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JPM Reit Outlook

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North America Equity Research

18 December 2019

2020 REIT Outlook

Expect Lower Returns, but Strong Earnings Visibility
Warrants a Spot in Portfolios
We forecast an 8-9% total return for REIT stocks in 2020, driven by mid- to REITs
high-3% dividend income and about 5% price appreciation tied to earnings growth
Michael W. Mueller, CFA AC
– and no real change to valuations. To put this into perspective, the JPM view for
(1-212) 622-6689
the S&P 500 is constructive and calls for 10% EPS growth (plus ~2% dividend michael.w.mueller@jpmorgan.com
income). If this more bullish scenario unfolds, we think REIT stocks will lag the J.P. Morgan Securities LLC
broader market. However, if S&P 500 EPS estimates have to come down again
Anthony Paolone, CFA AC
like in 2019, our stocks should do well. We think general equity investors should
(1-212) 622-6682
have some position in REITs, as earnings growth should be very visible; 2019 anthony.paolone@jpmorgan.com
expected FFO growth did not budge from start to end, and we see the same picture J.P. Morgan Securities LLC
for 2020.
Nikita Bely
(1-212) 622-0695
Fundamentals are in equilibrium, and external growth is on. We see only
nikita.bely@jpmorgan.com
marginal deceleration in core growth, as CRE fundamentals are in equilibrium.
J.P. Morgan Securities LLC
We believe the group should be able to generate ~2.3% same store NOI growth
and 4.3% FFO growth (5% w/ tech REITs) in 2020. Even if the economy does a Hong Zhang
(1-212) 622-6416
bit better or worse, this FFO growth rate should again prove to be stickier than the
hongliang.zhang@jpmorgan.com
broader S&P 500 growth rate. With interest rates being where they are and most J.P. Morgan Securities LLC
stocks trading at NAV premiums, REITs have the ability to drive growth through
Sarah Tan
accretive investment spreads.
(1-212) 622-1041
sarah.tan@jpmorgan.com
REIT valuations are up there. About 12% multiple expansion since this time
J.P. Morgan Securities LLC
last year puts valuation at or near all-time highs on FFO and AFFO multiple
metrics. This, we think, could act as a cap on absolute upside from here. That said, Dhiraj K Kapgate
broader market multiples have also gone up, so the spread has actually decreased (9122) 6157-3354
dhiraj.kapgate@jpmchase.com
between the two groups. Stocks are at ~4% NAV premiums, generally in line with
J.P. Morgan India Private Limited
the group’s ~5% historical average and – as noted – allow companies to drive
growth through spread investments. Dividend yields of 3.7% offer a larger-than-
average spread to the 10-year Treasury yield.

Navigating the group. When it comes to stock selection within the REIT group,
we have not made any notable shifts since our October update. We still prefer
residential, industrial, health care, and triple net lease where we see good growth
potential. At the opposite end of the spectrum, office continues to be a thematic
underweight, and 2020 is looking to be another challenging year for the regional
mall sector. The return variance between the best and worst performing sectors
(industrial & malls) was more than 5,800 bps in 2019; we have to imagine that the
best/worst performance gap compresses in 2020. On the real estate services side,
we are still bullish on the CRE brokers and bearish on the residential brokers.

Top stock ideas: Industrial – Prologis (PLD); Residential – UDR (UDR) and
Invitation Homes (INVH); Triple-Net Lease – EPR (EPR) and Spirit Realty
(SRC); Health Care – Healthpeak Properties (PEAK); Strip Centers – Federal
Realty (FRT); Regional Malls – Simon Property Group (SPG); Office –
Alexandria Real Estate (ARE) and Kilroy Realty (KRC); Diversified/Other –
Americold (COLD), Kennedy-Wilson (KW); Real Estate Services – Jones Lang
LaSalle (JLL).

See page 143 for analyst certification and important disclosures, including non-US analyst disclosures.
J.P. Morgan does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the
firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in
making their investment decision.
www.jpmorganmarkets.com
This document is being provided for the exclusive use of CHRISTOPHER Olson at JPMorgan Chase & Co. and clients of J.P. Morgan.
Anthony Paolone, CFA North America Equity Research
(1-212) 622-6682 18 December 2019
anthony.paolone@jpmorgan.com

Michael W. Mueller, CFA

(1-212) 622-6689
michael.w.mueller@jpmorgan.com

Figure 1: J.P. Morgan Equity REIT Coverage Universe as of 12/17/2019 (page 1 of 2)

Health Care
Healthcare Realty HR Neutral $32.17 $32.00 $4,226,115 $5,580,272 3.7% $1.20 95% $31.22 5.2% 5.1% 3.1% $1.59 $1.63 $1.69 0.8% 2.8% 3.3% 20.3x 19.7x 19.1x $1.19 $1.26 $1.23 9.8% 6.3% (2.3%) 27.1x 25.5x 26.0x 23.3x 17.4% (3.1%)
Healthcare Trust of America HTA Overweight $29.21 $32.00 $6,107,607 $8,674,615 4.3% $1.26 92% $30.60 5.4% 5.6% (4.5%) $1.64 $1.70 $1.76 1.4% 3.5% 3.4% 17.8x 17.2x 16.6x $1.31 $1.37 $1.42 2.4% 4.7% 3.6% 22.3x 21.3x 22.5x 20.6x 19.3% 0.5%
Healthpeak Properties, Inc. PEAK Overweight $32.03 $38.00 $16,146,163 $23,263,592 4.6% $1.48 98% $28.08 5.5% 5.1% 14.1% $1.76 $1.81 $1.87 (2.9%) 2.5% 3.4% 18.2x 17.7x 17.1x $1.54 $1.51 $1.57 (2.7%) (2.1%) 4.3% 20.8x 21.3x 24.2x 22.1x 20.0% (9.2%)
Medical Properties Trust MPW Overweight $19.89 $22.00 $9,144,984 $15,241,216 5.2% $1.04 83% $16.11 7.0% 6.0% 23.5% $1.32 $1.57 $1.65 (3.2%) 18.2% 5.3% 15.0x 12.7x 12.1x $1.02 $1.26 $1.37 (7.2%) 23.2% 8.8% 19.5x 15.8x 16.1x 17.4x 30.5% 3.0%
Ventas Inc. VTR Neutral $55.83 $62.00 $20,976,168 $33,169,778 5.7% $3.17 99% $53.24 6.2% 6.1% 4.9% $3.83 $3.68 $3.74 (5.8%) (4.0%) 1.7% 14.6x 15.2x 14.9x $3.32 $3.21 $3.30 (7.1%) (3.4%) 3.0% 16.8x 17.4x 18.8x 16.6x (1.3%) (23.6%)
Welltower Inc. WELL Neutral $77.40 $84.00 $31,405,669 $45,530,284 4.5% $3.48 92% $61.21 5.9% 5.0% 26.5% $4.16 $4.22 $4.35 3.4% 1.3% 3.1% 18.6x 18.3x 17.8x $3.66 $3.77 $3.92 1.7% 3.2% 3.9% 21.2x 20.5x 21.4x 18.7x 16.4% (13.7%)

Property Type Total/Weighted Average $110,069,201 $167,123,739 5.2% 91% 5.4% 18.6% (1.3%) 2.3% 3.3% 16.3x 16.0x 15.5x (2.0%) 3.1% 3.3% 18.8x 18.3x 17.6x 17.8x 15.1% (10.9%)

Industrial
Duke Realty DRE Overweight $34.06 $37.00 $12,644,332 $15,546,594 2.8% $0.94 66% $31.77 4.8% 4.5% 7.2% $1.44 $1.52 $1.61 8.2% 5.5% 5.7% 23.6x 22.4x 21.2x $1.39 $1.43 $1.51 10.0% 3.1% 5.1% 24.5x 23.8x 24.5x 23.3x 35.2% 0.9%
First Industrial Realty Trust FR Neutral $40.80 $40.00 $5,279,357 $6,710,624 2.3% $0.92 65% $38.41 5.0% 4.8% 6.2% $1.74 $1.81 $1.89 8.6% 4.0% 4.7% 23.5x 22.6x 21.5x $1.43 $1.41 $1.48 11.7% (1.3%) 5.1% 28.5x 28.9x 27.0x 22.4x 44.0% 3.1%
Liberty Property Trust LPT Neutral $58.87 $53.00 $8,937,055 $12,021,429 2.8% $1.64 80% $53.05 5.1% 4.7% 11.0% $2.58 $2.67 $2.79 (3.8%) 3.3% 4.6% 22.8x 22.1x 21.1x $2.03 $2.05 $2.20 5.0% 0.7% 7.7% 29.0x 28.8x 24.1x 22.7x 44.1% 14.7%
Monmouth Real Estate Investment Corporation MNR Underweight $14.86 $15.00 $1,432,489 $2,620,095 4.6% $0.68 89% $15.13 5.4% 5.5% (1.8%) $0.87 $0.90 $0.93 (2.0%) 3.2% 3.2% 17.1x 16.6x 16.1x $0.78 $0.77 $0.79 (4.5%) (1.2%) 3.3% 19.2x 19.4x 18.9x 20.9x 25.8% 4.3%
Prologis, Inc. PLD Overweight $87.31 $97.00 $57,219,656 $70,901,168 2.4% $2.12 67% $82.36 4.3% 4.1% 6.0% $3.31 $3.67 $3.80 9.0% 10.9% 3.5% 26.4x 23.8x 23.0x $2.72 $3.15 $3.29 7.6% 15.6% 4.6% 32.1x 27.7x 29.5x 25.3x 51.7% 2.5%
Rexford Industrial Realty REXR Neutral $44.87 $47.00 $5,022,883 $6,048,882 1.6% $0.74 88% $36.53 4.3% 3.6% 22.8% $1.21 $1.31 $1.40 8.1% 8.5% 6.8% 37.1x 34.2x 32.0x $0.77 $0.84 $0.91 16.0% 10.1% 7.5% 58.6x 53.2x 51.8x 33.4x 54.4% 1.9%
STAG Industrial, Inc. STAG Overweight $30.35 $34.00 $4,160,706 $5,707,706 4.7% $1.43 93% $29.10 6.3% 6.1% 4.3% $1.82 $1.92 $2.00 1.7% 5.4% 4.0% 16.6x 15.8x 15.2x $1.44 $1.53 $1.59 4.0% 6.2% 4.0% 21.0x 19.8x 21.3x 18.1x 27.5% 3.7%

Property Type Total/Weighted Average $103,603,120 $130,479,915 2.6% 72% 4.3% 8.2% 7.2% 8.5% 4.4% 26.0x 23.9x 22.9x 8.4% 10.5% 5.2% 32.1x 29.0x 27.5x 24.6x 47.3% 3.6%

Office
Alexandria Real Estate ARE Overweight $154.90 $169.00 $17,346,631 $23,911,467 2.7% $4.12 71% $141.52 4.9% 4.3% 9.5% $6.98 $7.37 $7.73 5.7% 5.6% 4.9% 22.2x 21.0x 20.0x $5.34 $5.80 $6.17 8.3% 8.7% 6.3% 29.0x 26.7x 27.4x 22.6x 37.2% 0.6%
Boston Properties BXP Neutral $134.47 $145.00 $23,206,833 $34,916,615 2.9% $3.92 73% $136.91 4.6% 4.6% (1.8%) $6.91 $7.45 $7.77 9.7% 7.9% 4.2% 19.5x 18.0x 17.3x $4.37 $5.36 $5.65 6.2% 22.6% 5.5% 30.8x 25.1x 25.7x 20.1x 22.1% 3.7%
Brandywine Realty Trust BDN Neutral $14.90 $17.00 $2,653,184 $4,991,723 5.1% $0.76 72% $19.36 6.4% 7.5% (23.0%) $1.42 $1.46 $1.57 4.9% 2.6% 7.3% 10.5x 10.2x 9.5x $1.05 $1.06 $1.19 3.9% 1.1% 12.0% 14.2x 14.1x 14.3x 12.5x 21.9% (0.4%)
Corporate Office Properties OFC Neutral $28.31 $30.00 $3,208,627 $5,031,624 3.9% $1.10 71% $32.74 6.5% 7.2% (13.5%) $2.03 $2.12 $2.26 0.6% 4.1% 6.9% 13.9x 13.4x 12.5x $1.45 $1.54 $1.66 6.5% 6.5% 7.6% 19.6x 18.4x 18.1x 14.3x 38.6% (4.9%)
Cousins Properties CUZ Neutral $39.68 $40.00 $5,892,758 $7,900,421 2.9% $1.16 56% $37.43 6.2% 6.0% 6.0% $2.88 $2.79 $2.97 14.7% (2.9%) 6.2% 13.8x 14.2x 13.4x $1.87 $2.07 $2.19 11.8% 10.5% 6.0% 21.2x 19.2x 18.3x 19.0x 29.6% 6.4%
Douglas Emmett DEI Neutral $42.33 $44.00 $8,529,748 $12,332,191 2.6% $1.12 62% $43.93 4.7% 4.8% (3.7%) $2.09 $2.21 $2.32 3.3% 5.8% 5.2% 20.3x 19.2x 18.2x $1.64 $1.80 $1.92 19.2% 9.2% 6.8% 25.7x 23.6x 22.9x 19.0x 26.4% (1.2%)
Kilroy Realty Corp KRC Overweight $82.06 $84.00 $8,451,796 $11,662,223 2.4% $1.94 72% $83.19 5.0% 5.1% (1.4%) $3.75 $4.08 $4.60 8.0% 8.6% 12.9% 21.9x 20.1x 17.8x $2.00 $2.68 $3.34 0.8% 33.7% 24.5% 41.0x 30.6x 25.2x 21.0x 33.0% 5.4%
Mack-Cali Realty CLI Underweight $20.42 $20.00 $2,052,816 $4,661,928 3.9% $0.80 67% $28.28 6.0% 8.3% (27.8%) $1.62 $1.66 $1.81 (11.8%) 2.5% 9.4% 12.6x 12.3x 11.3x $0.99 $1.19 $1.28 4.3% 21.0% 7.6% 20.7x 17.1x 15.6x 14.9x 8.2% (4.8%)
Piedmont Office Realty Trust PDM Neutral $21.43 $21.00 $2,695,530 $4,357,506 3.9% $0.84 79% $25.24 6.3% 7.0% (15.1%) $1.77 $1.81 $1.89 2.2% 1.8% 4.9% 12.1x 11.9x 11.3x $1.11 $1.06 $1.41 12.8% (4.3%) 32.3% 19.3x 20.2x 14.9x 14.3x 31.0% 3.6%
PS Business Parks, Inc. PSB Neutral $163.30 $178.00 $5,672,244 $6,631,994 2.6% $4.20 69% $133.32 5.5% 4.6% 22.5% $6.92 $7.13 $7.43 7.0% 3.0% 4.2% 23.6x 22.9x 22.0x $5.82 $6.10 $6.50 11.2% 4.9% 6.4% 28.1x 26.8x 27.4x 25.1x 27.9% (9.7%)
SL Green Realty SLG Underweight $89.02 $88.00 $7,715,185 $18,171,579 4.0% $3.54 82% $116.90 4.9% 5.8% (23.8%) $6.92 $6.84 $7.49 4.6% (1.1%) 9.5% 12.9x 13.0x 11.9x $3.92 $4.31 $4.91 22.3% 10.0% 13.9% 22.7x 20.7x 17.9x 16.4x 16.0% 8.9%
Vornado Realty Trust VNO Underweight $65.00 $67.00 $13,325,715 $24,749,681 4.1% $2.64 117% $88.49 4.6% 5.7% (26.5%) $3.42 $3.55 $3.88 (7.1%) 3.8% 9.2% 19.0x 18.3x 16.8x $2.49 $2.26 $2.62 5.6% (9.2%) 16.0% 26.1x 28.8x 25.6x 24.4x 9.1% 3.1%
Washington REIT WRE Underweight $29.32 $25.00 $2,348,004 $4,069,487 4.1% $1.20 88% $29.25 6.0% 6.0% 0.2% $1.71 $1.62 $1.75 (8.1%) (5.4%) 8.2% 17.2x 18.1x 16.8x $1.52 $1.37 $1.56 (1.0%) (10.0%) 14.2% 19.3x 21.4x 16.0x 21.1x 31.7% 7.2%

Property Type Total/Weighted Average $137,489,247 $214,236,956 3.2% 75% 5.4% (8.5%) 4.4% 4.0% 5.8% 18.6x 17.9x 17.0x 6.1% 10.6% 9.2% 27.7x 23.1x 22.6x 19.4x 24.0% 2.4%

Regional Mall
CBL & Associates Properties CBL Underweight $1.05 NR $238,336 $5,551,020 0.0% $0.00 0% $2.52 9.3% 9.9% (58.3%) $1.33 $1.27 $1.26 (22.8%) (4.9%) (0.8%) 0.8x 0.8x 0.8x $0.32 $0.33 $0.39 (7.7%) 2.5% 17.1% 3.2x 3.2x NA 14.0x (42.7%) (18.6%)
Pennsylvania REIT PEI Underweight $5.24 $5.50 $417,235 $2,850,374 16.0% $0.84 128% $8.74 8.0% 8.9% (40.0%) $1.11 $1.21 $1.26 (28.1%) 9.6% 3.7% 4.7x 4.3x 4.2x $0.71 $0.66 $0.74 (8.2%) (7.4%) 12.6% 7.4x 8.0x 7.5x 13.7x 1.6% (5.1%)
Simon Property Group SPG Neutral $144.66 $162.00 $51,155,248 $84,837,058 5.8% $8.40 79% $178.57 5.3% 6.1% (19.0%) $12.37 $12.56 $13.06 2.0% 1.5% 4.0% 11.7x 11.5x 11.1x $10.84 $10.70 $11.20 3.3% (1.3%) 4.7% 13.3x 13.5x 14.5x 16.0x (9.4%) (5.8%)
Tanger Factory Outlet SKT Underweight $14.89 $17.00 $1,451,388 $3,207,275 9.5% $1.42 83% $18.09 8.7% 9.5% (17.7%) $2.29 $2.17 $2.24 (7.6%) (5.1%) 3.4% 6.5x 6.9x 6.6x $1.72 $1.71 $1.80 (11.5%) (0.6%) 5.8% 8.7x 8.7x 9.4x 11.7x (20.5%) (1.7%)
Taubman Centers TCO Underweight $29.59 $34.00 $2,593,383 $7,841,183 9.1% $2.70 100% $76.48 4.7% 7.0% (61.3%) $3.69 $3.72 $3.85 (3.5%) 0.8% 3.6% 8.0x 8.0x 7.7x $1.70 $2.71 $2.82 45.2% 58.9% 4.3% 17.4x 10.9x 12.0x 14.3x (30.5%) (25.9%)
The Macerich Company MAC Neutral $25.95 $34.00 $3,941,205 $11,917,645 11.6% $3.00 101% $50.82 5.8% 7.7% (48.9%) $3.54 $3.55 $3.66 (8.2%) 0.4% 3.2% 7.3x 7.3x 7.1x $2.90 $2.96 $3.07 (6.8%) 2.0% 3.7% 8.9x 8.8x 11.1x 13.3x (34.6%) (15.7%)

Property Type Total/Weighted Average $59,796,794 $116,204,554 6.5% 81% 6.7% (23.1%) 0.5% 1.3% 3.9% 11.0x 10.9x 10.5x 4.0% 1.5% 4.7% 13.0x 12.9x 12.3x 15.2x (12.3%) (7.3%)

Source: J.P. Morgan

This document is being provided for the exclusive use of CHRISTOPHER Olson at JPMorgan Chase & Co. and clients of J.P. Morgan.
Anthony Paolone, CFA North America Equity Research
(1-212) 622-6682 18 December 2019
anthony.paolone@jpmorgan.com

Michael W. Mueller, CFA

(1-212) 622-6689
michael.w.mueller@jpmorgan.com

Figure 2: J.P. Morgan Equity REIT Coverage Universe as of 12/17/2019 (page 2 of 2)

Stock Equity Total 2020E Prem/ Funds From Operations (FFO) Adjusted Funds From Operations (AFFO) 2019
JPM Price Price Mkt. Mkt. Dividend AFFO Cap Rates (Disc) Per Share Y/Y Growth P/FFO Per Share Y/Y Growth P/AFFO EV/ Total Return
Company Ticker Rating 12/17/19 Target Cap Cap Yield Amount Payout NAV Assumed Implied To NAV 2019E 2020E 2021E 2019E 2020E 2021E 2019E 2020E 2021E 2019E 2020E 2021E 2019E 2020E 2021E 2019E 2020E 2021E EBITDA YTD QTD
Residential
American Campus Comm ACC Neutral $45.51 $53.00 $6,316,766 $9,680,235 4.1% $1.88 81% $51.37 4.8% 5.2% (11.4%) $2.43 $2.52 $2.67 5.7% 3.5% 6.0% 18.7x 18.1x 17.0x $2.24 $2.31 $2.46 7.1% 3.3% 6.2% 20.3x 19.7x 21.6x 19.8x 14.4% (4.4%)
AIMCO AIV Neutral $50.46 $55.00 $7,912,330 $12,268,218 3.1% $1.56 67% $47.77 5.1% 4.9% 5.6% $2.49 $2.63 $2.80 1.0% 5.3% 6.7% 20.2x 19.2x 18.0x $2.19 $2.34 $2.51 1.5% 6.5% 7.2% 23.0x 21.6x 21.9x 22.0x 18.9% (2.5%)
American Homes 4 Rent AMH Overweight $25.34 $28.00 $8,938,382 $12,659,247 0.8% $0.20 19% $24.77 5.1% 5.0% 2.3% $1.12 $1.22 $1.34 5.0% 8.9% 10.4% 22.7x 20.8x 18.9x $0.96 $1.03 $1.16 20.2% 7.2% 13.0% 26.5x 24.7x 24.1x 20.8x 28.5% (2.1%)
AvalonBay Communities AVB Overweight $206.64 $230.00 $28,862,504 $36,223,783 2.9% $6.08 65% $206.70 4.4% 4.4% (0.0%) $9.32 $9.78 $10.39 3.6% 4.9% 6.2% 22.2x 21.1x 19.9x $8.75 $9.33 $9.93 2.9% 6.6% 6.4% 23.6x 22.2x 23.2x 22.5x 21.4% (4.0%)
Camden Property Trust CPT Overweight $104.53 $115.00 $10,540,701 $13,018,088 3.1% $3.20 67% $102.33 5.1% 5.0% 2.1% $5.02 $5.51 $5.88 5.1% 9.8% 6.7% 20.8x 19.0x 17.8x $4.31 $4.79 $5.15 7.0% 11.1% 7.4% 24.2x 21.8x 22.3x 21.4x 22.4% (5.1%)
Equity Residential EQR Neutral $80.11 $89.00 $30,848,520 $39,877,736 2.8% $2.27 72% $80.40 4.4% 4.4% (0.4%) $3.48 $3.67 $3.90 6.8% 5.6% 6.2% 23.0x 21.8x 20.5x $3.01 $3.13 $3.35 9.0% 3.9% 7.1% 26.6x 25.6x 26.5x 21.2x 24.0% (7.1%)
Essex Property Trust ESS Neutral $296.19 $328.00 $20,277,464 $26,325,605 2.6% $7.80 60% $274.87 4.3% 4.0% 7.8% $13.32 $14.04 $14.83 5.9% 5.4% 5.7% 22.2x 21.1x 20.0x $12.08 $13.01 $13.80 4.1% 7.7% 6.1% 24.5x 22.8x 23.8x 22.3x 23.2% (9.3%)
Front Yard Residential Corp RESI Neutral $12.21 $13.00 $657,881 $2,275,338 4.9% $0.60 -457% $15.13 5.5% 5.9% (19.3%) ($0.57) $0.28 $0.45 (18.0%) (149.9%) 59.1% -21.6x 43.2x 27.2x ($1.00) ($0.13) $0.06 54.8% (86.9%) (142.7%) -12.2x -93.0x 232.0x 26.8x 45.8% 5.6%
Invitation Homes INVH Overweight $28.69 $31.00 $15,634,578 $24,290,471 1.8% $0.52 48% $28.69 4.8% 4.7% 0.0% $1.26 $1.35 $1.43 7.1% 6.9% 5.8% 22.8x 21.3x 20.1x $1.03 $1.08 $1.15 8.7% 5.4% 6.2% 27.9x 26.5x 26.9x 24.2x 45.8% (2.7%)
UDR, Inc. UDR Overweight $45.71 $50.00 $14,570,130 $19,405,968 3.0% $1.37 68% $42.86 4.6% 4.3% 6.7% $2.08 $2.20 $2.31 6.4% 5.8% 4.8% 22.0x 20.8x 19.8x $1.92 $2.01 $2.12 7.0% 4.7% 5.2% 23.8x 22.7x 23.6x 24.5x 18.9% (5.0%)

Property Type Total/Weighted Average $168,863,787 $235,276,190 2.8% 63% 4.6% 1.8% 5.6% 5.7% 6.3% 20.4x 20.9x 19.6x 5.2% 6.6% 6.6% 25.3x 23.3x 23.1x 21.9x 25.8% (4.6%)

Self Storage
Public Storage, Inc. PSA Neutral $205.24 $220.00 $35,846,290 $41,936,392 3.9% $8.00 82% $217.02 5.3% 5.6% (5.4%) $10.71 $10.94 $11.21 1.5% 2.1% 2.5% 19.2x 18.8x 18.3x $9.51 $9.74 $9.97 (2.6%) 2.4% 2.4% 21.6x 21.1x 22.1x 18.1x 5.0% (15.5%)

Property Type Total/Weighted Average $60,545,691 $75,533,600 3.8% 80% 5.6% (1.0%) 2.4% 2.9% 3.1% 19.5x 18.9x 18.3x 0.2% 3.1% 2.7% 21.4x 20.7x 20.2x 19.0x 9.1% (13.1%)

Strip Center
Acadia Realty AKR Neutral $25.70 $29.00 $2,357,076 $3,342,060 4.5% $1.16 100% $27.44 5.3% 5.6% (6.3%) $1.41 $1.41 $1.49 2.5% (0.2%) 5.6% 18.2x 18.2x 17.3x $1.11 $1.16 $1.22 9.2% 4.4% 5.2% 23.1x 22.1x 23.7x 22.2x 11.5% (10.1%)
Brixmor Property Group BRX Overweight $20.95 $24.00 $6,239,874 $11,115,327 5.4% $1.14 76% $22.02 7.1% 7.4% (4.9%) $1.93 $1.96 $2.04 (3.4%) 1.3% 4.0% 10.8x 10.7x 10.3x $1.40 $1.50 $1.58 (4.7%) 7.6% 5.1% 15.0x 13.9x 15.2x 15.4x 52.1% 4.7%
SITE Centers SITC Neutral $13.39 $15.00 $2,419,774 $5,075,842 6.0% $0.80 88% $16.86 6.9% 7.8% (20.6%) $1.24 $1.13 $1.15 27.0% (8.4%) 1.6% 10.8x 11.8x 11.6x $0.91 $0.91 $0.95 (33.0%) (0.7%) 4.1% 14.6x 14.7x 15.9x 15.7x 28.3% (10.1%)
Federal Realty FRT Overweight $127.16 $144.00 $9,759,354 $13,268,327 3.3% $4.20 79% $140.81 5.1% 6.1% (9.7%) $6.36 $6.54 $6.85 2.3% 2.8% 4.6% 20.0x 19.4x 18.6x $4.94 $5.31 $5.60 2.0% 7.6% 5.4% 25.8x 23.9x 25.7x 17.7x 10.2% (6.6%)
Kimco Realty KIM Neutral $20.40 $21.00 $8,604,230 $15,876,984 5.5% $1.12 97% $19.57 6.1% 6.0% 4.3% $1.45 $1.50 $1.55 (1.2%) 2.9% 3.7% 14.0x 13.6x 13.1x $1.15 $1.15 $1.23 8.3% 0.3% 7.2% 17.8x 17.7x 17.0x 18.0x 45.6% (1.0%)
RPT Realty RPT Neutral $14.58 $13.00 $1,289,499 $2,315,120 6.0% $0.88 147% $15.24 6.9% 7.1% (4.3%) $1.09 $1.09 $1.12 (19.2%) (0.0%) 2.8% 13.4x 13.4x 13.1x $0.40 $0.60 $0.79 (43.2%) 47.8% 32.7% 36.1x 24.4x 16.4x 16.1x 28.6% 7.6%
Regency Centers REG Neutral $61.48 $65.00 $10,347,576 $14,792,248 3.8% $2.34 75% $70.13 5.3% 5.8% (12.3%) $3.86 $3.89 $4.00 0.7% 0.9% 2.8% 15.9x 15.8x 15.4x $3.16 $3.14 $3.29 5.6% (0.8%) 5.0% 19.4x 19.6x 19.7x 17.9x 8.6% (10.7%)
Retail Opportunity Investments Corp. ROIC Underweight $17.20 $19.00 $2,165,944 $3,585,812 4.6% $0.79 98% $18.93 5.1% 5.4% (9.1%) $1.11 $1.13 $1.17 (2.6%) 1.4% 3.5% 15.5x 15.3x 14.8x $0.75 $0.81 $0.84 (4.8%) 8.1% 4.5% 23.0x 21.3x 22.5x 18.3x 13.3% (4.6%)
Retail Properties of America RPAI Neutral $13.06 $14.00 $2,790,334 $4,429,867 5.1% $0.66 88% $16.58 6.5% 7.6% (21.2%) $1.07 $1.09 $1.11 3.6% 2.1% 1.8% 12.2x 11.9x 11.7x $0.65 $0.75 $0.77 4.9% 16.7% 1.5% 20.2x 17.3x 18.3x 14.8x 25.4% 6.0%
Weingarten Realty Investors WRI Neutral $30.79 $31.00 $4,006,918 $5,792,499 5.1% $1.58 93% $33.24 6.2% 6.6% (7.4%) $2.09 $2.10 $2.18 (8.0%) 0.6% 3.9% 14.7x 14.6x 14.1x $1.62 $1.70 $1.77 (7.0%) 4.4% 4.2% 18.9x 18.1x 17.5x 16.6x 31.2% 7.0%

