Post on 30-May-2018
8/14/2019 Meet the Money 2009 John Arabia of Green Street Advisors 5-7-09
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State of the Public Equity Markets
Lodging & REIT Sectors
May 2009
John Arabia
8/14/2019 Meet the Money 2009 John Arabia of Green Street Advisors 5-7-09
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I. Public Stock Trends
II. Current Valuations
III. REIT 2.0: What will REITs Look Like in the Future?
Topics
8/14/2019 Meet the Money 2009 John Arabia of Green Street Advisors 5-7-09
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0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
5.0
1/3/00 1/3/01 1/3/02 1/3/03 1/3/04 1/3/05 1/3/06 1/3/07 1/3/08 1/3/09
RMS S&P 500 Total Return HST
Total Return Comparison: REITs and Hotels vs. S&P 500
Public Stock Trends
The US REIT bull run ended abruptly as the privatization
wave turned quickly into the credit crunch.
Source: Bloomberg
REITs outperform the S&P 500 from
2000 through 2006 as cap rates decline
Credit Crunch
Privatization
REITs
underperform
8/14/2019 Meet the Money 2009 John Arabia of Green Street Advisors 5-7-09
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Indexed NOI Grow th ('98=100)
100
110
120
130
140
150
'98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09E '10E '11E '12E
Hist o r i cal Dec 31 06 Est Cur r ent Est
NOI Growth Major Sector Average
NOI growth prospects for the major real estate
sectors have declined materially.
Public Stock Trends
8/14/2019 Meet the Money 2009 John Arabia of Green Street Advisors 5-7-09
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Indexed NOI Gro w th ( '99=100)
50
60
70
80
90
100
110
120
130
'99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09E '10E '11E '12E
Hist o r i c al Dec 31 06 Est Cur r ent Est
NOI Growth Hotels
Public Stock Trends
NOI growth prospects for Hotels have declined far
worse than those of other property sectors.
8/14/2019 Meet the Money 2009 John Arabia of Green Street Advisors 5-7-09
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Return expectations have increased as evidenced by
increasing real estate IRR expectations and bond yields.
Public Stock Trends
Source: Green Street Advisors as of 03/18/09
IRR Expectations vs. Commercial Mortgage Rates
4.0%
5.0%
6.0%
7.0%
8.0%
9.0%
10.0%
11.0%
12.0%
1-86
1-88
1-90
1-92
1-94
1-96
1-98
1-00
1-02
1-04
1-06
1-08
IRR Expectations Commercial Mtg Rate
8/14/2019 Meet the Money 2009 John Arabia of Green Street Advisors 5-7-09
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Leverage Ratios have increased substantially.
Several companies are expected to experience
moderate-to-severe financial distress.
Public Stock Trends
Source: Green Street Advisors as of 05/01/09
REIT Leverage Ratios
20%
30%
40%
50%
60%
70%
80%
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
8/14/2019 Meet the Money 2009 John Arabia of Green Street Advisors 5-7-09
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REIT Pricing vs. Real Estate
REITs have recently rebounded from the sizable NAV
discounts witnessed earlier this year.
Source: Green Street Advisors as of 05/01/09
Current Valuations
Share Price Premium to NAV
-8.0%
-50%
-30%
-10%
10%
30%
50%
1-90
1-91
1-92
1-93
1-94
1-95
1-96
1-97
1-98
1-99
1-00
1-01
1-02
1-03
1-04
1-05
1-06
1-07
1-08
1-09
Avg since '93: 2.2%
8/14/2019 Meet the Money 2009 John Arabia of Green Street Advisors 5-7-09
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REIT Pricing vs. Real Estate
At the peak in 07, NAV had increased 150% in a four-
and-a-half year period. Those gains have since evaporatedas real estate values have declined by 40%.
Current Valuations
Source: Green Street Advisors as of 05/01/09
NAV Index = 100 on 1/90
80
50
75
100
125
150
175
200
225
250
1-90
1-91
1-92
1-93
1-94
1-95
1-96
1-97
1-98
1-99
1-00
1-01
1-02
1-03
1-04
1-05
1-06
1-07
1-08
1-09
Cap Rates Decline
Cap Rates
Increase
and NOI
decreases
8/14/2019 Meet the Money 2009 John Arabia of Green Street Advisors 5-7-09
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Leverage has been a bad thing?
REIT 2.0: What will REITs Look Like in the Future?
Source: Green Street Advisors as of 05/01/09
Leverage and Returns
HST
HOT
GGP
DDR
AECPPS
PLD
CLP
CBLSUI
MAC
DRE
WRIUDRCUZ
WRE KIMCPT
EQR
BRE
SPGTCOELS
REG VNOFRT
AVB
SKT
PSA
R2 = 0.50
-10%
-5%
0%
5%
10%
15%
20%
30% 35% 40% 45% 50% 55% 60% 65% 70% 75%
Avg Leverage Ratio
15YRT
otalReturn
(ann.)
Over the last 15 years, every
100 basis point increase in
leverage has been
accompanied by a 40 bp
decrease in annual returns
8/14/2019 Meet the Money 2009 John Arabia of Green Street Advisors 5-7-09
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REITs of Tomorrow
REIT 2.0: What will REITs Look Like in the Future?
Institutional investors will demand low leverage.
Massive Re-Equitization of the REIT industry
already underway.
Public markets will play critical role in re-
equitizing the commercial real estate industry(93 Re-Do).
8/14/2019 Meet the Money 2009 John Arabia of Green Street Advisors 5-7-09
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State of the Public Equity Markets
Lodging & REIT Sectors
May 2009
John Arabia
8/14/2019 Meet the Money 2009 John Arabia of Green Street Advisors 5-7-09
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