Meet the Money 2009 John Arabia of Green Street Advisors 5-7-09

8/14/2019 Meet the Money 2009 John Arabia of Green Street Advisors 5-7-09

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1

State of the Public Equity Markets

Lodging & REIT Sectors

May 2009

John Arabia


2/13

2

I. Public Stock Trends

II. Current Valuations

III. REIT 2.0: What will REITs Look Like in the Future?

Topics


3/13

3

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

5.0

1/3/00 1/3/01 1/3/02 1/3/03 1/3/04 1/3/05 1/3/06 1/3/07 1/3/08 1/3/09

RMS S&P 500 Total Return HST

Total Return Comparison: REITs and Hotels vs. S&P 500

Public Stock Trends

The US REIT bull run ended abruptly as the privatization

wave turned quickly into the credit crunch.

Source: Bloomberg

REITs outperform the S&P 500 from

2000 through 2006 as cap rates decline

Credit Crunch

Privatization

REITs

underperform


4/13

4

Indexed NOI Grow th ('98=100)

100

110

120

130

140

150

'98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09E '10E '11E '12E

Hist o r i cal Dec 31 06 Est Cur r ent Est

NOI Growth Major Sector Average

NOI growth prospects for the major real estate

sectors have declined materially.

Public Stock Trends


5/13

5

Indexed NOI Gro w th ( '99=100)

50

60

70

80

90

100

110

120

130

'99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09E '10E '11E '12E

Hist o r i c al Dec 31 06 Est Cur r ent Est

NOI Growth Hotels

Public Stock Trends

NOI growth prospects for Hotels have declined far

worse than those of other property sectors.


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6

Return expectations have increased as evidenced by

increasing real estate IRR expectations and bond yields.

Public Stock Trends

Source: Green Street Advisors as of 03/18/09

IRR Expectations vs. Commercial Mortgage Rates

4.0%

5.0%

6.0%

7.0%

8.0%

9.0%

10.0%

11.0%

12.0%

1-86

1-88

1-90

1-92

1-94

1-96

1-98

1-00

1-02

1-04

1-06

1-08

IRR Expectations Commercial Mtg Rate


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7

Leverage Ratios have increased substantially.

Several companies are expected to experience

moderate-to-severe financial distress.

Public Stock Trends


REIT Leverage Ratios

20%

30%

40%

50%

60%

70%

80%

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009


8/13

8

REIT Pricing vs. Real Estate

REITs have recently rebounded from the sizable NAV

discounts witnessed earlier this year.


Current Valuations

Share Price Premium to NAV

-8.0%

-50%

-30%

-10%

10%

30%

50%

1-90

1-91

1-92

1-93

1-94

1-95

1-96

1-97

1-98

1-99

1-00

1-01

1-02

1-03

1-04

1-05

1-06

1-07

1-08

1-09

Avg since '93: 2.2%


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9

REIT Pricing vs. Real Estate

At the peak in 07, NAV had increased 150% in a four-

and-a-half year period. Those gains have since evaporatedas real estate values have declined by 40%.

Current Valuations


NAV Index = 100 on 1/90

80

50

75

100

125

150

175

200

225

250

1-90

1-91

1-92

1-93

1-94

1-95

1-96

1-97

1-98

1-99

1-00

1-01

1-02

1-03

1-04

1-05

1-06

1-07

1-08

1-09

Cap Rates Decline

Cap Rates

Increase

and NOI

decreases


10/13

10

Leverage has been a bad thing?

REIT 2.0: What will REITs Look Like in the Future?


Leverage and Returns

HST

HOT

GGP

DDR

AECPPS

PLD

CLP

CBLSUI

MAC

DRE

WRIUDRCUZ

WRE KIMCPT

EQR

BRE

SPGTCOELS

REG VNOFRT

AVB

SKT

PSA

R2 = 0.50

-10%

-5%

0%

5%

10%

15%

20%

30% 35% 40% 45% 50% 55% 60% 65% 70% 75%

Avg Leverage Ratio

15YRT

otalReturn

(ann.)

Over the last 15 years, every

100 basis point increase in

leverage has been

accompanied by a 40 bp

decrease in annual returns


11/13

11

REITs of Tomorrow

REIT 2.0: What will REITs Look Like in the Future?

Institutional investors will demand low leverage.

Massive Re-Equitization of the REIT industry

already underway.

Public markets will play critical role in re-

equitizing the commercial real estate industry(93 Re-Do).


12/13

12

State of the Public Equity Markets

Lodging & REIT Sectors

May 2009

John Arabia


13/13

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Meet the Money 2009 John Arabia of Green Street Advisors 5-7-09

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