Property Type Total/Weighted Average $62,930,804 $100,335,065 4.5% 85% 6.4% (7.7%) (0.2%) 1.9% 4.0% 15.8x 15.4x 14.8x -2.5% 7.5% 8.3% 21.5x 19.7x 18.2x 17.5x 23.9% (3.1%)

Triple Net Lease (1)

EPR Properties EPR Overweight $68.07 $84.00 $5,327,975 $8,839,006 6.6% $4.50 86% $58.15 7.7% 7.2% 17.1% $5.46 $5.43 $5.88 (10.4%) (0.7%) 8.3% 12.5x 12.5x 11.6x $5.23 $5.22 $5.67 (11.3%) (0.2%) 8.6% 13.0x 13.0x 14.8x 21.4x 12.3% (10.5%)
Four Corners Property Trust FCPT Neutral $27.06 $30.00 $1,859,200 $2,484,200 4.5% $1.22 82% $23.68 5.9% 5.3% 14.3% $1.43 $1.54 $1.63 1.9% 7.7% 5.3% 18.9x 17.5x 16.7x $1.38 $1.49 $1.57 1.8% 8.2% 5.3% 19.6x 18.1x 19.1x 19.8x 7.7% (4.3%)
Gaming and Leisure Properties, Inc. GLPI OW - Greff $41.64 $45.00 $8,940,849 $14,441,991 6.7% $2.80 80% NA NA NA NA $3.05 $3.10 $3.23 25.0% 1.6% 4.2% 13.7x 13.4x 12.9x $3.47 $3.52 $3.70 9.1% 1.4% 5.1% 12.0x 11.8x 12.2x 13.6x 38.3% 10.7%
Getty Realty GTY Underweight $32.57 $30.00 $1,364,450 $1,813,474 4.5% $1.48 85% $24.79 7.5% 6.2% 31.4% $1.83 $1.87 $1.96 (0.1%) 2.0% 5.3% 17.8x 17.5x 16.6x $1.82 $1.74 $1.85 9.7% (4.1%) 6.1% 17.9x 18.7x 16.2x 18.6x 14.4% 1.6%
Lexington Realty Trust LXP Neutral $10.50 $10.00 $2,606,525 $4,103,979 4.0% $0.42 69% $9.61 6.9% 6.6% 9.3% $0.79 $0.76 $0.78 (18.0%) (3.8%) 2.2% 13.3x 13.8x 13.5x $0.58 $0.60 $0.66 (24.0%) 3.4% 8.5% 18.0x 17.4x 15.2x 15.4x 32.1% 2.4%
MGM Growth Properties MGP OW - Greff $29.67 $36.00 $7,902,187 $12,640,937 6.3% $1.88 77% NA NA NA NA $2.00 $2.08 $2.11 1.0% 4.0% 1.4% 14.8x 14.3x 14.1x $2.34 $2.44 $2.52 4.9% 4.3% 3.3% 12.7x 12.2x 14.3x 14.3x 17.5% (1.3%)
Realty Income O Neutral $71.73 $77.00 $23,410,764 $30,448,153 3.8% $2.73 76% $44.47 6.5% 4.6% 61.3% $3.28 $3.57 $3.84 5.2% 9.0% 7.6% 21.9x 20.1x 18.7x $3.31 $3.60 $3.87 3.7% 8.7% 7.6% 21.7x 20.0x 19.9x 25.1x 17.8% (5.9%)
Safehold Inc SAFE Neutral $38.56 $44.00 $1,843,566 $3,401,545 1.6% $0.62 103% $25.71 3.4% 2.8% 50.0% $0.94 $1.52 $1.73 45.4% 62.3% 13.9% 41.2x 25.4x 22.3x $0.26 $0.60 $0.71 NA 135.9% 17.4% 150.5x 63.8x 62.0x 23.6x 108.6% 27.0%
Spirit Realty SRC Overweight $48.34 $55.00 $4,805,385 $7,131,992 5.2% $2.50 79% $39.62 7.0% 6.1% 22.0% $3.32 $3.11 $3.30 (10.9%) (6.5%) 6.3% 14.5x 15.6x 14.6x $3.71 $3.16 $3.32 (7.4%) (14.8%) 4.8% 13.0x 15.3x 16.6x 16.4x 43.2% 1.0%
VEREIT VER Overweight $9.13 $11.00 $9,990,274 $16,596,513 6.0% $0.55 83% $7.66 7.0% 6.3% 19.2% ($0.14) $0.65 $0.69 (131.8%) (565.0%) 5.2% -65.1x 14.0x 13.3x $0.69 $0.66 $0.69 (4.7%) (3.2%) 3.9% 13.3x 13.8x 16.0x 16.1x 33.7% (6.6%)
W.P. Carey & Co. WPC Neutral $76.67 $89.00 $13,148,186 $19,582,897 5.4% $4.14 82% $60.13 6.7% 5.7% 27.5% $4.50 $4.65 $4.85 (0.4%) 3.2% 4.3% 17.0x 16.5x 15.8x $4.99 $5.08 $5.26 (7.6%) 1.9% 3.5% 15.4x 15.1x 16.9x 18.5x 21.8% (14.3%)

Property Type Total/Weighted Average $97,643,840 $144,742,757 4.9% 79% 5.5% 33.9% 0.9% 4.0% 5.2% 9.9x 17.1x 16.2x (0.7%) 4.9% 5.1% 19.4x 17.2x 16.3x 19.7x 25.4% (4.0%)

Diversified/Specialty/Other
Americold Realty COLD Overweight $33.15 $38.00 $6,450,526 $8,487,139 2.4% $0.80 62% $32.06 6.5% 5.9% 3.4% $1.21 $1.31 $1.47 5.2% 8.6% 11.9% 27.4x 25.2x 22.5x $1.18 $1.29 $1.44 11.2% 9.4% 11.9% 28.2x 25.8x 26.4x 26.8x 32.2% (10.6%)
Kennedy-Wilson Holdings Inc KW Overweight $22.18 $27.00 $3,176,296 $9,315,096 4.0% $0.88 NA $25.65 5.1% 5.3% (13.5%) NA NA NA NA NA NA NA NA NA NA NA NA NA NA NA NA NA NA NA 25.7% 1.2%
Iron Mountain IRM OW - Steinerman $31.39 $41.00 $17,405,159 $27,863,411 7.9% $2.47 75% NA NA NA NA $2.31 $2.33 $2.80 5.0% 0.9% 20.2% 13.6x 13.5x 11.2x $3.00 $3.30 $3.79 (1.3%) 10.0% 14.8% 10.5x 9.5x 10.8x 18.6x 4.3% (1.2%)

Property Type Total/Weighted Average $51,546,378 $89,286,889 5.6% 56% NA NA 1.3% 3.2% 17.9% 9.0x 8.6x 7.0x 4.9% 9.7% 13.4% 19.3x 17.6x 18.6x 22.7x 25.6% 0.7%

REIT Industry Total/Weighted Average $1,114,153,038 $1,615,893,251 3.7% 72% 5.3% 3.5% 4.1% 4.9% 5.6% 20.1x 19.8x 18.7x 3.7% 6.8% 6.7% 23.8x 21.7x 20.7x 20.7x 21.6% (4.2%)
Source: J.P. Morgan
2019E, 2020E, 2021E FFO Growth ex Technology REITs is 3.0%, 4.1%, 4.7%

Michael W. Mueller, CFA

(1-212) 622-6689
michael.w.mueller@jpmorgan.com

Table of Contents
2020: Expect lower returns, but strong earnings visibility
warrants a spot in portfolios ...................................................7
A Bit More on the Backdrop ....................................................9
The CRE picture looks “okay” heading into 2020 ....................................................9
Job growth is set to slow, but it should still be enough to drive demand for space .....9
CRE supply deliveries running a little higher for a little longer.................................9
Vacancy rates should not change much in 2020 .....................................................11
Rent growth converging at inflationary-type levels ................................................11
Property type selection: Remain bullish on industrial, net
lease, and residential; bearish on retail, storage, office… .12
…but keep in mind bigger-picture thematics that pervade the whole space right now
.............................................................................................................................13
2020 NOI and FFO growth should be consistent with 2019 and visible – one of the
key positives to this group right now......................................................................14
Loftier valuations may cap upside, but there are still good reasons to justify these
levels ....................................................................................................................16
Fair Value: RMZ screening as cheaper after recent moves in the market.................19
Stock Ideas for Various Strategies .......................................21
Category 1: Cheap On a Real Estate Basis .............................................................21
Category 2: Acquisition-Driven Upside .................................................................21
Category 3: Event-Driven......................................................................................22
Category 4: Stocks to Own if Economic Growth Surprises Significantly to the
Upside ..................................................................................................................22
Category 5: Stocks to Own if Economic Growth Surprises Significantly to the
Downside..............................................................................................................22
Category 6: Sustainable, High Dividend Yield Stocks ............................................23
Five Important Themes ..........................................................24
Theme #1: FFO/NAV revisions – happy holidays with the gift that keeps on giving!
.............................................................................................................................24
Theme #2: Sector and Japan fund flows stabilized in 2019… .................................29
Theme #3: …And general equity funds are gradually moving real estate weights
closer to benchmark weights..................................................................................32
Theme #4: REIT universe to continue tilting toward non-traditional areas – where the
growth is...............................................................................................................34
Theme #5: The current low rates are a boon to earnings and growth .......................38
Property Type Overviews ......................................................47
Regional Malls: Starting 2020 in the hole; staying on the
sidelines despite large perceived NAV discounts ...............48
Retail Backdrop ....................................................................................................49
Strip Centers: More focused on offense ..............................55
Some key themes as we enter 2020........................................................................56

Michael W. Mueller, CFA

(1-212) 622-6689
michael.w.mueller@jpmorgan.com

Industrial REITs: Still have the tools to deliver strong

growth in a more balanced supply/demand backdrop........62
Some Key Items for 2020......................................................................................63
External Growth....................................................................................................65
Residential REITs: Stay bullish even if set-up is slightly less
robust ......................................................................................68
Valuation less expensive on a relative basis, higher on absolute basis.....................73
New York: Key Multifamily Stats .........................................................................75
Boston: Key Multifamily Stats ..............................................................................76
Washington D.C: Key Multifamily Stats................................................................77
Atlanta: Key Multifamily Stats ..............................................................................78
Seattle: Key Multifamily Stats...............................................................................79
Los Angeles: Key Multifamily Stats ......................................................................80
San Francisco: Key Multifamily Stats....................................................................81
San Jose: Key Multifamily Stats ............................................................................82
Orange County: Key Multifamily Stats..................................................................83
Houston: Key Multifamily Stats ............................................................................84
Office REITs: We remain bearish even as the job picture
keeps demand intact ..............................................................85
Atlanta: Key Office Stats.......................................................................................88
Austin: Key Office Stats........................................................................................89
Boston: Key Office Stats .......................................................................................90
Charlotte: Key Office Stats....................................................................................91
Dallas: Key Office Stats ........................................................................................92
Los Angeles: Key Office Stats...............................................................................93
New York: Key Office Stats..................................................................................94
Philadelphia: Key Office Stats...............................................................................95
San Francisco: Key Office Stats ............................................................................96
Seattle: Key Office Stats........................................................................................97
Washington D.C.: Key Office Stats .......................................................................98
Health Care REITs: Capital deployment thesis is playing
out; SHOP headwinds still a focus, though .........................99
Some Key Items for 2020.................................................................................... 100
Net Lease REITs: Stay positive despite risk of rotation away
from “defense” .....................................................................106
Appendix ...............................................................................110
Appendix I: Equity REIT Industry Summary as of 12/17/2019............................. 110
Appendix II: Health Care REITs as of 12/17/2019 ............................................... 113
Appendix III: Industrial REITs as of 12/17/2019.................................................. 116
Appendix IV: Lodging REITs as of 12/17/2019 ................................................... 119
Appendix V: Manufactured Housing REITs as of 12/17/2019 .............................. 121
Appendix VI: Office REITs as of 12/17/2019 ...................................................... 123
Appendix VII: Regional Mall REITs as of 12/17/2019......................................... 126
Appendix VIII: Residential REITs as of 12/17/2019 ............................................ 128

Michael W. Mueller, CFA

(1-212) 622-6689
michael.w.mueller@jpmorgan.com

Appendix IX: Self Storage REITs as of 12/17/2019 ............................................. 131

Appendix X: Strip Center REITs as of 12/17/2019............................................... 133
Appendix XI: Triple Net Lease REITs as of 12/17/2019....................................... 136
Appendix XII: Technology REITs as of 12/17/2019............................................. 139
Appendix XIII: Diversified REITs as of 12/17/2019 ............................................ 141

Pricing in this report is as of December 13, 2019, unless otherwise noted.

Michael W. Mueller, CFA

(1-212) 622-6689
michael.w.mueller@jpmorgan.com

2020: Expect lower returns, but strong

earnings visibility warrants a spot in
portfolios
We forecast an 8-9% total return for REITs in 2020, comprised of a mid- to high-3s
return from the dividend and about 5% return from price appreciation. This level of
total return is predicated on 4.8% 2020 FFO growth for the whole space and 4.3%
FFO growth ex the technology REITs. It also assumes that roughly 5% growth across
the space holds into 2021, and thus valuations can be sustained. By contrast, the
J.P. Morgan house view calls for a year-end 2020 S&P 500 of 3,400, which would
imply a total return of 12% from current levels; the house view assumes 10% EPS
growth in 2020, about 2% in dividends, with the remainder coming from modest
multiple expansion.

The base scenario laid out above has REITs underperforming the broader equity
market. But as is typically the case, how the actual stock performance shapes up in
2020 will largely depend on the macro picture, and once again that is likely to come
down to tariffs/trade in the U.S. and global growth more broadly…which impacts
interest rates. Despite the lower expected return, we think equity investors should
have some exposure to REIT stocks because of what we see as very strong
earnings visibility in 2020 and solid dividend yields.

Currently, the consensus expectation for S&P 500 EPS growth of 10% in 2020 is in
line with our J.P. Morgan house view, and it sits at a similar level to where it was last
year at this time. If this bullish outcome prevails (strong economic backdrop and
resolution to tariffs/trade), we think REIT stocks will have a hard time keeping up, as
we don’t see growth rates moving much higher and think valuations look reasonably
full. Conversely, if S&P 500 EPS estimates have to be revised down, there is a good
chance this would come with lower interest rates and a search for defensive
investments – essentially the situation we saw in the first nine months of 2019. REIT
stocks should outperform (though they may or may not necessarily go up) in that
environment due to the group’s sensitivity to rates and – importantly – because there
should be less downside risk to earnings, in our view.

We think REIT earnings visibility into 2020 is strong, in part due to the lower
interest rate environment and higher stock valuations that exist compared to last year
at this time. The lower combined capital costs afford most REITs the ability to
refinance debt at lower rates than we expected and also make accretive acquisitions.
The group has not seen this set of circumstances line up in a long time; this is a new
dynamic that unfolded through 2019.

With regards to commercial real estate fundamentals, we see supply and demand
trends as largely being in balance. Even if job growth notches down in 2020 from the
roughly 180k monthly pace in 2019 to a 118k monthly pace that JPM economics
research expects, it should be enough to absorb the CRE supply pipeline. We do
think market rent growth will slow to a more inflationary type level in 2020, and we
don’t see much upside to occupancy levels given that portfolios are now largely full
and there is supply still delivering. But in all, the fundamental picture should be
enough to drive property-level (same store) NOI growth of 2.3%, only 20 bps lower
than where we think 2019 will end.

Michael W. Mueller, CFA

(1-212) 622-6689
michael.w.mueller@jpmorgan.com

Valuations could be a headwind. Where REITs look most expensive is on an absolute

multiple basis, especially when looked at relative to history. We calculate that REIT
stocks trade at 20.0x 2020E FFO (vs. last year’s look-forward multiple of 17.8x) and
21.9x AFFO (vs. last year’s 20.2x). This valuation level is more/less at all-time
highs. Compared to the S&P 500’s P/E of 19.3x, we sit above it, though the premium
of 3.6% is smaller than the 11.9% premium last year at this time – this helps a little
bit. On a yield basis, the current 3.7% looks respectable, as the spread to the 10-year
Treasury yield and S&P 500 dividend is at or above historical averages. And finally,
on a real estate basis, the stocks trade at a ~4% premium to underlying NAV/share,
roughly in line with the 25-year historical average ~5% premium to NAV/share. In
all, we can justify these valuation levels given the rate backdrop and visible growth,
but it is hard to argue for expansion from here, in our view.

Within the group, we continue to favor industrial, residential, net lease, and health
care property types. These selections represent a combination of stronger-than-
average underlying fundamentals and also the ability to drive growth through
investment activity. On the flipside, we think malls and office remain more
challenged. It is important to note that there is also a broader rubric around what we
think will work or not in CRE and the REIT space, including demand drivers such as
tech/life science, corporate relocations, and e-commerce; location considerations like
being in labor or consumer clusters; leaning toward properties with lower cap ex
loads (i.e., away from office); and entity thematics like having investment pipelines
and transparent/simple financials. All these play a role in stock selection for us, as we
overlay this on property type selection.

Figure 3: Ratings for Our Coverage Universe

Overweight Neutral Underweight

Diversified/Other KW, COLD

Health Care HTA, MPW, PEAK HR, VTR, WELL

Industrial DRE, PLD, STAG FR, LPT, REXR MNR

BDN, BXP, CUZ,

Office ARE, KRC CLI, SLG, VNO, WRE
DEI, OFC, PDM, PSB

Regional Mall MAC, SPG CBL, PEI, SKT, TCO

AMH, AVB, CPT, ACC, AIV, EQR,
Residential
INVH, UDR ESS, RESI
AKR, KIM, REG,
Strip Center BRX, FRT RPAI, RPT, SITC, ROIC
WRI
FCPT, LXP, O,
Triple Net Lease EPR, SRC, VER GTY
SAFE, WPC

Self-Storage PSA
Real Estate
CBRE, CWK, JLL RLGY, RMAX
Services
Source: J.P. Morgan

Michael W. Mueller, CFA

(1-212) 622-6689
michael.w.mueller@jpmorgan.com

A Bit More on the Backdrop

The CRE picture looks “okay” heading into 2020
Commercial real estate trends have tracked the business cycle since the last downturn
and have afforded landlords the ability to refill buildings to stabilized levels, raise
rents, and justify new development. As we look into 2020, we think the CRE picture
looks reasonably balanced. The U.S. job picture continues to deliver, which is the
key driver to demand for space. On the supply side, we are seeing deliveries run a
little higher for a little longer than we expected, but broadly we think the new space
should be absorbed. Rent growth should move up at an inflationary pace, and
occupancy levels should be stable. This should drive property-level cash flow growth
in the 2-3% range, which to us is an “okay” picture – it is neither a backdrop for
accelerating core growth trends, nor is it one where we think cash flows are
pressured.

Job growth is set to slow, but it should still be enough to drive

demand for space
The U.S. economy added an average of 180k jobs/month in 2019 (YTD through
November), but J.P. Morgan’s economics research team expects this number to fall
to 118k jobs/month in 2020, representing approximately a 34% decline y/y. Job
growth moderated in 2016 and 2017 since this cycle’s 2014 peak, when it reached
~250k jobs/month, but that slowdown did not hurt CRE fundamentals because
vacancy was still being absorbed in many markets and property types, and supply
was still in the earlier stages of coming online for this cycle. But as we look into
2020, we are deep into supply deliveries, which makes demand holding up more
important. Our concern on the demand side would be greater if we were to see
monthly job growth slip below 100k, and conversely, if November’s sizzling 266k
payroll pace continued, rent trends could be notably better.

Figure 4: Average Monthly Employment Gains

250
Monthly Employment Gains (000s)

200

150

100

0
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
YTD JPMe
Source: BLS, J.P. Morgan

CRE supply deliveries running a little higher for a little longer

New commercial real estate supply tends to be a late cycle phenomenon, as rent
levels in the earlier years of an expansion are not typically high enough to justify the
returns needed to build a new building. New development economics start to make
sense as the cycle evolves and rent levels move higher as vacancy rates decline. But

Michael W. Mueller, CFA

(1-212) 622-6689
michael.w.mueller@jpmorgan.com

even when the economics start to make sense, there is a lag in terms of deliveries
since some CRE projects could take several years to go from planning to completion.
For this cycle, the sweet spot for deliveries looked like it was going to be the past 12
months or so. But in fact, we have seen new development projects continue to start at
a rapid clip in the past year or two despite it being very deep in the cycle.
Construction delays have pushed out some deliveries. As a result, the supply picture
seems like it could be meaningful for a longer time than expected. We don’t think
this is a major risk for CRE trends, but it means that the demand picture needs to
hold up.

Figure 5: Net Completions as % of Stock

2.5%
Office Apts Retail Industrial

2.0%

1.5%

1.0%

0.5%

0.0%

Source: Costar & J.P. Morgan as of 3Q19

 In this cycle, the apartment segment recovered quickly and new construction
ramped up early. In the aggregate, deliveries are down from their peaks, but in
most major markets, 2020 supply is expected to be pretty comparable to 2019
levels.
 New industrial supply continues to be elevated, but the significant demand
coming from the shift toward e-commerce has had no problem absorbing the
incremental space. We assume supply and demand move closer to equilibrium in
2020 and rent growth slows, but given that most industrial portfolios have large
embedded mark-to-markets, cash flow growth at the property level should remain
high.
 On the office side, supply deliveries are expected to be down y/y a bit, but we
think this is a property type that should be watched closely. Corporate expansion
is an important driver to leasing new space, so if business sentiment declines
while supply deliveries are at their highs, it could pose a risk to rents. Market and
submarket dynamics can vary widely in this property type as well.
 Lastly, retail supply growth remains the lowest, as retailers move away from
allocating capital to brick-and-mortar stores to focusing more on building out e-
commerce distribution channels. The reality is that the growth in on-line sales has
effectively created “phantom supply” and where construction is occurring in
retail, it is often around re-development and densifying existing retail centers by
adding restaurants and other experiential space as well as non-retail structures
(residential, lodging, office).

Michael W. Mueller, CFA

(1-212) 622-6689
michael.w.mueller@jpmorgan.com

Vacancy rates should not change much in 2020

We are no longer in a CRE market where there is excess vacancy to be absorbed,
and, as noted above, demand is expected to slow in 2020 while supply should
continue to come in at a healthy clip. We thus don’t think vacancy is going to come
down, nor do we think there is risk of it materially moving up.

Figure 6: Vacancy Rates by Property Type

14.0% Office Apts Retail Industrial

12.0%

10.0%

8.0%

6.0%

4.0%

2.0%

0.0%

Source: Costar & J.P. Morgan as of 3Q19

Rent growth converging at inflationary-type levels

CRE rent growth should run in the 2-3% range as we look out to 2020, perhaps with
industrial still running a little higher than this level. We discuss each property type’s
fundamentals in more detail later in this report.

Figure 7: Annual Rent Growth by Property Type

15%
Office Apts Retail Industrial

10%

-5%

-10%

Source: Costar & J.P. Morgan as of 3Q19

Michael W. Mueller, CFA

(1-212) 622-6689
michael.w.mueller@jpmorgan.com

Property type selection: Remain bullish on

industrial, net lease, and residential;
bearish on retail, storage, office…
Our property type preferences going into 2020 are little changed from our last update
in October 2019 (see our CRE slide deck here) and are summarized below.

Figure 8: Our 2020 Property Type Preferences

Overweight Health Care Triple Net Lease Industrial Tech REITs* Residential CRE Brokers
Neutral Strip Centers Self-Storage
Underweight Office Regional Malls Residential Brokers Lodging REITs*
*Data Centers – Choe; Towers – Cusick; Lodging – Greff
Source: J.P. Morgan

 We still see strong growth potential for industrial. Even though the industrial
REIT sector was a significant outperformer in 2019, we remain constructive on
the group for 2020 given its strong absolute and relative growth prospects.
Double-digit rent mark-to-markets continue to provide good visibility for above-
average organic growth, and the companies’ various external growth engines
(development for some; acquisitions for others) continue to be intact.
 Our increased external growth thesis continues to play out for the health
care REITs. In 2019, the health care REIT sector transitioned from being a net-
seller to being a net acquirer/deployer of capital. Management teams have taken
advantage of attractive capital costs to ramp up acquisition activity, and we look
for this trend to be broad based and continue in 2020. Senior housing operating
portfolios are still experiencing headwinds from supply and high labor costs,
though. As it relates to the stocks, the segment’s dividend yield is ~150 bps above
the overall REIT group average, which should be attractive to income-oriented
investors.
 Triple net lease REITs should put up competitive growth with higher yields.
Dividend yields of 4.9% remain 100-150 bps above the group average, and
significant accretive investment pipelines should drive earnings growth of 4.1%,
which is competitive with the overall group average 4.3% (ex tech REITs). These
attributes provide a good mix of offense and defense going into 2020. We expect
underlying tenant credit to be stable. The risk we would watch for is performance
on the deal front, as expectations for all companies to find a lot of acquisitions
more/less exists and the “buy boxes” overlap quite a bit.
 We remain bullish on residential, with more emphasis on the single family
rental stocks. Residential REITs are set to put forth another year of above-
average NOI and FFO growth in 2020. We think solid demand trends are
combining with a keen focus on operations to drive NOI growth. Lower capital
costs have also opened up the opportunity to make acquisitions accretive. We
also think this segment of the REIT space is among the most financially
transparent, and that is something we find is increasingly valuable to investors.
Within residential, we are most bullish on the single family rental names, as they
have the opportunity to drive high NOI growth. The challenges the conventional
apartment REITs will have to finesse in 2020 are higher valuations and a high bar
for NOI growth in the face of continued supply – but we are optimistic.

Michael W. Mueller, CFA

(1-212) 622-6689
michael.w.mueller@jpmorgan.com

 We continue to like the strip center REITs more than the malls. The strip
center REITs are facing far fewer retailer closure/bankruptcy headlines than the
mall sector, which we see as adding to the visibility of the group’s 2%+ SS NOI
and positive FFO growth outlooks. With stronger capital costs following 2019’s
stock performance, we believe management teams are transitioning to play more
offense in terms of new investment activity.
 We remain bearish on office thematically. Current trends are generally fine,
but it is late cycle, and any economic moderation could slow demand while
supply is still on the cyclical high side. We see the heavy cap ex loads that come
with office buildings as being unattractive, and we think the trend toward
occupiers seeking flex environments (aka coworking) is a long-term headwind,
and any slowdown in growth in this trend is a near-term headwind to broader
leasing trends. We would focus on portfolios in the path of tech, life science, and
corporate relocation demand.
 We are expecting another challenging year for the mall REITs. The sector is
generally starting off 2020 “in the hole” due to tenant headwinds such as Forever
21, and while our models are generally pointing to fewer companies with
negative FFO/share growth (as opposed to just SPG being in positive territory in
2019), we have less conviction in our models than we did last year. The business
will likely continue to be a grind over the near term. As it relates to valuation, we
believe the group is trading at large NAV discounts (particularly higher
productivity landlords such as TCO and MAC), but private capital is clearly
focused elsewhere as the market remains skeptical about cap rate and NAV
levels.

…but keep in mind bigger-picture thematics that pervade the

whole space right now
While we laid out the basic supply and demand picture around CRE and our property
type preferences (the traditional approach to navigating the REIT group) in the prior
sections, we would be remiss to not lay out in bigger-picture terms the thematics that
are being found across the entire space as it relates to where the strength and
weaknesses in the business lie.

For instance, in thinking about demand and putting property types aside, there are a
few consistent themes, like e-commerce, and tech/media/life sciences. There are
locations (from broader geographies down to blocks) that are working well, such as
those in close proximity to key consumer and labor clusters. The impact on
investment economics that high cap ex properties (like office) have is being duly
noted by investors, prompting capital to rotate away from those types of assets. And
at the entity level, transparent and less complex financial statements are increasingly
embraced by investors.

Michael W. Mueller, CFA

(1-212) 622-6689
michael.w.mueller@jpmorgan.com

Figure 9: Bigger-Picture Thematics

Source: J.P. Morgan

2020 NOI and FFO growth should be consistent with 2019 and
visible – one of the key positives to this group right now
We estimate that REIT sector-wide FFO/share growth should be ~5.0% in 2020,
which is slightly higher than the 4.4% we estimate in 2019. Note that these figures
include the positive effect of tech REITs such as the data center space and towers.
Taking these stocks out of the mix, we estimate 2020 FFO/share growth of 4.3%, up
from our 2019 estimate of 3.2%. Either way you cut it, we think the hallmark of this
group going into 2020 is steady and visible growth.

To lay out what’s behind our earnings growth forecast for REITs in 2020, we start
with a build-up of core internal growth from the properties – same store NOI growth.
We forecast 2020 same store NOI growth of about 2.3%. The industrial sector should
once again lead the group with 4.2% growth, followed by residential REITs at 3.5%.
Within residential, the single family rental REITs should put up roughly 4.0% NOI
growth, while the conventional apartment REITs should be in the low 3s. In retail,
we expect strip center NOI growth rates to be ~150 bps higher than what the mall
space should see, with malls continuing to face headwinds. For health care, we
expect same store NOI growth to decelerate to 1.4%, driven largely by reduced
SHOP expectations across the “big 3”. For office, we expect same store NOI growth
to decelerate to 2.7%, largely because of some idiosyncratic moves at the company-
level in 2020. In net lease, we expect the space to grow again at a steady 1.0%. The
self-storage sector should be able to bounce a small bit off low 2019 growth levels.
We forecast 1.2% NOI growth in 2020 for this space.

