REITs

Question 1

AMERICAN HOMES 4 RENT LP (AMH)

Answer 1

Owns and operates a portfolio of 59k single-family homes predominantly in the Sunbelt: Atlanta (9% NOI), Charlotte (8%), DFW (7%), Nashville (7%), Phoenix (6%). Avg. home just under 2k sqft

5y spreads remain 20bp cheap relative to fair value implied by net debt-to-EV. AMH owns a high-quality portfolio of single-family rentals that should continue to benefit from low new supply and a less transient tenant base versus multifamily comps. Recent rumors have surfaced that AMH is in advanced talks to acquire a 1.7k unit sunbelt (i.e., Texas, Florida, Georgia) portfolio from Man Group, which I think could be valued in the $450-500mn range assuming a 5.5% cap rate. The rumors come as a surprise but I think the risk of the company fully funding this potential transaction with debt is low. AMH has $864mn available on the ATM equity program and a 4.9% implied cap rate, meaning it could fund the deal accretively with equity. As a result, I think net leverage will remain ~1.0x lower than INVH and continue to have a fundamental preference over this peer.

Baa2/BBB
REITS & Property - Americas
$3.65bn in index across 8 issues

Question 2

BROADSTONE NET LEASE INC (BNL)

Answer 2

BNL is an internally-managed REIT that acquires, owns, and manages primarily single-tenant commercial real estate properties that are net leased on a long-term basis to a diversified group of tenants. 797 properties in 44 U.S. states across the industrial, healthcare, restaurant, office, and retail property types, with an aggregate gross asset value of approximately $6.0 billion

Smaller (but growing) triple-net lease REIT. Diversified portfolio from a tenant/industry standpoint, but weighted more towards industrial (51% of rents). Small proportion of tenants are IG rated (~16%) as most tenants are middle-market firms, however portfolio occupancy/rent collections are very strong. Lacks scale of larger NNN peers; some geographic concentration (Texas ~10%), but portfolio should be relatively defensive

Baa2/BBB
REITS & Property - Americas
$0.38bn in index across 1 issues

Question 3

CBL & ASSOCIATES LP (CBL)

Answer 3

Owns and operates a portfolio of retail properties, including shopping malls and community centers. Their business model focuses on providing high-quality retail spaces and enhancing tenant relationships. Financially, CBL benefits from a strong asset base and strategic initiatives to improve operational efficiency.

B-
REITS & Property - Americas
No USD Bonds Outstanding

Question 4

COPT DEFENSE PROPERTIES LP (CDP)

Answer 4

COPT is a REIT that owns, manages, leases, develops and selectively acquires office and data center properties. The majority of its portfolio is in locations that support the United States Government and its contractors, most of whom are engaged in national security, defense and information technology (“IT”) related activities servicing what it believes are growing, durable, priority missions (“Defense/IT Locations”).

Concentrated to Baltimore/DC area and US government and defense contractors (87.6% of revenues, US government 37%); retention rates tend to be high due to nature of tenants; claims to be more insulated from hybrid work impacts due to security requirements of tenants (true to some extent); Given the nature of tenant base, it’s likely occupancy holds up relatively well

Baa3/BBB-/BBB-
REITS & Property - Americas
$1.80bn in index across 4 issues

Question 5

CUBESMART LP (CUBE)

Answer 5

One of the top three owners and operators of self-storage properties in the United States, CubeSmart is a self-administered and self-managed real estate investment trust. The Company’s self-storage properties are designed to offer affordable, easily accessible and, in most locations, climate-controlled storage space for residential and commercial customers.

Although the company has significantly grown, it lacks the scale of its larger peers (PSA and EXR). Self-storage is always exposed to supply risk, however supply risk currently appears to be manageable. Some geograhpic concentration in the northeast (specifically NYC), and to a lesser extent Florida. Could be a target of PSA

BBB
REITS & Property - Americas
$2.80bn in index across 7 issues

Question 6

DIGITAL REALTY TRUST LP (DLR)

Answer 6

Digital Realty is a data center REIT that owns (281 data centers), acquires, develops, and operates a portfolio of properties located in North America, Europe, and Asia Pacific. The REIT provides data center, colocation and interconnection solutions for customers across a variety of industry verticals.

