CBRE at Barclays Conference Notes

Jim Groch – CFO and Head, Corporate Development

It’s been a long cycle but don’t see anything that would suggest a recession coming

“Sure, well I guess first I think it’s perfectly rational that the sales cycle relates to business cycle, the last four cycles have been seven to 10 years, the last recession started in beginning of ’08, we’re a couple of months from beginning at 2018. So, it feels like we’ve been out there for a long time…the data they weren’t used to see, none of it really indicates is that a recession is coming in the foreseeable future. So how long that could go, it’s impossible to know, the people who will be better in predicting it from my own perspective being in the business through a number of cycles can easily run for three to four years. And that seems counter intuitive given how long the cycle has been. And we are running our balance sheet with the mindset that if a recession could hit tomorrow, so we’ll be prepared to invest into a downturn.”

I don’t think there’s a real estate cycle

“First thing is I always like to say there is no such thing as a real estate cycle. I think it’s just a business cycle and real estate can have more or less data to the business cycle depending on kind of supply and demand dynamics. So, I think for me personally there is a disconnect between stock market that shows no sign whatsoever of us being or no big sign that were late cycle and the anxiety around kind of the real estate cycle and that just. And then on the supply demand side, I think it’s in reasonable balance couple of the metrics that we provided on that.”

Spreads are wide, assets reasonably priced

“The same thing on the valuations. If you’ve been in real estate for a few decades, just go back 10, 15 years ago cap rates were sort of just 9% for office cap rates and then for a long time, at least sort of suburban office just didn’t have much connection in the interest rates. Clearly that’s not been the case for the last 15 years or so. And the fact that spreads are as wide as they are, I think is an indicator to me at least that assets are priced to perfection, I think they’re reasonably price…I’m afraid that people who are not controlling about the real estate business look at an absolute cap rate of 4.5 or [indiscernible] office building or whatever the number, it’s five and they think on my god that’s terrible, but they kind of forget that investment — required investment in terms of any other asset comes down followed by the same amount.”

Kilroy 4Q16 Earnings Call Notes

John Kilroy

Raw materials needed to succeed today are the minds on the west coast

“Let me finish by commenting on our West Coast market trends. We see a fundamental evolution, it will constitute to high tech company. Health care, transportation, auto, defense, entertainment, lodging, retail and even travel services are now being profoundly impacted by technology. This change is producing a meaningful result in all of our markets Fortune 500 companies informally stayed industries are acquiring technology startups in order to stay relevant. GM’s $1 billion acquisition of Cruise Automation is just one example, mature tech companies are using their massive cash flows to acquire new companies with potentially game changing ideas to move into faster growing spaces and to gain access to increasingly scarce talent. A whole range of new companies are being drawn to centers of high tech innovation including our west coast market. And the increase in M&A activity has enhanced the credit profile of our portfolio with transactions like Microsoft buying LinkedIn, AT&T buying DIRECTV, Adobe absorbing Livefyre and most recently Cisco acquiring AppDynamics. We believe this trend will continue and even accelerate in the years ahead. And this evolution will continue to drive demand for work space in dynamic urban centers to deliver the live/work/play convenience and amenities that attract young creative talent. This is the 21st century version of locating your production or the raw materials and transportation resources you need to succeed.”

“I hate politicians”

“Obviously the President has said that his top priority is to stimulate growth and get people working and expand the economic pie. No industry provides growth that tech does and no industry helps the US maintain its competitive edge greater than technology does. I can’t say what the President’s view is going to be in the future. I bet on the – it’s not just the tech industry, this affects everything, automobile, every industry relies upon technology. So I can’t – I can only – I could only speculate but I don’t have obviously the crystal ball that permits me to give an accurate answer to that question. Reinforces my view that I’ve long held that I hate politicians.”

Probably wont see Kilroy being a big buyer

“I’ve been surprised to see how the cap rates have compressed in some of what I would call tertiary markets or for product that you really wouldn’t own, not long term, but there’s so much money looking for stuff. That I just don’t think you’re going to see Kilroy being a big buyer. Having said that, if we find something that we think we really can turn into — we improve it through some value add component like we see in the deals that we just did, then we’ll act on it. With the balance sheet we have, we’re prepared to go with development when it makes sense. We’re prepared to acquire when it makes sense as we’ve said we’re going to dispose of things as it makes sense. We’re going to stay in a very conservative range.”

