Agenda · Today we are going to: . Discuss the plan for the REIT Pairs group projects . Go over this year's pairs, and the material that is available from blackboard and other sources to get you started on your analysis · Assign students to teams, and have each team pick a REIT pair • • • • Class Structure: Presentation Weeks · Two teams per class · Class split in two slots, approx. 1h 15 minutes each · Each slot is organized as follows: · Class discussion on asset class/sector for the REIT pair (10/15 min) . Team members present their analysis (approx. 40 min) · Clarifications questions are allowed during the presentations . The presentation is followed by class discussion on the team's analysis and recommendation · I will take attendance at the beginning of every class Deliverables: · Team Presentation Slides: Due on presentation day • The presentation should contain: • (Brief) Asset class/sector overview • Qualitative description of the two REITs, focused on risks and opportunities · Overview of quantitative analysis (Excel Model + Multiples) · Recommendation (which REIT to overweight/underweight, or maintain current weights) · Excel Model for REITs pair: Due on presentation day; adjustments possible after presentation · Memo with synthesis and recommendation (2 pages) Team Members Evaluation · After the last class meeting, I will hand you a survey in which you can offer feedback on your team members · Please ... be professional when working with your peers! · Consider your team as a "mock" corporate environment Overview of Information Sources • I have posted reports from Greenstreet on each sector and individual REIT, they are in the folder REIT Pairs on blackboard · While there are reports for all sectors, comprehensive Greenstreet outlooks for 2023 have not yet been published for a couple of sectors; I will post them when/if they become available . You can access the 10-Ks of the individual REITs on their websites, usually in the investors' relations section Overview of Information Sources . Listen to recent earnings calls, they bring to the spotlight a lot of subtle information that is frequently lost in the 10-Ks notes; they also give you a sense of how the REITs management thinks of their business · Read news in the financial press covering your REITs, listen to management interviews · www.reit.com has also additional information on individual REITs and asset classes/sectors . S&P Capital IQ can also be useful, but the information available there overlaps with the other sources discussed above Sector Overview in the Presentation . Keep the sector overview in your presentation short! • We have a pre-presentation class discussion on the sector · Trends and other sector information is available from Greenstreet . Focus your sector overview on factors that influence your analysis of, and decision on, the pair . Or offer unique insights that are not already discussed in the Greenstreet reports REIT Pairs . Let's now review the REIT pairs for this year · We have a broad choice of asset classes: multifamily, office, retail, manufactured homes, healthcare, gaming (and lodging), self-storage, and data centers · For each pair, I will give some context, and discuss how "close" the is pair, based on the REITs characteristics · "Very Good matches" are likely the easiest to analyze, since REIT characteristics are very similar; however, these might also be the pairs for which it is hardest to make a recommendation · "Acceptable matches", have some differences, which you need to ponder in your analysis; while harder to analyze, these pairs may offer interesting spread trades EQR and UDR: Multifamily (1) Very Good Match Equity Residential and UDR Inc. • • Characteristics: • 5-year Returns correlations. 93% . Mkt Cap. EQR: $23.4 Billion, UDR: $12.5 Billion · Leverage. EQR: 19%, UDR: 25%; for both debt is mostly unsecured, fixed rate, long maturity · Asset Mix. EQR (66% A-Class), UDR (39% A-Class) · Locations. EQR: (LA, Boston, Seattle, NY, Virginia, SF), UDR: (Boston, Orange County, Dallas, Virginia, NY, Seattle) · Private Mkt Cap rates. EQR: 5.5%, UDR: 5.6% Let's Organize the Teams! I believe this is a solid line-up of potential bets: . In total, the pairs account for 24.3% of the benchmark portfolio · Combined, you can achieve a maximum active weight of 15.7% Let's get down to business, we have 10 pairs for 10 teams: . Let's first revies students' assignment to teams · You can then discuss your preferences with your teammates . And finally, in turn, each team will pick a pair The Excel Valuation Model . The last topic we need to discuss in class is the valuation model · Uses both FFO and NAV analysis, plus assumptions on growth, to produce future price estimates and IRRs for REITs. . I will make the model available on blackboard in the next couple of days, and I am happy to start discussing some of the mechanics with teams 1 and 2 · Extensive discussion of the model will be next week · By next week, start reviewing the information related to your pair: · Go over what is on blackboard . Download the REITs 10-Ks · Look into recent news, listen to earnings calls, etc.