Very acquisitive with a skew towards expanding geographic reach; some development risk; leverage has deteriorated (and higher than long-term target of sub 5.5x) largely due to outsized development activity

Baa3/BBB
REITS & Property - Americas
$3.45bn in index across 4 issues

Question 7

ELME COMMUNITIES (ELME)

Answer 7

Owns and operates uniquely positioned real estate assets in the Washington Metro area. Company’s portfolio consists of 28 properties–27 multifamily properties (8,868 apartment homes) and 1 office property (300,000 SF).

Very small REIT formerly known as Washington REIT. Recently finished transformation to a pure-play MF REIT. Lacks scale of its larger MF peers, however still performs well operationally. More skewed towards Class B apartments targeting mid-market renters. Concentrated in DC/Northern VA metro area, but expanding into attractive sunbelt markets. Have experienced robust portfolio metrics. Leverage has improved and should modestly improve. Solid liquidity profile

Baa2/BBB
REITS & Property - Americas
No USD Bonds Outstanding

Question 8

EQUINIX EUROPE 1 FINANCING CORPORATION LLC (EQIX)

Answer 8

Leading global data center operator in the Americas, Europe, and Asia Pacific.

Strong global footprint and diverse customer and product offerings; very acquisitive with a skew towards expanding geographic reach; Doesn’t own as many data centers outright as DLR, but has increased ownership over the years. Pricing power appears to be improving, but likely somewhat offset by increased energy costs. Rank ahead of DLR due to lower leverage and a stronger near-term liquidity profile

Baa2/BBB
REITS & Property - Americas
$10.30bn in index across 14 issues

Question 9

Equity Residential (EQR)

Answer 9

Owns and operates a portfolio of 81,000 multifamily units primarily located in coastal gateway markets. Largest markets are Southern California (27% of NOI), San Francisco (16%), Washington D.C. (16%), New York (14%). Leads peers in rent, affluent urban submarkets
Third highest quality name in REITs

High quality portfolio of 815 multifamily units in coastal gateway markets. Upgrading to neutral to reflect ~25bp of YTD decompression versus the IG REIT index, despite strong earnings and stable credit metrics over the same timeframe. I think the company should continue to benefit from a portfolio that is concentrated in coastal gateway markets, which are seeing manageable new supply relative to sunbelt counterparts. This puts the company in a favorable position to take advantage of weaker fundamentals outside core markets. As evidence, it announced the acquisition of 11 properties in Atlanta, Dallas-Fort Worth, and Denver for $1bn. The transaction will have minimal impact on credit metrics as it will be funded entirely with asset dispositions. There is significant (1.5-2.0x) cushion relative to downgrade triggers but I expect the company to maintain a prudent funding mix for incremental acquisitions.

Baa2/A-
REITS & Property - Americas
$4.85bn in index across 10 issues

Question 10

EXTRA SPACE STORAGE LP (EXR)

Answer 10

Leading owner and operator of self-storage facilities in the U.S. It is well-positioned due to its extensive network and strong operational platform. Strengths include robust financial performance and a diversified revenue base. Weaknesses involve exposure to market volatility and the cyclical nature of real estate investments.

Remain underweight 5y spreads given tight valuations versus historicals. FV is closer to 5bp tight of AMH versus a current spread differential of 10bp. Current levels likely bake in the firm’s positive FCF generation after dividends and lack of development exposure. However, I continue to like AMH better fundamentally given lower leverage, higher interest coverage, and stronger unencumbered asset coverage. I think AMH will eventually trade through EXR as it terms out the remainder of securitized debt

BBB+
REITS & Property - Americas
$5.95bn in index across 12 issues

Question 11

FEDERAL REALTY INVESTMENT TRUST (FRT)

Answer 11

Ownership, operation and redevelopment of high-quality retail-based properties located primarily in major coastal markets from Washington, D.C. to Boston as well as San Francisco and Los Angeles. 104 properties include approximately 3,200 tenants, in 26 million square feet, and approximately 3,300 residential units.