Michael W. Mueller, CFA

(1-212) 622-6689
michael.w.mueller@jpmorgan.com

Figure 10: Forecasted same store NOI

Same store NOI Growth Estimates
Property Type 2018A 2019E 2020E
Residential 3.0% 3.8% 3.5%
Industrial 4.6% 4.3% 4.2%
Office 3.1% 3.0% 2.7%
Regional Mall / Outlet 1.7% 1.0% 0.6%
Strip Centers 2.6% 2.8% 2.1%
Health Care 1.7% 1.8% 1.4%
Triple Net Lease 1.0% 1.0% 1.0%
Self Storage 2.0% 1.0% 1.2%
Weighted Average (Market Cap) 2.5% 2.5% 2.3%
Source: Company Filings, J.P. Morgan Estimates

We think the items that will drive 2.3% same store NOI growth to bottom-line
earnings growth of about 4.3% in 2020 include: 1) financial leverage that should add
about 70 bps of growth to the bottom line, taking 2.3% NOI growth up to 3% FFO
growth; 2) we estimate REIT G&A will continue to go up at an above-inflation level,
which we think could shave about 50 bps off FFO growth; 3) external growth should
add about 170 bps to FFO growth, net of dispositions, as development contribution,
lower capital costs, and fewer dispositions should all be helpful; and 4) lower interest
costs offset by lapping some one-time beneficial items included in 2019 earnings
should add about 10 bps to FFO growth.

Figure 11: 2020 FFO Buildup

2020E FFO Buildup
SS NOI 2.3%
+ Impact of Leverage 0.7%
+ External Growth 1.7%
- Higher G&A and internal costs -0.5%
+ Financing Costs / Other 0.1%
= FFO Growth Estimate 4.3%
Current Expected 2019 FFO Growth 3.2%
Source: J.P. Morgan estimates

As noted above, what we think is very important about REIT earnings growth is that
it should be visible in 2020, especially versus the S&P 500. This time last year,
growth expectations for the S&P 500 were more than twice expected REIT earnings
growth, almost 8% versus REIT expected FFO growth of ~3%. Part of the reason
S&P 500 growth was so high was that there was an expectation that the tariffs/trade
war that started in 2018 would not get worse. That proved incorrect, and we saw
growth slow notably through the year for the broader market. The “Street” now
expects 2019 S&P 500 EPS growth to finish the year at a modest 1% (though the
J.P. Morgan house view is 3%), while REIT FFO growth is coming in at 3.2%.

We find ourselves in a familiar situation looking into 2020. The “Street” estimate and
our house view for S&P 500 earnings growth is now 10%, higher than projected
REIT growth. The broader equity market expectations appear to assume that the
trade situation is largely resolved in short order (with existing tariffs rolled back) and
economic growth is strong. If that proves to be the case, CRE fundamentals should
also benefit, though we don’t think it would materialize into significant earnings
upside. On the flipside, if there is no resolution on the trade front and there is any

Michael W. Mueller, CFA

(1-212) 622-6689
michael.w.mueller@jpmorgan.com

appreciable pullback in economic growth, S&P 500 expected growth would likely
come down notably (our strategy team estimates that a trade escalation would reduce
EPS growth to 4%) – like it did in 2019. In that instance, we think the downside to
REIT earnings growth rates is small – maybe 50-75 bps.

Figure 12: REIT vs. S&P500 Earnings Growth Rates

S&P 500 EPS growth* REIT FFOPS JPMe^ S&P 500 EPS JPMe
25%
23%

20%

15% 15%
15% 13%
12%
10% 10%
10% 9%
7% 8%
6% 6% 6% 5% 4%
5%
3% 3% 3%
2%
1%
0% 0%
2011 2012 2013 2014 2015 2016 2017 2018 2019E 2020E

-5% -3%

Source: IBES and J.P. Morgan

* IBES, historical actual S&P 500 EPS, estimates are IBES consensus ^FFOPS growth rate does not include technology REITs

Loftier valuations may cap upside, but there are still good
reasons to justify these levels
REIT stocks are wrapping up 2019 with forward looking trading multiples that are
more expensive than they were last year on an absolute basis, along with lower
implied cap rates and a small NAV premiums. To us, this could cap absolute upside
in the stocks, but it does not create a major concern for us either. We think the
backdrop of lower interest rates, supportive CRE pricing in the private market, and
higher S&P 500 multiples adds some context to justify these valuation levels.

Multiples – trading near all-time highs. Where REITs look most expensive is on
an absolute multiple basis, especially when looked at relative to history. We calculate
that REIT stocks trade at 20.0x 2020E FFO (vs. last year’s look-forward multiple of
17.8x) and 21.9x AFFO (higher than last year’s multiple of 20.2x). We note that this
current FFO multiple is more than double the multiple at which REITs traded when
they were first included in the S&P 500 in 2001. This premium does warrant some
explaining, though. REIT portfolios are higher quality today than they were at that
time, cap rates have declined substantially, required rates of return have come down,
and REIT balance sheets carry lower leverage and more liquidity than they have in
the past. All of the aforementioned warrant much higher multiples. When looking at
multiples post-inclusion, the group is still at a 35% premium, and even when looking
at multiples this cycle, the expansion in the past year has taken valuation to all-time
highs. This makes multiples the hardest valuation metric to look at and get excited
about the stocks.

Michael W. Mueller, CFA

(1-212) 622-6689
michael.w.mueller@jpmorgan.com

Figure 13: Historical REIT FFO Multiples

24x As of Dec 13:

Current Cycle Average (Dec 20.0x
2010 - Present): 17.4x
22x Post S&P500
Inclusion:
20x 15.1x

Pre S&P500
18x Inclusion: 9.5x

16x

14x

12x

10x

Source: J.P. Morgan as of 12/13/19. FFO multiples are rolled around August of each year.

REIT multiples are still higher than usual and above the S&P 500, but not by a
lot given the last few weeks. While multiples have come down in recent weeks,
REIT P/FFO multiples still stand above the S&P 500 P/E. REITs trade at 20.0x FFO
compared to the S&P 500’s 19.3x forward-looking P/E multiple. The ~3.6% REIT
premium is lower than the roughly ~12% last year at this time.

Figure 14: Historical REIT P/FFO Multiple vs. S&P 500 Forward P/E
23x

22x

21x

20x 20.0x

19.3x
19x

18x

17x

16x

15x
SPX Index P/E REIT P/FFO

14x

Source: J.P. Morgan (as of 12/13/19) for P/FFO ratio, Bloomberg for S&P 500 P/E. S&P 500 P/E multiples are updated on a rolling 4
quarter basis while REIT P/FFO multiples are rolled around August of each year.

Michael W. Mueller, CFA

(1-212) 622-6689
michael.w.mueller@jpmorgan.com

Stocks are at NAV premiums and low implied cap rates, but that’s in line with
history and where we think they should be. The year-over-year valuation picture is
better when looking at the stocks versus private market values for real estate assets.
Through this lens, the stocks now trade at a 4.2% premium to NAV (vs. ~1.8%
discount this time last year), and the implied cap rate is about 5.3% (40 bps lower
than last year). While at a higher valuation going into 2020 versus 2019, it is not far
off the ~5% historical 25-year average premium at which REITs have traded.
Further, remember that the small premium allows for companies to use attractively
priced equity to drive growth through investments, thus adding to earnings visibility.
And more fundamental to the long-run pitch for REITs, the scale, liquidity, and
transparency as an investment vehicle should be worth something more than what a
CRE asset is valued at in the private market. Finally, there appears to be ample
liquidity in the private market for CRE at this time, as deal volume is shaking out to
be at or above 2018 levels. This means to us that the private market values of CRE
are quite supportive of the stocks at these levels, even if the stocks are at some
premium.

Figure 15: Historical NAV Premium/Discount

40%

30%
Average
Premium:
20% 4.6%

10%

(10%)

(20%)

Source: J.P. Morgan as of 12/13/19

The dividend yield spread is attractive relative to history. The REIT group
currently carries a 3.7% dividend yield, which, while lower than the roughly 3.9%
yield last year at about this time, it is nonetheless attractive in the context of income
alternatives, in our view. The 10-year Treasury yield is currently about 1.8%, and
thus it puts the yield spread at a positive 180 basis points for REITs. This is higher
than the historical roughly 125 bp spread we have seen since the dawn of the modern
REIT era in the early 1990s. Keep in mind that REITs also have continued to grow
dividends, and we think dividend growth that mirrors earnings growth (about 4%)
should be expected in 2020. This essentially means that the income component of the
total return – all other things being equal – should be in the high 3s right out of the
gate, which we think equates to over 40% of the expected return.

Michael W. Mueller, CFA

(1-212) 622-6689
michael.w.mueller@jpmorgan.com

Figure 16: REIT Dividend Yield Spread over 10-Year Treasury

2% Average: 1.22%

-2%

Source: Bloomberg as of 12/13/19

Fair Value: RMZ screening as cheaper after recent moves in

the market
We believe the short-term fair value for the MSCI US REIT Index (RMZ)
approximates 1,325, with a +/- 50-point range as a fair value band – unchanged
compared to our last update in October. We would consider a value below 1,275 as
“cheap” and a value above 1,375 as “expensive,” holding the S&P 500 (broader
market measure), 10-year Treasury yield, and earnings outlook (for both REITs and
the broader market) constant from here. We typically update this range every several
months to reflect a more tactical trading approach towards the group. In doing so, we
try to account for broader market and macro factors that we think impact the level of
REIT stocks in the short run. We outline below what has changed since the last range
was set.

The changes since our last update (October 2019) to fair value nets out to be
roughly flat. The following factors were evaluated since we last updated our tactical
fair value on the RMZ (included in our CRE Update slide deck published in October
2019).

Negatives
 The 10-Year Treasury yield has risen ~30bps since October to 1.8%. We estimate
that this increase should have a roughly 2% negative impact on fair value,
provided rates do not increase significantly from here (our rates team does not
expect any increases until 2H20).

Positives
 The broader equity market is up about 7.3% since our last update, though forward
S&P 500 EPS estimates are down about 3% from where they were a few months
ago. We thus think that this change should have a roughly 2-3% positive impact
on REIT stocks as a function of netting increase in the market with the decline
explained by earnings and then considering the lower correlation and beta REITs
tend to exhibit with the broader equity market.
 REIT credit spreads have narrowed to the tune of about 20 bps since October. We
would account for this with a smaller 1% positive implication on valuation.

Michael W. Mueller, CFA

(1-212) 622-6689
michael.w.mueller@jpmorgan.com

The above items net out to roughly no change to our fair value forecast since our last
update in October. The RMZ currently sits at 1,244, thus putting it about 6.1% under
the midpoint of our “fair” band.

Figure 17: Summary Factors Driving Changes to the REIT Fair Value
Variable Impact on REIT Fair Value
Positive
Broader equity market higher 1.5%
Narrower REIT credit spreads 0.5%
Negative
Higher 10-Year Treasury (2.0%)
Net impact –
Source: J.P. Morgan estimates

Figure 18: RMZ Valuation Parameters - 10/05/19 vs. 12/13/2019

Attractiveness RMZ Level (Prior) RMZ Level (Current)
Cheap ≤ 1,275 ≤ 1,275
Fair 1,325 1,325
Ex pensiv e ≥ 1,375 ≥ 1,375
Source: J.P. Morgan estimates

Figure 19: Summary of RMZ Fair Value Range: September 2013 through March 2020E

1,400

1,300

1,200

1,100

1,000

900

800

Source: J.P. Morgan estimates, Bloomberg

Michael W. Mueller, CFA

(1-212) 622-6689
michael.w.mueller@jpmorgan.com

Stock Ideas for Various Strategies

Below we compiled several investment themes and the corresponding stocks that fit
each category. Note, though, that all of the trade ideas may not tie to our ratings on
the specific stocks. Instead, these are names that fit a theme that often comes up in
conversation with the buy-side.

Category 1: Cheap On a Real Estate Basis

There are a number of stocks that own what we consider to be attractive institutional-
quality commercial real estate, but the stocks may be discounted for whatever reason
to underlying private market values (NAV/share). These portfolios may be located in
key metros or be considered class A in their respective categories. In the instance of a
go-private or liquidation, in theory there would be a lot of upside in these names
given implied valuations. These stocks come to mind when investors take the
approach that the companies are collections of assets and can access those assets
cheaply.

Figure 20: Quality at a Reasonable Price

Ticker JPM View
ACC Top student housing assets for which the private market appears to be paying sizable premiums
KW Unique Dublin apartment exposure and highly sought after workforce housing in Western US
MAC Significant perceived NAV discount for a high quality, coastal-heavy, high productivity mall portfolio
RPAI Stock screens as being cheap; External growth kicking in over the next two years could be a catalyst
Trades at a discount to peers despite continually improving portfolio productivity; acquisitions could drive
SITC
additional growth
SLG New York City office portfolio, including development pipeline that is strong
TCO Significant perceived NAV discount for a highly concentrated $800+/sf mall portfolio
VNO Institutional quality New York City office portfolio with sizable re-development
Source: J.P. Morgan

Category 2: Acquisition-Driven Upside

We have held the view over the long term that earnings and NAV estimate revisions
can be catalysts for REIT stocks, and we walk through this history later in this
outlook. The following are some of the stocks where we believe upside/downside
potential exists with respect to estimates.

Figure 21: Acquisition-Driven Upside Potential

Ticker JPM View
CBRE Significant free cash flow and low leverage opens up the opportunity to deploy capital
COLD Strong currency to continue to consolidate in a fragmented market; international possibilities, too
EPR Recent sale of charter schools creates liquidity to make sizable deals, potentially in gaming space
HR Acquisition volumes have been on the rise and could continue into 2020
INVH Low cost of capital and focus on building greater mass in key markets should drive acquisitions
JLL Company is quickly de-leveraging after HFF deal, and we think it will return to acquisitions shortly
MPW Management reiterated a strong $5B acquisition pipeline similar to what it saw heading into 2019
REXR Very strong currency in a highly fragmented, and non-institutional market
ROIC Messaging about acquisition prospects has improved after being quiet for some time
SAFE Low implied cap rate (2s) and unique debt access combines well with concept gaining traction
SRC Open capital markets and re-focused organization creates high probability of acquisition upside
STAG Robust year of acquisition and messaging about the 2020 pipeline is encouraging
WELL Has a strong currency and multiple property segments to deploy capital into
UDR Demonstrated ability to make deals in 2019 and think the desire to continue that in 2020 exists
Source: J.P. Morgan

Michael W. Mueller, CFA

(1-212) 622-6689
michael.w.mueller@jpmorgan.com

Category 3: Event-Driven
Potential event-driven actions such as activism, M&A, spinoffs/divestitures, and
management changes can prove to be positive or negative catalysts for a stock.
Below are the stocks that we see as fitting into this category.

Figure 22: Potential Event-Driven names

Ticker JPM View
CBL The stock trades at ~$1 and it recently suspended preferred and common dividends for 2020
CLI Ongoing special committee looking into alternatives and view on valuation
MAC Meaningful deleveraging could be a catalyst; Has been a takeout target in the past at higher valuations
RESI Board is running a strategic alternatives process that management said should conclude soon
SITC Management is shifting focus from longer-term redevelopment spend to near-term acquisitions
Source: J.P. Morgan

Category 4: Stocks to Own if Economic Growth Surprises

Significantly to the Upside
In the event that global synchronized growth comes in greater than expected, we
think these companies will benefit more than others on a relative basis and have a
spot in portfolios should we see significant broader market outperformance.

Figure 23: Stocks to Own if Economic Growth Surprises Significantly to the Upside
Ticker JPM View
BXP Significant development pipeline and capability would benefit from greater corporate expansion
CWK Global exposure and operational and financial leverage would amplify significant economic growth
KW Global exposure would benefit, and stock correlates more to risk on/off than REITs
PSA Better economic growth could help negate supply headwinds, improving core growth
SLG Greater corporate expansion could help improve NYC fundamentals, to which SLG is leveraged
STAG Could see further marginal improvement in core growth expectations
TCO Highly productive portfolio should benefit from a notable pick-up in the economy and consumer
Source: J.P. Morgan

Category 5: Stocks to Own if Economic Growth Surprises

Significantly to the Downside
On the flipside, given any risk of a 2020 trade war/other upcoming macro risks, we
think these are a few companies that should show resiliency in a recessionary
environment if investors enter “risk-off” mode. This is not a complete list, but it tries
to factor in valuation.

Figure 24: Stocks to Own if Economic Growth Surprises Significantly to the Downside
Ticker JPM View
ACC More idiosyncratic nature to student housing markets should be less correlated in a downturn
COLD Business focuses on necessity-driven goods…food
HR Stable needs-based asset class with strong operator credits
HTA Stable needs-based asset class with strong operator credits
MNR Portfolio is predominantly leased to strong, investment-grade, tenants
O Stable investor base and company track record may insulate the stock in a downdraft
SAFE Ultra-long duration assets could be sought by investors if economy weakens and rates decline
Source: J.P. Morgan

Michael W. Mueller, CFA

(1-212) 622-6689
michael.w.mueller@jpmorgan.com

Category 6: Sustainable, High Dividend Yield Stocks

In the table below, we list some stocks with high dividend yields in our sector that
should be attractive for income-oriented investors. These yields compare favorably to
the overall REIT sector yield of about 3.7%. The stocks are not necessarily the
highest yielding stocks in our coverage universe, but are ones where we think the
yields are relatively safe and/or have growth attributes that make them interesting.

Figure 25: Sustainable, High Dividend Yield

Ticker Dividend Yield
SKT 9.4%
EPR 6.6%
VER 6.0%
SITC 6.1%
SPG 5.8%
VTR 5.7%
BRX 5.5%
WPC 5.4%
WRI 5.2%
BDN 5.1%
MPW 5.2%
SRC 5.1%
Source: J.P. Morgan as of 12/13/19

Michael W. Mueller, CFA

(1-212) 622-6689
michael.w.mueller@jpmorgan.com

Five Important Themes

Theme #1: FFO/NAV revisions – happy holidays with the
gift that keeps on giving!
We continue to run our analysis on how revisions to out-year FFO/share estimates
and spot NAV/share estimates tie with stock price performance. In essence, we look
at whether or not changes in earnings expectations or estimated underlying real estate
value are discounted into stock prices after they happen. The answer has been a
resounding yes for a number of years, and it was no different in 2019. As we look to
2020, we have no reason to believe that this will change, and it thus makes a strong
case for investors to take a view on where estimates are going as stocks are selected
for a portfolio.
On the FFO revision front, the return spread between stocks with the largest positive
and negative earnings estimate revisions was 2,190 bps in 2019 through December
13th – on a weighted average basis. As seen in the figure below, the stocks with the
highest upward earnings revisions had the highest total returns, and the lowest total
returns were seen in the stocks with the greatest downward revisions. Recall that
when we do this analysis each year, we track the revisions to the out-year forecast so
as to avoid the noise that comes with one-time items that can skew estimates as
actual results unfold in the year. For the 2019 analysis we tracked 2020 Bloomberg
consensus FFO/share estimates.

Figure 26: 2019 YTD Total Return Comparison Based on 2020 FFO Estimate Revisions
Simple Average Weighted Average 2020 P/FFO
Rev ision Tot. Return Rev ision Tot. Return Simp Av g Wgt Av g
1st Quintile 5.9% 35.6% 5.4% 35.8% 20.5x 21.0x
2nd Quintile 1.0% 25.6% 1.0% 25.6% 17.1x 19.4x
3rd Quintile -1.6% 22.3% -1.4% 24.6% 17.3x 18.6x
4th Quintile -4.6% 14.6% -4.7% 8.5% 14.5x 14.6x
5th Quintile -13.9% 7.3% -13.4% 14.0% 10.8x 14.2x
Ov erall -2.6% 21.1% -0.5% 23.8% 16.1x 18.3x

Source: Bloomberg and J.P. Morgan as of 12/13/19.

Note: earnings revisions refer to 2020E Bloomberg Consensus FFO/share estimates.

What we added to the analysis this year is a column showing P/FFO multiples. We
did this to observe whether or not any trends might exist in terms of cheaper stocks
performing better or worse than more expensive stocks, or whether cheaper or more
expensive stocks correlated with revisions. The data shows that there is a correlation
between multiples and revisions, where positive revisions generally correlate with
higher multiple stocks and vice-versa. To us, it drives home the idea that picking so-
called cheap stocks is not necessarily a winning investment strategy in this space.

This relationship has persisted for nine years. As seen in the figure below, the
spread between the first and fifth quintiles has averaged about 1,860 bps since 2010.
From our vantage point, this relationship between revisions and performance is likely
to hold in 2020, absent pretty abnormal market conditions or a major fundamental
inflection point like we saw in 2008-2010.

Michael W. Mueller, CFA

(1-212) 622-6689
michael.w.mueller@jpmorgan.com

Figure 27: The Spread Between the Top and Bottom Quintiles Averaged ~19% Since 2010
`

30% 27.7%
25.6%
25.0%
25%
21.7% 21.9%
20%
15.9%
14.0% 14.5%
15%

10% 9.5%
10.3%
5% Return Spread Between 1st and 5th Quintiles

0%
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 YTD 10-Year
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 YTD Average
1st Quintile 41.2% 16.0% 25.7% 12.2% 35.0% 18.8% 20.9% 20.2% 3.2% 35.8% 22.9%
5th Quintile 31.7% -11.7% 9.8% -1.8% 20.5% -6.2% 10.6% -5.4% -18.5% 14.0% 4.3%
% 9.5% 27.7% 15.9% 14.0% 14.5% 25.0% 10.3% 25.6% 21.7% 21.9% 18.6%
Source: Bloomberg and J.P. Morgan.

NAV revisions tell the same story

The REIT sector has the unique ability to look to the large private market of
commercial real estate and observe where buildings trade from owner to owner and
apply those valuations to the public companies’ portfolios; there’s over $550 billion
of annual building transactions in the U.S. The resulting NAV/share estimate is often
a tempting figure to try to use in buying or selling REIT stocks. For instance, sell
stocks at premiums and buy discounted stocks. However, this has not been a winning
investment strategy over time. Instead, stocks seem to react more to where
NAV/share goes as opposed to whether or not the starting point is a premium or
discount.

Figure 28: 2019 YTD Total Return Comparison Based on NAV Revisions
Simple Average Weighted Average Prem/Disc NAV
Rev ision Tot. Return Rev ision Tot. Return Simp Av g Wgt Av g
1st Quintile 17.6% 37.9% 16.7% 42.0% 7.1% 9.3%
2nd Quintile 8.3% 26.0% 8.1% 21.5% 12.1% 12.1%
3rd Quintile 3.7% 23.1% 4.2% 23.0% -1.2% -0.1%
4th Quintile -1.1% 17.8% -1.0% 15.4% -5.5% -3.9%
5th Quintile -19.6% 0.8% -13.0% -1.2% -25.2% -17.8%
Ov erall 1.8% 21.1% 6.0% 23.8% -2.5% 3.4%
Source: SNL and J.P. Morgan.

Our methodology for NAV revisions compares consensus spot NAV/share estimates
as of December 13th with the consensus spot NAV/share estimates at year-end 2018.
We use SNL for consensus NAV/share estimates. The 101 stocks in our sample set
are sorted from highest revision to lowest revision and then grouped into quintiles
from the highest to lowest revision groups. We then calculated simple average and
weighted average (by market cap) total returns for each quintile group.

What drove revisions in 2019, and what do we see in 2020? Looking at the results
from 2019, we find that a number of residential REITs and industrial REITs landed
in the top revision quintiles both on an FFO and NAV basis. This makes sense to us
given the strength of the fundamentals that transpired over the course of 2019. For
instance, Prologis (PLD) was in the first quintile of both FFO and NAV revisions, as
were three other industrial REITs (TRNO, FR and, EGP). While these represented
only four out of 20 stocks in the first quintile group, they account for most of the

Michael W. Mueller, CFA

(1-212) 622-6689
michael.w.mueller@jpmorgan.com

industrial REIT market cap. In 2019, we saw companies/property types with an

equity cost of currency (like industrial, health care, net lease and residential) step up
acquisition activity to drive bottom-line growth. We think these upward
revisions/outperformance in the first quintile ties to this narrative as well.

Conversely, the bottom two revision quintiles again consisted of several retail (malls
and strip centers) and lodging REITs. This is unsurprising given the secular
headwinds this sector is experiencing, which drives downward earnings
revisions…and the stocks suffered. Turning to NAV revisions, nine of the 20 REITs
in the fifth quintile were retail REITs and four were lodging REITs. Meanwhile,
eight of the 20 REITs in the fifth FFO revisions quintile were retail REITs, and four
were lodging REITs as well.

While property type trends naturally can drive upward or downward revisions, we
have also found over time that every quintile contains stocks from almost every
property type. To us this drives home the point that individual stock analysis is still
important, as a notable change to estimates could either help or hurt investor returns
regardless of the property type.

As we look to 2020, we continue to believe that the areas where fundamentals can
drive an upside surprise to FFO and/or NAV include the industrial, health care, net
lease, and residential sectors. In addition, we think companies with the potential for
acquisition-driven growth should see some upside. If the economic picture
moderates, we would worry about office and retail on the downside. More specific to
NAV growth, we would watch those REITs with sizable pre-leased development
pipelines, where bringing properties into service tends to drive NAV momentum.

Michael W. Mueller, CFA

(1-212) 622-6689
michael.w.mueller@jpmorgan.com

Figure 29: Historical Earnings and NAV Revisions

Earnings Revisions - Simple Average

FFO/Share Revision Total Returns
Quintiles Quintiles
Overall Overall Total 1Q to 5Q Total
1Q 2Q 3Q 4Q 5Q 1Q 2Q 3Q 4Q 5Q
Revisions Returns Return Spread
2010 15.6% 5.3% 2.1% -3.0% -13.8% 1.2% 46.4% 31.4% 28.4% 16.6% 35.2% 31.6% 11.2%
2011 36.4% 4.2% 0.5% -4.9% -18.4% 3.6% 13.9% 15.0% -0.3% -3.9% -14.5% 2.0% 28.4%
2012 11.1% 3.9% 0.8% -2.9% -15.2% -0.5% 33.5% 20.8% 19.5% 19.4% 22.8% 23.2% 10.7%
2013 10.1% 3.2% -0.2% -3.2% -13.1% -0.2% 1.1% 8.5% 0.0% 0.0% 0.0% 8.5% 19.1%
2014 10.3% 2.7% 0.3% -2.3% -10.2% 0.2% 33.2% 31.9% 34.7% 23.1% 18.8% 28.4% 14.4%
2015 11.0% 3.2% 0.1% -2.9% -9.1% 0.7% 13.5% 3.2% -0.5% -5.0% -4.1% 1.5% 17.6%
2016 10.0% 0.4% -1.7% -4.5% -17.1% -2.4% 21.5% 21.0% 16.7% 11.0% 15.0% 16.9% 6.5%
2017 2.8% -0.9% -3.1% -6.3% -12.8% -4.1% 19.9% 7.1% 3.0% 0.0% -13.0% 3.4% 32.9%
2018 2.0% -1.0% -1.4% -7.4% -14.7% -5.0% 2.8% -4.1% -3.6% -10.9% -22.1% -7.4% 24.9%
2019 5.9% 1.0% -1.6% -4.6% -13.9% -2.6% 35.6% 25.6% 22.3% 14.6% 7.3% 21.1% 28.3%

Earnings Revisions - Weighted Average

FFO/Share Revision Total Returns
Quintiles Quintiles
Overall Overall Total 1Q to 5Q Total
1Q 2Q 3Q 4Q 5Q 1Q 2Q 3Q 4Q 5Q
Revisions Returns Return Spread
2010 14.5% 6.0% 2.4% -2.9% -12.6% 1.5% 41.2% 27.6% 27.1% 23.6% 31.7% 30.2% 9.5%
2011 12.0% 4.1% 0.4% -4.8% -12.1% -0.1% 16.0% 21.8% 4.8% -2.4% -11.7% 5.7% 27.7%
2012 9.6% 4.1% 0.7% -2.4% -8.0% 0.8% 25.7% 19.2% 16.3% 15.7% 9.8% 17.3% 15.9%
2013 8.5% 4.0% -0.2% -3.5% -13.1% 0.6% 12.2% 5.9% -0.1% 0.9% -1.8% 3.9% 14.0%
2014 7.8% 2.9% 0.3% -2.1% -10.0% 1.3% 35.0% 34.3% 34.3% 26.9% 20.5% 31.8% 14.5%
2015 9.1% 3.2% 0.8% -3.1% -8.3% 1.0% 18.8% 7.0% 4.4% -1.6% -6.2% 5.2% 12.6%
2016 4.1% 0.2% -1.6% -4.3% -15.8% -3.0% 20.9% 16.7% 7.0% 9.5% 10.6% 10.1% 10.3%
2017 2.9% -0.7% -3.1% -6.1% -14.9% -3.4% 21.2% 9.5% 2.7% 0.2% -9.7% 5.7% 30.9%
2018 18.0% -1.0% -4.1% -7.7% -12.7% -2.7% 3.2% -1.8% -4.7% -8.0% -18.5% -1.3% 21.7%
2019 5.4% 1.0% -1.4% -4.7% -13.4% -0.5% 35.8% 25.6% 24.6% 8.5% 14.0% 23.8% 21.9%

NAV Revisions - Simple Average

NAV/Share Revision Total Returns
Quintiles Quintiles
Overall Overall Total 1Q to 5Q Total
1Q 2Q 3Q 4Q 5Q 1Q 2Q 3Q 4Q 5Q
Revisions Returns Return Spread
2013 24.6% 14.8% 9.6% 3.6% -3.1% 10.4% 25.2% 11.0% 9.9% 0.9% -8.1% 8.5% 33.3%
2014 24.3% 14.2% 11.1% 6.4% -4.4% 10.5% 38.6% 37.1% 26.2% 27.8% 13.8% 28.4% 24.8%
2015 23.6% 13.4% 8.3% 3.5% -5.0% 8.2% 21.2% 5.6% 1.4% -5.0% -15.5% 1.5% 36.7%
2016 19.4% 10.5% 5.8% 0.8% -17.9% 7.5% 29.4% 14.7% 10.2% 12.0% 19.5% 16.9% 9.9%
2017 17.6% 7.1% 2.4% -4.4% -17.6% 1.0% 21.2% 9.2% 3.1% -3.4% -13.1% 3.4% 34.3%
2018 12.1% 4.7% 0.9% -3.5% -15.1% -0.1% 1.6% 1.0% -6.4% -10.0% -23.6% -7.4% 25.2%
2019 17.6% 8.3% 3.7% -1.1% -19.6% 1.8% 37.9% 26.0% 23.1% 17.8% 0.8% 21.1% 37.1%

NAV Revisions - Weighted Average

NAV/Share Revision Total Returns
Quintiles Quintiles
Overall Overall Total 1Q to 5Q Total
1Q 2Q 3Q 4Q 5Q 1Q 2Q 3Q 4Q 5Q
Revisions Returns Return Spread
2013 24.3% 14.7% 9.4% 4.5% -1.2% 11.0% 15.1% 7.0% 3.4% -1.1% -8.7% 3.9% 23.8%
2014 22.6% 14.3% 11.2% 5.4% -3.2% 10.5% 35.7% 38.3% 34.5% 30.9% 15.1% 31.8% 20.6%
2015 22.1% 13.7% 8.8% 3.6% -4.1% 11.5% 17.1% 6.8% 2.9% -4.6% -13.3% 5.2% 30.4%
2016 19.1% 10.0% 5.7% 0.5% -16.4% 6.9% 29.6% 12.4% 5.1% 6.3% 15.3% 10.1% 14.3%
2017 17.5% 7.2% 2.8% -4.1% -16.0% 1.2% 22.7% 9.0% 3.4% -0.6% -5.3% 5.7% 28.0%
2018 11.3% 4.1% 0.5% -4.0% -12.5% 1.8% 1.3% 1.5% -4.2% -8.7% -19.9% -1.3% 21.2%
2019 16.7% 8.1% 4.2% -1.0% -13.0% 6.0% 42.0% 21.5% 23.0% 15.4% -1.2% 23.8% 43.2%
Source: SNL and J.P. Morgan.

