This page has been archived and commenting is disabled.

Is Goldman Preparing To Upgrade The REIT Sector?

Tyler Durden's picture


Just when it seemed that all the stops had been pulled on the REIT juggernaut and nothing else would be able to surprise to the upside, save for Vornado finding an ancient Mayan city made of 24k gold in its back yard, after we read the attached research report on US REITs from Goldman analyst Jonathan Habermann, we have a dead taste in our mouth. The reason for that is we believe Goldman is within 2-4 weeks of upgrading the entire REIT space to something comparable to a Conviction Buy (not sure if that is possible for an entire industry, but we are confident GS will find a way).

The source of our consternation, the following phrases. As always, with Goldman what is not said is much more valuable than what is said.

Industry context

Since the start of 3Q earnings, shorter lease term sectors have delivered relative  outperformance versus the long lease term segments, marking a clear divergence in performance from the year-to-date trend. The gap was meaningfully apparent as Industrial and Apartments delivered amongst the strongest price performance over the last few weeks. Before we declare a shift in sector strategy, we point out that the data reflects our recent view that a more “balanced approach” to sector strategy will take hold in 2010, with a focus on growth leaders and income names.

Source of opportunity

We maintain our focus on our lists of growth leaders and income names as we think relative growth and the ability to pay an all-cash dividend should become increasingly important in 2010. It is becoming more evident that companies with access to capital and stronger balance sheets should be in a position to deliver higher growth in the near term. Our income list has a net cash yield of 5.4%.

3Q earnings highlights – stronger than we expected

Many of the 36 companies we follow met or exceeded our 3Q estimates, a positive sign, but we caution that growth should remain at a depressed level in 2010 and 2011. In fact, 2010 should be another tough year, with FFO down roughly 15%, but a relief from the earnings steep slide of 2009 (down 25%); we see only modest positive growth in 2011. Several highlights from the most recent quarter: (1) 88% of REITs we cover met or exceeded consensus estimates, which is reflective of solid results and a focus on expense control in a market defined by weak fundamentals; (2) Lease term is still important, as SS NOI for malls and office exceeded results from apartments and industrial names, a relative call we have been making for most of 2009; but, as we pointed out already, we are increasingly focused on the near-term growth which should favor a more balanced sector strategy in time; (3) Focus will remain on two key areas in 2010 – operating performance and the balance sheet. In short, with declining rents and  occupancy to persist next year, relative operating results will drive upcoming growth as well as REITs that can deliver external growth given their better balance sheet.

A sector upgrade (with umph, gusto and, of course, conviction) would make a lot of sense strategically: lately Merrill has been unable to raise equity for a company if Cohen & Steers were to drop $1 billion on their door step in exchange for a $500 million secondary. As such, Goldman is about to flex its pipes. And as everyone knows, the best way to curry favor with 20 or so companies is by having the CEO's stock holdings appreciate by 10% overnight.

We hope we are wrong in our cynicism, as the real estate market, and particularly the CRE subset via REITs, is so distorted that it bears absolutely no resemblance with underlying fundamental cashflow reality. Another upgrade will just make this distortion even more unfathomable, yet in today's banana market, this may be the most expected outcome. It would also explain Mr. Cramer's recent all-in bet on CRE. As everyone knows, the man never speaks without an agenda. And what better way to be proven right than to have his former employer upgrade his chosen sector. Little does it matter that in 4 years CRE will look darker than a black steer's tuchus on a moonless prairie night.




- advertisements -

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
Tue, 11/10/2009 - 21:12 | 126636 JohnKing
JohnKing's picture

Why stop now, the party is just getting started.

Wed, 11/11/2009 - 00:14 | 126784 Fritz
Fritz's picture

Yes - With banks now legally allowed to lie to investors and depositors about the status of non-performing CRE loans, whats not to like?


Tue, 11/10/2009 - 21:30 | 126649 Daedal
Daedal's picture

Apparently "Stronger than expected" = "Conviction Buy".


Similar logic:

Person 1: Have you ever been to Paris?

Person 2: No, I've never been to Paris.

Person 1: So you were in Paris a long time ago...?

Person 2: Well, since I'm 40 years old, I'd say that's how long I haven't been there.

Person 1: Well, relatively speaking, that's not too long ago.

Person 2: Yeah, now that I think about it, I'd say I was there rather recently.



