Neutral).72 Industrial(Positive).79 Small Cap Idea.83 VALUATION UPDATE.85 Barclays|U.S.REITs 4 February 2019 4 All pricing as of January 31,2019 unless otherwise noted.Barclays|U.S.REITs 4 February 2019 5 The Year Ahead:2019 Outlook Executive Summary Barclays|U.S.REITs 4 February 2019 6 THE YEAR AHEAD 2019 OUTLOOK Executive Summary Its Time Still:Upgrading REITs After four years of underperformance,and notwithstanding the recent and unexpectedly robust gains we are upgrading our sector rating for REITs from Neutral to Positive.We want to acknowledge several things right up front.First,given that the REIT sector has appreciated nearly 11.0%in the past several weeks(vs+7.9%S&P index)some investors may say that this is a late call.That would be a fair view.On the other hand,we think much of the recent move is technical,driven to some degree by a momentum/reversion trade after the 8.8%December decline.Ours is also a long term,fundamental perspective that should be viewed relative to the broader market.In that vein we think our call will have legs.And by the way we may also be early,to the extent the January REIT gains unwind.Second,this is still a contrarian call and we are not naive to the risks.An important investor concern is that we are late in the cycle specific implications include the weaker macro-economy,slowing earnings growth,rising interest rates and full asset values.We think the late cycle concern as it relates to real estate is overdone and that industry fundamentals have a good runway for continued strength assuming the economy remains reasonably sound.That said,it is not clear at this point when,or even if,the perceptual issues overhanging the REIT sector will dissipate.Further,we believe that the pro-cyclical trade evident in the broader market for much of 2018 may be losing steam.Slowing GDP growth,earnings deceleration and increased market volatility will likely drive an investor shift towards more defensive income and longer duration ideas;namely REITs.In fact,the group has proven to be relatively defensive;cash flows are underpinned by long duration contracts and REITs,total return vehicles by definition,combine solid income potential with modest growth.Finally our call is very much predicated on sector and stock selection.Given their composition,the various REIT indices may not outperform the S&P 500 Index during 2019,particularly after the January move.Nevertheless we still believe there is money to be made this year in the REIT space.After lagging the broader market for the past four years,REIT valuations are reasonable albeit not as compelling as 30 days ago both in absolute terms and relative to historical trend.The revised price targets for our coverage universe,predicated on consistent mid-single digit earnings growth,imply a nearly 10%total return including an average 3.7%dividend yield.More importantly,especially given year to date stock performance,we think stock picking will be the primary return driver this year.We expect our Overweight rated stocks to produce a total potential return of 12.1%including a 3.6%average dividend.Our investment thesis combines a valuation-sensitive focus on those property sectors with good underlying fundamentals/accelerating earnings growth and on those companies able to distance themselves from the pack in a mature operating environment.We continue to see a material bifurcation between haves and have nots and favor those companies able to generate better growth by virtue of some inherent competitive advantage;we think they will turn out to be the better investments.We discuss our sector/stock recommendations in greater detail immediately below,but first we highlight the key investment considerations informing our sector upgrade.A longer-term call.not without risk.REITs stack up well versus the broader market.Butit is about stock picking.Scale,access to capital and quality assets in growth markets are points of differentiation.Barclays|U.S.REITs 4 February 2019 7 Investment Considerations Solid Commercial Real Estate Fundamentals Respectable Earnings Growth.Demand for commercial real estate space remains strong broadly,across geographies and property types,even as supply additions are relatively disciplined.REIT portfolios,which tend to include higher quality assets in stronger markets,are well leased resulting in stable or accelerating,mid-single digit earnings growth.We expect our coverage universe to generate 5.1%average annual operating earnings growth over the next five years driven by same store NOI growth in the 3.0%range.Relative Earnings Momentum Inflecting.One explanation for REIT underperformance in recent years is that earnings growth accelerated in the broader market,even as REIT earnings decelerated;we think that dynamic is set to inflect.Specifically,consensus expectation is for S&P 500 operating earnings to decelerate from 22.9%in 2018 to 7.6%in 2019 driven by downward earnings estimate revisions,slowing GDP growth and the short term impact of tax rate reductions abating.In comparison,we expect REIT earnings to remain relatively consistent in the 4.0 to 6.0%range for the next several years.There appears to be a strong negative correlation between earnings momentum and stock performance,which may favor the REITs in 2019.Safe Haven in a Slowing Economy.Domestic GDP growth is expected to slow in 2019 from 2.9%to 2.2%as the impact of tax rate reductions dissipate,the recent government shut down manifests itself,and trade/immigration policies dampen growth in an essentially full employment economy.We are not necessarily calling for a recession(that is not our role),but the market certainly expects a more muted domestic economy.Real estate is not immune from a decelerating macro-economy but the asset class long duration cash flows help insulate REITs from that slowdown perhaps more so than the broader stock market.We think REITs will stack up well perceptually in that event.Valuation Attractive Risk Adjusted.After four years of underperformance,REIT valuations are incrementally more interesting in absolute terms and relative to both history and the broader market.On average the group is trading at a slight NAV discount,at 17.4x estimated 2019 FFO/share and at 19.7x 2019 CAD.The average dividend yield to the group is 3.9%.Each of these metrics is several turns below the trailing 15 year average.On a relative forward multiple basis,REITs ended 2018 at 74.8%of the S&P the lowest since 2009,the height of the GFC.Looking at projected 2019 estimates,REITs are trading roughly in-line with the S&P 500,notwithstanding converging earnings growth rates.Interest Rates-Misunderstood.Interest rates,often considered the impediment to better REIT stock performance,are unquestionably higher.The Fed increased rates four times in 2018 and until recently most observers expected two additional hikes in 2019.Real estate however,is typically priced off the 10year Treasury,which has remained benign and asset values have held steady even as short rates increased.Company balance sheets are well laddered with little floating rate debt exposure.While increased rates on the short end of the curve may impact near term stock performance,they are also indicative of economic activity which in turn drives better real estate fund