Michael W. Mueller, CFA

(1-212) 622-6689
michael.w.mueller@jpmorgan.com

Figure 30: FFO Revisions vs. Total Return for REITs (2013-2019)

FFO Revisions (x) vs. Total Return (y)

for REIT stocks (2013-2019)
90.0%

70.0%

50.0%

30.0%

10.0%

-30.0% -20.0% -10.0% 0.0% 10.0% 20.0% 30.0% 40.0%

-10.0%

-30.0% y = 1.28x + 0.24

R2 = 0.06

-50.0%
Source: SNL and J.P. Morgan.

Figure 31: NAV Revisions vs. Total Return for REITs (2013-2019)
150%
NAV Revisions (x) vs. Total Return (y)
for REIT stocks (2013-2019)
130%

110%

90%

70%

50%

30%

10%

-40.0% -30.0% -20.0% -10.0% 0.0% 10.0% 20.0% 30.0% 40.0%

-10%

y = 1.33x + 0.14
-30% R2 = 0.17

-50%

Source: SNL and J.P. Morgan.

Michael W. Mueller, CFA

(1-212) 622-6689
michael.w.mueller@jpmorgan.com

Theme #2: Sector and Japan fund flows stabilized in 2019…

Through early December 2019, U.S. real estate stock funds and Japanese funds that
are invested in U.S. REIT stocks saw about $1.7 billion of net inflows and $900
million of net outflows, respectively, making for fairly modest inflows that we would
characterize as stable from these two important investor groups. This marks a
reversal from 2018, when we saw sizable outflows for both the U.S-domiciled and
Japanese funds.

We think there is an element of fund flows that chases performance, and thus the
sizable underperformance of REITs for the large part of 2018 tied with funds moving
out of the space. Conversely, for most of 2019, REIT stocks outperformed the S&P
500, which seemed to coincide with stabilizing flows; REIT stocks outperformed the
S&P 500 by about 900 bps in the first nine months of 2019, though the group has
given all of this relative performance back since then.

There are two other points on the flows side. First, 2019 marked a crossing point
whereby passive real estate funds (i.e., dedicated sector index funds and ETFs)
surpassed the size of active real estate funds. Second, as we look at general equity
mutual funds and their allocations to real estate stocks, we calculate that they remain
underweight the group (Theme #3). We give more detail on several components of
funds flows below.

Total AUM of real estate stock funds grew 25% in 2019 – mostly due to price
movement. Taking a step back to look at the bigger picture, we note that the total
AUM of real estate stock funds grew meaningfully this year to $245 billion – the
largest level on record. The outsized growth was mostly a function of price
appreciation, as the group was up 22% going into the publication of this report.

Figure 32: AUMs of Real Estate Stock Funds (in $ billions)

$300.0

$245
$250.0
$227
$207
$198 $195 $196
$200.0

$144
$150.0 $134

$100
$100.0 $90

$50.0

$0.0
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

RMZ Total Return

28.4% 8.7% 17.9% 2.5% 30.4% 2.5% 8.6% 5.1% (4.5%) 21.9%

SPX Total Return

15.1% 2.1% 16.0% 32.4% 13.7% 1.4% 12.0% 21.8% (4.4%) 28.9%

10-Year Treasury Yield

3.1% 2.7% 1.7% 2.4% 2.5% 2.1% 1.8% 2.3% 2.9% 2.1%
Source: SimFund (SimFund (most recent fund data available is as of November 2019), Bloomberg, J.P. Morgan (RMZ, SPX returns
and 10-Year Treasury Yield data are as of 12/13/19).

Michael W. Mueller, CFA

(1-212) 622-6689
michael.w.mueller@jpmorgan.com

Net flows turned modestly positive for U.S.-domiciled real estate sector funds.
Through November 2019, underlying data from SimFund showed net inflows of
$1.7 billion for real estate stock funds, a reversal from last year’s massive
$15.5 billion of outflows. As noted above, along with stock prices being up, the
flows helped drive AUM to ~$245 billion, or what we estimate to be about ~20% of
the overall real estate securities market in the U.S.

Figure 33: Net Flows In/Out of Real Estate Stock Funds

Source: SimFund (most recent fund data available is as of November 2019)

The movement of capital from active managers to passive managers continued

to hit real estate securities funds in 2019. A trend that has been relevant to the
broader equity markets also remains quite relevant to the real estate securities sector,
which is the movement of funds out of actively managed investment mandates to
passive vehicles, such as ETFs and index funds.

Actively managed real estate stock funds saw outflows of $5.8 billion through
November 2019 (fifth consecutive year), while passive vehicles saw inflows of
$7.5 billion, netting to the $1.7 billion of total inflows noted above. By comparison,
in 2018, both active managers and passive vehicles saw outflows: $10.4 billion for
active managers and $5.1 billion for passive managers, for total outflows of $15.5
billion.

Figure 34: Active vs. Passive Real Estate Stock Fund Flows

Source: SimFund (most recent fund data available is as of November 2019)

The further shift toward passive management in 2019 crossed a key threshold in that
now over 50% of real estate sector funds are passive. More specifically, of the
~$245 billion in real estate sector funds in the U.S., it appears that passively
managed ones will finish the year totaling about ~$126 billion.

Michael W. Mueller, CFA

(1-212) 622-6689
michael.w.mueller@jpmorgan.com

Figure 35: Active vs. Passive Real Estate Stock Funds, as a % of Total AUMs

80.0%
70.0%
60.0%
50.0%
40.0%
30.0%
20.0%
Passive (%) Active (%)
10.0%
0.0%
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
YTD
Source: SimFund (most recent fund data available is as of November 2019)

Lowest volume of outflows from the Japanese funds in three years. Looking at
the Japanese funds more specifically, we estimate that $900 million flowed out of
these funds invested in U.S. REIT stocks in 2019 (through early December) – a
~90% reduction from last year’s ~$7.7 billion of net outflows. This meaningful
reversal can likely be attributed to the REIT group’s outperformance in 1H19, which
prompted capital inflows into the group as the year progressed.

With close to $33 billion of assets under management, these funds hold an
approximate 3% share of the total U.S. real estate stock market cap. To provide some
context, a handful of Japanese distribution channels raise capital from individual
Japanese investors to buy U.S. REIT stocks through specialized funds. These funds
are typically sub-advised by U.S. REIT portfolio managers with an eye toward
delivering high yields; many of the funds quote yields of 10-15% despite underlying
REIT stocks yielding about 4%. These vehicles grew dramatically over the course of
this economic cycle, and we have written about them in the past. The graph below
shows trends in funds flows over the last several years in these funds.

Figure 36: Annual Japanese Fund Flows into REITs

$25.0 $22.6
(in billions, USD) $17.8
$20.0
$15.0 $10.6
$10.0 $7.0 $8.1
$5.2 $6.0 $5.5
$5.0
$0.0
-$5.0 -$0.8 -$0.9
-$10.0 -$7.7
-$9.1
-$15.0
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
YTD

Source: Bloomberg, J.P. Morgan as of 12/13/19

Michael W. Mueller, CFA

(1-212) 622-6689
michael.w.mueller@jpmorgan.com

Theme #3: …And general equity funds are gradually

moving real estate weights closer to benchmark weights
We think general equity managers will continue to narrow their underweights to real
estate stocks over time, which should help from a flows point of view. We have seen
this occur in the last few years as capital has flowed from active to passive funds
(where the capital automatically moves to a market weight), but our analysis also
shows that active managers are closing the gap as well. Our estimate is that if general
equity fund managers moved to market weight, flows into real estate stocks would be
in the $75-100 billion range.

Remember that even while we are not overly bullish on REITs heading into 2020, we
think they belong in general equity portfolios. And thus this improvement in
exposure in general equity funds, when combined with the aforementioned
stabilization of sector and Japan funds flows, creates a stable flows picture, in our
view.

Stepping back, we introduced key research in our 2016 REIT Outlook (here) that
quantified just how underweight general equity investors were to real estate stocks.
We performed this analysis ahead of the September 2016 addition of a real estate
GICS code that took real estate stocks (mainly REITs) out from within the financials
sector and provided the group its own primary industry classification. This was
critical in terms of putting a spotlight on the group and showing just how under-
invested most general equity fund managers were to real estate stocks.

We estimated that going into 2016 general equity managers were running a ~210 bp
underweight on real estate stocks; about a 2.3% weighting against a dollar-weighted
benchmark weighting of 4.4%. This analysis looked at “1940 Act” active and passive
mutual funds that fell in the nine main general equity style buckets: small, mid, and
large cap for size and growth, value, and core for tilt. We concluded that if these
funds moved to market weight, it would drive about $125-150 billion in capital
toward real estate stocks when including separately managed accounts that are run
alongside many of these funds (which are not included in our analysis pool). Here’s
what the picture looked like then:

Figure 37: 2016 REIT weights across Long-Only 1940-Act Mutual Funds
Amount Index Amount
AUM ($B) Held ($ B) % Weight Weight OW/(UW) Underweight ($Blns)
Large Cap Core $1,757 $40 2.3% 2.7% -0.4% $7
Large Cap Growth $1,254 $13 1.0% 2.4% -1.4% $18
Large Cap Value $836 $10 1.2% 4.9% -3.7% $31
Sub-total $3,847 $63 1.6% 3.1% -1.4% $56

Mid Cap Core $240 $16 6.5% 9.4% -2.9% $7

Mid Cap Growth $252 $5 2.0% 4.1% -2.1% $5
Mid Cap Value $188 $8 4.4% 14.7% -10.3% $19
Sub-total $680 $29 4.3% 8.9% -4.6% $32

Small Cap Core $201 $13.07 6.5% 9.2% -2.7% $5

Small Cap Growth $188 $4 2.2% 3.0% -0.8% $2
Small Cap Value $104 $6 5.6% 15.5% -9.9% $10
Sub-total $493 $23 4.7% 8.2% -3.5% $17

Total $5,020 $115 2.3% 4.4% -2.1% $104

Source: Simfund, Bloomberg, J.P. Morgan Research as of 12/13/2019

Michael W. Mueller, CFA

(1-212) 622-6689
michael.w.mueller@jpmorgan.com

Looking at roughly the same pool of funds today, we see that the underweight has
narrowed to a ~100 bps, and moving the weighting up to the benchmark would
represent flows of $75-100 billion when including an estimate of separately managed
accounts to go along with the “1940 Act” funds. Here’s what we estimate the total
picture to look like today:

Figure 38: Current REIT Weights across Long-Only 1940-Act Mutual Funds
Amount Inc./Dec. Index Amount
AUM ($B) Held ($ B) % Weight From 2015 Weight OW/(UW) Underwgt ($Blns)
Large Cap Core $2,593 $85 3.3% 1.0% 3.6% -0.3% $8
Large Cap Growth $1,717 $34 2.0% 1.0% 2.9% -0.9% $16
Large Cap Value $781 $18 2.3% 1.1% 4.4% -2.1% $17
Sub-total $5,091 $136 2.7% 1.0% 3.5% -0.8% $41

Mid Cap Core $238 $24 10.1% 3.6% 10.6% -0.5% $1

Mid Cap Growth $443 $27 6.0% 4.0% 6.6% -0.6% $3
Mid Cap Value $220 $16 7.5% 3.1% 11.8% -4.3% $9
Sub-total $900 $67 7.4% 3.2% 8.9% -1.5% $13

Small Cap Core $149 $11 7.2% 0.7% 8.9% -1.7% $3

Small Cap Growth $112 $6 5.0% 2.8% 6.2% -1.2% $1
Small Cap Value $90 $5 6.0% 0.4% 11.0% -5.0% $5
Sub-total $351 $22 6.2% 1.5% 8.6% -2.4% $8

Total $6,342 $225 3.5% 1.3% 4.5% -1.0% $63

Source: Simfund, Bloomberg, J.P. Morgan Research as of 12/13/2019

This narrowing in the underweight can be explained by two main factors: 1) an

increase in AUM for index-oriented mutual funds and 2) an increase in allocation by
active mutual fund managers towards real estate stocks. We think the narrowing of
the underweight was about evenly driven by these two factors, and we roughly
estimate that active managers at this point are 150-175 bps underweight versus the
100 bps average.

Michael W. Mueller, CFA

(1-212) 622-6689
michael.w.mueller@jpmorgan.com

Theme #4: REIT universe to continue tilting toward non-

traditional areas – where the growth is
Over the years the REIT space has grown tremendously in size, and we think it will
continue to do so. We estimate that two decades ago, non-traditional property types
(i.e., net lease, health care, self-storage, tech REITs, etc.) amounted to less than 10%
of the market cap of the REIT space. A decade ago, in 2009, we estimate that non-
traditional property types grew to almost 25% of the space, and we estimate these
companies today total over 50% of the REIT market cap. We think of traditional
property types as office, residential, retail, industrial, and hotels but recognize that
the lines have blurred. For instance, we find medical office and life science buildings
within health care and significant retail exposures in the triple-net lease sector.

As we look ahead, the natural organic growth in areas like technology should
continue to fuel REITs focused on property types like towers and data centers. But
we also see the increased liquidity in the public real estate space as bringing a variety
of other assets into the mix. We expect more to come from experiential real estate in
net lease, gaming assets, health care, and twists on traditional property types (i.e.,
land underneath existing CRE and various components of housing). We will also
watch for the potential for certain midstream MLPs (a $250+ billion group of
companies) to utilize the REIT structure. If widely embraced, it could expand what is
now almost $1.3 trillion in REIT equity market cap.

Total REIT universe has grown exponentially over the last three decades. Real
estate held in the public markets has grown to be a meaningful sector over time. To
put it in perspective, total REIT equity market capitalization has grown from only
$9 billion in 1990, to $139 billion in 2000, to $389 billion in 2010, and stood at
around $1.3 trillion at last count in 2019, according to NAREIT data. Applying a
simple CAGR formula, that’s 18% annualized growth since 1990. A great deal of the
initial growth in the space occurred in the 1990s, when liquidity challenges coming
out of the late 1980s and early 1990s commercial real estate crash prompted
organizations to recapitalize in the public markets. Shopping centers and malls were
early IPOs, followed by residential, then office in the late 1990s.

Figure 39: Historical Total REIT Equity Market Capitalization ($ billions)

Total REIT Equity Capitalization

$1,600
$1,400
$1,200
$1,000
$800
$600
$400
$200
$0
1990 2000 2010 2019
Source: J.P. Morgan, company filings, NAREIT

Michael W. Mueller, CFA

(1-212) 622-6689
michael.w.mueller@jpmorgan.com

The 2000s brought significant growth in REIT assets and the broadening out of
the type of assets held in REITs. As technology and the Internet started to
proliferate, data centers came to the REIT space in the early 2000s, and then cell
towers (American Tower – AMT, rated Neutral by JPM analyst Phillip Cusick –
converted to a REIT in 2012) followed thereafter. These new property types grew
rapidly then and still carry the highest expected growth rate in the group. Companies
in the timber space took on the REIT structure, and more recently we have seen
gaming assets enter into the mix quickly and in size, through sale leaseback
transactions with operators. The list below contains the 20 largest REITs by market
cap (according to NAREIT) currently, 10 years ago, and 20 years ago. Note that 20
years ago there were only two non-traditional REITs in the top 20. Today, three out
of the top five REITs are non-traditional REITs: American Tower (cell towers),
Crown Castle (cell towers), and Equinix (data centers).

Michael W. Mueller, CFA

(1-212) 622-6689
michael.w.mueller@jpmorgan.com

Figure 40: Top 20 REITs across Three Decades (EMC $ millions); How Investable Landscape Has Changed
Nov-2019 Nov-2009 Nov-1999
1 American Tower Corporation $96,397 Simon Property Group Inc. $19,193 Equity Office Properties Trust $5,754
2 Crown Castle International Corp $57,701 Public Storage $12,525 Equity Residential Properties Trust $5,226
3 Prologis $55,358 Vornado Realty Trust $10,660 Simon Property Group, Inc. $3,926
4 Equinix, Inc. $47,649 HCP Inc. (Healthpeak) $8,673 Prologis $3,117
5 Simon Property Group, Inc. $46,558 Boston Properties Inc. $8,419 Public Storage, Inc. $3,107
6 Public Storage $38,894 Equity Residential $7,878 Archstone Communities Trust $2,795
7 Welltower, Inc. $36,724 Ventas I nc. $6,281 Vornado Realty Trust $2,722
8 Equity Residential $32,852 Host Hotels & Resorts Inc. $6,092 Duke-Weeks Realty Corp (Duke Realty) $2,543
9 AvalonBay Communities, Inc. $30,343 AvalonBay Communities Inc. $5,495 Apartment Investment & Mgmt. Co. $2,509
10 SBA Communications Corp. $27,254 Health Care REIT (Welltower) $5,315 Spieker Properties, Inc. $2,219
11 Digital Realty Trust, Inc. $26,460 Plum Creek Timber Company $5,094 AvalonBay Communities Inc $2,099
12 Realty Income Corporation $26,028 Prologis $5,015 Kimco Realty Corporation $2,072
13 Ventas, I nc. $24,255 Kimco Realty Corp. $4,757 Host Marriott Corporation $2,051
14 Weyerhaeuser Company $21,755 Federal Realty Investment Trust $3,596 Boston Properties, Inc. $2,024
15 Essex Property Trust, Inc. $21,498 Nationwide Health Properties $3,443 Crescent Real Estate Equities, Inc. $1,993
16 Boston Properties, Inc. $21,200 Liberty Property Trust $3,279 Cornerstone Properties Inc. $1,870
17 Healthpeak $18,476 AMB Property Corp. $3,214 General Growth Properties, Inc $1,741
18 Alexandria Real Estate Equities $17,929 Rayonier Inc. REI T $3,033 AMB Property Corp. $1,719
19 MidAmerica Apartment Communities $15,844 SL Green Realty Corp. $2,977 Plum Creek Timber Company, L.P. $1,651
20 UDR, Inc. $14,715 The Macerich Co. $2,824 Rouse Company, The $1,599

Source: J.P. Morgan, NAREIT

Non-traditional REITs now represent the majority of the REIT landscape.

Looked at in whole, non-traditional REITs like timber, data centers, net lease, health
care, and self-storage have become the majority of the REIT space.

Figure 41: Non-traditional REITs’ Share of Total REITs in 2009 and 2019, in $ billions

REIT Landscape Composition REIT Landscape Composition

2009 2019
Non Traditional Non Traditional
REITs REITs

$59

$617 $636
$189

Traditional REITs
Traditional REITs

Source: J.P. Morgan, company filings, NAREIT

Midstream MLPs – keep an eye out for this space. In the recent past, there have
been several items pointing to the potential of the midstream MLP space utilizing the
REIT structure. To be sure, Tortoise Capital Resource Corporation (owner of energy
assets) successfully converted from a C-Corp to a REIT in 2013, and it renamed
itself CorEnergy Infrastructure Trust (CORR, not covered). While not an MLP
previously, it did demonstrate that pipeline and energy storage assets could be
structured in a way to fit into a REIT structure.

There have been several IRS private letter rulings (PLRs) that discuss some of the
potential qualifying assets in the energy sector that could work in a REIT structure,
such as electric transmission/distribution systems, storage, hydrocarbon gathering
systems, pipeline systems, and terminal systems – a universe that has expanded over
the years. In a PLR dated February 2019, income items that were considered to be
rent for a REIT included platform rent (offshore oil and gas platform the applicant

Michael W. Mueller, CFA

(1-212) 622-6689
michael.w.mueller@jpmorgan.com

plans to construct and lease), storage fees (applicant plans to buy and rent storage
tank facilities), and pipeline use fees (fees charged for pipeline uses). See link to the
IRS ruling here. Law firm Sidley Austin LLP laid out some of the complexities
around potential MLP to REIT conversions in a report dated November 19, 2019,
and there are a lot of them, but in the end it seems to us that this area should be
watched as there is about $250 billion of equity market cap in the midstream MLP
space. A few large conversions could create a notable segment in the REIT space.

Michael W. Mueller, CFA

(1-212) 622-6689
michael.w.mueller@jpmorgan.com

Theme #5: The current low rates are a boon to earnings and
growth
Interest rates are an integral part of any broad discussion of REITs, and we do
believe REITs are a “rate-sensitive” sector. In our view, the impact of changes in
interest rates on REITs breaks down into three main groupings: 1) the earnings
impact that changes in interest rates can have as a result of changing debt costs, be it
for the existing debt complex or for new debt to fund investments, 2) the underlying
real estate value (NAV/share) impact that changes in interest rates can drive through
changes in private market cap rates, and 3) the stock action in the face of changes in
interest rates, which can be swift and drive volatile price fluctuations as investors
change the way they see REITs fitting into a portfolio.

In our 2019 outlook published last December, we noted that interest rates were
expected to rise from about 2.8% for the 10-year Treasury to the low/mid-3s. We
estimated that a move like that would shave about 50 bps from FFO/share growth
and potentially act as a headwind for the stocks, though we didn’t expect that kind of
move to have much impact on private market cap rates. As 2019 unfolded, interest
rates instead went down as fears around tariffs/trade and a step down in global
growth ensued. This lower rate backdrop helped provide an earnings benefit for
REITs and a boost to the stocks for the better part of the year. It also helped set the
group up for accretive acquisitions given the lower capital costs that come with lower
rates and higher stock prices.

This current interest rate picture should help 2020 REIT earnings
The 10-year Treasury yield currently sits at about ~1.8%, and the J.P. Morgan
interest rate strategy team expects this yield to move to about ~2.1% by year-end
2020. On an aggregate basis, we calculate that the REIT group’s debt has an average
weighted maturity duration of 6.8 years (up from 6.2 years last year). About 13% of
REIT debt is set to expire in the next two years, with some sectors such as lodging,
office, industrial, and residential having higher average near-term maturities.

As it relates to the cost of this debt and the mark-to-market, we calculate that the
overall interest rate on existing REIT debt is 3.8% and sits about ~80bps above the
current market spot rate (using the U.S. Treasury yield and J.P. Morgan JULI spread
as a proxy). This makes new debt issuances very attractive, in our view. REITs have
taken advantage of the lower rates a lot this year, issuing over $57 billion of new
debt at an average interest rate of 3.4% while also retiring ~$27 billion of debt with
an average interest rate of 5.0%.

Figure 42: Weighted Avg. Maturity and % of Debt Expiring in Next Two Years for REIT Universe
REIT Group Debt Profile
Dec-18 Jun-19 Dec-19
Wgt Avg Maturity of Debt (Yrs) 6.2 6.2 6.8
% of Debt Expiring by 2021 14.9% 16.5% 12.8%
Wgt Avg Interest Rate on Debt 3.9% 3.9% 3.8%

10-Yr Treasury Yield 2.7% 2.1% 1.8%

10-Yr Juli Spread 1.8% 1.4% 1.2%
Combined 10-Yr Debt Cost 4.5% 3.5% 3.0%

Refinancing Rate Spread 60 bps (40 bps) (80 bps)

Source: SNL as of 3Q19 financials, Market rates based as of 12/13/2019
Based on disclosed maturity schedules, includes pro-rata share of JV debt where available

Michael W. Mueller, CFA

(1-212) 622-6689
michael.w.mueller@jpmorgan.com

Figure 43: 2019 YTD Debt Refinancings

REIT Bond Refinancings 2019 YTD
Value ($ Bln) Wgt Avg Int Rate Duration
Issued $57.2 3.4% 12.6
Retired $27.0 5.0% 1.7
Source: Bloomberg, J.P. Morgan

Even if the 10-year Treasury yield moves up into the low-2s, we think debt funding
costs for REITs will be attractive and provide an earnings tailwind. We say this
because 1) when combined with some variable rate or shorter-duration debt, coupons
should be lower than what is maturing in many instances; 2) we think companies will
continue to evaluate other non-scheduled maturities of higher coupon debt or even
preferred stock; 3) most Street estimates include refinancing rates that are higher than
where deals are being done; and 4) investment activity should be more accretive, as
there has been little change in cap rates and development yields for most companies.

As it relates to variable rate debt, we calculate that roughly 14% of total REIT debt is
floating, varying across sectors with the specialty/other sector and lodging sectors
having over 30% of total debt floating. 30-day LIBOR (the base rate for most REIT
floating rate debt) is now at ~1.7%, or 80bps lower than where it was this time last
year, and the rate could move down a little bit further from here by the end of 2020.
We estimate that a 25-bp decrease in LIBOR would represent up to a ~40-bp tailwind
to earnings in 2020.

Figure 44: Variable Rate Debt Exposure by Sector (not inclusive of JV debt)

Variable Debt as % of Total Debt

($ Weighted)
Specialty/Other 52%
Lodging 32%
Tech 18%
Health Care 18%
Storage 12%
Office 11%
Residential 9%
Regional Mall 9%
Industrial 8%
Triple Net 7%
Strip Center 6%
Manu Housing 5%
All REITs 14%
Source: SNL as of 3Q19; financials includes credit line does NOT include pro-rata share of JV debt

As noted above, lower debt costs also combine with higher stock prices to make for
an attractive opportunity to make accretive investments for many REITs. We think
this is especially timely given that private market activity levels are steady – not
overly heated. We have seen a number of REITs already step up to take advantage of
this situation (many health care, net lease, and industrial REITs), and we think
putting together strong accretive deal pipelines for 2020 will be a differentiating
factor for management teams.

Michael W. Mueller, CFA

(1-212) 622-6689
michael.w.mueller@jpmorgan.com

Figure 45: Capital Costs Have Improved

Start of 2019 Mid-Year 2019 Dec-19
10-Year Debt 4.4% 3.7% 3.0%
FFO Yield 6.0% 4.9% 5.0%
Blended Cost (35/65) 5.4% 4.5% 4.3%

Implied Cap Rate 6.0% 5.0% 5.3%

Prem/(Disc) to NAV (6.8% ) 4.5% 4.2%
Source: J.P. Morgan, Bloomberg, SNL Financial as of 12/13/19

Figure 46: Leverage Metrics (Net Debt / EBITDA) Have Been Consistent
YE 2015 YE 2016 YE 2017 YE 2018 Mid-Year 2019 Dec-19
5.9x 5.6x 5.6x 5.4x 5.7x 5.6x
Source: J.P. Morgan, SNL Financial as of 12/13/2019

Figure 47: CRE Deal Volume Is Moderate (Y/Y Change in Investment Sales Volume)
YE 2015 YE 2016 YE 2017 YE 2018 2019 YTD
20% -5% -4% 8% -2%
Source: Real Capital Analytics

Cap rates (private market real estate valuations) have been sticky, and we think
it stays that way

In our 2019 outlook, we stated that we did not believe changes in interest rates would
impact cap rates, and this largely worked out to be the case. As shown in the chart
below, cap rates for the major property groups did not deviate by more than
10-20 bps despite the 10-year treasury yield falling over 90-120 bps from 2018 year
end. We continue to believe cap rates will remain sticky in 2020, as lower funding
costs are likely to be offset with conservative growth assumptions this deep into a
cycle.

Michael W. Mueller, CFA

(1-212) 622-6689
michael.w.mueller@jpmorgan.com

Figure 48: Interest Rate and Cap Rate Relationship

8.0% 3.5%
Apartments Retail
Office Industrial
7.5% 10-Year Treasury (right axis)
3.0%

7.0%
2.5%

6.5%

2.0%
6.0%

1.5%
5.5%

5.0% 1.0%

Source: Real Capital Analytics, Bloomberg, J.P. Morgan

Figure 49: U.S. Commercial Monthly Real Estate Transaction Volume & Cap Rates

Real Capital Analytics Monthly US Commercial R.E. Transaction Volume & Cap Rates

$90 Transaction Volume (left axis, $ billions) Average Cap Rate (right axis) 11%

$80
10%
$70

$60 9%

$50
8%
$40

$30 7%

$20
6%
$10

$0 5%
Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 Jan-18 Jan-19

Source: RCA, J.P. Morgan

REIT stock price moves tend to tie more with longer-term (i.e., 10-year) rate
changes than with Fed actions

One last – but significant – area where interest rates impact REITs is in stock
performance. It has been generally accepted that REIT stock performance is
inversely correlated to interest rates, but as we will show below, the relationship is
not as simple or statistically significant as investors may believe. For sure, the
relationship is broadly true, especially as REIT stocks traded down for the most part
of 2018 while rates were rising and then traded up a lot of 2019 as rates went down.