Retail REIT with high quality in-fill locations. Located in attractive markets with very strong demographics. Has been a leader in the mixed-use neighborhood concept (Retail with MF/Office properties that complement each other). Portfolio metrics have rebounded stronly since the pandemic.

Baa1/BBB+
REITS & Property - Americas
$2.58bn in index across 6 issues

Question 12

HEALTHCARE REALTY HOLDINGS LP (HR)

Answer 12

Focuses on owning, managing, and developing medical office buildings. It is well-positioned due to its strategic partnerships and focus on high-quality healthcare properties. Strengths include a stable tenant base and consistent cash flow. Weaknesses involve exposure to regulatory changes and the concentration of its portfolio in the healthcare sector.

BBB
REITS & Property - Americas
$2.55bn in index across 4 issues

Question 13

HEALTHPEAK OP LLC (PEAK)

Answer 13

Specializing in life sciences, medical offices, and senior housing properties. It is well-positioned due to its diversified portfolio and strong market presence. Strengths include high financial ratings and a stable capital base. Weaknesses involve exposure to market volatility and regulatory changes.

Baa1/BBB+
REITS & Property - Americas
No USD Bonds Outstanding

Question 14

Healthpeak Properties Inc (DOC)

Answer 14

Pro forma Physicians Realty (DOC) merger, PEAK will own and operate 11mn sf of life science space, 40mn sf of outpatient medical office, and 7k units in continuing care retirement communities. Life science assets are primarily located in core cluster markets San Francisco (58% ABR), Boston (24%), San Diego (17%)

Merger integration (PEAK/DOC) appears to be going well with the combined entity expecting to achieve $60mn of runrate synergies by the end of 2025. In addition, the company has made $1.2bn of outpatient medical dispositions YTD and completed an early renewal of the CommonSpirit Health lease (4% ABR). This should provide the company with ~$0.8bn of cash to reduce prepayable term loans, which will bring net leverage down towards the high-5x area by year end. The company has $1.7bn in term loans outstanding so I think it will remain opportunistic with dispositions for debt reduction. For example, the company might look to sell the CCRC portfolio for ~$1.4bn ($135mn NOI / 9.5% cap rate) with segment cash NOI +20% y/y and occupancy at 85.4%. This optionality is priced in with spreads 35bp tighter y/y relative to IG Corps

Baa1/BBB+
REITS & Property - Americas
$5.90bn in index across 11 issues

Question 15

HIGHWOODS REALTY LP (HIW)

Answer 15

Office REIT that owns, operates, acquires and (re)develops Class A office properties in the Southeastern U.S. The company’s three largest markets are Atlanta, Raleigh, and Nashville. The company’s portfolio consists of 148 properties totaling 28.6 million square feet.

Remain neutral with spreads fair on a leverage-adjusted basis and about flat to low-BBB corps with similar duration. The company indicated in a recent leasing update that it had signed 400k and 338k square feet of new leases and renewals, respectively, which cumulatively represents about 64% of remaining expirations in 2024. This included the backfill of substantially all of the known Novellis (165k sf) move-out in Atlanta. The company has also made strong progress on asset dispositions YTD, which should put it in a relatively neutral FCF position after dividends. I think the risk of the index rating falling to low-BBB has diminished modestly based on these developments. That said, risk remains as net leverage will trend higher in 2H24 due to lower y/y EBITDA. S&P’s adjusted metric still sits 20bp above the downgrade trigger

Baa3/BBB(Neg)
REITS & Property - Americas
$2.15bn in index across 6 issues

Question 16

HOST HOTELS & RESORTS LP (HST)

Answer 16

S&P 500 company and is the largest lodging real estate investment trust and one of the largest owners of luxury and upper-upscale hotels. The Company currently owns 73 properties in the United States and five properties internationally totaling approximately 42,200 rooms. The Company also holds non-controlling interests in six domestic and one international joint ventures. Partners with premium hotel brands