Wed, 11/11/2009 - 09:18 | 126922 justrichard
justrichard's picture

OMG  thanks for making me laugh this morning.  

Wed, 11/11/2009 - 09:57 | 126948 Anonymous
Anonymous's picture

Sounds like Wall Street logic alright. Or how about, "Has the man with no vital signs stopped bleeding? Yes. Great, tell the family the good news."

Tue, 11/10/2009 - 21:27 | 126650 Cursive
Cursive's picture

In short, with declining rents and  occupancy to persist next year, relative operating results will drive upcoming growth as well as REITs that can deliver external growth given their better balance sheet.

I hereby nominate the above sentence for oxymoronic statement of the year.  If you can't dazzle with brilliance, then baffle them with B.S.

Wed, 11/11/2009 - 00:11 | 126782 Anonymous
Anonymous's picture


Tue, 11/10/2009 - 21:30 | 126652 Anonymous
Anonymous's picture

they just bailed out either DDR or General Growth time to push em up and short em for coverage on the downside

Tue, 11/10/2009 - 21:30 | 126653 Anonymous
Anonymous's picture

they just bailed out either DDR or General Growth time to push em up and short em for coverage on the downside

Wed, 11/11/2009 - 09:41 | 126933 deadhead
deadhead's picture

it was DDR

Tue, 11/10/2009 - 21:32 | 126655 Squid-puppets a...
Squid-puppets a-go-go's picture

calamari souffle`, anyone ????

Tue, 11/10/2009 - 21:33 | 126656 Anonymous
Anonymous's picture

God Sachs a big one. Whats happening here? Remember how they chastized John Lennon when he stated the Beatles were bigger than Jesus? Blankfein needs the same treatment.

Tue, 11/10/2009 - 21:34 | 126657 tip e. canoe
tip e. canoe's picture

"Over the Mountains of the Moon, down the Valley of the Shadow, ride, boldly ride…if you seek for El Dorado." - edgar allen poe

Tue, 11/10/2009 - 21:35 | 126659 alien-IQ
alien-IQ's picture

I think my head is going to explode...In fact...I'm sure of it.

Tue, 11/10/2009 - 21:41 | 126664 Careless Whisper
Careless Whisper's picture

GoldSach is a taxpayer backstopped hedge fund.

Tue, 11/10/2009 - 21:51 | 126675 Gilgamesh
Gilgamesh's picture

That manages secondary REIT stock offerings.  After upgrading them, of course.

Tue, 11/10/2009 - 21:49 | 126671 deadhead
deadhead's picture

wouldn't be surprised.  the fed, treasury, fdic, obama administration know that cre is collapsing and what better way to get some capital in there than to sucker more money out of the little guy via his dumb mutual fund pm as well as those brilliant overseers of the nation's pension funds.

hey, this play has worked pretty well for a banking system that is close to an insolvent piece of shit so why not try it on cre.

we are witnessing the greatest con job on a mass scale in american history. 

instead of being honest, recognizing the debt problems we have, fixing it now and taking our medicine, we will make it much worse.


Tue, 11/10/2009 - 22:39 | 126720 Anonymous
Anonymous's picture

2nd it.

"the fed, treasury, fdic, obama administration know that cre is collapsing and what better way to get some capital in there than to sucker more money out of the little guy via his dumb mutual fund pm as well as those brilliant overseers of the nation's pension funds."

Wed, 11/11/2009 - 01:17 | 126823 Anonymous
Anonymous's picture

since the market is set up for a plunge, if you are the Obama administration (and related financiers), why not get short and let it crash now, then re-inflate it going into next year's mid-term elections. I don't care how much money printing happens over the next 12 months, there is no way they can keep it pumped up through 11/2010.

Wed, 11/11/2009 - 09:43 | 126935 deadhead
deadhead's picture

Bingo!  We have a winner here!

Tue, 11/10/2009 - 21:51 | 126674 Anonymous
Anonymous's picture

Goldman's client services portion of the firm (M&A, underwriting, trading, research) MUST be split from its principal trading/ investment activity.

Tue, 11/10/2009 - 21:52 | 126677 Careless Whisper
Careless Whisper's picture

Hey if GoldSach is a bank, then anyone can be a bank, even Apollo Management:


Tue, 11/10/2009 - 21:54 | 126680 D.O.D.
D.O.D.'s picture

SPY up 2 cents durring market hours, new highs in A/H.  They must have read this article, and realized, Goldman doesn't have to make sense, it has to make dollars, and that is bullish...