Michael W. Mueller, CFA

(1-212) 622-6689
michael.w.mueller@jpmorgan.com

We note, however, that there are other factors that drive performance of the stocks,
and there are some factors that all tie together with changes in rates, such as concerns
around the macro backdrop that prompt investors to become more defensive – often
seeking out REIT stocks – or when S&P 500 earnings growth starts to drop quickly.

Below we examine the relationship that both short-term (Fed Funds) and long-term
(10-Year Treasury) rates have had on REIT stock performance. Note that changes
in long-term interest rates have historically had more of an impact on REIT
stock performance than changes in short-term rates.

Figure 50: Real Estate Stock Performance vs. 10-Year Treasury Yield

115 RMZ index (left axis)

3.5%

10-Year Treasury 3.3%

110
3.0%
105
2.8%

100 2.5%

2.3%
95
2.0%
90
1.8%

85 1.5%

Source: Bloomberg, J.P. Morgan as of 12/13/2019

*Using RMZ Index set to 100 at June, 2017

While changes in the short end of the yield curve (Fed Funds) may have an
immediate impact on REIT earnings in the form of interest expense on variable rate
debt and credit facilities, the impact of Fed Funds rate changes on stock performance
has been mixed.

As fundamental analysts covering the group for a long time, we can go in and look at
the various environments when the Fed was making rate changes and identify why
one shouldn’t draw too many conclusions from the data. For instance, while the Fed
was moving rates higher in 2004 and 2005, the commercial real estate lending
environment was ever more aggressive at providing liquidity and driving a buyout
trend of public real estate companies – along with underlying asset values overall
running up due to so much liquidity. On the flipside, when this crashed during the
financial crisis, balance sheet-centric companies like REITs felt a lot of pain as the
group was left over-leveraged. Thus, the move down in rates in 2008 didn’t benefit
REITs as much as balance sheet leverage hurt them. But alas, the data is the data and
the relationship between short-term rate moves and REIT stock performance has
been weak.

Michael W. Mueller, CFA

(1-212) 622-6689
michael.w.mueller@jpmorgan.com

Figure 51: REIT Performance Following Fed Actions (1M Forward Returns)
Increase in Fed Funds Rate Following 1M Returns Decrease in Fed Funds Rate Following 1M Returns
Date of Fed action New Rate Increase RMS R3000 excess Date of Fed action New Rate Decrease RMS R3000 excess
25-Mar-97 5.50 0.25% -5.4% -2.6% -2.8% 6-Jul-95 5.75 -0.25% 1.8% 2.6% -0.8%
30-Jun-99 5.00 0.25% -3.5% 0.7% -4.1% 19-Dec-95 5.50 -0.25% 3.4% 0.1% 3.3%
24-Aug-99 5.25 0.25% -3.8% -3.8% -0.1% 31-Jan-96 5.25 -0.25% 1.5% 2.8% -1.3%
16-Nov-99 5.50 0.25% -6.1% 1.0% -7.1% 29-Sep-98 5.25 -0.25% -4.1% 2.1% -6.2%
2-Feb-00 5.75 0.25% -2.7% 0.7% -3.3% 15-Oct-98 5.00 -0.25% 6.7% 12.9% -6.3%
21-Mar-00 6.00 0.25% 5.8% -5.4% 11.2% 17-Nov-98 4.75 -0.25% 0.8% 2.0% -1.3%
16-May-00 6.50 0.50% 1.2% 1.6% -0.4% 3-Jan-01 6.00 -0.50% 1.1% 7.0% -5.9%
30-Jun-04 1.25 0.25% 1.1% -4.2% 5.3% 31-Jan-01 5.50 -0.50% -1.9% -9.9% 7.9%
10-Aug-04 1.50 0.25% 9.0% 5.7% 3.2% 20-Mar-01 5.00 -0.50% -0.7% 1.5% -2.3%
21-Sep-04 1.75 0.25% 5.7% -0.6% 6.3% 18-Apr-01 4.50 -0.50% 3.2% 5.2% -2.0%
10-Nov-04 2.00 0.25% 5.6% 2.1% 3.6% 15-May-01 4.00 -0.50% 6.2% 1.0% 5.2%
14-Dec-04 2.25 0.25% -5.6% -1.6% -4.0% 27-Jun-01 3.75 -0.25% -0.7% -2.5% 1.8%
2-Feb-05 2.50 0.25% 2.8% 1.8% 0.9% 21-Aug-01 3.50 -0.25% -10.9% -14.7% 3.7%
22-Mar-05 2.75 0.25% 1.0% -2.6% 3.7% 17-Sep-01 3.00 -0.50% -1.2% -0.5% -0.7%
3-May-05 3.00 0.25% 3.5% 3.1% 0.4% 2-Oct-01 2.50 -0.50% -3.9% 4.3% -8.2%
30-Jun-05 3.25 0.25% 7.4% 4.0% 3.4% 6-Nov-01 2.00 -0.50% 5.7% 4.2% 1.5%
9-Aug-05 3.50 0.25% 7.5% 1.2% 6.4% 11-Dec-01 1.75 -0.25% 1.1% 1.6% -0.5%
20-Sep-05 3.75 0.25% -4.9% -3.5% -1.5% 6-Nov-02 1.25 -0.50% 2.2% 0.4% 1.8%
1-Nov-05 4.00 0.25% 4.8% 4.2% 0.6% 25-Jun-03 1.00 -0.25% 4.5% 1.2% 3.3%
13-Dec-05 4.25 0.25% 5.7% 2.8% 2.9% 18-Sep-07 4.75 -0.50% 6.6% 5.3% 1.3%
31-Jan-06 4.50 0.25% 2.3% -0.2% 2.5% 31-Oct-07 4.50 -0.25% -9.2% -4.2% -4.9%
28-Mar-06 4.75 0.25% -2.4% 0.2% -2.6% 11-Dec-07 4.25 -0.25% -17.4% -7.7% -9.7%
10-May-06 5.00 0.25% -1.0% -5.7% 4.7% 22-Jan-08 3.50 -0.75% 6.7% 2.4% 4.3%
29-Jun-06 5.25 0.25% 5.7% 0.8% 4.9% 30-Jan-08 3.00 -0.50% -0.5% 1.5% -2.0%
16-Dec-15 0.25 - 0.50 0.25% -2.1% -6.4% 4.3% 18-Mar-08 2.25 -0.75% 8.7% 5.0% 3.7%
15-Dec-16 0.50 - 0.75 0.25% 4.5% 0.2% 4.2% 30-Apr-08 2.00 -0.25% -2.0% 0.7% -2.7%
16-Mar-17 0.75 - 1.00 0.25% 3.4% -2.2% 5.7% 8-Oct-08 1.50 -0.50% -9.9% 0.4% -10.4%
15-Jun-17 1.00 - 1.25 0.25% -1.4% 0.1% -1.5% 29-Oct-08 1.00 -0.50% -20.3% -8.7% -11.6%
14-Dec-17 1.25-1.50 0.25% -5.5% 5.2% -10.8% 16-Dec-08 0 - 0.25 -0.75% -4.5% -2.1% -2.3%
22-Mar-18 1.50-1.75 0.25% 0.2% 1.1% -0.9% 31-Jul-19 2.00-2.25 -0.25% 3.4% -2.0% 5.4%
14-Jun-18 1.75-2.00 0.25% 3.7% 0.5% 3.1% 18-Sep-19 1.75-2.00 -0.25% 2.4% -0.8% 3.2%
27-Sep-18 2.00-2.25 0.25% -1.0% -9.8% 8.7% 30-Oct-19 1.50-1.75 -0.25% -1.8% 3.4% -5.2%
19-Dec-18 2.25-2.50 0.25% 3.7% 7.2% -3.5%
Average 1.2% -0.1% 1.3% -0.7% 0.5% -1.2%
Source: Bloomberg, Federal Reserve, J.P. Morgan Research

Looking at the performance of REIT stocks relative to the broader equity market,
using the RMS Index and Russell 3000 for REIT and broader stock market,
respectively, we see in the table above that an increase in the Fed Funds rate resulted
in REIT stocks underperforming the broader market on a one-month basis only 40%
of the time.

Moving away from the Fed Funds rate, we looked at the 10-year Treasury yield.
After all, this tends to be the rate most focused on by the REIT investment
community and the commercial real estate world. On this front, the data does show
that REIT stocks have been inversely impacted by changes in interest rates, though
not to the degree investors may believe.

To examine the impact changes in long-term rates have had on REIT stock
performance, we took a look at REIT performance relative to the Russell 3000 index
during periods of changes to the 10-year Treasury yield. As such, we did the
following: going back to 1995 (in the midst of the modern REIT era beginning), we
took the excess returns of the RMS index vs. the Russell 3000 index (a proxy for the
broad stock market) and compared the return to the change in the 10-year Treasury
yield. We then looked at these results using both weekly and monthly returns on
rolling period windows of 3 months, 1 year, and 2 years. Averaging these over 25
years, we find that the long-term correlations of REITs to the 10-year Treasury yield
were in the range of about -0.2 to -0.3, indicating a modest to moderate negative
correlation to interest rates. Put differently, REIT stock prices are rate sensitive,
but not completely tied to rates.

Michael W. Mueller, CFA

(1-212) 622-6689
michael.w.mueller@jpmorgan.com

One other way to examine the impact is to compare REIT stock performance with
changes to the JULI BBB Corporate bond index. In theory, REIT stock prices should
have a similar sensitivity to interest rates (i.e. negative) as BBB investment grade
corporate bonds, a proxy for some level of risk often associated with real estate
investing. Similar to how we looked at the relationship between REIT stock
performance and the 10-year Treasury, we look at this relationship using both weekly
and monthly returns and on rolling period windows of 3 months, 1 year, and 2 years.
Averaging these over 20 years, we find that the long-term correlation between REITs
to BBB corporate bonds has been in the range of ~0.10-0.35, indicating a modestly
positive correlation to moves in BBB investment grade corporate bond prices.

Figure 52: Correlation of REIT Excess Returns to 10-Year Treasury Yield (1995-2019)
Rolling Period
Return Window 3-month 1-year 2-years
1 Week -0.19 -0.22 -0.22
1 Month -0.25 -0.31 -0.31
Source: Bloomberg, J.P. Morgan Research. As of 12/13/2019

Figure 53: Correlation of REITs to JULI BBB Corporate Bond Index (2000-2019)
Rolling Period
Return Window 3-month 1-year 2-years
1 Week 0.08 0.12 0.12
1 Month 0.26 0.35 0.38
Source: Bloomberg, J.P. Morgan Research. As of 12/13/2019

We outline the results graphically below. What is notable is that over time these
correlations haven’t always been negative. To us, it just demonstrates that the
statistics may not tell the whole story and it is important to understand the bigger
picture and how REIT stocks may fit into the rest of the equity markets at any given
moment.

Figure 54: Excess REIT Returns versus Treasury Yields – 2-Year Rolling Correlations
0.40

Rolling 1 Month Rolling 1 Week

0.20

0.00

-0.20

-0.40

-0.60

-0.80

-1.00

Source: Bloomberg. J.P. Morgan Research. As of 12/13/2019

Excess REIT returns calculated as return of RMS index over the Russell 3000 Index

Michael W. Mueller, CFA

(1-212) 622-6689
michael.w.mueller@jpmorgan.com

Figure 55: Excess REIT Returns versus Treasury Yields –1-Year Rolling Correlations
0.80

0.60 Rolling 1 Month Rolling 1 Week

0.40

0.20

0.00

-0.20

-0.40

-0.60

-0.80

-1.00

Source: Bloomberg. J.P. Morgan Research. As of 12/13/2019

Excess REIT returns calculated as return of RMS index over the Russell 3000 Index

Figure 56: Excess REIT Returns versus Treasury Yields – 3-Month Rolling Correlations
1.00
1 month returns 1 week returns
0.80

0.60

0.40

0.20

0.00

-0.20

-0.40

-0.60

-0.80

-1.00

-1.20

Source: Bloomberg. J.P. Morgan Research. As of 12/13/2019

Excess REIT returns calculated as return of RMS index over the Russell 3000 Index

Figure 57: REIT returns versus JULI BBB Corporate Bonds – 2-year rolling correlations
0.80
Rolling 1 Month Rolling 1 Week
0.60

0.40

0.20

(0.20)

(0.40)

Source: Bloomberg. J.P. Morgan Research. As of 12/13/2019

Michael W. Mueller, CFA

(1-212) 622-6689
michael.w.mueller@jpmorgan.com

Figure 58: REIT Returns versus JULI BBB Corporate Bonds – 1-Year Rolling Correlations
1.00
Rolling 1 Month Rolling 1 Week
0.80

0.60

0.40

0.20

(0.20)

(0.40)

(0.60)

Source: Bloomberg. J.P. Morgan Research. As of 12/13/2019

Figure 59: REIT Returns versus JULI BBB Corporate Bonds – 3-Month Rolling Correlations
1.00
Rolling 1 Month Rolling 1 Week
0.80
0.60
0.40
0.20

-
(0.20)
(0.40)
(0.60)
(0.80)
(1.00)

Source: Bloomberg. J.P. Morgan Research. As of 12/13/2019

Michael W. Mueller, CFA

(1-212) 622-6689
michael.w.mueller@jpmorgan.com

Property Type Overviews

Michael W. Mueller, CFA

(1-212) 622-6689
michael.w.mueller@jpmorgan.com

Regional Malls: Starting 2020 in the hole;

staying on the sidelines despite large
perceived NAV discounts
The mall sector has been the worst performing sector by far in 2019, with an YTD
Figure 60: YTD Total Returns
total return of -12.2%. This equates to 3,400+ bps of underperformance relative to
MSCI US REIT Index 21.9% the overall REIT group and more than 5,800 bps of underperformance relative to the
S&P 500 28.9% best performing sector (industrial). Needless to say, sentiment toward the mall sector
Mall REITs -12.2% continued to be negative…and arguably worsened throughout the year. After a
Source: Bloomberg; J.P. Morgan as of relatively benign 2018, 2019 saw an increase in operational headwinds coming from
12/13/19 bankruptcies/closures/restructurings that are weighing on 2019 and 2020 NOI & FFO
growth…keeping pressure on share prices.

Figure 61: Regional Mall Total Returns Relative to the MSCI US REIT Index
REIT and S&P 500 Performance
2014 2015 2016 2017 2018 2019YTD
Bloomberg Mall Center REIT Index 34.1% 4.3% -4.5% -3.1% -7.8% -12.2%
MSCI US REIT Index 30.4% 2.5% 8.6% 5.1% -4.5% 21.9%
S&P 500 Index 13.7% 1.4% 12.0% 21.8% -4.4% 28.9%

Bloomberg Malls REIT Index Relative Performance

2014 2015 2016 2017 2018 2019YTD
vs. MSCI US REIT Index 370 bps 182 bps (1,312 bps) (824 bps) (326 bps) (3,412 bps)
vs. S&P 500 Index 2,042 bps 297 bps (1,646 bps) (2,493 bps) (338 bps) (4,110 bps)
Source: Bloomberg as of 12/13/2019

As we look ahead to 2020, we remain on the sidelines with a cautious outlook, but
our bias within the sector continues to be for the REITs with higher productivity
portfolios. As such, Simon (SPG – N) continues to be our top pick. While our models
are implying that we could see more companies in positive FFO growth territory in
2020 (versus only SPG in 2019), we forecast that the group’s SS NOI growth rate
deteriorates some more in 2020…and this has been a ‘hot button’ for the Street. We
forecast that mall SS NOI growth should come in at ~0.6% in 2020 compared to our
2.3% estimate for the overall REIT group. Additionally, we generally have less
conviction on the earnings outlooks than we did at this time last year given the
increase in 2019 closures/bankruptcies/restructurings. We believe the stocks screen
as being cheap on most metrics, but the Street continues to be highly skeptical of
what cap rates and NAVs actually are. Capital seems abundant for other property
types, but not malls.

Operationally, a major focus in 2020 will continue to be on backfilling space lost to

recent and upcoming (such as with Dress Barn) bankruptcies/closures. Even with the
traction thus far, our belief is that the anticipated early 2020 timing of the Dress Barn
closures and expected Forever 21 rent cuts/closures will cause 2020 SS NOI growth
to essentially start the year ‘in a hole’. Importantly, though, we continue to expect SS
NOI and FFO/growth performance to generally (there are some exceptions like PEI’s
expected FFO growth in 2020) be bifurcated, with portfolio sales productivity being
the key delineating factor. As we walk through below, occupancy levels, rent
spreads, and SS NOI growth has been notably stronger for the REITs with the higher
productivity portfolios than they have been for the lower productivity landlords. We
do not see this dynamic changing a lot as the retail landscape continues to evolve.

Michael W. Mueller, CFA

(1-212) 622-6689
michael.w.mueller@jpmorgan.com

The repositioning of dark department store boxes, and development/redevelopment

in general, has become a bit of a double-edged sword for some companies. As we
walk through below, we like these activities, as the REITs can typically fortify
centers by adding more productive/new uses and generate attractive returns on these
investments. The issue for some companies is that the prior years’ waves of
department store closures has boosted capital needs for companies…which brings
liquidity front and center. We expect this to be even more topical in 2020 given the
recent CBL announcement that it was suspending its common and preferred
dividends to bolster its liquidity.

In terms of valuation, the group is clearly out of favor and we continue to believe the
sector is cheap…particularly for the higher productivity portfolios/assets where we
think institutions would be more willing to park long-term money (even though it
seems like that is not the case today). We calculate that the implied cap rates for
SPG, TCO, and MAC range from ~6% to close to 8%, while portfolio sales
productivity generally ranges from ~$700-$800+/SF. The issue is that the Street can
do the same math, and the market seems to be 1) making a more bearish statement
about cap rate directions and/or 2) believing capital is not available today to
crystalize the perceived underlying value. In this backdrop, marginal earnings
outlooks and risk profiles are continuing to drive the ship.

Retail Backdrop
2019 was a more challenging year than 2018 was and 2020 starts ‘in the hole’.
2019 got off to a rough start with a slew of bankruptcy filings from retailers such as
Gymboree, Payless, Charlotte Russe, and Things Remembered. This trend continued
later in the year as well with 2H19 filings from Forever 21, Destination Maternity,
and what is essentially the Dress Barn chain closure…all of which should produce
2020 earnings headwinds for the sector. In the case of Forever 21, commentary from
REIT managements seems to imply significant (potentially half) rent cuts rather than
mass portfolio closures. Generally speaking, bankruptcies/store closures over the past
several years have tended to hit the landlords with lower productivity portfolios
harder than those with higher productivity portfolios.

As a proxy for the health of mall retailers, we once again looked at JPM’s coverage
of the specialty and department stores (Matthew Boss’ universe) for some insight
into retailer operating trends. As depicted in the tables below, we can see that the
percentage of retailers with positive EPS guidance revisions in 2019 is roughly half
of what it was in 2018, while the percentage of those with negative revisions
increased by about 50% YOY. As it relates to EPS beat/miss trends, the same
universe of retailers produced few beats in 2019 (YTD) versus FY 2018, while the
percentage of retailers had ~40-50% more EPS misses in 2019 (YTD) compared to
FY 2018. Net-net, these trends underscore that 2019 has been a much more
challenging year for retailers in general compared to 2018.

Michael W. Mueller, CFA

(1-212) 622-6689
michael.w.mueller@jpmorgan.com

Figure 62: Specialty and Department Stores Earnings Beat/Miss and FY Guidance Changes
Full Year EPS Guidance Revision Quarterly EPS Results
1H17 2H17 1H18 2H18 1H19 2H19TD 1H17 2H17 1H18 2H18 1H19 2H19TD
Raise/Higher 35% 69% 55% 68% 28% 36% Beat 75% 83% 71% 88% 79% 71%
In-Line/Maintain 41% 11% 24% 8% 31% 33% In-line 2% 6% 8% 0% 4% 0%
Lower 24% 19% 21% 24% 42% 31% Miss 23% 12% 21% 12% 17% 29%
Total 100% 100% 100% 100% 100% 100% Total 100% 100% 100% 100% 100% 100%
Source: Company Filings and J.P. Morgan as of 12/13/2019. Specialty Retail & Department stores universe comprises 22 companies from Matt Boss’s coverage.
Ranking solely done on fiscal year EPS revisions. 1H grouping comprised of earnings reported around calendar months March and June while 2H grouping is
comprised of earnings reported around calendar months September and December

Expecting some more moderation in SS NOI growth for 2020. We estimate that
mall SS NOI growth (for our coverage universe) for 2019 will come in at around
1.0% (-1.3% on a simple average basis), with Simon pulling up the average. For
2020, our best take at this point is that growth could decline to about 0.6% (-1.0%
simple average basis)…with Simon once again pulling up the average. Management
teams continue to work to lease-up closures that occurred in 2019 (and ones that
were telegraphed for 2020 such as Dress Barn), but the aforementioned 2H19 closure
announcements and (seemingly) 2020 rent cuts tied to Forever 21 should again weigh
on core growth in 2020. Our 2020 mall SS NOI growth expectation compares to our
overall REIT estimate of 2.3% growth. During the 3Q earnings calls, management
teams flagged some bigger 2020 headwinds such as expected Forever 21 reductions.
More recently, in its press release announcing the suspension of its common and
preferred dividends, CBL also pointed to additional expected 2020 NOI headwinds.

2020 FFO/share should be anemic at best…but potentially with more companies

in positive territory vs. 2019. On a cap-weighted basis, we are expecting the mall
group to generate -1.6% FFO growth in 2019 and 1.0% growth in 2020. On a simple
average basis (thus ignoring SPG’s weight relative to peers), we see growth for our
universe coming in at -11.4% for 2019 and -0.4% for 2020. As it relates to 2019
growth, aside from weaker-than-expected earnings coming from many in the space
due to closures/restructurings, lease accounting changes also created some earnings
headwinds that should not repeat in 2020.

When we published our 2019 outlook this time last year, we forecasted that just one
REIT would post positive FFO/share growth in 2019 – Simon – which is turning out
to be the case. As we look at our models today, we have a handful of companies in
positive territory (including PEI, which should benefit from a number of backfilled
anchors coming online). We do want to point out, though, that we have less
conviction in our look-forward FFO estimates today than we had when we published
last year’s outlook. Hence, we take this ‘better’ FFO outlook with a grain of salt. We
still feel the best about our SPG positive growth forecast, since a good part of the
company’s growth tends to come from the consistent reinvestment of $1B+ of
retained cash flow into its redevelopment activity (and stock repurchases) that is
driving bottom line growth…which is something we see as being unique to Simon.

Figure 63 : FFO Earnings Growth by Company

Ticker 2016 2017 2018 2019E 2020E
CBL 3.8% -13.7% -16.7% -22.8% -4.9%
PEI -1.2% -12.5% -7.6% -28.1% 9.6%
SPG 9.0% 6.4% 4.9% 2.0% 1.5%
SKT 6.6% 3.6% 0.7% -7.6% -5.1%
TCO 4.8% 3.4% 3.5% -3.5% 0.8%
MAC 3.1% -3.6% -1.7% -8.2% 0.4%
Simple Average 4.4% -2.7% -2.8% -11.4% 0.4%
Source: J.P. Morgan Research, Company Filings. For our coverage only

Michael W. Mueller, CFA

(1-212) 622-6689
michael.w.mueller@jpmorgan.com

Relative sales productivity goes hand in hand with relative performance

metrics. There continues to be a strong correlation between REIT portfolio sales
productivity levels and how strong/weak operating metrics tend to be. As we see it,
the higher sales are at a given mall, the more important that store is to the retailer,
which provides the landlord a strong position to negotiate rent levels, or to have
locations stay open during chain downsizings.

As we can see in the table below, Taubman (TCO), Simon (SPG) and Macerich
(MAC) have the highest sales productivity in our universe, averaging $783/SF. CBL
& Associates (CBL), Tanger Outlets (SKT), and Pennsylvania REIT (PEI) have less
productive portfolios, averaging $438/SF. Generally speaking, SS NOI growth rates,
lease spreads, and occupancy levels tend to be strong/higher for the higher
productivity bucket than they are for the lower productivity bucket. CBL, SKT, and
PEI are generated negative SS NOI growth and leasing spreads in 2018 and YTD
2019, while those metrics were generally positive for SPG, TCO, and MAC. We do
understand that there can be exceptions to this generalization (such as TCO’s
negative 2019 lease spreads which have been impacted by some short-term leasing),
but we suspect that higher productivity centers/portfolios will continue to gain
market share over time…maintaining better pricing power.

Figure 64: Operating Metrics

Sales Per Sq Ft SS NOI Growth Cash Leasing Spreads Small Shop Occupancy
3Q19 2018 2019YTD 2018 2019YTD 3Q18 3Q19
CBL* $383 -6.2% -6.4% -10.8% -6.9% 90.8% 88.8%
PEI*^ $536 0.4% -2.3% -3.3% -9.3% 91.2% 89.8%
SKT $395 -1.3% -0.8% -1.4% -2.0% 96.4% 95.9%
Simple Average $438 -2.4% -3.2% -5.2% -6.1% 92.8% 91.5%
SPG* $680 2.3% 1.7% 14.3% 22.2% 95.5% 94.7%
TCO $868 3.8% 0.3% 3.9% -1.0% 92.9% 92.9%
MAC $800 2.2% 0.9% 11.1% 8.3% 95.1% 93.8%
Simple Average $783 2.8% 1.0% 9.8% 9.8% 94.5% 93.8%
Total Mall Simple Avg $610 0.2% -1.1% 2.3% 1.9% 93.7% 92.7%
Source: Company info and J.P. Morgan, data as of 3Q19
SS NOI Reporting Methodologies vary significantly by company and thus the growth rates may not be directly comparable from
company to company
*Using YTD spreads as opposed to Trailing 12 Month
^PEI changed their SS NOI definition in 2018 to include lease termination income, this was reversed in 2019

Box repositionings and other redevelopments are improving centers and driving
growth; raises liquidity concerns for some, though. Redevelopment/expansion and
selective new developments continue to be the primary external growth driver for the
mall/outlet REITs. As we noted in last year’s outlook, there are significant variances
among the companies with respect to how much activity each company has going on,
with the bookends in terms of spend levels still being Tanger (no active
developments/expansions) and Simon (which could deploy up to ~$1.4B/annually).
On average, the identified/published pipelines represent investments equal to ~2.3%
of market caps on a simple weighted basis, and about 2.6% on a weighted basis.

Michael W. Mueller, CFA

(1-212) 622-6689
michael.w.mueller@jpmorgan.com

Figure 65: Development Pipelines

Redevelopment/Development Total Pipeline as % of
Pipeline* Market Cap Total Market Cap
PEI $148,000 $2,856,744 5.2%
TCO $290,000 $7,881,499 3.7%
MAC $351,500 $11,932,832 2.9%
SPG $1,831,000 $84,727,434 2.2%
CBL $98,525 $5,551,020 1.8%
SKT $0 $3,229,694 0.0%
Total/Weighted Avg $2,719,025 $116,179,224 2.3%
Simple Average 2.6%
Source: Company info and J.P. Morgan, data as of 3Q19
* Total estimated cost, at share (excludes projects that are opened); includes projects identified but in pipeline as well

We continue to like this source of growth a lot, as it serves a few purposes. First, it
tends to drive both NAV and FFO growth, as returns tend to be in excess of where
(we believe) private market values are. Second, anchor/box renovations tend to be
quite prevalent in the pipelines, and this usually results in the conversion of dark
and/or low traffic and low-to-no rent paying GLA with more relevant, higher rent
paying tenants that are more relevant for the times and draw more traffic. This
remerchandising of boxes or addition of new GLA is also an efficient way for
managements to change the center mix. We have seen this in recent years as legacy
apparel has shrunk in the mix being offset by more food/entertainment/home tenants.
Lastly, these projects can often activate underutilized parts of the property with the
addition of residential, hotels, or office that naturally can bring even more traffic to
the property.

On the negative side, we note that as anchor repositioning (repurposing dark anchor
boxes) activity has become more significant in recent years due to waves of
department store closures, it has raised the focus on some companies’ liquidity
positions. Some repositionings are quite capital intensive and include a scope change
for the site, while others have been more ‘capital lite’ or ‘plug and play’…but they
generally require at least some capital outlay.

Valuation: The stocks still screen to us as being quite cheap…but capital

allocation is focused elsewhere. Our view is that the mall/outlet REITs trade at
significant discounts on both an absolute and relative basis, but the operating
headwinds are still ruling the day as it relates to stock performance. As of 12/13/19,
we calculate that the regional mall/outlet REIT stocks trade at discounts to the
overall REIT group (and virtually every property type) on just about all metrics. The
group trades at 10.9x 2020E FFO and 12.9x AFFO, which compares to the overall
group at 20.0x and 21.9x, respectively. The sector’s dividend yield is above average
at 6.5%, which is ~280 bps higher than the overall group average. Note that the
overall yield is being weighed down by SPG’s 5.8% dividend yield, and CBL
recently announced that it was suspending its preferred dividend for 2020. The rest of
the companies in our coverage universe generally have dividend yields that range
from high-single-digit to mid-teens yields. Our take is that the market is generally
taking a ‘glass half empty approach’ to evaluating dividend safety, though.