Best in class lodging portfolio of luxury and upper upscale hotels/resorts; only IG rated lodging REIT. Healthy geographic diversification; some operator conecentration with Marriot (60% of revenue). Good mix of business/leisure travel customers. Experienced significant disruption during pandemic due to travel restrictions, however, operations have rebounded strongly

BBB-/BBB
REITS & Property - Americas
$2.85bn in index across 5 issues

Question 17

INVITATION HOMES OPERATING PARTNERSHIP LP (INVH)

Answer 17

Owns and operates a portfolio of 85k single-family homes in the Sunbelt and West Coast: Atlanta (13% revenue), South Florida (12%), Southern California (11%), Tampa (10%), and Phoenix (10%). Avg. home is 1870 sq ft (3 bd, 2 ba), with a late-30s family tenant base

Net leverage is expected to trend towards the high-end of the 5.5-6.0x target as the company executes ~$475mn of acquisitions for the remainder of 2024. The company sees little value in targeting high-BBB ratings, so I expect aggressive management of leverage within the target. I continue to view the portfolio as lower-quality versus AMH and would expect relative underperformance in a recessionary environment. INVH does have a lower balance sheet exposure to single-family development but this is more than offset by weaker credit metrics, lower liquidity, and more aggressive acquisition strategy.

Baa2/BBB/BBB+
REITS & Property - Americas
$3.05bn in index across 6 issues

Question 18

KILROY REALTY LP (KRC)

Answer 18

Leading US Office REIT that develops, redevelops, acquires, owns, leases and manages class A/AA properties with the majority of its portfolio located on the West Coast (SD, LA, SF, Seattle) and recently entered Austin market. Tenants in tech, media, entertainment and life sciences. 118 properties, 15.8mn sqft

Downgrading to neutral with 5y spreads about 30bp tighter since initiating the overweight in July. In my view, the probability of the index rating falling to low-BBB rose modestly in 2Q with the company tightening occupancy guidance below the 85% downgrade trigger and reporting a slight increase in LQA leverage to 6.4x. Given this, I think it will be hard to justify spreads trading through low-BBB corps with similar duration in the 150bp area unless leasing activity materially improves over the next couple of quarters. In the event of a downgrade, I would not be surprised if spreads widen towards 200bp, which would be slightly tighter than lower-quality office REIT peer PDM. While I expect fundamentals to remain relatively stable with San Francisco leasing activity picking up, I don’t think investors are getting paid to take the rating downgrade risk at current levels

Baa3/BBB(Neg)
REITS & Property - Americas
$2.98bn in index across 7 issues

Question 19

KIMCO REALTY OP LLC (KIM)

Answer 19

One of North America’s largest publicly traded owners and operators of open-air, grocery-anchored shopping centers and mixed-use assets. Owns interests in 526 U.S. shopping centers and mixed-use assets comprising 91 million square feet of gross leasable space primarily concentrated in the top major metropolitan markets

I see limited catalysts that could take spreads tighter with the KIM curve flat to REG. KIM is likely to maintain its high-5x leverage target that is above upgrade triggers, limiting spread compression from a potential rating upgrade. Leverage is about 1x higher than REG and is likely to persist there over the next year. For flat spread, I have a strong preference for REG given it recently was upgraded by both Moody’s (to A3) and S&P (to BBB+). O trades tight, in my view, given where leverage sits relative to downgrade thresholds and KIM 2.7% 2030s are quoted through O 3.25 2031s.

Baa1/BBB+(Pos)
REITS & Property - Americas
$5.60bn in index across 12 issues

Question 20

LADDER CAPITAL FINANCE HOLDINGS LLLP (LADR)

Answer 20

CRE capital provider specializing in underwriting commercial real estate and offering flexible capital solutions. Operates through its subsidiaries, focusing on senior secured assets and maintaining a diverse portfolio of commercial real estate and real estate-related assets. Sophisticated platform and strategic approach to commercial mortgage services and asset management.Ladder Capital’s focus on senior secured assets and its diverse portfolio enhance its creditworthiness. Reliance on the commercial real estate market exposes it to sector-specific risks and economic fluctuations.

