10/26/21 02:16 PM EDT

REITS DAILY BRIEF | 10.26.21 | (EQR, REXR)

Rob Simone, CFA

Takeaway: Updated position monitor for REXR long; EQR 3Q21 preview

REXR: Added to the Best Idea Long list this morning and see (1) a positive RoC trend and (2) 10%+ upward estimate revisions in FY22/23 with the Old Wall far too low. It is very fair to conservatively assume at least a mid-teens IRR through 4Q22, and the stock works well in both Quad 2 & 4. We remain effectively long the shorter-lease duration Logistics REITs and short the longer duration names.

EQR: Best Idea Long reporting 3Q21 results after the close this evening. We are $0.05/share above the Street with our Core FFO estimate of $0.80/share (vs. guidance for $0.72 to $0.76). Similar to AVB we think SSNOI (resi+ other) inflects positive this quarter for the first time since 1Q20, followed by at least 3-4 additional quarters of positive RoC acceleration in SSRev and SSNOI. EQR is likely to adjust the midpoint of FY21 Core FFO guidance upwards to ~$3.05/share from $2.85 to $2.95 currently. We slightly prefer AVB, but think both names are favorably positioned here and work well heading into the end of FY21 through mid-FY22 at least.

Office Utilization: Kastle Systems released its weekly office utilization tracker for the 7-day period ending 10/25, which showed a +70bp increase in the 10-city average utilization rate which has been tracked since the pandemic began (Figure 1 below). As a reminder this tracks "bodies through turnstiles," and is different than "occupancy" which represents tenant leased/occupied space as a percentage of total square feet. The Austin & Chicago metro areas showed the largest increases at +120bp to 48.9% and 33.1%, respectively, while San Francisco showed the smallest increase at just +20bp to 25.4%. San Francisco has remained persistently at the bottom of the list, and arguably is the most challenged office market in the U.S. right now and needs to close the gap with New York.

Figure 1: Kastle Back-to-Work Barometer