06/08/22 09:53 AM EDT

REITS DAILY BRIEF | 6.8.22 | (NAREIT, POSITION MONITOR UPDATE)

Rob Simone, CFA

@HedgeyeREITs

Takeaway: NAREIT Day #1 notes; moving COLD to DMZ/Neutral

Hedgeye Cartoon of the Day: Timber

Investing Ideas: Most Recent Trend Ranges

Longs

PGRE - $8.25 - $9.71

CXW - TBD

Shorts

INVH - $35.65 - $39.66

MPW - $15.49 - $18.46

Headline: Some key takeaways from our meetings/conversations at NAREIT Day #1

American Homes 4 Rent (AMH) - the CEO literally said that "historically rents do not decline amidst HPA declines," and "we expect our sector to always be a steady and predictable performer." We like AMH, but fade that comment. We remember "housing prices never go down..."
Still lots of skeptical looks from the buyside on Active Short Invitation Homes (INVH). For the ~600th time, THE CA MUNICIPALITIES HAVE NOT DECLINED TO TAKE UP THE CASE, rather they chose to remain in a "holding pattern" and "opt-in" at an appropriate time. One had requested to be kept current real time with all developments. We are also not sure why some investors are so sure that the case will be dismissed this summer/fall. We are taking the exact opposite side of that bet based on our legal read, and expect the judge to expedite the case to discovery which would likely be VERY damaging for INVH and ultimately end in a settlement across multiple jurisdictions. We expect this case to ultimately involve complaints in multiple states. A dismissal would obviously change our view and we would retreat. Longer-term we expect lower compounded revenue growth going forward, structurally lower margins via higher property tax growth, and structurally higher maintenance capex, none of which the Street is underwriting. INVH's company presentation is this afternoon.
In general the buyside is struggling to find attractive long ideas, which usually tells you a lot about where we are in the cycle. We would continue to recommend lower beta, lower leverage, longer duration, secular growth and credit, which lends itself to select Healthcare (Short MPW!), NNN, Towers and Data Centers. In Healthcare, specifically, there may be some "mispriced credit" which we are currently exploring, and also staying Long of HR which is likely headed to the mid-$30s and has a ~12.5% short interest.
Active Short MPW IS NOT CHEAP, the 9-10x forward FFO multiple is a meaningless metric if a rent cut is forthcoming. Yesterday a Debtwire article hit noting an objection filed in the Watsonville bankruptcy case related to unsecured creditors' claims/recoveries. This likely delays MPW getting paid some recovery % on its ~$40mm secured claim.
Self-storage commentary was very bearish for housing specifically, and PSA's occupancy seems to be trending below expectations. We are Active Short on UHAL and Passive Short (Bench) on LSI.
On office, honestly who cares? Same old nonsense from the management teams on a secularly dying business. Need to sharp-shoot these names, and Passive Long PGRE is getting interesting again back below $9/share and with Monarch appearing not to be going anywhere.
Apartment meetings were positive, particularly for Active Long EQR, but we think post-2Q gets particularly tough for certain names including Active Short CPT. Essex (ESS) highlighting tech + VC + biotech exposure as positives seemed very out of touch.