12/21/21 01:20 PM EST

REITS DAILY BRIEF | 12.21.21 | (BRG, U.S. OFFICE UTILIZATION)

Takeaway: Some thoughts on BRG acquisition by Blackstone + Kastle Systems office data

Ticker: BRG, MAA, APTS

Subsector: Multifamily

Headline: Interesting read-across for Sunbelt residential

Yesterday Blackstone announced it was acquiring Bluerock's (BRG) multifamily assets for $24.25/share or $3.6 billion. Some thoughts on the deal as they relate to Sunbelt residential:

First, immediately prior to the acquisition BRG will spin off a new publicly-traded SFR REIT called Bluerock Homes Trust, Inc. (BHOM) which will own interests in approximately 3,400 homes including ~2,000 through preferred and mezzanine investments. It appears that BHOM will be externally-managed by Bluerock, so highly likely to be an inferior structure to the internally-managed SFRs but we need more details on the terms of the management agreement. Regardless, we will have a fourth U.S.-listed SFR REIT in addition to AMH, INVH and TCN.
Based on the transaction price and backing out the multifamily loan and preferred books, we estimate the deal implies roughly $275-$300k per unit for the owned multfiamily portfolio. For reference this dovetails with the current ~$300k per unit implied by the market price for MAA.
This obviously has implications for APTS and IRT as well, although we are still thinking through that as we have not covered those names actively yet.
There have been some questions on whether this is Blackstone's "EOP moment" but just for multifamily. We don't think so for a few reasons: (1) less overall leverage in the system, (2) obviously a different property sector with much more favorable economics and demographics, and (3) less M&A activity in the REIT sector overall leading up to this acquisition.

Tickers: PGRE, SLG, VNO, BXP, KRC, DEI, ESRT, JBGS, BDN, CUZ, HIW, WE

Subsector: CBD and Suburban Office

Headline: Kastle Systems Back-to-Work Barometer

Office Utilization: Kastle Systems released its weekly office utilization tracker for the 7-day period ending 12/15, which showed a -30bps sequential decline in the 10-city average utilization rate to 39.5%, which is the second weekly decline following the sharp snap back post-Thanksgiving holiday (Figure 1 below). We would expect a similar drop for the 7-day period ending 12/22 leading up to Christmas followed by the New Year. As a reminder this metric tracks "bodies through turnstiles," and is different than "occupancy" in the traditional real estate sense which represents tenant leased/occupied space as a percentage of total square feet. 7 of 10 markets showed declines for the week, led by New York (-140bps to 34.5%) amidst the Omicron wave, Houston (-130bps to 52.3%) and LA (-90bps to 34.9%). San Francisco and San Jose both showed sequential declines last week and remain consistently the worst performers of the markets tracked. Austin (+100bps to 58.3%) was the only meaningful increase on the week. If the past COVID case count and hospitalization cycles are of any indication, it is likely that there will be further declines in utilization rates, albeit less severe than Fall 2020 and with the Delta variant surge. Each successive case count cycle has been less impactful to the downside on the return to office.