Rising star candidate

Ba1 (Pos)
REITS & Property - Americas
$2.10bn in index across 4 issues

Question 21

MID-AMERICA APARTMENTS LP (MAA)

Answer 21

Owns and operates a portfolio of 100,000 multifamily units primarily in the Sunbelt. Portfolio skews toward garden and mid-rise and inner loop and suburban submarkets. Commands lower rents per unit and margins than IG apartment REIT peers. Targets net leverage of 4.5-5.0x

Geographic mix of secondary markets (Sunbelt, Southwest and Mid-Atlantic regions) and has operationally outperformed MF peers; conservative financial policy

A-/A-
REITS & Property - Americas
$4.05bn in index across 10 issues

Question 22

NNN REIT INC (NNN)

Answer 22

National Retail Properties invests primarily in high-quality retail properties subject generally to long-term, net leases. As of September 30, 2022, the company owned 3,114 properties in 48 states with a gross leasable area of approximately 32.4 million square feet and with a weighted average remaining lease term of 10.7 years

I continue to have a favorable view on NNN’s underwriting process, acquisition strategy, and ability to maintain leverage in the 5.5x area. Spreads lack a tightening catalyst but look fair at O+15bp on a dollar adjusted basis. I view NNN as a core holding in the IG REIT index but have a more favorable view on 10y valuations.

Baa1/BBB+
REITS & Property - Americas
$4.45bn in index across 11 issues

Question 23

OFFICE PROPERTIES INCOME TRUST (OPI)

Answer 23

Office REIT focused on owning, operating and leasing properties primarily leased to single tenants and those with high credit quality characteristics such as government entities. The Company is managed by the operating subsidiary of The RMR Group Inc. (Nasdaq: RMR), an alternative asset management company.

Ca(Neg)/CCC-
REITS & Property - Americas
$0.87bn in index across 2 issues

Question 24

OMEGA HEALTHCARE INVESTORS INC (OHI)

Answer 24

Provides financing and capital to the long-term healthcare industry, focusing on skilled nursing and assisted living facilities. It is well-positioned due to its extensive portfolio and strong relationships with operators. Strengths include a stable income stream and robust financial performance. Weaknesses involve exposure to regulatory changes and the financial health of its tenants.

Baa3/BBB-/BBB-
REITS & Property - Americas
$3.75bn in index across 6 issues

Question 25

PROLOGIS EURO FINANCE LLC (PLD)

Answer 25

Largest global industrial REIT with properties located throughout the US, Europe, and Asia
Second highest quality name in REITs

Credit metrics were sequentially weaker in 2Q24 driven by a mix of lower promote income, debt issuance for developments, and lower occupancy. I think these factors will continue to drive leverage (4.9x, +30bp q/q) towards 5.5x and potentially fixed charge coverage below 5.0x over the next 9 months. At the industry level, leasing demand has been trending around 40mn square feet per quarter (-54% vs 10y avg), while the development pipeline is modestly below 300mn square feet. Most (~68%) industrial development is speculative and expected to be delivered by the end of 1H25. PLD continues to have ample cushion relative to leverage downgrade thresholds, so I recommend using any weakness in spreads to add risk.

A3 (Pos)/A
REITS & Property - Americas
$14.62bn in index across 26 issues

Question 26

PUBLIC STORAGE OPERATING CO (PSA)

Answer 26

A member of the S&P 500 and FT Global 500, primarily acquires, develops, owns and operates self-storage facilities. Has interests in 2,869 self-storage facilities located in 40 states with approximately 204 mn rentable sqft in the US and ~35% common equity interest in Shurgard Self Storage SA (Europe)
Highest quality name in REITs

Large self-storage REIT (~7% market share) with a portfolio of 217mn sf of rentable space across 3k properties. One of the stronger balance sheets in the IG REIT index with considerable equity cushion. PSA is likely to generate modest positive free cash flow after dividends in 2024 as some occupancy loss will be more than offset by rent per sf growth. I expect leverage to remain rangebound in the 2.5x area and agency adjusted leverage to remain well below downgrade triggers. Management has shown a willingness to lever up 50-70bp for M&A historically but it has about 1x of cushion versus Moody’s and S&P’s downgrade trigger. View 5y spreads as rich at a few basis points tight to mid-A corporates