Tue, 11/10/2009 - 22:00 | 126684 buzzsaw99
buzzsaw99's picture

That's a great call because if the REITs don't perform then the fed will buy them. Or Calpers...

Wed, 11/11/2009 - 05:42 | 126870 Anonymous
Anonymous's picture

Buzz, count on you to be one step ahead of GS! shaz

Tue, 11/10/2009 - 22:14 | 126689 Tommy
Tommy's picture

Maybe this is like their $200 oil call of last year.  Just trying to get as many suckers on the long side while they short REITs out the back door.

Wed, 11/11/2009 - 00:17 | 126786 Handle with care
Handle with care's picture

This would be my guess.  No-one can really believe there is any upside in REITS at this level.


I ZH had a n article before at how GS Conviction BUY orders coincided with stock collapses

Tue, 11/10/2009 - 22:14 | 126690 Tommy
Tommy's picture

Maybe this is like their $200 oil call of last year.  Just trying to get as many suckers on the long side while they short REITs out the back door.

Tue, 11/10/2009 - 22:16 | 126691 RobotTrader
RobotTrader's picture

Charts are pretty ripe for a "surprise" upgrade.

Gap 'em up, baby.....

Would not be too surprised....

Tue, 11/10/2009 - 22:33 | 126707 Gilgamesh
Gilgamesh's picture

The timing of this report completely explains the stampede into REITs at the close yesterday...

Tue, 11/10/2009 - 22:19 | 126693 Fish Gone Bad
Fish Gone Bad's picture

As I said before, the Dow will take out 14,000 so that Buffett can cover his bet.

Tue, 11/10/2009 - 22:22 | 126696 Anonymous
Anonymous's picture

Can Goldman and the Fed reinflate the entire economy? I've finally come to the conclusion that they will continue to print and plow funds into paper assets at all costs, hell or highwater. The won't give the printing press a rest until inflation is written on the wall. This is getting a little wacko. They are really going to screw the savers to bail out the debtors at all costs.

Tue, 11/10/2009 - 22:31 | 126705 par068
par068's picture

All GS has to do is a levitation act with an equity offer of enough

to cover most of the interest payments.

Fed already said they only have to make a partial payment.

Where does it say what "partial" means anyway.

A few eagles will do.

Tue, 11/10/2009 - 22:35 | 126709 Anonymous
Anonymous's picture

Don't be so sure it will work. See a ZH article just 4.5 months ago on this whacky analyst and his wrong predictions and how the GS conviction list is meaningless.

Tue, 11/10/2009 - 22:36 | 126713 jedwards
jedwards's picture

Anyone else keeping track of all the layoffs in tech?  EA, Adobe, Sprint (not really tech but I"m sure it will affect Palm)... this is not the sign of a growing economy.  You would expect companies to want to ramp up or at least retain their people if they are expecting things to recover soon.

Tue, 11/10/2009 - 22:46 | 126729 Anonymous
Anonymous's picture

Awesome! Sign them all up! A new batch of day traders fresh off the boat.

Tue, 11/10/2009 - 22:37 | 126718 Anonymous
Anonymous's picture

This article from ZH back in June debunks the credibility of this analyst and GS conviction list regarding REITS.

Tue, 11/10/2009 - 22:38 | 126719 Anonymous
Anonymous's picture

Don't fight the market!!! Only gona lost money.

Tue, 11/10/2009 - 22:54 | 126733 Anonymous
Anonymous's picture

"Little does it matter that in 4 years CRE will look darker than a black steer's tuchus on a moonless prairie night."

Is this from The Big Lebowski?


Tue, 11/10/2009 - 22:55 | 126735 Fritz
Fritz's picture

If the squid does a sector upgrade, you can bet it will be for the sole purpose to dump their REIT and CRE inventory into the market, while booking fees on a few secondaries.

It may be a last desperate act to bailout Whitehall before CRE blows sky high.




Tue, 11/10/2009 - 23:04 | 126743 Anonymous
Anonymous's picture

Hmmm... Didn't Goldman put out a conviction buy on RL this morning?

How did that work out?

Last Trade: 80.64
Trade Time: 4:01pm ET
Change: -1.04 (-1.27%)

Churchill said "Every dog has his day, but some days last longer than others"

We'll see.

Tue, 11/10/2009 - 23:09 | 126747 Anonymous
Anonymous's picture

How long after an upgrade does Goldman short the stock? Anyone?

