01/10/22 02:41 PM EST

REITS DAILY BRIEF | 1.10.22 | (WE, REXR)

Takeaway: Recapping two 4Q21 operating updates in the REIT space

Ticker: WE

Subsector: CBD / Secondary Office

Headline: December operating results review

This morning Best Idea Long WeWork (WE) announced its December operating results ahead of formal 4Q21 earnings season. Big picture, 4Q21 numbers were just slightly below what we initially modeled but still on pace for the company to potentially approach cash flow break-even by the end of next year and 2x EBITDAR in FY22 vs. FY21. Occupancy (really utilization) at ~63% was just -200bp light of our 65% year-end assumption, but up +650bp sequentially which we have moving to the low-70% range by the end of next year. This would be well-below the numbers implied by WE's internal assumptions in the SPAC deck. Depending on average pricing (revenue / membership) which we have pegged at just under $500 per month for 4Q, the math tells us that the company could hit FY22 Adj. EBITDAR in the range of $2.1-2.3 billion for a double y/y, which would likely lead to meaningful share price appreciation for a company with this degree of financial leverage in the form of lease obligations. Interestingly, WE has been a standout performer broadly over the last 30 days and against the SPAC market especially. It is a real business with real revenues addressing a new problem for corporate real estate officers emerging from the pandemic. Our biggest question is whether and to what degree management will provide FY22 guidance or updated long-term targets for key metrics such as utilization, gross and net desk adds, locations and pricing.

Ticker: REXR

Subsector: Industrial / Warehouse

Headline: Watching the in-place mark-to-market fly higher

Best Idea Long REXR also announced 4Q21 operating metrics this morning, including 99% average occupancy in the same store portfolio for the quarter which was a full +300bp above our estimate and is just crazy to be candid. A "healthy" occupancy rate to facilitate the ability to push rent would normally be ~93-94%, and REXR is running +500bp over that. We actually wonder if it could make sense to sacrifice a few percentage points of occupancy to the benefit of overall SSRev and SSNOI growth. Most importantly for FY22, the in-place mark-to-market on expirations for the year on today's rents is +37%, which really means that leasing spreads for the year could have a "4" or maybe even a "5" in front of them when we wake up a year from now. The incredible tightness in the market for REXR's product will likely lead to additional rental rate increases. REXR remains our favorite logistics name here with both FY22 and FY23 consensus numbers likely too low and the growth tail elongating.

Prior Notes:

1.9.22 - SUNDAY NIGHT REIT READ | 1.9.22

1.6.22 - REITS DAILY BRIEF | 1.6.22 | (PSA, POSITION MONITOR)

1.5.22 - ESRT <--> PGRE: A WIN-WIN ALL AROUND? | 1.5.22 | (ESRT, PGRE)

1.4.22 - REITS DAILY BRIEF | 1.4.22 | (PGRE)

1.3.22 - REITS DAILY BRIEF | 1.3.22 | (POSITION MONITOR UPDATE, PGRE)

12.29.21 - REITS DAILY BRIEF | 12.29.21 | (Position Monitor, TCN, DLR, EQIX, ELS, SUI)

12.23.21 - REITS DAILY BRIEF | 12.23.21 | (AVB, CPT, EQR, MAA)

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

12.19.21 - SUNDAY NIGHT REIT READ | 12.19.21 | (PSA)

12.17.21 - REITS DAILY BRIEF | 12.17.21 | (Storage, Manhattan Office)

12.16.21 - REITS DAILY BRIEF | 12.16.21 | (FR)