A2/A
REITS & Property - Americas
$6.65bn in index across 11 issues

Question 27

REALTY INCOME CORPORATION (O)

Answer 27

Owns or has interests in 263mn square feet of leasable space across 13,282 properties in the US (86%), UK (12%), Spain, Italy, and Ireland. Primarily owns freestanding retail assets triple-net leased to single-tenants. Portfolio has a weighted average remaining lease term of ~9.7 years. Tenant industry concentrations: groceries (11%), convenience stores (11%), dollar stores (7%), drug stores (6%), and home improvement (6%).

Moody’s maintained the stable outlook in the latest report based on expectations that O will deleverage below the 6.0x downgrade trigger on a sustained basis. However, the agency adjusted metric remains 40bp over this threshold and the company is still guiding to about $2.0bn of incremental acquisitions in 2024. While the risk of a negative rating trajectory developing has diminished with Moody’s recent report, I think external growth will limit material deleveraging from levels that are high for the low-A rating category. Additionally, the high exposure to non-investment grade tenants and tenant industries like drug stores remains a risk for asset quality. Spreads continue to look unattractive 20-30bp tight of high-BBB peers KIM and NNN, despite the company having equal or higher net debt-to-EV and net debt-to-EBITDA versus both peers

A3/A-
REITS & Property - Americas
$14.86bn in index across 27 issues

Question 28

Simon Property Group, Inc. (SPG)

Answer 28

Largest retail REIT with properties across the United States, Europe and Asia. It owns a 22.4% equity interest in Klepierre, which is a French shopping center REIT. In addition, it acquired an 80% stake in Taubman Realty Group, which is another mall/outlet REIT.

SPG is likely to fundamentally underperform retail REITs over the next year due to its relatively large discretionary mix amidst a directionally weakening consumer. The portfolio contains few properties relative to retail peers (driving lower financial flexibility) and is highly concentrated in markets like Florida (19% NOI), California (14%), and Texas (10%). In addition, lease expirations through 2025 are material at 30% of rents versus open-air comps in the 20% area. Spreads across the curve have compressed about 15bp relative to the retail REIT index over the last year, and valuations look 30bp rich when adjusted for leverage. While I think a downgrade is unlikely over the next two years, owing to ample cushion relative to leverage downgrade triggers, I view SPG as a high beta name that is more susceptible to underperformance in a slowing economy. I think spreads will gradually migrate towards high-quality midBBB REITs like DOC (+15bp) and potentially out towards mid-BBB retail REITs like BRX (+30bp) over time.

A3/A-
REITS & Property - Americas
$16.00bn in index across 22 issues

Question 29

STARWOOD PROPERTY TRUST INC (STWD)

Answer 29

Leading real estate investment trust (REIT) focused on originating, acquiring, and managing commercial mortgage loans and other real estate-related investments. Their business model includes a diversified portfolio of real estate assets. Financially, Starwood benefits from strong cash flow generation and a disciplined investment strategy.

Ba3/BB-/BB+
REITS & Property - Americas
$1.50bn in index across 3 issues

Question 30

UDR INC (UDR)

Answer 30

Owns and operates a portfolio of 55,000 multi-family units across coastal and secondary markets The portfolio is split 31/69% urban/suburban and 43/57% A/B quality. Its largest markets include Washington DC (15% NOI), Boston (11%), Orange County (11%) and San Francisco (8.2%). Engages in development/redevelopment on wholly-owned and joint venture basis. Fifth highest quality name in REITs

UDR is geographically diversified but the portfolio is about 50% class B property, which could drive higher bad debt expense and lower occupancy versus peers in a recession. UDR reported solid 2Q results which, on the margin, eased some of my concerns with the fundamental outlook. In particular, the company raised FY24 SS-NOI growth expectations by 75bp, lowered acquisition guidance by $38mn, and announced a $15mn loan payoff in the developer capital program. The company will remain in a negative FCF position after dividends, but these actions will lower debt issuance needs and help preserve coverage metrics. This is important as sunbelt markets will weigh on FFO in 2H24, with Street estimates calling for a 50bp decline in FFO in both 3Q and 4Q. 5y spreads looks fair considering the portfolio is likely to be more sensitive to employment versus peers given a larger mix of class B properties.