Looking more at underlying real estate value, we calculate that the group is trading at
a 6.5% implied cap rate, and a ~23.5% discount to our assumed NAVs. Drilling
down a little more, TCO trading at ~7% implied cap rate and MAC trading at closer
to an 8% implied cap rate, stand out given the $800+/SF portfolio productivities. The
issue that we see, though, is that while capital is plentiful for areas such as industrial,
there does not seem to be a significant private market bid for the sector to crystalize

Michael W. Mueller, CFA

(1-212) 622-6689
michael.w.mueller@jpmorgan.com

these perceived NAV discounts…or at a minimum provide some concrete pricing

comps. Hence, the market continues to be much more focused on marginal earnings
trends, risks, and liquidity rather than whether or not the stocks really are cheap on
an NAV basis.

Figure 66: Valuation Summary

2020E Dividend Implied
P/FFO P/AFFO Yield Cap Rate
Mall REITs 10.9x 12.9x 6.5% 6.7%
Overall REIT Group 20.0x 21.9x 3.7% 5.3%
Source: Bloomberg, SNL, and J.P. Morgan as of 12/13/19. Note: Implied cap rate is a weighted average by total market cap based on
our coverage universe

Michael W. Mueller, CFA

(1-212) 622-6689
michael.w.mueller@jpmorgan.com

Figure 67: Current Thoughts on Our Regional Mall REITs Coverage Universe
Company Ticker Rating J.P. Morgan Views

We believe CBL’s operations will continue to be challenged next year, which could continue to work against the
stock. Known bankruptcies/closures/rent reductions like Forever 21 and Dress Barn will mean the company will
CBL & Associates CBL UW start 2020 “in the hole” even before the impact of any other future store closures/rent reductions. To this point, it
recently said preferred and common dividends would be suspended in 2020 to help improve its liquidity position.

We continue to have an Underweight rating on this stock but our marginal bias has improved some. While we tend
to have less conviction in our mall models compared to last year, our model does imply that PEI should generate
above-average FFO growth in 2020, largely due to the timing of repositioned boxes coming online. Additionally,
the company is proceeding with its plan to sell land to multifamily developers early in 2020, which should enhance
Pennsylvania REIT PEI UW the marginal leverage profile…but we see this as part of the reason that the stock already handily outperformed
the mall group in YTD 2019. Offsetting these dynamics is our belief that fundamentals continue to be a grind in the
sector, even for companies with considerably higher sales productivity than PEI.

We are moving from Overweight to Neutral on Simon (SPG). The stock continues to our top mall idea, though, and
we see it as a long-term core investment in the REIT sector. The company should continue to benefit from its
‘mousetrap’ of having $1B+ of annual redevelopment/development spend that is essentially being funded with
Simon Property Group SPG Neutral
retained cash flow...driving bottom-line FFO growth. Our marginally more cautious stance on the stock today,
though, is being driven by 1) continued overall weak sentiment toward the mall REITs and 2) our belief that 2020
could prove to be a modest growth year and Street expectations are a little too high.

The company is expected to begin 2020 “in the hole” as a result of planned store closures from retailers like
Forever 21 and Dress Barn in addition to the ~200k sq ft of bankruptcies that hit the company throughout 2019.
This should weigh on SS NOI growth and FFO/share growth, and we anticipate a low-single-digit negative SS NOI
growth expectation for the year. Additionally, no active developments/redevelopments are underway. The stock
Tanger Outlet Centers SKT UW trades with one of the higher implied cap rates in the mall sector, and we see this as reflective of recent operating
weakness and the markets bifurcating of higher and lower sales productivity portfolios (SKT’s sub-$400/sf). The
stock does offer a high ~9% dividend yield that we believe is well covered.

We are reducing our rating on Taubman Centers (TCO) from Neutral to Underweight. We view this simply as a
relative stock call to further differentiate the companies based on near- and intermediate-term growth prospects;
this is not reflective a new risk/issue that we see impacting the stock. While we move to Underweight, we continue
to believe TCO’s highly productive ($868 sales/SF as of 3Q 19) portfolio continues to be important to retailers and
should gain market share over time in the evolving retail landscape. As is the case with its peers, near-term growth
should continue to be depressed because of recent closures/bankruptcies/rent cuts (such as Forever 1), and
market sentiment continues to be quite poor. TCO’s rent spreads have been the weakest of the “A” mall REITs due
Taubman Centers TCO UW to the impact of some shorter-term leasing moves, and our suspicion is that this trend does not reverse course
immediately. While not anything new, we note that TCO has just one development project underway (in Korea)
and there has been nothing disclosed about other developments or major redevelopments/expansions that are on
the near-term horizon. This dynamic places even more of a focus on the internal growth picture and retailer
environment since TCO’s absolute and relative external growth pictures are quite limited. We do see the ~7%
implied cap rate as being particularly cheap for this “high-horsepower” portfolio, but the market remains highly
skeptical of perceived NAV discounts and private capital continues to be focused on other areas (such as
industrial).
We are raising our rating on Macerich (MAC) from Underweight to Neutral. We are still cautious on the overall mall
sector due to retailer closure/bankruptcy headwinds, but we are marginally more positive on MAC. Our model is
showing MAC returning to modestly positive (essentially flat) FFO/share growth in 2020. In addition to core growth
(which will be negatively impacted by Forever 21), MAC recently opened Fashion District of Philadelphia (JV with
PEI) and has a pipeline of box redevelopments and a JV outlet development with Simon that should help drive
The Macerich Company MAC Neutral growth over the intermediate-term. The stock trades at a high 7s implied cap rate, which we see as being attractive
for $800/SF portfolio (which was a takeout target a few years ago)...but we recognize that private capital is focused
elsewhere today. Additionally, the stock offers a very high 11.3% dividend yield, and on a recent earnings call
management underscored that it had no need/intention of reducing the dividend. If this proves to be the case,
MAC’s total return has a ‘head start’ due to this high yield.

Source: J.P. Morgan

Michael W. Mueller, CFA

(1-212) 622-6689
michael.w.mueller@jpmorgan.com

Strip Centers: More focused on offense

The strip center sector has performed in line with the broader REIT group thus far in
Figure 68: YTD Total Returns 2019, which is in stark contrast to its relative performance over the prior three years
MSCI US REIT Index 21.9% when it lagged by an average of ~1,000 bps annually. Our take is that the better
S&P 500 28.9% performance is largely attributable to two factors. First, the market saw that strip
Strip Center REITs 21.8% center fundamentals are different than what is going on within the mall sector right
Source: Bloomberg; J.P. Morgan as of now in terms of bankruptcy headwinds. The strips have not been unscathed by any
12/13/19 stretch, but the sector has been sidestepping more of the bankruptcy headwinds
compared to the malls. Second, in 2019 we saw dilutive disposition activities curbed
compared to prior years’ levels, and this has provided a better backdrop for more
normalized earnings growth.

Figure 69: Strip Center and Industrials Total Returns Relative to the MSCI US REIT
REIT and S&P 500 Performance
2014 2015 2016 2017 2018 2019YTD
Bloomberg Strip Center REIT Index 28.9% 3.2% 3.5% -10.9% -14.6% 21.8%
MSCI US REIT Index 30.4% 2.5% 8.6% 5.1% -4.5% 21.9%
S&P 500 Index 13.7% 1.4% 12.0% 21.8% -4.4% 28.9%

Bloomberg Strip Center REIT Index Relative Performance

2014 2015 2016 2017 2018 2019YTD
vs. MSCI US REIT Index (145 bps) 69 bps (515 bps) (1,605 bps) (1,014 bps) (11 bps)
vs. S&P 500 Index 1,527 bps 184 bps (849 bps) (3,274 bps) (1,025 bps) (709 bps)
Source: Bloomberg as of 12/13/2019

As we head into 2020, we maintain our Neutral stance on the group, albeit with a
slightly more positive bias. We continue to believe the setup for growth (internal and
external) is better for the strips than it is for the mall REITs. Public retailer beat/miss
and guidance revision trends for the strip-focused retailers continue to be positive,
and are far less mixed than they look for the mall-based tenants. We do forecast that
strip center SS NOI growth should moderate slightly in 2020 (albeit still above 2%),
but the setup for external growth looks better to us. Most notably, the market has
picked up on the fundamental differences between the strips and malls that exist
today, and strip center valuations have improved considerably, which puts the group
close to the “strike zone” for issuing equity to fund new investments.

The capital recycling picture has also improved. As we walk through below, the
sector’s heavy disposition activity finally moderated in 2019, and we anticipate that
go-forward activity will be more balanced with investment spend. Another dynamic
that we see changing for the better is that acquisition activity seems to be increasing
some after years of muted activity (ex-REG’s acquisition of Equity One).
Additionally, the topic of acquisitions (and M&A) has come up more in
conversations throughout the year, implying that it is more front and center for
management teams.

In terms of selecting stocks within the group, we still think it is valid to look at
external growth potential as a differentiator. One aspect of these
development/redevelopment/densification pipelines is that most companies in the
space have at least some amount of activity going on or planned. For some, the
pipelines are driving bottom-line growth today, while for others meaningful benefits
could be a couple-to-few years away. In 2020, we think the Street should also put
acquisitions on the table and believe this could accelerate and be a relevant growth
driver. For instance, SITC’s management’s messaging from NAREIT was that, based
on the attractive acquisition opportunities that it was seeing in the marketplace, it

Michael W. Mueller, CFA

(1-212) 622-6689
michael.w.mueller@jpmorgan.com

would likely focus more on acquisitions and less on redevelopment/densifications

that it previously planned.

Some key themes as we enter 2020

A more stable-to-positive tenant picture than we are generally seeing in the mall
space. The strip center bankruptcy picture has been more benign for the strip center
REITs than it has been for the mall REITs. Some notable bankruptcy/closure
headlines to hit strip centers this year were from tenants like Payless and Dress Barn.
Longer-term watch list conversations still include names such as Pier 1, Bed Bath &
Beyond, and office and pet categories. Recall that in prior years, ‘box‘ closures from
tenants such as The Sports Authority and Toys R Us created notable headwinds for
the sector, but more recently the backfilling of these spaces has been a source of
marginal earnings growth. Value-oriented retailers (TJ, Home Goods, Ross, etc.), on
the other hand, continue to dominate conversations when it comes to which tenants
are expanding and seem to consistently look for additional locations. We expect this
relatively more stable tenant backdrop to continue into 2020 as well, allowing the
strip center REITs to play more offense than defense.

As a proxy for the health of strip center retailers, we once again looked again at
JPM’s coverage of the broadlines and hardlines retailers (Chris Horvers’ coverage
universe) for some insight into open-air retailer operating trends…and those recent
trends have been positive. As depicted in the tables below, the percentage of retailers
producing earnings beats continues to total more than two times the number of
companies printing misses, and guidance revision trends continue to follow the
recent years’ pattern of notable 2H improvement in terms of the number of retailers
raising their earnings outlooks.

Figure 70: Broadlines and Hardlines Earnings Beat/Miss and FY Guidance

Full Year EPS Guidance Revision Quarterly EPS Results
1H17 2H17 1H18 2H18 1H19 2H19TD 1H17 2H17 1H18 2H18 1H19 2H19TD
Raise/Higher 23% 52% 16% 68% 25% 63% Beat 67% 67% 69% 79% 69% 71%
In-Line/Maintain 41% 24% 56% 28% 42% 8% In-line 0% 5% 2% 0% 5% 0%
Lower 36% 24% 28% 4% 33% 29% Miss 33% 29% 29% 21% 26% 29%
Total 100% 100% 100% 100% 100% 100% Total 100% 100% 100% 100% 100% 100%
Source: Source: Company Filings and J.P. Morgan as of 12/13/2019. Broadlines & Hardlines universe comprises 21 companies from Chris Horvers’ coverage for EPS
results and 13 companies for guidance revisions. Guidance rankings are solely done on fiscal year EPS revisions. 1H grouping comprised of earnings reported around
calendar months March and June while 2H grouping is comprised of earnings reported around calendar months September and December

Expecting some SS NOI growth moderation in 2020. We estimate that strip center
SS NOI growth (for our coverage universe) will come in at around 2.8% for 2019,
buoyed by some strong prints from smaller cap companies such as RPT, AKR, and
ROIC. We expect this sector growth to moderate to 2.1% (weighted average) in
2020, however. Expected closures/rent cuts tied to Dress Barn and some other
retailers such as Barney’s (for REG) and Forever 21 should produce marginal
headwinds for some. The Forever 21 impact should clearly be bigger in the mall
space. 2020 SS NOI growth guidance should generally be put forth on 4Q calls, but
large cap REG already noted that it expects SS NOI growth to be flat-to-up modestly
in 2020 with a good portion of that impact coming from the Barney’s and IPIC lost
income.

High-single-digit spreads and fairly stable occupancies. Leasing spreads have

moderated a bit over the past few years, but they continue to be solidly in the high-
single digits. ROIC and BRX are generating the highest spreads in the group thus far
in 2019, but we also point out that the ‘push’ by RPT’s new management team has
put YTD spreads at close to double-digit levels as well. Though we caution that

Michael W. Mueller, CFA

(1-212) 622-6689
michael.w.mueller@jpmorgan.com

spreads can bounce around in any given quarter, we believe the strip center REITs
can continue to achieve at least mid- to high-single-digit cash leasing spreads over
the near future.

We would characterize occupancy trends as effectively being flattish-to-down very

slightly. As noted above, there have been some closure-related headwinds, but
companies have also been seeing tailwinds from leasing up prior box vacancies as
well. Small shop leasing trends have generally been positive as well.

Figure 71: Internal Growth Metrics

Cash Leasing Spreads 3Q19 YoY Same Store Occ Chg
2016 2017 2018 2019YTD Leased (bps) Occupied (bps)
AKR 8.5% 9.1% 9.0% 4.7% -20 -60
BRX 12.0% 12.6% 11.8% 10.9% -30 -50
FRT 13.0% 13.0% 12.0% 7.7% -60 -90
KIM 12.0% 11.5% 8.3% 8.5% 10 0
RPT 9.0% 8.8% 8.3% 10.7% 30 240
REG 11.3% 7.8% 8.3% 7.3% -80 -130
ROIC 18.3% 13.0% 11.7% 14.9% -20 NA
RPAI 7.5% 10.1% 6.0% 8.4% 150 160
SITC 9.1% 6.0% 8.2% 7.1% 20 10
WRI 13.1% 11.6% 8.5% 6.3% 10 0
Simple Average 11.4% 10.4% 9.2% 8.6% 1 9
Weighted Average 11.7% 10.7% 9.5% 8.4% -18 -32
Source: Company info and J.P. Morgan, data as of 3Q19

Redevelopment/development continue to be a focus for the space, but not

everyone will reap the benefit in 2020. New developments and redevelopments of
existing properties continue to be key factors for earnings growth in the strip center
space. Redevelopments can often be triggered by regaining space back from a key
tenant/box, where a property transformation can be additive to a center’s value and
company growth. More and more, we are seeing densification and non-retail uses
(residential, storage, hotel, etc.) being key themes, and new developments are
frequently mix-use projects such as residential over retail.

While pretty much every strip center REIT that we cover has a
development/redevelopment pipeline (current & shadow), not all companies will see
a meaningful 2020/2021 earnings boost from those projects. Companies such as
Federal Realty (FRT – OW), Kimco (KIM – N), Acadia Realty (AKR – N) and
Brixmor (BRX – OW) are at the top of our list of companies with sizeable portions
of their pipelines projected to have a 2020 earnings impact. As we see it, these
pipelines are helping the companies generate “well-rounded” internal/external
growth. In contrast, ROIC’s redevelopment/densification benefit will likely come
down the road, and for RPT, the near-term numbers stabilizing are arguably too
small to make a big bottom-line impact. Below, we walk through the strip center
REITs pound-for-pound development/redevelopment pipelines (relative to company
size) and try to layout which companies have greater portions of the pipeline coming
on-line over the near-term.

Michael W. Mueller, CFA

(1-212) 622-6689
michael.w.mueller@jpmorgan.com

Figure 72: Redevelopment/development pipelines

Development/Redevelopment Total % of Pipeline Pipeline as % of
pipeline^ Market Cap to stabilize by 2020 Total Market Cap
FRT* $1,946,000 $13,315,144 41% 14.6%
WRI $556,410 $5,749,554 37% 9.7%
AKR $308,119 $3,320,965 73% 9.3%
RPAI $371,500 $4,438,414 10% 8.4%
KIM $825,739 $15,839,025 59% 5.2%
ROIC $140,000 $3,580,775 0% 3.9%
BRX $413,900 $11,091,499 54% 3.7%
REG $470,344 $14,696,312 0% 3.2%
SITC $159,418 $5,030,663 28% 3.2%
RPT $4,100 $2,299,200 100% 0.2%
Total/Weighted Avg $5,195,530 $79,361,551 37% 6.5%
Simple Average 40% 6.1%
Source: Company info and J.P. Morgan, data as of 3Q19
Average pipeline as % of Total Market Cap is weighted by market capitalization
^Total estimated cost, at share (excludes projects that are opened)
*Using % POI delivered for Pike & Rose and Assembly Developments

Disposition activity finally moderated in 2019…Annual strip center disposition

volumes increased every year from 2015 through 2018, but finally moderated in
2019. Backing up for a minute, the strip center REITs were quite active in recent
years in terms of pruning non-core assets. These activities tended to be dilutive, but
the offset was that it often 1) reduced portfolio risk, 2) enabled management to adjust
geographic mixes and/or upgrade quality, and 3) provided proceeds to fund new
investment activity.

As shown in the chart and graph below, disposition activity for our coverage universe
peaked in 2018 with $4.0B of sales ($6.7B if including SITC’s RVI spin), and we
expect this to moderate to ~$2.0 billion for FY 2019…which reduced the marginal
FFO dilutive headwinds being faced. Looking toward 2020, we expect this trend of
more moderate disposition activity to continue, with sales being fairly well balanced
with investment activities. That has generally been the messaging from strip center
management teams in 2019.

Figure 73: Disposition Volumes Historically

$8.0

$7.0 $6.7*
Disposition Volume ($ Billion)

$6.0

$5.0
$4.0
$4.0 $3.5
$3.0
$3.0 $2.6
$2.2
$2.0
$2.0

$1.0

$-
2014 2015 2016 2017 2018 2019E
Source: Company filings and J.P. Morgan Research; *Includes DDR’s spinoff of $2.8 billion of assets
For JPM Coverage Universe only

In the table below, we walk through some of the pound-for-pound disposition

activity for the sector and the various strip center REITs. On a pound-for-pound basis
(relative to TMCs), 2019’s activity is coming in at about half of 2018’s level. WRI is
expected to sell no more than $150 million of assets going forward (~2.6% of TMC);

Michael W. Mueller, CFA

(1-212) 622-6689
michael.w.mueller@jpmorgan.com

this is a stark contrast to the past two years in which it boosted disposition guidance
throughout the year.

Figure 74: Disposition volumes as a % of total market cap by year and company
2017 2018^ 2019E
AKR 6.0% 0.5% 0.9%
BRX 3.1% 8.7% 3.3%
FRT 1.1% 0.3% 1.8%
KIM 2.7% 5.6% 1.8%
RPT 9.9% 5.7% 3.1%
REG 0.8% 1.5% 2.0%
ROIC 0.0% 0.8% 2.0%
RPAI 19.9% 4.4% 1.0%
SITC* 12.2% 14.9% 2.3%
WRI 7.5% 10.8% 7.0%
Total/Weighted Average 4.3% 4.8% 2.4%
Simply Average 6.3% 5.3% 2.5%
Source: Company filings, J.P. Morgan Research; 2019E based on JP Morgan forecasts and company guidance
*SITC disposition includes largely comprised of selling of an 80% stake in 10 properties valued at $607 million to form a JV but
excludes the $2.8 billion RVI spin that occurred at the end of 2Q18
^Inclusive of the SITC RVI spin, total weighted average and simple average would be 8.6% and 10.1% respectively

…while acquisition activity is starting to increase. An important theme for the

strip centers in 2019 was that managements seemed have taken advantage of 1) the
backdrop of better capital costs and 2) the market recognizing that strip center
fundamentals are different than mall fundamentals, and they became marginally
more acquisitive. To put this into perspective, if you exclude REG’s ~$6 billion 2017
acquisition of Equity One, the sector’s acquisition volumes have trended lower every
year from 2016-2018. The combination of weaker capital costs and intense
competition for high quality acquisitions kept the strips from being more acquisitive
back then. In 2019, though, the trend reversed and the sector increased acquisition
activity at the margin. Equally important, the tone in many of our NAREIT meetings
seemed to imply that acquisition prospects were more front and center for
managements than they have been. Should these more attractive capital costs hold,
we suspect that we could see this trend continue in 2020.

Figure 75: Acquisition Volumes Historically

$12.0
$8.0*
$10.0
Acquisition Volume ($ Billion)

$8.0

$6.0

$4.0 $3.1
$2.1
$2.0 $1.3
$0.3
$-
2016 2017 2018 2019^

Source: Company filings and J.P. Morgan Research

JP Morgan Strip Center Coverage Universe only, 2017 shows impact with and without REG’s acquisition of Equity One
*Includes REG’s ~$6 billion acquisition of Equity One
^Includes acquisitions either completed or disclosed as under contract

Michael W. Mueller, CFA

(1-212) 622-6689
michael.w.mueller@jpmorgan.com

Figure 76: Acquisition Volumes as a % of Total Market Cap by Year and Company
2016 2017^ 2018 2019E*
AKR 19.9% 1.3% 0.9% 7.0%
BRX 0.4% 1.7% 0.1% 0.6%
FRT 1.2% 3.5% 0.0% 2.4%
KIM 2.8% 2.3% 0.0% 0.2%
RPT 1.4% 7.3% 0.2% 0.0%
REG 2.3% 39.8% 1.1% 1.8%
ROIC 9.0% 9.7% 1.2% 2.3%
RPAI 8.9% 4.4% 0.5% 0.6%
SITC 2.8% 1.8% 0.5% 1.2%
WRI 8.8% 0.0% 0.0% 3.6%
Total/Weighted Average 3.8% 9.8% 0.4% 1.6%
Simply Average 5.7% 7.2% 0.5% 2.0%
Source: Company filings and J.P. Morgan Research
*2019 numbers include only what is closed or under contract, ^Includes REG’s ~$6 billion acquisition of Equity One

Valuations offer some relative value…but still close to the strike zone to issue
equity. We calculate that the strip center REITs currently trade at 7.9% discount to
NAV, which has improved considerably compared to one-to-two years ago when
equity issuance was really not an option. The group also has an implied cap rate of
6.4%, compared to 5.3% for the overall REIT group. On a 2020E multiples basis, the
stocks trade at a discount to the overall REIT group on both a P/FFO (15.4x vs. 20.0x
for the overall REIT group) and P/AFFO basis as well (19.7x vs. 21.9x for the
overall REIT group). From a yield perspective, the group currently has a 4.5%
dividend yield, 80bps higher than the overall REIT group.

Figure 77: Valuation Summary

2020E Dividend Implied
P/FFO P/AFFO Yield Cap Rate
Strip Center REITs 15.4x 19.7x 4.5% 6.4%
Overall REIT Group 20.0x 21.9x 3.7% 5.3%
Source: Bloomberg, SNL, and J.P. Morgan as of 12/13/19. Note: Implied cap rate is a weighted average by total market cap based on
our coverage universe

Michael W. Mueller, CFA

(1-212) 622-6689
michael.w.mueller@jpmorgan.com

Figure 78: Current Thoughts on Our Strip Center REITs Coverage Universe
Company Ticker Rating J.P. Morgan Views
Forever 21 could have a ~100-bp negative impact on SS NOI growth, but management has still been optimistic about its
ability to generate good SS NOI growth over the intermediate-term. On the positive side, management has done a good job
Acadia Realty AKR N
of ramping up acquisition activity (particularly for the core portfolio) which should help to drive growth. In terms of valuation,
we see the stock as trading at a modest NAV discount.
We are raising our rating on Brixmor (BRX) from Neutral to Overweight, as we are more constructive on the stock...even
with 2019’s significant stock outperformance. First, we believe 2020 will be an earnings inflection year (ex-charges), with the
company trending to more normalized growth thereafter. A more balanced capital recycling program, a more steady-state
Brixmor Property Group BRX OW
redevelopment pipeline, and 3%+ SS NOI growth should help bottom-line growth. Additionally, from a valuation perspective,
the stock still trades at a higher implied cap (and lower multiples), which may make it more appealing for investors looking
for some perceived value.
2020 FFO growth is expected to be a little more modest than originally expected (~2-3% instead of 4-5%) due in part to
some lease expirations (such as at Third Street) and agreements to recapture certain spaces (Assembly Marketplace &
Federal Realty FRT OW Darien). That said, FRT still has good visibility on the capital deployment front with its sizeable current and shadow
pipelines. While FRT tends to trade at absolute and relative premiums, we see the current valuation as particularly attractive
from both of those perspectives.
We are reducing our rating on KIM from Overweight to Neutral but still consider the stock a core long-term holding. KIM’s
lower asset sale levels and inflecting earnings growth resulted in the stock being a significant outperformer during 2019. Our
Kimco Realty KIM N
current rating is more reflective of 1) valuation that is much tighter versus its blue chip peers and 2) the story being “more of
the same” from here (which is a good thing) as opposed the directional shift that we expected heading into 2019.
The new management team has done a good job of taking advantage of the low hanging fruit related to 1) portfolio clean-
up, 2) creating a more efficient and functional organization, and 3) being more effective in terms of leasing
activity/dynamics. As a result, RPT’s core operating metrics have been on the rise, and it has produced above-average SS
RPT Realty RPT N
NOI growth. In 2020, we look for the company to be more active on the acquisition front, especially in light of its recent JV
announcement with GIC. The stock offers an above-average dividend yield that we view as safe but uncovered due to a
near-term spike in remerchandising cap-ex.
We are reducing our rating on Regency Centers (REG) from Overweight to Neutral. While management already
telegraphed that 2020 should be a modest-to-very low growth year (both SS NOI and Core FFO), making it not ‘new news’,
Regency Centers REG N our Neutral stance better reflects our view that the market has a little bit of time to wait before growth reaccelerates. On the
positive side, there is a positive bias to our Neutral. REG’s portfolio and platform are top-notch, in our view, and we
recognize that the stock screens as being attractive on both an absolute and relative basis at current levels.
While ROIC has put up good core growth, its external growth picture has been less clear. With a currency much of the year
that was out of the ‘strike zone’ for issuing equity to help fund new acquisitions, new investment headlines have been
Retail Opportunity Investments limited, and the focus has been on kick-starting some densification opportunities that could benefit intermediate-term growth
ROIC UW
Corp. (not today, though). What has been encouraging, though, is that on its recent earnings call it did announce some
acquisitions. If the company does once again transition to being a net-acquirer, we suspect it could be a marginal positive
for the stock.
We see RPAI as largely being an internal growth story until its development/redevelopment pipeline kicks in more in
2021/2022. We expect to see some moderate levels of capital recycling over time, as the company still has a pool of assets
Retail Properties of America RPAI N that it would like to sell opportunistically over time, but we do not anticipate any heavy disposition activity as we saw a few
years ago. The stock continues to trade at a higher implied cap rate (which we see as cheap) with an above-average
dividend yield that could be attractive for value investors.

While we rate the stock Neutral, we have a positive bias. The company continues to find ways to refine its portfolio (RVI
spin, JV with China, TIAA JV sale) without taking significant amounts of dilution. Additionally, with management’s focus
SITE Centers SITC N
seeming shifting at the margin from longer-term densifications/redevelopments to value-add acquisitions, it could produce
more of a near-term earnings benefit. Additionally, we view the company’s 6% covered dividend yield as attractive.

As we look to 2020, we continue to believe that Street estimates are a couple/few percentage points too high, not reflecting
the backend timing of 2019 dispositions. Going forward, management seems more committed to being balanced on the
Weingarten Realty Investors WRI N
capital recycling front, which should set the company up to produce more positive growth in 2021. We see the stock as
being modestly cheap to NAV, and it offers a dividend yield premium.
Source: J.P. Morgan

Michael W. Mueller, CFA

(1-212) 622-6689
michael.w.mueller@jpmorgan.com

Industrial REITs: Still have the tools to

deliver strong growth in a more balanced
supply/demand backdrop
Figure 79: YTD Total Returns 2019 was a very good year for industrial REIT operations and a great year for the
MSCI US REIT Index 21.9% stocks. The industrial REITs have been significant outperformers in 2019. With a
S&P 500 28.9%
YTD total return of ~46%, the sector outperformed the overall REIT group by
Industrial REITs 45.8%
~2,400 bps. Additionally, the industrial total return was ~5,800 bps higher than the
Source: Bloomberg; J.P. Morgan as of 12/13/19
REIT group’s worst performing sector (regional malls). Some of the factors driving
the strong stock performance, in our view, included strong SS NOI and FFO growth
trends, and low cap rate prints on acquisitions and M&A activity.

Figure 80: Recent Stock Performance

Industrial, RMZ and S&P 500 Performance
2014 2015 2016 2017 2018 2019 YTD
Bloomberg REIT Warehouse/Ind. Index 21.5% 5.9% 31.5% 20.8% -2.5% 45.8%
MSCI US REIT Index 30.4% 2.5% 8.6% 5.1% -4.5% 21.9%
S&P 500 Index 13.7% 1.4% 12.0% 21.8% -4.4% 28.9%

Bloomberg REIT Warehouse/Industrial Index Relative Performance

vs. MSCI US REIT Index (890 bps) 338 bps 2,286 bps 1,564 bps 204 bps 2,391 bps
vs. S&P 500 Index 782 bps 453 bps 1,952 bps (105 bps) 193 bps 1,694 bps
Source: Bloomberg as of 12/13/2019

Despite coming off an exceptionally strong 2019, we are maintaining our positive
outlook for the industrial REIT stocks as we head into 2020. The supply/demand
picture is more balanced today (with national supply finally outpacing demand in
2019), but the longer-term demand drivers of e-commerce growth and the move to
faster delivery times remain intact. Additionally, we believe the sector is poised to
deliver above-average SS NOI and FFO/share growth again. We do suspect, however,
that it will be hard for the stocks to have a repeat year in terms of the magnitude of
outperformance given 2019’s high ~46% YTD total return.

