11/11/21 12:57 PM EST

REITS DAILY BRIEF | 11.11.21 | (LSI, NYC CBD OFFICE)

Takeaway: Highly confident LSI numbers are too low

Ticker: LSI

Headline: Model Update

We finished updating our model for Best Idea Long LSI post-3Q21 results.
Big Takeaway: The math tells us that Street numbers are about ~7% too low next year, and that Core FFO could have a $6-handle in front of it in FY22 vs. $5.55/share consensus. Furthermore and similar to the other self-storage REITs, the RoC deceleration on SSRev, SSNOI and earnings looks like a 2H21 story, so we are keeping our long calls for now heading into the new year. Coincidentally (or perhaps not so much) this dovetails nicely with the firm's current Macro view on Quads 2/4, and as we stand here today we think that post-1Q22 is the time to re-evaluate but that is obviously dynamic.
Assumptions:

SSRev: +8.1% using a store count of 531 stores comprising ~38.4 million NRSF. We will roll this forward post-4Q21 results. We have modeled -10bp of occupancy loss next year with average rates making up the difference on revenue growth.
SSNOI: +10%, factoring +4% on payroll expenses and +5% on real estate taxes.
~$1 billion of assumed acquisition activity, financed w/ the issuance of ~1.9 million new shares and ~$400 million of new unsecured debt.
Final point that (we think) the Street might miss - remember to factor in the newly issued $90 million of preferred OP units at 4.5% into earnings forecasts.

Figure 1: LSI Hedgeye vs. Consensus Core FFO Estimates

Source: FactSet, Hedgeye

Tickers: BXP, PGRE, SLG, VNO

Headline: Wall Street Warns it Will Cut NYC Workforce in Next Five Years

Horribly bearish for the NYC CBD Office REITs over a TAIL duration (SLG and VNO are currently on our Long Bench, PGRE on Short Bench). Nearly a quarter of financial service firms, which anchor the key "FIRE" tenant segment for the market, are looking to cut their workforce size in NYC over the next 5 years. This will, without a doubt, lead to a reduction in net space demand from tenants irrespective of the narrative everyone will continue to hear that tech will make up the difference. Today Hedgeye also highlighted guest commentary from Chris Whalen on the sorry state of New York City as a business hub and place to live, as well as the eroding public confidence in leadership. It is worth a read.

Prior Notes:

11.10.21 - REITS DAILY BRIEF | 11.10.21 | (UHAL, CONE, COR, NSA, PSA)

11.9.21 - REITS DAILY BRIEF | 11.9.21 | (U.S. OFFICE UTILIZATION, SFR)

11.7.21 - SUNDAY NIGHT REIT READ | 11.7.21 | (APARTMENT RENTAL RATE TRACKER, POSITION MONITOR UPDATE)

11.4.21 - REIT RECAP | 11.4.21 | AMH 3Q21 RESULTS

11.4.21 - REIT RECAP | 11.4.21 | CUBE 3Q21 RESULTS

11.4.21 - REITS DAILY BRIEF | 11.4.21 | (COLD, IRM, EARNINGS SURPRISE MONITOR)

11.3.21 - REITS DAILY BRIEF | 11.2.21 | (LSI, POSITION MONITOR UPDATE)

11.2.21 - REITS DAILY BRIEF | 11.2.21 | (PSA, U.S. OFFICE UTILIZATION)

11.1.21 - REIT RECAP | 11.1.21 | PSA 3Q21 RESULTS

10.31.21 - SUNDAY NIGHT REIT READ | 10.31.21 | (3Q21 EARNINGS SURPRISES, POSITION MONITOR)

10.28.21 - REIT RECAP | 10.28.21 | CPT 3Q21 RESULTS