Simon Property Group 4Q16 Earnings Call Notes

David E. Simon

I could go on a 400 word diatribe, but I wont

“Moving on from our results, now could be the time on the call where I could go into a lengthy philosophical discussion on the popular misconceptions about the mall business, created by the never-ending current public narrative. And I could counter that by pointing that we have 434 department stores in our portfolio, and only one is vacant, and how in the recently announced department store closing, we have only one closure in our portfolio, or how we have added more than 275 sit-down or quick-service restaurants, more than 20 entertainment concepts, and more than 80 big box tenants across our portfolio over the last four, five years, or how we’ve added mixed use components to our centers in the last several years, we have built 10 hotels and residents representing nearly 3,000 units, or how according to a recent survey a Generation Z members, a group that outsizes Millennials, 70% of those surveyed visit the mall at least once a month and visit more than four stores during the visit, or how the consumers still like to shop in stores, because they want to touch and feel the products before they make a final decision, or how online retail sales have grown to less than 10% of total retail sales, and that the retailers who occupy our centers represent approximately two-thirds of those total online sales, or how leading e-commerce retailers, like Warby Parker, Blue Nile, UNTUCKit, Shinola, among others, are opening physical stores, because the inherent advantage a physical location provides as well as being a natural extension to the digital world, or how basket sizes are higher, return rates are lower in stores compared to online purchases, and margins are much higher in the store than they are in the Internet, or how emerging brands like GUIDEBOAT, NIC+ZOE, Peloton, to name a few, continue to see the mall as the launch pad to build their brand awareness, as a result of the significant traffic they experience being at the mall, much like Apple or Microsoft did several years ago, or how we are making all these changes and enhancements to our center, even though Congress has tilted the scale towards e-commerce by not implementing the Marketplace Fairness Act, which not requiring the sales and use tax to be paid by consumers who buy products online, even though they are required to do so under existing laws. But I could do that, but I won’t, because we’ve talked about that all before”

Aero management team was able to generate more cash flow because they weren’t worried about beating comps

“I’ll tell you a fascinating thing that I’ve learned at Aéro – with the Aéro investment. So and it’s just the dynamic of Wall Street, retailers, chasing Internet sales, there is a whole philosophical discussion that will take too long on this call to do. But one thing at Aéro that I learned is that that management team could produce higher level of profitability, higher gross margins if they didn’t have the Wall Street constraint on worrying about comp NOI or comp sales growth i.e. they could generate more cash flow because they’re not worried about posting a comp sales number that’s below market expectations.”

Retail is a dog eat dog world now

“We did experience less store closures last year than we did in 2015, the way we had suggested we would, that’s why our occupancy went up, but I’m not going to sugarcoat it, retail environment is not – it’s not robust, it’s doggy dog right now.”

We’d like to see retailers dedicate more funds to improving the store environment

“Well I think, it all depends upon what point are they in their financial equation. Look, I think – and again, this is more philosophical, but what we’d like to see from the retail community is a dedication back to improving the store environment. We think a lot of the capital that has been put forward has been to chase Internet sales, a lot of that has been done through promotional efforts. And between that and the promotions required to get them to buy online between the cost of shipping and the returns, it’s not a great model for them.”

Leveraged buyouts have been a bigger problem than the internet for our retailers

“Let’s talk about the casino business. You could say the gaming could all go online. But if you’re Steve Wynn, you build the best product, you have the best service, and lo and behold, people show up, they gain, they participate, they stay there, and he gets great returns on equity. He has got unbelievable conviction and he puts his money where his mouth is. We need that in our business. What’s hurt our business in retail, frankly, is that there has been too many leverage buyouts with too much debt, and we all know no matter how good a retailer you are, you’re going to run into ebbs and flows. And lo and behold, when you run into that scenario, you’ve got a balance sheet that can’t withstand it. I can’t tell you how much pressure is because of that as opposed to because of the Internet. We can go chapter and verse, and what that also does means they don’t invest in the stores.”

Xinyuan Real Estate 3Q16 Earnings Call Notes

Yuan Zhang

Government announced tightening measures to cool real estate development in several cities

“And now, let’s talk about the government policy changes. In early October, when the Chinese real estate market was experiencing a meaningful development, the local governments in about 20 cities announced the tightening measures designed to cool a market with escalating prices. These measures announced included higher down payments and home purchase restrictions. Despite the restriction policy, the overall underlying home buying demand remains favorable in our local markets. For example, in our Zhengzhou International New City Phase I project nearly 100% of presold units were booked on Alibaba’s house booking system within a few hours. And nearly no buyers withdrew their deposit after the restriction policy was issued. From the beginning of this year, housing prices increased dramatically in certain cities in China. While we’re sharing the benefit of the price upside, we believe the goal of the government’s restriction policy is to maintain healthy and stable development of the market by cooling down escalating prices in certain cities, which we support for the long-term sustainable growth of our business.”