In 2020, we see the industrial REITs should deliver another year of strong same store
NOI and FFO/share growth that should be attractive on both an absolute and relative
basis. We forecast that SS NOI growth should moderate slightly to 4.2%, which is
considerably better than the overall REIT expectation of ~2.3%. Occupancy levels
will be down slightly YOY as the year begins, but rent spreads have been
accelerating and provide good visibility with respect to embedded future growth. We
also think FFO/share growth will be similar again in the high-single digits....almost
2x the level we see for the REIT group.

The factors that could work against our constructive call on the industrial REIT
stocks relate to moderation and alternatives. We still expect the group’s SS NOI
growth to be well above average in 2020, but we are expecting some moderation.
Moderation tends to create headwinds, not tailwinds, all other things equal. Also, to
the extent that sentiment improves in segments such as office and/or malls, it could
be a marginal negative for industrial...particularly following the strong 2019
performance.

Michael W. Mueller, CFA

(1-212) 622-6689
michael.w.mueller@jpmorgan.com

Some Key Items for 2020

New supply levels finally surpass demand. The demand picture for the industrial
sector has been quite strong for several years, and, as noted above, this has
translated into consecutive years of stock outperformance. Per Costar data,
national net-absorption for industrial had outpaced paced new supply every year
since 2010/2011, with the streak coming to an end in 2019. On recent earnings
calls, though, managements generally noted that they were seeing oversupply only
in certain pockets throughout the country, such as Northeast Atlanta, Chicago’s I-
80, Central/Eastern Pennsylvania, and South Dallas.

Even with 2019’s negative net-absorption, REIT occupancy levels were fairly
steady in the 96-98% range…showing only modest degradation. The continued
buildout of supply chains to accommodate e-commerce growth and the move to
faster delivery times continue to be important secular drivers for industrial.

Figure 81: Industrial Supply / Demand Annual Trends (in million sf)
300

200

100

-100

-200

Net Absorption 12 Months (Demand) Net Completions 12 Months (Supply)

Source: Costar, J.P. Morgan

Internal Growth
Core growth should continue to be above average, driven by strong leasing
spreads. We estimate that the industrial sector will generate 2019 SS NOI growth of
~4.3% (3.6% on a simple average basis) and 2020 growth of ~4.2% (3.4% on a
simple average basis), both of which are well above our estimate for the overall
REIT group average. As we touch on later, YOY occupancies have trended down
modestly, meaning that rent spreads and bumps are driving SS NOI growth. Cash
rent spreads for the sector (new versus expiring rents) have increased ~50% over the
past 2-3 years, and the industrial REITs have produced 13+% spreads (10%+ simple
basis), on average, through 3Q 2019.

Michael W. Mueller, CFA

(1-212) 622-6689
michael.w.mueller@jpmorgan.com

Figure 82: Same-Store Cash Leasing Spread Trends

Cash Rent Spreads
Company 2017 2018 2019 YTD
STAG 2.9% 2.9% 11.4%
FR 8.6% 8.1% 15.3%
PLD 9.1% 10.3% 14.8%
REXR 15.0% 11.4% 19.7%
MNR -4.0% 2.8% -6.2%
DRE 6.5% 9.5% 12.0%
LPT 7.5% 7.5% 4.7%
Simple Average 6.5% 7.5% 10.3%
Weighted Average 8.3% 9.3% 13.1%
Source: Company reports and J.P. Morgan estimates. Note: PLD, MNR and REXR's rent
spreads are calculated as a simple av erage of quarters as they do not disclose YTD
figures. LPT's rent spread is for its industrial portfolio only .

It is also important to note that net-effective (GAAP) spreads continue to be well

above cash levels for the group. For example, in 3Q PLD reported ~21% cash
spreads and 37% net-effective spreads, and DRE reported ~13% cash spreads and
~27% net-effective spreads. This large disconnect between cash and GAAP
spreads is reflective of longer lease terms and bigger bumps in new leases
compared to what was embedded in expiring leases.

Some modest occupancy degradation is the offset to strengthening spreads.

We calculate that REIT portfolio occupancies were down ~60-75 bps on a YOY
basis in 3Q. Our suspicion is that we could see these lower levels persist in 2020
due to the effect of 1) management teams prioritizing pushing rate over holding
extremely high occupancy levels and, to a lesser extent, 2) some impact from the
aforementioned supply/absorption dynamic. Our base case assumption for 2020 is
that there could be some slight YOY occupancy moderation as well.

Figure 83: Portfolio Occupancy Trends

Occupancy
Company 3Q18 3Q19 change (bps)
STAG 96.5% 94.6% -190bps
FR 97.6% 97.7% 10bps
PLD 97.5% 96.5% -100bps
REXR 97.6% 97.5% -10bps
MNR* 99.6% 98.9% -70bps
DRE 97.9% 97.9% 0bps
LPT 95.2% 94.6% -60bps
Simple Average 97.4% 96.8% -60bps
Weighted Average 97.3% 96.6% -76bps
Source: Company reports, J.P. Morgan
REXR’s occupancy is stabilized portfolio ending occupancy and DRE’s is stabilized in-service occupancy.
*MNR’s occupancy metrics are from 4Q19 as the company has a different fiscal year.

Michael W. Mueller, CFA

(1-212) 622-6689
michael.w.mueller@jpmorgan.com

External Growth
M&A/acquisition activity has heated up. 2019 was a big year for acquisitions in
the industrial sector, both in terms of normal-course third-party acquisitions and
M&A. We calculate that announced/closed acquisition activity for our industrial
coverage universe almost doubled in 2019...up from $11 billion to $20 billion. Both
public/private capital continue to ‘chase’ industrial assets, which arguably pushed
cap rates even lower in 2019, but REIT managements have taken advantage of their
attractive capital costs to play offense.

Some of the major M&A headlines for the year included Blackstone’s acquisition of
GLP and Prologis’ acquisitions of Industrial Property Trust and Liberty Property
Trust (closing in 2020). Even aside from M&A activity, we have seen acquisition
activity ramp up significantly at the company level. For instance, STAG and REXR
alone have announced/closed on $1.7+ billion of acquisitions thus far in 2019, which
is already well above FY 2018’s ~$1.2B.

Figure 84: Annual Acquisition Activity for Industrial Coverage Universe

Total Acquisition Activity ($ in m illions)
Company YE 2017 YE 2018 2019 YTD*
DRE $997 $353 $149
FR $174 $168 $104
MNR $287 $282 $139
PLD $185 $8,911 $17,805
REXR $667 $493 $857
STAG $613 $677 $874
Total $ Acquisitions $2,922 $10,883 $19,929
Source: Company reports, J.P. Morgan
**2019 YTD investment activity includes closed/announced acquisitions; PLD accounts for IPT and LPT deals. LPT's acquisition
activity in 2017 and 2018 have been excluded. If included, the totals would have been $3.1B and $11.3B for 2017 and 2018,
respectively.
Development continues to be key external growth driver for many. Given the
robust demand picture and high industry occupancy levels, many REIT managements
have capitalized on this backdrop to build sizeable development pipelines. Backing
up for a moment, by taking on development risk, the industrial REITs are generating
returns that are notably above private market cap rates, which is helping to drive both
bottom line FFO and NAV growth. Hence, we see these large pipelines as a good
thing at this point in the cycle. The development-oriented industrial REITs (PLD,
DRE, FR, and LPT (which PLD is acquiring)) all have meaningful development
pipelines and are generally leasing up projects ahead of underwriting expectations.
Additionally, REXR, which focuses heavily on acquisitions and repositioning assets,
continues to have a robust pipeline of repositionings/redevelopments as well.

We calculate that the REITs in our coverage universe had projects in process with a
TEI of ~$5.0 billion. This number is down from ~$5.7B from YE 2018, but we do
not get the sense that managements will pull back significantly (if at all) on start
expectations in 2020. Looking at pound-for-pound exposures, the pipeline sizes as a
percentage of TMCs declined 70 bps (to 4.0%) from YE 2018 to 3Q 19. While the
aggregate pipeline size is down some, keep in mind that the industrial sector stock
returns are ~46% in 2019 YTD…which is adding to the decline in the exposure
percentage.

Michael W. Mueller, CFA

(1-212) 622-6689
michael.w.mueller@jpmorgan.com

Figure 85: Development as a % of Total Market Cap

Total Projected Developm ent Investment ($ in millions)
Company YE 2017 % of TMC YE 2018 % of TMC 3Q19 % of TMC
STAG 0.0% 0.0% 0.0%
FR 4.3% 2.8% 4.0%
PLD 4.2% 5.2% 4.3%
REXR* 2.0% 1.4% 3.1%
MNR 0.0% 0.0% 0.0%
DRE 4.3% 4.8% 5.9%
LPT 3.6% 8.0% 4.1%
Simple Average 2.6% 3.2% 3.1%
Weighted Average 3.7% 4.8% 4.1%
Total $ Exposure Dev./ Redev. $4,511 $5,757 $4,972
Source: Company reports, J.P. Morgan
*REXR does not do ground-up development and this volume refers to total estimated investment in their portfolio repositioning pipeline

Valuation
Significant YTD outperformance translates into higher valuations. The industrial
REITs have generated YTD total returns of 46%, which is translating into higher
overall valuations on most/all metrics. We calculate that the industrial sector trades at
a 4.3% implied cap rate, which is 100 bps lower than the overall REIT implied cap
rate; this translates into a ~9.5% premium to underlying NAVs. Large cap, Prologis,
is clearly helping to drive these sector averages. Looking at leveraged trading
multiples, we calculate that the group trades at 24.2x 2020E FFO and 29.3x AFFO,
which compares to 20.0x and 21.9x for the overall REIT group, respectively. In our
view, these premiums are reflective of a few factors such as: the sector’s low cap
rates, lower relative leverage levels, and a continued above-average growth outlook.
Lastly, from a yield perspective, we calculate that the industrial sector’s yield of
2.5% is 120 bps lower than that of the overall REIT growth.

Figure 86: Valuation Summary

2020E Dividend Implied
P / FFO P / AFFO Yield Cap Rate

Industrial REITs 24.2x 29.3x 2.5% 4.3%

Ov erall REIT group 20.0x 21.9x 3.7% 5.3%
Source: Bloomberg, SNL, and J.P. Morgan as of 12/13/2019. Note: Implied cap rate is a weighted average by total market cap based
on our coverage universe

Michael W. Mueller, CFA

(1-212) 622-6689
michael.w.mueller@jpmorgan.com

Figure 87: Current Thoughts in Industrial REIT Coverage Universe

Company Ticker Rating J.P. Morgan Views
DRE continues to enjoy strong fundamentals and pricing power, and it has a robust development pipeline
that has been accretive to bottom-line growth and NAV. These positive trends should continue heading into
Duke Realty DRE OW
2020, but one offset could be some same store NOI growth moderation given the tough ~98% occupancy
comp.
We have a Neutral rating on FR. We think the company has done well in executing on a pipeline of
recurring development projects as well as some acquisitions, and we think this activity should persist in
First Industrial FR N 2020. Given the strong industrial backdrop and mark to markets, we think FR should deliver above-average
SSNOI growth relative to the overall REIT group. The stock’s higher-than-average implied cap rate should
also be attractive to value investors looking at the industrial REITs.
Liberty Property Trust LPT N Prologis has agreed to acquire Liberty, and the transaction is expected to close in 1Q 2020.
We are moving from a Neutral to an Underweight on Monmouth (MNR). This move is not being driven by a
new risk or issue tied to the story, but rather it better reflects our views on relative growth trajectories. In
terms of FFO/share, we are forecasting MNR to have one of the lower 2020 growth rates in the sector, and
Monmouth Real Estate current 2021 estimates (implying ~8% growth) look too high to us. On the operating front, the portfolio
MNR UW
Investment Corporation continues to be well-leased to high quality credit tenants, which should provide stability, with the trade-off
being very modest organic growth relative to what we forecast for industrial and the overall REIT group. For
income investors, the good news is that MNR’s dividend yield is ~200 bps higher than the industrial
average, which could be attractive for yield-focused investors.
We have an OW rating on PLD and it continues to be our top industrial pick as we head into 2020 due to its
strong growth prospects. Fundamentals continue to benefit from e-commerce growth and the move to
faster delivery times, and PLD should be able to generate 4+% same store NOI growth over the near term
Prologis PLD OW
due to mid-teens rent mark-to-market. Its global development pipeline should continue to supplement
growth to help drive high-single-digit bottom-line FFO/share growth. The stock justifiably trades at
premiums, in our view, but management is taking advantage of this dynamic to drive growth.
We have a Neutral rating on REXR, as we believe the company continues to be a very effective SoCal
sharpshooter driving both internal and external growth. The stock has been a significant outperformer
within its peer group and trades at the highest AFFO multiple and lowest implied cap rate in the sector, and
Rexford Industrial REXR N
this is the main factor keeping us from being more bullish on the name. Core portfolio trends and
acquisition activity (~$900M has been closed/announced in 2019 YTD) should continue to be strong in
2020 given its cost of currency.
We are raising our rating on STAG Industrial (STAG) from Neutral to Overweight, as we believe the setup
for the stock is good heading into 2020. STAG has significantly lagged the industrial sector (but still
outperforming all REITs) thus far in 2019, but management has taken advantage of strong capital costs,
and it should acquire $1+ billion this year. Equally important, the messaging about the 2020 pipeline is
STAG Industrial STAG OW
positive as well. In terms of operations, while we have traditionally thought of STAG’s core growth
prospects as being zero (SS NOI growth) over time, core growth has been trending a bit higher recently,
which is a marginal positive. The stock also offers investors an above-average dividend yield of ~4.7%
which could be attractive for income-oriented investors.
Source: J.P. Morgan

Michael W. Mueller, CFA

(1-212) 622-6689
michael.w.mueller@jpmorgan.com

Residential REITs: Stay bullish even if

set-up is slightly less robust
Figure 88: YTD Total Returns We are again bullish on residential rental REITs going into 2020. We expect
MSCI US REIT Index 21.9% another year of above-average 3.3% same store NOI growth, some contribution
S&P 500 28.9% from external growth and financing activity, and resulting bottom-line FFO
Apartment REITs 27.3% growth of 5.7%, which compares well to the group average of 4.3% for non-tech
Source: Bloomberg; J.P. Morgan as of 12/13/19 REITs. We think valuation, while expanded due to the entire REIT space being
up, is actually at a smaller premium on FFO/AFFO multiples than it was last year
at this time, and the broader economic outlook should be supportive of the growth
trends we predict. In addition, we would not underestimate how attractive to
investors the multifamily REIT space’s pristine financials and simplicity are
compared to other REIT categories.

In terms of risks, there are a few things to the set-up this year compared to last
year that we think are worth noting. For instance, 1) the housing picture does not
look as extremely skewed to for-rent versus for-sale as it was a year ago,
2) multifamily supply is likely to be comparable to 2019 levels as opposed to the
elusive drop-off many have expected this deep into the cycle, and 3) the
investment community has grown accustomed to the “beat/raise” playbook, thus
setting a high bar for companies.

Supply and demand in good shape. At the most broad level of supply and
demand for housing in the U.S., the picture remains solid, even if slightly more
balanced. On the supply side, housing starts (single family and multifamily) are
wrapping up 2019 at about 1.25 million, and this is trending marginally higher
going into 2020. This doesn’t take into account units taken out of stock, which
could run more than 300k annually and make net additions one million or less. On
the demand side, household formations were running 1.54 million in 2018 but
eased up to 1.37 million through 2019. Our economics research team believes
household formation could trend to the 1.2 million range, thus the supply/demand
spread for housing may be a bit narrower than it was 12-18 month ago.

For-rent vs. for-sale. With regards to the for-sale versus for-rent split on the
housing side, we still think the rental market should continue to benefit, but we are
going into 2020 with existing home sales running in the 5.4 million range versus
closer to 5.0 million at the outset of 2019, and interest rates are lower. Residential
rental REITs have driven down tenant turnover, which has been helpful to NOI
growth. Keeping residents in place and the level of move-outs to home ownership
low are important and should be watched in 2020.

Jobs growth. On the jobs front, we saw monthly payroll additions slow from 223k
jobs in 2018 to an average of 180k jobs in 2019. The J.P. Morgan economics
research group estimates this will notch down to 118k in 2020. We think this is
enough to keep pricing power intact for landlords, but we would not want to see
this figure dip much below 100k given that 2020 apartment supply in most of the
major markets in which REITs have exposure is expected to be pretty comparable
to 2019 levels.

The aforementioned backdrop should produce 2020 same store revenue, expense,
and NOI growth in the residential REIT segment of 3.2%, 2.7%, and 3.3%,

Michael W. Mueller, CFA

(1-212) 622-6689
michael.w.mueller@jpmorgan.com

respectively. And when looking at only the conventional apartment REITs, we

estimate same store revenue, expense, and NOI growth to be 3.1%, 2.6%, and
3.3%, respectively. This reflects about 50 bps in NOI growth deceleration
compared to where we expect 2019 to land.

Geographic exposure. Geographically, we saw a lot of convergence in revenue

trends in 2019 (West Coast slowed, East Coast started to improve), and we think
that will likely continue to be the case in 2020. On the upside, we are bullish on
market rate New York City rentals, as we think tech hiring should drive demand
while supply abates. We also think Seattle could surprise on the upside. We think
the sunbelt demand picture broadly should remain strong with corporate
relocations – supply will dictate how much pricing power flows out of that.

On the downside, we’re not convinced that Southern California’s rent growth
could move above the 2-3% range in 2020 given continued new supply. Boston
also should see a lot of new supply that could keep a lid on growth, and it is hard
not to imagine Houston rents being significantly pressured given a near doubling
of supply.

Navigating the stocks. Navigating within the residential rental space, we continue
to like the single family rental stocks – AMH and INVH. We think the
combination of top-line pricing power, the ability to make operational
improvements, and potential external growth should all come together for above-
average bottom-line earnings growth. INVH and AMH should post top-line
revenue growth of 4.5% and 3.7%, respectively, for 2020, whereas the
conventional multifamily space should grow top-line revenue 3.1%. We expect
INVH and AMH to grow NOI in 2020 at 5.2% and 3.8%, respectively, versus
3.3% for the conventional multifamily REITs.

The corporatization of the single family rental market – while still relatively new –
is resulting in a compelling housing option for millennials as they age and create
family households. The Harvard Joint Center for Housing Studies has 35-44 year
old households as the fastest growing under-65 segment through 2028; it forecasts
0% household growth in the cohorts below age 35.

On the conventional apartment side, we are leaning toward companies that can
drive operational efficiencies and external growth. We think UDR, AVB, and CPT
all fit that bill going into 2020. We also highlight KW as a non-REIT way to play
a number of compelling apartment themes, including workforce housing,
demographic trends in the Mountain States, and the transforming Dublin, Ireland
apartment market.

We do not feel compelled to own too much West Coast multifamily at the outset,
hence our Neutral rating on ESS. We think its premium valuation is not providing
a ton of room for potential near-term supply headwinds in San Francisco, muted
Southern California trends, and payback on high-coupon structured investments.
Finally, we continue to stay on the sidelines on ACC in the student housing sector,
as we see it posting below-average core growth.

On the following pages we lay out summary thoughts on the residential REIT
stocks in our coverage universe, our same store growth estimates, a valuation
snapshot, and one-page summary stats on key apartment REIT markets.

Michael W. Mueller, CFA

(1-212) 622-6689
michael.w.mueller@jpmorgan.com

Figure 89: Current Thoughts on Our Residential REIT Coverage Universe

Company Ticker Rating J.P. Morgan Views
We think the single family rental space will again put up outsized core growth, and INVH’s footprint should lead
this. Further, we think the company’s access to capital is good and could result in it completing significant
Invitation Homes INVH OW acquisitions in 2020. If it can de-leverage the balance sheet while also building out scale in an accretive fashion,
it could act as a stock catalyst. One potential risk/pushback is if it continues to sell more assets than expected –
like the seemingly high cap rate sale of its Nashville portfolio.
We think the 2020 playbook should be similar to 2019’s – potential estimate revisions through the year as it
leverages its operating platform and is able to make acquisitions. We think the significant external growth activity
UDR, Inc. UDR OW the company completed in 2019 should help it with growth in 2020 and 2021 as it overlays its platform on the
deals. We also like the portfolio mix.
We like the single family rental story overall. We think if AMH has a better handle on property taxes and its
overall expense picture in 2020, it could drive outsized bottom-line growth. 2020 should bring greater
American Homes
AMH OW contribution from the development program, and its balance sheet remains strong. The risks we see on this one
4 Rent
relate to its history of having to backtrack on operations and the risk its developments don’t produce as much
near-term accretion as expected.
We think core growth should be competitive with the rest of the apartment REIT peer group but with a cheaper
Camden Property valuation and lower-leverage balance sheet. Given some attractive debt refinancing, bottom-line growth in 2020
CPT OW
Trust (even excluding charges in 2019) should be well above the group average.
We are swapping out our OW on EQR for AVB going into 2020. We think AVB’s pivot toward operational
improvement could help its internal growth and act as a catalyst for the stock; we think AVB has been behind the
AvalonBay AVB OW curve on extracting the most out of its portfolio compared to peers. Further, it continues to have a value-add
development pipeline, which we think was pushed aside in 2019 as the market focused on apartment REIT
operations.
While not a REIT and diversified, we put KW in the residential section. It has 47% exposure to multifamily and
has one of the more interesting portfolios in the space. We like its exposure to Mountain State workforce
Kennedy-Wilson KW OW housing (Salt Lake City, Boise), the Seattle metro, and its unique Dublin, Ireland platform. Combined with its
growing asset management business, we see continued above-average NAV growth in 2020.
We think ESS’s operations should perform well in 2020, with particular strength coming out of its Seattle
Essex Property exposure. We think near-term supply in San Francisco is something to watch, and we think Southern California
ESS N is setting up to deliver only modest growth from what we can tell right now. With the lowest implied cap rate in
Trust
the apartment REIT space, we think valuation looks full. Also, watch earnings impact of structured finance book.
We like the company’s NYC exposure, which we think can surprise on the upside. In addition, we think its
Equity Residential EQR N balance sheet is well positioned to make investments, which could be accretive. That said, we think there may
be more low hanging fruit with peer AVB in 2020 on the operational improvement front.
AIV should deliver strong results in both core NOI growth and bottom line earnings growth. It has provided early
2020 guidance, and the recent announcement to make a large mezzanine investment is high-yielding and
AIMCO AIV N accretive to earnings, though non-cash as a PIK note. Our Neutral rating is mainly a function of preferring other
names, and we would watch the complexity factor, as it seems to be going back up after making strides toward
simplifying.
We see ACC as a top flight operator in the student housing space, but we also see this space as being lower
American Campus growth compared to the broader residential REIT space right now. Developments should continue to add value
ACC N given aggressive pricing in the private market. The company has lower capital costs going into 2020 compared
Communities
to where ACC was a year ago.
We think the focus is squarely on the board’s strategic review process. We think some kind of corporate
transaction (recap, sale) is necessary given RESI’s sub-scale size that leaves little cash flow for shareholders
Front Yard
RESI N after covering overhead; it is in the midst of fixing operations, too. Our NAV estimate is about $15/share, and
Residential
finding a way to monetize the business somewhere approaching this price is key. Absent a deal of some sort,
we think the dividend would need to be cut and the stock could move down into the single digits.
Source: J.P. Morgan

Michael W. Mueller, CFA

(1-212) 622-6689
michael.w.mueller@jpmorgan.com

Figure 90: Y/Y Same Store Stats for the Multifamily REITS

Revenue Expense NOI

7.0%
6.0%
5.0%
4.0%
3.0%
2.0%
1.0%
0.0%

Source: Company reports and J.P. Morgan Estimates

Michael W. Mueller, CFA

(1-212) 622-6689
michael.w.mueller@jpmorgan.com

Figure 91: JPM Same Store Growth Assumptions for Covered Apartment REITs
Same Store Revenues
Multifamily 1Q18A 2Q18A 3Q18A 4Q18A 2018A 1Q19A 2Q19A 3Q19A 4Q19E 2019E 1Q20E 2Q20E 3Q20E 4Q20E 2020E
AIV 2.6% 3.2% 3.1% 3.4% 3.1% 4.2% 3.8% 3.8% 3.5% 3.8% 3.2% 3.3% 3.5% 3.4% 3.4%
AVB 2.4% 2.6% 2.3% 2.7% 2.5% 3.4% 3.1% 2.7% 2.7% 3.0% 2.7% 2.8% 3.1% 3.1% 2.9%
CPT 3.3% 3.2% 3.1% 3.0% 3.2% 3.7% 3.4% 3.6% 3.4% 3.5% 2.9% 2.9% 2.7% 2.9% 2.9%
EQR 2.2% 2.2% 2.3% 2.6% 2.3% 3.1% 3.5% 3.4% 3.2% 3.3% 3.1% 3.0% 3.0% 3.1% 3.0%
ESS 3.3% 2.8% 2.2% 2.9% 2.8% 3.1% 3.5% 3.1% 3.1% 3.2% 3.0% 3.0% 3.0% 3.0% 3.0%
UDR 3.0% 3.4% 3.8% 3.7% 3.5% 3.8% 3.7% 3.7% 3.9% 3.8% 3.4% 3.3% 3.6% 3.5% 3.5%
Average 2.8% 2.9% 2.8% 3.1% 2.9% 3.6% 3.5% 3.4% 3.3% 3.4% 3.1% 3.1% 3.2% 3.2% 3.1%

Singlefamily AMH 3.1% 3.7% 4.4% 4.1% 3.9% 4.2% 4.4% 3.9% 3.6% 4.0% 3.5% 3.5% 3.9% 3.9% 3.7%
INVH 4.1% 4.5% 4.4% 4.6% 4.5% 4.7% 4.2% 4.4% 3.6% 4.3% 4.7% 4.3% 4.7% 4.2% 4.5%

Student housing ACC 1.9% 1.5% 2.0% 2.2% 1.9% 3.1% 3.2% 2.2% 1.7% 2.5% 2.1% 1.6% 1.6% 2.8% 2.1%

Non pure play multifamily DEI 1.7% 3.5% 4.0% 3.8% 3.3% 3.3% 1.1% N/A N/A N/A N/A N/A N/A N/A N/A
KW 5.9% 4.7% 4.7% 4.8% 5.0% 5.5% 5.3% 5.2% N/A N/A N/A N/A N/A N/A N/A
WRE 3.2% 2.5% 2.4% 3.6% 2.9% 2.8% 3.7% N/A N/A N/A N/A N/A N/A N/A N/A

Average Revenue Growth 3.1% 3.2% 3.2% 3.4% 3.2% 3.7% 3.6% 3.6% 3.2% 3.5% 3.2% 3.1% 3.2% 3.3% 3.2%

Same Store Expenses

Multifamily 1Q18A 2Q18A 3Q18A 4Q18A 2018A 1Q19A 2Q19A 3Q19A 4Q19E 2019E 1Q20E 2Q20E 3Q20E 4Q20E 2020E
AIV 2.1% 3.3% 4.5% 3.0% 3.3% 0.8% 1.8% 3.1% 3.5% 2.3% 3.1% 2.6% 1.4% 1.0% 2.0%
AVB 5.3% 1.8% 0.5% 2.7% 3.2% 0.2% 4.2% 4.2% 1.0% 2.4% 3.5% 1.5% 1.5% 3.0% 2.4%
CPT 2.1% 3.3% 1.9% 3.7% 2.8% 3.8% 2.0% 1.8% 1.0% 2.2% 2.3% 2.5% 2.7% 3.0% 2.6%
EQR 3.9% 3.2% 3.7% 4.2% 3.7% 4.4% 3.3% 3.7% 3.7% 3.8% 2.9% 3.4% 3.2% 3.2% 3.2%
ESS 2.5% 2.1% 1.8% 3.8% 2.6% 3.9% 1.8% 3.3% -0.3% 2.2% 2.8% 2.8% 2.8% 2.8% 2.8%
UDR 3.6% 2.9% 3.5% 4.4% 3.6% 3.0% 2.3% 3.1% 0.7% 2.6% 2.3% 2.5% 2.0% 3.0% 2.4%
Average 3.3% 2.8% 2.7% 3.6% 3.2% 2.7% 2.6% 3.2% 1.6% 2.6% 2.8% 2.6% 2.3% 2.7% 2.6%

Single family AMH 9.3% 5.0% 5.4% 4.0% 5.8% 2.1% 5.8% 6.3% 5.1% 4.9% 4.0% 3.0% 3.5% 3.8% 3.6%
INVH 5.1% 3.6% 3.7% 7.4% 4.8% -0.1% 0.6% 4.3% 5.5% 2.6% 2.8% 4.0% 3.8% 1.5% 3.0%

Student housing ACC 4.5% 3.2% -0.2% 5.3% 3.0% 0.5% 2.9% 3.9% 3.5% 2.8% 3.0% 2.5% 1.8% 2.1% 2.3%

Non pure play multifamily DEI 8.7% 10.7% 6.9% 4.7% 7.8% 5.1% 0.2% N/A N/A N/A N/A N/A N/A N/A N/A
KW 1.9% 2.8% 4.3% 3.1% 3.0% 2.6% 1.0% N/A N/A N/A N/A N/A N/A N/A N/A
WRE 2.5% 3.6% 0.9% 2.6% 2.4% 0.6% -0.4% N/A N/A N/A N/A N/A N/A N/A N/A

Average Expense Growth 4.3% 3.8% 3.1% 4.1% 3.8% 2.2% 2.1% 3.7% 2.6% 2.8% 3.0% 2.8% 2.5% 2.6% 2.7%

Same Store NOI

Multifamily 1Q18A 2Q18A 3Q18A 4Q18A 2018A 1Q19A 2Q19A 3Q19A 4Q19E 2019E 1Q20E 2Q20E 3Q20E 4Q20E 2020E
AIV 2.7% 3.2% 2.6% 3.6% 3.1% 5.5% 4.6% 4.1% 3.5% 4.4% 3.2% 3.6% 4.3% 4.2% 3.8%
AVB 1.2% 2.9% 3.1% 2.7% 2.3% 4.9% 2.8% 2.1% 3.2% 3.3% 2.2% 3.1% 3.6% 3.1% 3.0%
CPT 4.0% 3.2% 3.8% 2.6% 3.4% 3.6% 4.2% 4.7% 4.8% 4.3% 3.2% 3.1% 2.7% 2.8% 3.0%
EQR 1.5% 1.8% 1.7% 1.9% 1.7% 2.5% 3.6% 3.3% 3.0% 3.1% 3.2% 2.9% 2.9% 3.1% 3.0%
ESS 3.6% 3.0% 2.4% 2.5% 2.9% 2.8% 4.1% 3.1% 4.4% 3.6% 3.1% 3.1% 3.1% 3.1% 3.1%
UDR 2.7% 3.5% 3.9% 3.4% 3.4% 4.1% 4.2% 3.9% 5.2% 4.3% 3.8% 3.6% 4.2% 3.7% 3.8%
Average 2.6% 2.9% 2.9% 2.8% 2.8% 3.9% 3.9% 3.5% 4.0% 3.8% 3.1% 3.2% 3.5% 3.3% 3.3%

Single family AMH 0.0% 3.1% 3.8% 4.2% 2.8% 5.3% 3.6% 2.5% 2.7% 3.5% 3.2% 3.8% 4.1% 4.0% 3.8%
INVH 3.6% 5.0% 4.9% 3.2% 4.4% 7.3% 6.1% 4.5% 4.3% 5.6% 5.6% 4.4% 5.2% 5.6% 5.2%

Student housing ACC 0.1% 0.1% 4.5% 0.1% 1.0% 5.1% 3.5% 0.4% 0.4% 2.4% 1.5% 1.0% 1.5% 3.2% 1.8%

Non pure play multifamily DEI -0.5% 1.3% 3.0% 3.5% 1.8% 2.6% 1.5% 3.0% 3.0% 2.5% 2.5% 2.5% 2.5% 2.5% 2.5%
KW 7.9% 5.6% 4.9% 5.6% 5.8% 7.1% 7.3% 6.5% 2.4% 5.8% 2.4% 2.4% 3.5% 3.5% 3.0%
WRE 3.7% 1.8% 3.4% 4.2% 3.3% 4.4% 6.4% 3.5% 3.5% 4.5% 4.0% 4.0% 4.0% 4.0% 4.0%

Average NOI Growth 2.5% 2.9% 3.5% 3.1% 3.0% 4.6% 4.3% 3.5% 3.4% 3.9% 3.2% 3.1% 3.5% 3.6% 3.3%

Source: J.P. Morgan Estimates, Company data.