Baa1/BBB+
REITS & Property - Americas
$3.75bn in index across 10 issues

Question 31

VENTAS CANADA FINANCE LTD (VTR)

Answer 31

Ventas, an S&P 500 company, is the second largest publicly traded healthcare REIT (behind Welltower) and owns, operates, acquires, (re)develops healthcare real estate properties predominantly in the U.S., and has a smaller presence in Canada and the U.K. 1262 properties across senior housing, triple net lease, office

5y spreads have underperformed WELL since July but remain only 8bp wide of this comp when adjusting for dollar price. I continue to see no reason for VTR to trade this tight to WELL given net debt-to-EBITDA and net debt-to-EV is 2.5x and 19pts higher, respectively. Downside risk to the index rating remains with Moody’s adjusted leverage about 40bp above the downgrade trigger of 6.5x. Positively, the company has softened it’s stance on issuing equity to fund acquisitions, which should keep net debt stable for the remainder of the year. Moody’s adjusted leverage is likely to improve but remain 10bp above the downgrade trigger. Continue to think spreads will be biased towards decompression.

Baa2/BBB+
REITS & Property - Americas
$5.80bn in index across 12 issues

Question 32

Welltower (WELL)

Answer 32

One of the largest healthcare REITs with a portfolio of assets spread across four main property types - RIDEA senior housing operating (38% of NOI), triple net senior housing (22% of NOI), outpatient medical office (24% of NOI), health system/hospitals (9%), and skilled nursing (7%). Fourth highest quality name in REITs

The credit profile continues to benefit from an abnormaly strong equity valuation and, to a lesser extent, recovery in senior housing performance. WELL issued $1.6bn of equity in 2Q to pre-fund an incremental $2.1bn of acquisitions relative to previous guidance. As a result, leverage sits 0.5-1.0x below upgrade triggers at Moody’s and S&P at 4.0x, which is the primary reason both agencies have the high-BBB ratings on positive outlook. While I don’t think it makes much sense for a senior housing focused REIT to be rated low-A, I believe there is a moderate chance Moody’s and S&P upgrade over the next 12 months based on the rating sensitivities. However, I think the risk/reward in the structure remains unattractive relative to lowA REITs with spreads only ~10bp wide of PLD and ~5bp wide of EQR.

Baa1(Pos)/BBB+(Pos)
REITS & Property - Americas
$7.05bn in index across 12 issues

Question 33

WP CAREY INC (WPC)

Answer 33

Net lease properties in the US and Europe with a diverse portfolio of high quality, operationally critically critical CRE including industrial, warehouse, and retail properties

WPC completed a material amount of dispositions in 1H24 and is currently sitting on an elevated $1.2bn of cash available for acquisitions. I expect the company to deploy about $1.0bn of capital towards industrial and warehouse assets in 2H24, which will drive leverage up towards the mid-point of the 5.5-6.0x target. I expect the company to manage leverage to this target aggressively. WPC has ample financial flexibility with non-core assets including a Lineage stake ($0.4bn), self-storage portfolio ($1.5bn), construction loan ($0.3bn), operating hotels ($0.1bn), and student housing. It should be able to begin monetizing the Lineage stake (worth 25bp of deleveraging) beginning in January 2025. Spreads continue to look cheap relative to KIM given lower leverage, higher liquidity, and stronger FCF after dividends.

Baa1/BBB+
REITS & Property - Americas
$2.35bn in index across 6 issues

Question 34

PRAEMIA HEALTHCARE SA (PRAEFP)

Answer 34

Leading healthcare real estate investment company in Europe. It is well-positioned due to its extensive portfolio of healthcare facilities and strategic focus on sustainable finance. Strengths include strong financial ratings and a stable capital base. Weaknesses involve exposure to market risks and regulatory changes.

BBB
REITS & Property - Europe
No USD Bonds Outstanding