Workflow
Equity REITs: Takeaways From REITWeek 2024

Data Centers - EQIX's interconnected data centers are experiencing organic growth of 5-6% annually, but have not yet benefited from AI, which is primarily seen in large data center developments with hyperscalers like Alphabet, Microsoft, and Amazon [1] - EQIX is leveraging x-scale joint ventures to capture AI demand, believing that AI leasing will eventually drive rents higher in interconnected data centers [1] - A significant comment from Microsoft indicated that the world will need 40 EQIXs to meet the upcoming demand [1] - DLR has seen a 68% stock increase since October 2022, driven by restricted new supply and strong demand, particularly from AI [7] - DLR reported a record $252 million in annualized booking revenue in Q1 2024, with expectations of breaking this record again [7] Cell Towers - American Tower (AMT) is trading near a 13-year low AFFO multiple, indicating a bearish earnings outlook, yet maintains a growth guidance of at least 5% in US annual revenue through 2027 [2] - AMT plans to sell its India business for $2.5 billion, which, while dilutive to earnings, will reduce debt and potentially increase the price to AFFO multiple [2] - The deployment of 5G is slower than anticipated, but AMT believes every cell tower will eventually have a 5G site, with discussions already starting about 6G development [2] Triple Net REITs - NNN REIT initiated a position due to attractive relative valuation compared to shopping center REITs, with a conservative balance sheet and a weighted average maturity of 11.8 years on its debt [3] - NNN generates approximately $200 million in free cash flow annually after dividends, allowing for acquisitions of about $500 million in new properties each year without increasing leverage [3] - Realty Income (O) is leveraging its size to borrow in international markets at lower rates, achieving 7.8% year-one cash yields on acquisitions [3] Multifamily and SFR - Sun Belt apartment REITs are seeing gradual improvements in lease rate growth, while Coastal apartment REITs are experiencing stronger growth due to robust fundamentals [4] - The transaction market is gradually improving, with significant deals like Blackstone's acquisition of AIR Communities helping to narrow the bid-ask spread [4] - The SFR sector is benefiting from a 28% disparity between in-place rents and homeownership costs, with stable occupancy around 97% and blended lease spreads exceeding 5% [10] Self-Storage - Despite negative move-in rates, management teams express optimism due to better-than-expected occupancy levels, anticipating that the sector will capitalize on a housing market recovery [18] Office - Office REITs are experiencing a bifurcation, with a national vacancy rate of 20%, but A-quality buildings seeing only 12% vacancy [16] - The return-to-work trend is improving, and REITs are well-capitalized, positioning them to capture market share [16] Conclusion - The overall outlook for the commercial real estate industry is improving, driven by a decline in development activity and a normalization of interest rate volatility, which is expected to enhance transaction activity [17]