Wed, 11/11/2009 - 00:04 | 126779 msorense
msorense's picture

The cover of Business Week is about CRE and the caption says "DEEP TROUBLE - Why the commercial realestate crisis looks so scary".  It starts out with a story about the disasterous deal GS did with an Arizona luxury resort.  See story:

Maybe they are trying blunt the storm that's coming?  As a trader, I'm trying to prepare myself for yet another strong rally to the upside for IYR.  When the fuck will this shit end?  What will it take?  Are they waiting for some external event to take place (i.e. 9-11)?

Wed, 11/11/2009 - 00:40 | 126802 Argos
Argos's picture

Arizona Grand Resort!?!  I live in Phoenix and have never heard of the place.  I had to google it.  What an absolute crap part of town.  Nearest best neighbor, a run down Indian casino and an auto rack track.  Did I mention the major freeway it borders?  Oh, and how about the fact that it's competing against at least 200 other golf course/resorts in the immediate area.  What a crap idea.

Wed, 11/11/2009 - 00:36 | 126798 Careless Whisper
Careless Whisper's picture

Do the bankstas have blood on their hands? Mother of dead soldier wants to know why there's money for banks but not equipment to save lives.


Wed, 11/11/2009 - 00:58 | 126816 jedwards
jedwards's picture

I understand everything about CRE being in the shitter... but why is SRS at its historic lows?  Even TD recommended SRS back in Jan/Feb and the news has only gotten worse for CRE, but nothing seems to be bringing it down.


Has the news about CRE been leaking so slowly that no one cares, and all the bad news is already out of the sector?  

Wed, 11/11/2009 - 10:04 | 126953 Anonymous
Anonymous's picture

SRS is not meant to be held over night. Only for day trading. This ultra short ETF is the biggest rip off in the history of ETF's.

Wed, 11/11/2009 - 02:16 | 126839 Johnny G.
Johnny G.'s picture

The horror!!  These GS cocksuckers put out 99 pages of decent research in August '09 explaining the untenable equity position of Reits; and how we should long/short the debt v. equity in their "State of the Markets Best Long Short Risk Strategies for Hedgies".  Not that I wasn't already positioned that way: but at least I thought the dickhead/cocksucker (should that be two words or one?)/politically correct/pussy whipped fags weren't gonna fucking turn tricks for a God damn pfennig as some tranny shot coke rocks up their ass 'cause their nose was bleeding and they couldn't stop defacing the straw; would stand up to their end of the research.

I'm done with GS.  I'll never aspire to run for Governor of New Jersey, New York or Treasury Secretary.  May God call on them for the amazing, work they've done for society...and I hope he calls very soon. 

Now would be good.

Wed, 11/11/2009 - 02:48 | 126851 Anonymous
Anonymous's picture

Yeah, I distinctly remember their call that REIT equities were 30% overvalued... at valuations lower than the current ones.

Wed, 11/11/2009 - 05:48 | 126874 Kreditanstalt
Kreditanstalt's picture

It's OK.  We may yet be saved more nonsense...

Jonathan Habermann.  That name rang a bell:

It is quite likely this character doesn't know a Buy from a hole-in-the-ground.

Wed, 11/11/2009 - 05:57 | 126876 Anonymous
Anonymous's picture

Ooh, the promise of ALL CASH dividends. Really, cash? instead of more of your worthless stock diluting a spiralling asset base, gosh, they are spoiling us. I'm all in baby.

Wed, 11/11/2009 - 10:06 | 126957 Anonymous
Anonymous's picture

Dumass Buffet buying a railroad and all... What a fool, he could have bot VNO instead. I'm selling my CNI today and getting me some REITS baby!

Wed, 11/11/2009 - 10:27 | 126981 Anonymous
Anonymous's picture

Or is it a Convict (Shun) Buy?

Thu, 11/12/2009 - 04:20 | 128201 Anonymous
Anonymous's picture

Given the current banana investors' belief that the weaker the USD, the higher the equity should go, this is going to be another reason for CRE Reit to go higher in the short term since another round to bail out those too-big-to-fail will ensue, thus the USD will be sharply weakened, and thus people will rush into CRE Reit...

Such ill logic is plain craziness, but this has been how the market works for the last few months. It will probably go on this way until something crashes real hard to bring back the sober reality.

Do NOT follow this link or you will be banned from the site!