For Immediate Release
Chicago, IL - December 22, 2011 - Today, Zacks Equity Research
discusses the
REIT Industry Review & Stock Picks
, including
Public Storage
(
PSA
),
Taubman Centers Inc.
(
TCO
),
Avalonbay Communities, Inc.
(
AVB
),
Host Hotels & Resorts, Inc.
(
HST
) and
Prologis Inc.
(
PLD
).
A synopsis of today's Industry Outlook is presented below. The
full article can be read at
http://www.zacks.com/stock/news/66713/REIT+Industry+Review+%26amp%3B+Stock+Picks+-+Dec.+2011
OPPORTUNITIES
We are bullish on
Public Storage
(
PSA
), the largest owner and operator of storage facilities in the U.S.
The company has significantly increased the scale and scope of its
operations through the acquisition of Shurgard Storage Centers that
had a considerable presence in the European markets. Although
Public Storage currently owns a 49% stake in Shurgard, the size and
scope of its operations have enabled it to achieve economies of
scale, thereby generating high operating margins and managerial
efficiencies.
The "Public Storage" brand is the most recognized and established
name in the self-storage industry, with a presence in all the major
markets across 38 states in the U.S. In addition, the storage
facilities of the company have a high visibility and are usually
located in densely populated areas that improve the local awareness
of the brand. This offers a significant upside potential for the
company.
Another stock worth mentioning is
Taubman Centers Inc.
(
TCO
), which owns, develops and operates regional and super-regional
shopping centers throughout the U.S. and Asia. Retail shopping
centers spanning over 400,000 square feet of gross leaseable area
(GLA) are generally referred to as "regional" shopping centers,
while those centers having in excess of 800,000 square feet of GLA
are generally referred to as "super-regional" shopping centers.
Taubman focuses on dominant retail malls that command the highest
average sales productivity in the U.S., measured in terms of mall
tenants' average sales per square foot. On a trailing 12-month
basis, mall tenant sales were $615 per square foot during third
quarter 2011. In addition, a large number of these shopping centers
are strategically located in the most affluent regions of the
country, which include Los Angeles, San Francisco, Denver, Detroit,
Phoenix, Miami, Dallas, Tampa, Orlando and Washington DC. This, in
turn, enables the retailers to target high-end upscale customers
and maximize their profitability.
We also remain bullish on
Avalonbay Communities, Inc.
(
AVB
), one of the best-positioned apartment REITs, primarily focused on
developing multi-family apartment communities for higher-income
clients in high barrier-to-entry regions of the U.S. Avalonbay has
Class A assets located in premium markets, such as Washington DC,
New York City and San Francisco, where the spread between renting
and owning is still high despite home price declines.
As 'echo boomers' (the children of baby boomer generation) opt to
move out on their own and more renters decide to part ways with
families and roommates, the single-family homeownership rate across
the U.S. has persistently declined and the demand for multifamily
rental apartments has seen a surge. With new supply remaining muted
until late 2013 or 2014, we expect the performance of the
multifamily sector as a whole and Avalonbay in particular to remain
comparatively stable in the coming quarters, as renting has emerged
as the only viable option for customers who could not procure
mortgage loans or are unwilling to buy a house at present.
In addition, Avalonbay has a reasonably strong balance sheet with
moderate near-term debt maturities and adequate liquidity.
Consequently, the company can capitalize on potential acquisition
opportunities due to distressed selling from owners and developers
who cannot refinance their properties that augur well for its
top-line growth.
WEAKNESSES
A significant chunk of REITs are raising capital through property
level debt and equity offerings. Although both debt and equity
financings provide much-needed cash infusions, these could
potentially burden already leveraged balance sheets and dilute
earnings. Property level debt is also harder to obtain and more
expensive, as commercial real estate prices remain under pressure.
We are bearish on
Host Hotels & Resorts, Inc.
(
HST
), the largest lodging REIT and one of the largest owners of luxury
and upper-upscale hotels. The majority of Host Hotels' properties
are concentrated in the luxury and upper-upscale segments, which
was the weakest performing segments during the economic downturn.
While the outlook for these markets has improved, the pace of
improvement remains quite uneven and unsteady.
The hotel industry is also cyclical in nature, and is heavily
dependent on the overall health of the U.S. economy. Unfavorable
macroeconomic conditions in the past has compelled customers to cut
back on discretionary spending and prefer lower priced brands over
premium ones. Consequently, demand for Host Hotels had reduced
comparatively and if the trend reoccurs in future, the bottom line
of the company is likely to be affected, reducing its operating
margins.
We also remain skeptical about
Prologis Inc.
(
PLD
), the erstwhile AMB Property Corp. that acquires, develops,
operates and manages industrial real estate space in North America,
Asia and Europe. Although the quarterly results were in line with
the company's expectations and signified a gradual improvement in
market fundamentals, macroeconomic issues have contributed to a
slower pace of recovery.
The credit crunch has also widened the bid-ask spread between
buyers and sellers of commercial real estate, causing deal volumes
to fall from pre-recession levels. In addition, market vacancy
increases will mitigate Prologis' ability to push through rental
rate increases. This has significantly affected the long-term
growth of the company.
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AVALONBAY CMMTY (
AVB
): Free Stock Analysis Report
HOST HOTEL&RSRT (
HST
): Free Stock Analysis Report
PROLOGIS INC (
PLD
): Free Stock Analysis Report
PUBLIC STORAGE (
PSA
): Free Stock Analysis Report
TAUBMAN CENTERS (
TCO
): Free Stock Analysis Report
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