This is the third time that local government has imposed restriction policies

“Actually as far as I can recall, this is the third time that the local government are imposing the restriction policies. According to our prior experience the restriction policies probably could last for six or nine months, less than a year. And also we believe the goal of the policy is to cool down the fast growing prices in some cities and areas, and try to make the market more healthy. And this is what we are looking for. And try to give you some example, from the beginning of the year until the end of September, most – almost all of our project are benefitting from the pricing outside – from well-buy [ph] from 30% to even 50%. So we believe the policy may cool down the prices for a while, but we are confident for the market momentum, because we believe the demand is still there”

Consolidated Tomoka Land (CTO) Q2 2016 Earnings Call

Consolidated Tomoka Land (CTO) CEO John Albright said their selling a bit less than half their land holdings for $100 million 

“We’re pleased to be at a point where the company has over 4,100 acres or approximately 39% of our land holdings under contract with the potential proceeds of more than $103 million or an average price per acre of approximately $25,000 per acre.”

Consolidated Tomoka Land (CTO) CFO David Patten on converting to a REIT

“We are a year-end taxpayer. So the only time you can convert is on a January 1, what we’ve targeted we said the earliest we would likely look to do that is January 1, 2018 and really part of that concept is as we have closings on some of the land sales that are under contract will if that would be the sort of the transition that would make it the most favorable timing.”

WeWork CEO Adam Neumann

WeWork CEO Adam Neumann speaking about mission driven cultures

“When you have a mission driven company, you don’t need to fight hard to hire all your employees because citizens of the we generation want to work for a company with a mission, it’s easier to sell it to your customers because members of this world today want to buy a product that has meaning and intention behind it, and everything about the company works better.  Everyone wants to be part of something greater than themselves.  And all of that comes together to deliver the most value.”

Xinyuan Real Estate 1Q16 Earnings Call Notes

Xinyuan Real Estate (XIN) Q1 2016 Results

George Liu

Benefitted from favorable government policies in real estate

“During the first quarter, Xinyuan continued to benefit from favorable government policies in China’s real estate sector, which how support the markets we sell. Our sales also benefited from our choice of projects in the Tier 1 and 2 cities that have favorable economy and population growth trends, and where we have an existing presence and good track record of performance.”

Acquired property in Manhattan

“While the newly acquired project located in midtown Manhattan, our architectural, engineering and marketing teams have already been assembled. The project is currently in the planning and design stage, and will be a mixed use project, which will include some retail space.
As just discussed, our new Manhattan project represents our second land acquisition in New York City, which we announced in January.

Expecting stability from favorable government policies

“As we look ahead to the remaining quarters of 2016, while there still remains uncertainty in the real estate industry, we believe market conditions will be stable in the coming quarter and expect favorable government policies to continue to enjoy additional demand for our projects.”

Land prices 40000 RMB per square meter in Beijing

“Kunshan in Beijing as you can see from our announcement that land acquisition cost per square meter construction area, we’re talking about roughly RMB11,000 per square. However, neighborhood the land, the property – the residential property has been so and roughly RMB40,000 per square meter and any new land lots that in option being pushed up a rather neighborhood and probably would be started in RMB30,000 to RMB35,000 per square meter.”

Company has 13% cost of debt in the US, but 7-7.5% in China

“Yes, again as I just mentioned that the rate is about 13% U.S. dollar bond is definitely something which we are taken serious condition – calculation and they have many ways we’re doing. In off shore bond we can get and a cost like 8% or 9% is also a good way to reprice that.
And for the onshore bonds, apart from the 7% or 7.5% financing cost that we have on the current onshore bonds, if we can continue to get those money at a reasonable financing cost by below 8%. It might be – we might consider to repricing to use that to replace cost loans that we are paying across higher than 8%.

Xinyuan Real Estate 4Q15 Earnings Call Notes

Xinyuan Real Estate (XIN) Q4 2015 Results

George Liu

Favorable government policies have supported the markets that we serve

“Overall there were several positive developments for Xinyuan in the fourth quarter. Favorable government policies in China’s real-estate sector including easy monetary policies, relaxed home purchase and lower down-payments hence supported the markets we serve.”

China real estate market is getting better, it’s actually getting crazy in recent weeks

“Basically, the same implies in the China real estate market, it’s actually getting better. It’s getting actually crazy in recent weeks but it’s getting better in the last quarter of last year, I mean, 2015. And one of the main reasons, main drivers why the contract sales is up, GFA sales is up. But the property’s fund is mainly because the margin of the projects that we sold is lower as compared of the margin of the projects we sold – we have sold in the quarter before or in the same quarter of the prior year.”

