Alexander Goldfarb, Managing Director, Senior Research Analyst, Piper Sandler.
Alexander Goldfarb is a Managing Director and Senior Research Analyst at Piper Sandler where he covers real estate investing including Howard Hughes (NYSE:HHC). Previously, he was a Managing Director and the Senior REIT Analyst in the research department of Sandler O’Neill + Partners, L.P.
Mr. Goldfarb joined the firm in 2009 following two years as a Director and Senior REIT Analyst at UBS and five years at Lehman Brothers where he was a Vice President and REIT analyst.
He holds a Master of Business Administration degree from the F.W. Olin Graduate School of Business at Babson College and a bachelor’s degree from Wheaton College.
In this 3,038 word interview, only to be found in the Wall Street Transcript, Mr. Goldfarb details his top picks for a real estate stock portfolio.
“It was an exciting time, because in contrast to other typical years of research, or typical recessions, there was no playbook for a pandemic. There was no looking back on how REITs did last time the economy shut down.
From an intellectual standpoint it was incredibly interesting, fascinating, and we think that we provided our investors some very good ideas and framework, as I said principally on the Sunbelt migration, the move to the suburbs, the urban exodus, and how shopping centers emerged out of the “death of retail” narrative and into the “one of the essentials” of not only people’s personal days, but also to REIT portfolios.”
Some real estate assets like Howard Hughes (NYSE:HHC) rebounded faster than others:
“Well, like a lot of sectors they got beaten up hard because of COVID, but REITs quickly rebounded. Certainly, industrial was one sector that was thrown out quickly — the baby with the bathwater — but sharply rebounded. And then you saw other sectors, like, as I mentioned, shopping centers, that suddenly started to show signs of life as people realized that in order to get your hand sanitizers, your wine, your paper towels, if you couldn’t get it on Amazon (NASDAQ:AMZN), you went down to your shopping center.
And in fact, with everyone locked up at home, suddenly grocery shopping became an exciting endeavor, so that rebounded.
The other was the Sunbelt apartments and anything housing related, like Howard Hughes (NYSE:HHC), for example.
We upgraded Howard Hughes in late summer, and that stock started to work as ourselves and others realized that all these people moving were buying homes, and it played well into Howard Hughes’ portfolio in the Sunbelt and Hawaii and their housing development program, which they sell to the homebuilders, but they keep them on a very short leash to make sure that the homebuilders don’t land bank too much.
But it’s proven to be a boon, so that was something else.
Right now, where we sit, I think a lot of investors have played the recovery trades, the reopening of the cities.
And I think people are now looking at which companies actually have earnings growth versus which companies either have yet to trough earnings — like some of the coastal urban apartments — or are going to be in a sort of slack tide like some of the office names.
I think that’s something that investors are spending a lot of time on. In our view at Piper Sandler, areas we like are Sunbelt apartments, industrial, retail — and that includes Simon (NYSE:SPG) and the shopping centers — and niche plays like Howard Hughes and CHCT (NYSE:CHCT).”
2021 will see other real estate stock picks prevail according to Alexander Goldfarb:
“I think that if you look at the Sunbelt, like Camden (NYSE:CPT), where their average rent is around $1,800 a month, and then you compare that to the coastal REITs where it can be $3,000-plus a month — that’s a big difference.
There’s a much wider renter swathe the lower the rent you go. Obviously, you don’t want to go too low, because then you start running into tenant credit issues, but the point is that you want a rent that is for the widest possible audience.
So I think when you mix balance sheet with rent affordability, that’s a really powerful combination, especially right now…
Our top stock picks are Brixmor (NYSE:BRX), Kimco (NYSE:KIM), Kite (NYSE:KRG), SITE Centers (NYSE:SITC), Simon, Douglas Emmett (NYSE:DEI), EastGroup (NYSE:EGP), Terreno (NYSE:TRNO), CHCT, and Newmark (NASDAQ:NMRK).
These are all stocks that we really think are well positioned. And an interesting part is, with the amount of spending that the new administration is proposing, it’s really changed our views on interest rates.
For over a decade we had a view of “lower for longer.” But with the Biden administration just seeming to have unshackled spending desires, I think that can really cause the 10-year to gap out and stoke inflation fears, which you’re seeing already, whether it’s lumber, gasoline, copper — you name it, prices are going up, and there’s no way that that’s not going to have an impact on the broader economy.
So when you look at REITs, we think sectors like retail shopping centers, industrial — things that rely on goods flowing through their facilities — are really good inflation hedges.
Because the more prices go up, the more those goods go up, the more profit the retailers or the industrial tenants make, the more that landlords can raise rents, and it’s still the same affordability metric.
So that’s really attractive to us, and that would be names like EastGroup, Terreno, Brixmor, Kimco, Kite, SITE Centers — they all play into that. Those are all really good ways to profit from that inflation hedge.
Another one is Urstadt Biddle (NYSE:UBP/NYSE:UBA), which is tristate New York area shopping centers. It is heavily small tenant focused, which is why their results have lagged, because they’ve been nursing their tenants.
But as more and more people move out of the city and move to the New York suburbs, and those tenants reopen and get back in business, there’s a lot of upside there. And again, with cost of goods rising and prices rising, Urstadt is able to capture that and increase rents.”
Get all the fundamental detail behind these top picks including Howard Hughes (NYSE:HHC) by reading the entire 3,038 word interview, only to be found in the Wall Street Transcript.
Alexander Goldfarb
Managing Director & Senior Research Analyst
Piper Sandler
(800) 333-6000
www.pipersandler.com
email: alexander.goldfarb@psc.com