It’s running high in a crazy way

“we intend since the pricing of those good projects, it’s actually getting running high in a crazy way so we are raising our price significantly basically we slow down the sales of our good products while we are trying to push sales of our bad products in such a heated market.””

Shanghai is getting overheated

“And for Shanghai project, we were selling in 22,000 in February of 2016 but as you might know the real estate market in Shanghai is getting overheated so we probably will increase 30% to 40% of our pricing in March or in April.”

E House Holdings 2Q15 Earnings Call Notes

“As expected” the Chinese property market has started to warm up driven by government policies

“As expected the overall Chinese property market started to warm up since the end of March driven in part by the governments loosened credit policies and purchasing restrictions in certain cities. Despite recent Chinese Stock Market volatility the real estate sector has stayed relatively stable so far. As a result we are on track to achieve our overall revenue target set at the beginning of the year.”

Chinese real estate market has been quite healthy

“Yes, the first half of this year, the Chinese real estate market overall, it has been quite healthy. We are pleased with the state of the market and transaction volume can recovery in the fourth quarter, and continue into the summer. The month of July and August, we see this growth taper out to some extent which is normal. In a normal year, the month of July and August are a small — minor quiet period in terms of real estate market activities. And everyone is now gearing up and waiting for the next — traditionally a strong transaction season in September and October. So far, you know, everything that has happened is quite healthy.”

Lower interest rates will be good for us

“Yes, so the rate cut as well as the decrease in the required reserve ratio were mainly aimed to give a boost to the macro economy, and everyone is obviously — it has gotten the potential impact on the domestic stock market, but one thing that is clear is that this — the drop in interest rate is — will be good, will be beneficial to the real estate market”

I don’t think stock market drop will cause people to favor real estate over stocks

“I don’t think the recent drop in the stock market will again prompt many people to reconsider their investment strategy to favor real estate purchase more than stock market investment.”

Jones Lang Lasalle 1Q15 Earnings Call Notes

Some comments on completed transactions

“Turning to investment sales transactions, we represented Blackstone in the $1 billion sale of a U.S. hotel portfolio. In the largest single-asset real estate deal in Finland’s history, we advised developer SRV on a joint venture to develop the $480 million REDI mall. And in Tokyo, we advised on a sale of the five assets of the Hotel B Portfolio to the Japan hotel REIT.

First quarter highlights in other service lines included securing a 320,000 square foot headquarters lease for The Capital Group Companies in downtown Los Angeles, a 320,000 square foot lease for Daimler-Benz near Stuttgart. In Bangalore, we recently completed a 2 million square foot lease for Flipkart, India’s equivalent to Amazon, and that was for build-to-suit headquarters office. And in China, our valuation contract of 17 properties and 17 million square feet was completed for Alibaba.”

Companies focused on expanding, not right sizing

“We see notable shift in the composition of demand as corporates focus now on expanding activities rather than right-sizing their portfolios.”

Capital looking for management

“In funds management, we see sustained strong capital flows and deal velocity as low interest rates and low inflation attract global investors. Appetite for risk is increasing as investors seek yield in value-add and opportunistic plays. Strong performers like LaSalle are going to continue to attract investment capital in this healthy environment.”

Overall market in Americas is solid, not over exuberant

“the overall market sentiment in the Americas, it’s solid, it’s not over-exuberant, but we’re seeing a lot of capital both domestic and particularly international trying to get into assets. And as we mentioned, the result is that investors are moving out along the risk curve somewhat into big cities, tier 2 cities, tier 2 properties, to find deals as well as a little extra return.”

Companies taking more space with growth in mind

” Look, it’s — as we talked about the level of confidence amongst the corporates globally, I think if you go back to the period just after the crisis, when everyone was in cost cutting mode, and that period lasted about two to three years. Then we had a couple of years of consolidation where corporates were trying to drive productivity, not just cut costs, and so there was a different mindset coming through on that. What we’re now seeing is company’s much more inclined to invest for growth and building their top lines. And so we have this ongoing portfolio rearrangement process still in place, but in addition to that, you’ve got companies of all sizes now across all geographies increasingly prepared to go out and take more space with growth in mind.”

There may be some supply constraints too

” in some critical markets around the world, so, London’s one, Tokyo is another, the Chinese cities are a third set of examples, you’ve got a situation where the development pipeline has been relatively constrained. And so you there beginning to see, as we look forward, a situation where there could be supply constraints. And so there’s a level of enhanced activity amongst the corporates to get space now while pricing is relatively attractive, space is available, and they’re not in a cycle where the landlords have control of the markets. So put all that together, I think that’s reason we’re seeing this healthy uptick in leasing.”