Michael W. Mueller, CFA

(1-212) 622-6689
michael.w.mueller@jpmorgan.com

Valuation less expensive on a relative basis, higher on

absolute basis
Based on our estimates, multifamily REITs are trading at 20.9x estimated 2020
FFO and 23.2x estimated 2020 AFFO compared to 20.0x and 21.9x for the REIT
industry. This equates to FFO premiums to the broader REIT group of 4.5% and
5.9%, respectively. By comparison, at year end 2018, the residential sector traded
at premiums of 9.5% and 13.1% on FFO and AFFO multiples to the broader REIT
group, respectively. While on a relative basis valuation looks reasonable, it is
important to note that the residential sector has posted a +27% gain YTD so far,
thus becoming more expensive on an absolute basis. Looking at the valuation from
an NAV perspective, we calculate the residential sector to be trading at about a 3%
premium to NAV (multifamily), which compares to the overall REIT space which
trades at a 4% premium to NAV currently, but which is also skewed to the upside
by the net lease, which is trading at a +35% premium.

Figure 92: Valuation Summary for Residential REITs under J.P. Morgan Coverage
Premium / Implied 2020E 2020E growth 2021E growth
Ticker Dividend Yield Discount to NAV Cap Rate P/FFO P/AFFO FFO AFFO FFO AFFO
AMCO AIV 3.1% 6% 4.9% 19.2 21.6 5.3% 6.5% 6.7% 7.2%
AvalonBay AVB 2.9% 0% 4.4% 21.1 22.2 4.9% 6.6% 6.2% 6.4%
Camden Property Trust CPT 3.1% 2% 5.0% 19.0 21.8 9.8% 11.1% 6.7% 7.4%
Equity Residential EQR 2.8% 0% 4.4% 21.8 25.6 5.6% 3.9% 6.2% 7.1%
Essex Property Trust ESS 2.6% 8% 4.0% 21.1 22.8 5.4% 7.7% 5.7% 6.1%
UDR, Inc UDR 3.0% 7% 4.3% 20.8 22.7 5.8% 4.7% 4.8% 5.2%
Average 2.9% 3% 4.4% 20.9 23.2 5.8% 6.3% 6.0% 6.5%

American Campus Comm. ACC 4.1% -11% 5.1% 18.1 19.7 3.5% 3.3% 6.0% 6.2%

American Homes 4 Rent AMH 0.8% 2% 5.0% 20.8 24.7 8.9% 7.2% 10.4% 13.0%
Invitation Homes INVH 1.8% 0% 4.7% 21.3 26.5 6.9% 5.4% 5.8% 6.2%
Front Yard Residential RESI 4.9% -19% 5.9% 43.2 59.1%

Average (ex. RESI) 2.7% 1.6% 4.5% 20.9 23.4 6.0% 6.0% 6.5% 6.8%

Total REIT Industry 3.7% 4.2% 5.3% 20.0 21.9 4.3% 6.3% 4.7% 4.7%
Source: Bloomberg, J.P. Morgan Estimate as of 12/13/19

Michael W. Mueller, CFA

(1-212) 622-6689
michael.w.mueller@jpmorgan.com

Figure 93: Key Market NOI as a % of Total Operating NOI

AIV AVB CPT EQR ESS MAA UDR Sector Total*
CA - Southern 27% 21% 12% 27% 41% 0% 20% 22%
CA - Northern 11% 20% 0% 21% 42% 0% 15% 18%
D.C. M etro 13% 16% 17% 17% 0% 7% 16% 13%
NY Metro 4% 23% 0% 15% 0% 0% 9% 10%
Boston 13% 12% 0% 10% 0% 0% 10% 7%
Seattle 1% 6% 0% 10% 17% 0% 8% 7%
Atlanta 1% 0% 9% 0% 0% 13% 0% 3%
Dallas 0% 0% 7% 0% 0% 9% 4% 2%
Orlando 0% 0% 6% 0% 0% 7% 3% 2%
Houston 0% 0% 11% 0% 0% 4% 0% 2%
Austin 0% 0% 4% 0% 0% 6% 2% 1%
Charlotte 0% 0% 5% 0% 0% 0% 0% 0%
Key Markets 71% 98% 71% 99% 100% 46% 86% 86%
Source: Company Reports, JPM Estimates.

(1) Sector Total represents the percentage of NOI based on the total dollar NOI derived from each market from the companies listed (the numerator) divided by the total dollar NOI across
all markets for the companies listed (the denominator).

Michael W. Mueller, CFA

(1-212) 622-6689
michael.w.mueller@jpmorgan.com

New York: Key Multifamily Stats

Figure 94: New York Apartment Vacancy and Rent Growth
6.0% 6.0%
Rent Growth (%)
5.0% Vacancy (%) 5.0%

4.0% 4.0%

3.0% 3.0%

2.0% 2.0%

1.0% 1.0%

0.0% 0.0%
2011 2012 2013 2014 2015 2016 2017 2018 2019E 2020E 2021E 2022E 2023E
Source: CoStar and J.P. Morgan calculations.

Figure 95: New York Apartment Completions and Non-farm Payroll Job Growth
4.0% 4.0%
Net Apartment Completions (%)
Non-farm Payroll Jobs Y/Y Growth…
3.0% 3.0%

2.0% 2.0%

1.0% 1.0%

0.0% 0.0%
2011 2012 2013 2014 2015 2016 2017 2018 2019E 2020E 2021E 2022E 2023E
Source: Bureau of Labor Statistics, CoStar and J.P. Morgan calculations. Note: Completions are as a percent of stock.

Figure 96: New York Apartment Transaction Volume and Cap Rate Trends Since 2010
6.5%
$21.0
Transaction Volume ($ bil)
$19.0 6.0%
Average Cap Rate (%)
$17.0
$15.0 5.5%
$13.0
$11.0 5.0%
$9.0
4.5%
$7.0
$5.0 4.0%
$3.0
$1.0 3.5%
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 YTD
Source: Real Capital Analytics estimates and J.P. Morgan calculations.

Michael W. Mueller, CFA

(1-212) 622-6689
michael.w.mueller@jpmorgan.com

Boston: Key Multifamily Stats

Figure 97: Boston Apartment Vacancy and Rent Growth
10.0% 10.0%
Rent Growth (%)
Vacancy (%)
8.0% 8.0%

6.0% 6.0%

4.0% 4.0%

2.0% 2.0%

0.0% 0.0%
2011 2012 2013 2014 2015 2016 2017 2018 2019E 2020E 2021E 2022E 2023E
Source: CoStar and J.P. Morgan calculations.

Figure 98: Boston Apartment Completions and Non-farm Payroll Job Growth
5.0% 5.0%
Net Apartment Completions (%)
4.0% Non-farm Payroll Jobs Y/Y Growth… 4.0%

3.0% 3.0%

2.0% 2.0%

1.0% 1.0%

0.0% 0.0%
2011 2012 2013 2014 2015 2016 2017 2018 2019E 2020E 2021E 2022E 2023E
Source: Bureau of Labor Statistics, CoStar and J.P. Morgan calculations. Note: Completions are as a percent of stock.

Figure 99: Boston Apartment Transaction Volume and Cap Rate Trends Since 2010
$4.0 7.0%
Transaction Volume ($ bil)
$3.5
Average Cap Rate (%) 6.5%
$3.0
$2.5 6.0%
$2.0
$1.5 5.5%
$1.0
5.0%
$0.5
$0.0 4.5%
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 YTD
Source: Real Capital Analytics estimates and J.P. Morgan calculations.

Michael W. Mueller, CFA

(1-212) 622-6689
michael.w.mueller@jpmorgan.com

Washington D.C: Key Multifamily Stats

Figure 100: Washington D.C. Apartment Vacancy and Rent Growth
10.0% 10.0%
Rent Growth (%)
Vacancy (%)
8.0% 8.0%

6.0% 6.0%

4.0% 4.0%

2.0% 2.0%

0.0% 0.0%
2011 2012 2013 2014 2015 2016 2017 2018 2019E 2020E 2021E 2022E 2023E
Source: CoStar and J.P. Morgan calculations.

Figure 101: Washington D.C. Apartment Completions and Non-farm Payroll Job Growth
5.0% 5.0%
Net Apartment Completions (%)
Non-farm Payroll Jobs Y/Y Growth…
4.0% 4.0%

3.0% 3.0%

2.0% 2.0%

1.0% 1.0%

0.0% 0.0%
2011 2012 2013 2014 2015 2016 2017 2018 2019E 2020E 2021E 2022E 2023E
Source: Bureau of Labor Statistics, CoStar and J.P. Morgan calculations. Note: Completions are as a percent of stock.

Figure 102: Washington D.C. Apartment Transaction Volume and Cap Rate Trends Since 2010
$9.0
Transaction Volume ($ bil) 6.4%
$8.0 Average Cap Rate (%)
6.2%
$7.0 6.0%
$6.0 5.8%
5.6%
$5.0
5.4%
$4.0 5.2%
$3.0 5.0%
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 YTD
Source: Real Capital Analytics estimates and J.P. Morgan calculations.

Michael W. Mueller, CFA

(1-212) 622-6689
michael.w.mueller@jpmorgan.com

Atlanta: Key Multifamily Stats

Figure 103: Atlanta Apartment Vacancy and Rent Growth

10.0% Rent Growth (%) 10.0%

Vacancy (%)
8.0% 8.0%

6.0% 6.0%

4.0% 4.0%

2.0% 2.0%

0.0% 0.0%
2011 2012 2013 2014 2015 2016 2017 2018 2019E 2020E 2021E 2022E 2023E
Source: CoStar and J.P. Morgan calculations.

Figure 104: Atlanta Apartment Completions and Non-farm Payroll Job Growth
5.0% 5.0%
Net Apartment Completions (%)
4.0% Non-farm Payroll Jobs Y/Y Growth… 4.0%

3.0% 3.0%

2.0% 2.0%

1.0% 1.0%

0.0% 0.0%
2011 2012 2013 2014 2015 2016 2017 2018 2019E 2020E 2021E 2022E 2023E
-1.0% -1.0%

Source: Bureau of Labor Statistics, CoStar and J.P. Morgan calculations. Note: Completions are as a percent of stock.

Figure 105: Atlanta Apartment Transaction Volume and Cap Rate Trends Since 2010
$10.0 7.5%
Transaction Data ($ bil)
$9.0
Average Cap Rate (%)
$8.0 7.0%
$7.0
$6.0 6.5%
$5.0
$4.0 6.0%
$3.0
$2.0 5.5%
$1.0
$0.0 5.0%
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 YTD
Source: Real Capital Analytics estimates and J.P. Morgan calculations.

Michael W. Mueller, CFA

(1-212) 622-6689
michael.w.mueller@jpmorgan.com

Seattle: Key Multifamily Stats

Figure 106: Seattle Apartment Vacancy and Rent Growth
8.0% 8.0%
Rent Growth (%)
Vacancy (%)
6.0% 6.0%

4.0% 4.0%

2.0% 2.0%

0.0% 0.0%
2011 2012 2013 2014 2015 2016 2017 2018 2019E 2020E 2021E 2022E 2023E
Source: CoStar and J.P. Morgan calculations.

Figure 107: Seattle Apartment Completions and Non-farm Payroll Job Growth
5.0% 5.0%
Net Apartment Completions (%)
Non-farm Payroll Jobs Y/Y Growth…
4.0% 4.0%

3.0% 3.0%

2.0% 2.0%

1.0% 1.0%

0.0% 0.0%
2011 2012 2013 2014 2015 2016 2017 2018 2019E 2020E 2021E 2022E 2023E
Source: Bureau of Labor Statistics, CoStar and J.P. Morgan calculations. Note: Completions are as a percent of stock.

Figure 108: Seattle Apartment Transaction Volume and Cap Rate Trends Since 2010
$6.0 Transaction Data ($ bil)
6.5%
Average Cap Rate (%)
$5.0
6.0%
$4.0

$3.0 5.5%

$2.0
5.0%
$1.0

$0.0 4.5%
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 YTD
Source: Real Capital Analytics estimates and J.P. Morgan calculations.

Michael W. Mueller, CFA

(1-212) 622-6689
michael.w.mueller@jpmorgan.com

Los Angeles: Key Multifamily Stats

Figure 109: Los Angeles Apartment Vacancy and Rent Growth
8.0% 8.0%
Rent Growth (%)
Vacancy (%)
6.0% 6.0%

4.0% 4.0%

2.0% 2.0%

0.0% 0.0%
2011 2012 2013 2014 2015 2016 2017 2018 2019E 2020E 2021E 2022E 2023E
Source: CoStar and J.P. Morgan calculations.

Figure 110: Los Angeles Apartment Completions and Non-farm Payroll Job Growth
3.5%
Net Apartment Completions (%)
3.0% Non-farm Payroll Jobs Y/Y Growth… 3.0%
2.5%
2.0% 2.0%
1.5%
1.0% 1.0%
0.5%
0.0% 0.0%
2011 2012 2013 2014 2015 2016 2017 2018 2019E 2020E 2021E 2022E 2023E
Source: Bureau of Labor Statistics, CoStar and J.P. Morgan calculations. Note: Completions are as a percent of stock.

Figure 111: Los Angeles Apartment Transaction Volume and Cap Rate Trends Since 2010

Transaction Data ($ bil)

6.0%
$9.0
Average Cap Rate (%)
$8.0
$7.0 5.5%
$6.0
$5.0 5.0%
$4.0
$3.0
4.5%
$2.0
$1.0
$0.0 4.0%
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 YTD
Source: Real Capital Analytics estimates and J.P. Morgan calculations.

Michael W. Mueller, CFA

(1-212) 622-6689
michael.w.mueller@jpmorgan.com

San Francisco: Key Multifamily Stats

Figure 112: San Francisco Apartment Vacancy and Rent Growth
8.0% 8.0%
Rent Growth (%)
Vacancy (%)
6.0% 6.0%

4.0% 4.0%

2.0% 2.0%

0.0% 0.0%
2011 2012 2013 2014 2015 2016 2017 2018 2019E 2020E 2021E 2022E 2023E
Source: CoStar and J.P. Morgan calculations.

Figure 113: San Francisco Apartment Completions and Non-farm Payroll Job Growth
5.0% 5.0%
Net Apartment Completions (%)
Non-farm Payroll Jobs Y/Y Growth…
4.0% 4.0%

3.0% 3.0%

2.0% 2.0%

1.0% 1.0%

0.0% 0.0%
2011 2012 2013 2014 2015 2016 2017 2018 2019E 2020E 2021E 2022E 2023E
Source: Bureau of Labor Statistics, CoStar and J.P. Morgan calculations. Note: Completions are as a percent of stock.

Figure 114: San Francisco Apartment Transaction Volume and Cap Rate Trends Since 2010
$3.0 Transaction Data ($ bil) 6.0%
Average Cap Rates (%)
$2.5 5.5%
$2.0 5.0%
$1.5 4.5%
$1.0 4.0%
$0.5 3.5%
$0.0 3.0%
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 YTD
Source: Real Capital Analytics estimates and J.P. Morgan calculations.

Michael W. Mueller, CFA

(1-212) 622-6689
michael.w.mueller@jpmorgan.com

San Jose: Key Multifamily Stats

Figure 115: San Jose Apartment Vacancy and Rent Growth
8.0% 8.0%
Rent Growth (%)
Vacancy (%)
6.0% 6.0%

4.0% 4.0%

2.0% 2.0%

0.0% 0.0%
2011 2012 2013 2014 2015 2016 2017 2018 2019E 2020E 2021E 2022E 2023E
Source: CoStar and J.P. Morgan calculations.

Figure 116: San Jose Apartment Completions and Non-farm Payroll Job Growth
5.0% 5.0%
Net Apartment Completions (%)
Non-farm Payroll Jobs Y/Y Growth…
4.0% 4.0%

3.0% 3.0%

2.0% 2.0%

1.0% 1.0%

0.0% 0.0%
2011 2012 2013 2014 2015 2016 2017 2018 2019E 2020E 2021E 2022E 2023E
Source: Bureau of Labor Statistics, CoStar and J.P. Morgan calculations. Note: Completions are as a percent of stock.

Figure 117: San Jose Apartment Transaction Volume and Cap Rate Trends Since 2010
$2.0 Transaction Data ($ bil) 6.0%
Average Cap Rate (%)

$1.5 5.5%

$1.0 5.0%

$0.5 4.5%

$0.0 4.0%
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 YTD
Source: Real Capital Analytics estimates and J.P. Morgan calculations.

Michael W. Mueller, CFA

(1-212) 622-6689
michael.w.mueller@jpmorgan.com

Orange County: Key Multifamily Stats

Figure 118: Orange County Apartment Vacancy and Rent Growth
8.0% 8.0%
Rent Growth (%)
Vacancy (%)
6.0% 6.0%

4.0% 4.0%

2.0% 2.0%

0.0% 0.0%
2011 2012 2013 2014 2015 2016 2017 2018 2019E 2020E 2021E 2022E 2023E
Source: CoStar and J.P. Morgan calculations.

Figure 119: Orange County Apartment Completions and Non-farm Payroll Job Growth

Net Apartment Completions (%)

3.5% Non-farm Payroll Jobs Y/Y Growth… 3.5%

2.5% 2.5%

1.5% 1.5%

0.5% 0.5%

-0.5% 2011 2012 2013 2014 2015 2016 2017 2018 2019E 2020E 2021E 2022E 2023E -0.5%

Source: Bureau of Labor Statistics, CoStar and J.P. Morgan calculations. Note: Completions are as a percent of stock.

Figure 120: Orange County Apartment Transaction Volume and Cap Rate Trends Since 2010
$2.5 Transaction Data ($ bil)
6.5%
Average Cap Rate (%)
$2.0 6.0%

$1.5 5.5%

$1.0 5.0%

$0.5 4.5%

$0.0 4.0%
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 YTD

Source: Real Capital Analytics estimates and J.P. Morgan calculations.

Michael W. Mueller, CFA

(1-212) 622-6689
michael.w.mueller@jpmorgan.com

Houston: Key Multifamily Stats

Figure 121: Houston Apartment Vacancy and Rent Growth
12.0% 12.0%
Rent Growth (%)
10.0% Vacancy (%) 10.0%

8.0% 8.0%

6.0% 6.0%

4.0% 4.0%

2.0% 2.0%

0.0% 0.0%
2011 2012 2013 2014 2015 2016 2017 2018 2019E 2020E 2021E 2022E 2023E
Source: CoStar and J.P. Morgan calculations.

Figure 122: Houston Apartment Completions and Non-farm Payroll Job Growth
6.0% 6.0%
Net Apartment Completions (%)
5.0% Non-farm Payroll Jobs Y/Y Growth… 5.0%
4.0% 4.0%
3.0% 3.0%
2.0% 2.0%
1.0% 1.0%
0.0% 0.0%
2011 2012 2013 2014 2015 2016 2017 2018 2019E 2020E 2021E 2022E 2023E
Source: Bureau of Labor Statistics, CoStar and J.P. Morgan calculations. Note: Completions are as a percent of stock.

Figure 123: Houston Apartment Transaction Volume and Cap Rate Trends Since 2010
7.5%
Transaction Data ($ bil)
$8.0
Average Cap Rate (%) 7.0%
$6.0
6.5%
$4.0 6.0%
$2.0 5.5%

$0.0 5.0%
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 YTD

Source: Real Capital Analytics estimates and J.P. Morgan calculations.

Michael W. Mueller, CFA

(1-212) 622-6689
michael.w.mueller@jpmorgan.com

Office REITs: We remain bearish even as

the job picture keeps demand intact
We remain thematically bearish on the office business going into 2020. The
Figure 124: YTD Total Returns biggest items that give us pause include the continued changes unfolding in office
MSCI US REIT Index 21.9% markets (densification, co-working/flexible space, demand moving to new
S&P 500 28.9% submarkets), supply, and the significant amount of cap ex needed to keep office
Office REITs 24.1% buildings leased. The risk to our call is that the long-running solid job picture that
Source: Bloomberg; J.P. Morgan as of the U.S. is experiencing is beneficial to office space demand, and that is keeping
12/13/19 the business in okay shape for now. In addition, the stocks trade, on average, at an
NAV discount – a rare find in the REITs space right now.

Navigating within the office group, we find meaningful economic cash flow
growth in only select locations. These locations are being largely driven by
demand from technology, media, and life science companies as well as corporate
relocations. Some of the locations benefitting from these trends are broad, like the
West Coast, while some are specific submarkets, like the Far West Side in New
York City or the Domain in Austin. Being in the path of growth is key.

In many other markets around the country, face rents are rising at inflationary type
levels, but the high levels of cap ex needed to keep buildings leased cuts into the
economics, even if not near-term reported earnings. It seems like every time we
run the analysis on recurring cap ex as a percentage of annual NOI, it goes up. We
think this figure is now over 25% when fully considering things like common area
renovations needed to get leases done. We think public market investors have
become keen to this drag, and it is a reason why some office stocks will trade
below “NAV”; public markets don’t see the “cap rates” as indicative of the
economics in many instances.

Another item that we think could be both a short-term and longer-term headwind
for the office business is the coworking and flex office business. Coworking
operators may slow growth plans (or pull back even) in 2020, which could take
some steam out of the leasing market – a near-term negative. We aren’t overly
worried about this, though.

Our concern with coworking and the flex office trend is actually longer-term. We
think the adoption of flexible work environments is here to stay – and this actually
poses a risk to the office market. There is a massive difference in density between
traditional office arrangements (about 250 sf/employee) and co-working/flex
arrangements (75 sf/employee). Shifting the U.S. employment base toward a
flexible working arrangement thus has the same effect as adding supply. This
needs to be watched, in our view, as it could be a drag that unfolds over years and
keeps pressure on rents and necessitates cap ex for buildings to remain
competitive.

We provide statistics in graphical form following this text, but our geographic
preference remains the West Coast, where there is outsized rent growth and REITs
in those markets have sizable mark-to-markets. The risks to our West Coast
preference in 2020 are two-fold as we see it: 1) the potential for Prop 13 split rolls
in California, and 2) any pullback in the tech sector if the IPO market or VC
market dries up.

Michael W. Mueller, CFA

(1-212) 622-6689
michael.w.mueller@jpmorgan.com

The New York City office REITs remain a tempting group given big “NAV”
discounts. The Manhattan office market has become extremely bifurcated, in our
view, in a very short period of time – i.e., the last 1-2 years. There is significant
demand for space from the major tech companies in Midtown South and the far
West Side. We think projects that SLG (One Madison, 410 Tenth Avenue) and
VNO (Farley Post Office redevelopment) have in those areas will work out well.
However, the bulk of market cap in the New York office REITs still resides in
traditional assets mostly in Midtown, where economic rent growth is elusive. And
for investors, the financials of these companies are among the most complex in the
REIT space. We think there are better ideas across the real estate stock space.

Our top ideas in office for 2020 are Overweight-rated KRC and ARE, as we see
both being very much in the path of demand and both having large value-add
development pipelines. We have a number of Neutral-rated names in office, and if
we had to select a few that should be able to take advantage of solid market trends,
we would highlight CUZ, BXP, and DEI as being on the short-list. We are keeping
our Underweights on the New York City office names, but if we had to select one,
it would be SLG given the development pipeline it has put together and its stock
buyback.

Figure 125: Valuation Summary for Office REITs under J.P. Morgan Coverage

Source: Company reports and J.P. Morgan estimates as of 12/13/19.

* Excluding Technology.

Michael W. Mueller, CFA

(1-212) 622-6689
michael.w.mueller@jpmorgan.com

Figure 126: Current Thoughts on Our Office REIT Coverage Universe

Company Ticker Rating J.P. Morgan Views

ARE continues to be in the path of demand, both geographically and with cluster locations within its markets. Its development pipeline is
Alexandria Real large with attractive yields compared to where private market values are, and its balance sheet is the strongest it has ever been. We think
ARE OW
Estate the pushback points are investment gains being in earnings and the little leverage being attained on its core growth and development as it
has equitized the balance sheet and cranked up G&A.

We like KRC’s development pipeline and strong portfolio mark-to-market. The pipeline is significantly pre-leased, and we think it is being
Kilroy Realty Corp KRC OW surgical in adding to the pipeline with compelling projects. We estimate the company to be trading in the low-5s implied cap rate range,
which is among the least expensive names in the top-quality office arena.

The company’s development pipeline is strong, and we think 2020 could bring positive earnings momentum once again the way it did in
Boston Properties BXP N
2019 – it “beat and raised” every quarter. Our Neutral rating is a function of trying to be selective within the office group.

Fundamentals in its markets appear to be in good shape. It should continue to deliver consistent results in 2020 while teeing up new
Brandywine Realty developments at Schuylkill Yards in Philadelphia and Broadmoor in Austin. We think these are attractive long-term projects, but it may still
BDN N
Trust take some time to get them started. We also think with BDN being a bit more capital constrained than some peers, its planned joint
ventures to get projects going will add complexity to the company.
We like CUZ’s portfolio footprint as a play on corporate relocations and concentration in key growth nodes in its Southeast and Southwest
Cousins Properties CUZ N markets. It has laid out a good bridge showing growth into 2021 as developments stabilize, but we think that growth could prove modest,
as there are still dispositions to occur post the TIER acquisition.

The company’s LA small-tenant Westside portfolio is performing well, and we think its increased development/redevelopment pipeline in
Douglas Emmett DEI N the next few years is compelling. The pushback points we expect in 2020 are that 1) LA has shifted a bit into a large-tenant market and
spreading out into new submarkets, and 2) what will happen if Prop 13 split rolls go through.

PDM’s new CEO has been quick to make changes to the portfolio, including several key acquisitions to complete its ownership of the
Piedmont Office Galleria in Atlanta and the disposition of its 500 West Monroe Street property in Chicago. We think this – along with completing the
PDM N
Realty Trust renewal of the New York State lease in NYC – sets the company up well to make acquisitions and narrow the portfolio strategy so that it
can drive future growth.
OFC's leasing came together very well in 2019, and its development pipeline looks compelling. We think if it continues to execute in this
Corporate Office
OFC N manner, its 2021 growth visibility should improve and be a potential catalyst as the year progresses. But there could still be some drags,
Properties
as it has to finance the pipeline.
We like the industrial assets that PSB holds, as the company just acquired another building in LA. We think 2020 will be another strong
PS Business Parks,
PSB N year for rent growth in the portfolio, though with some larger move-outs occupancy could dip within the year. We think the biggest
Inc.
challenge is valuation of the stock, which is at a premium.

We remain bearish on New York City office despite some strong pockets of demand. SLG’s development/re-development pipeline is
SL Green Realty SLG UW compelling, and if we had to select one NYC office REIT to own, this would be it. But we think it will also have to navigate challenges in its
core Midtown portfolio that faces fairly large move-outs in each of the next few years and will require sizable cap ex packages.

Similar to SLG, we are bearish on New York City office. The upshot for VNO is that it should be successful at leasing its Farley office
Vornado Realty development, and upgrading its Penn Plaza portfolio should come with higher rents. The earnings trajectory in the near term, however, is
VNO UW
Trust unclear as it goes through these projects, and despite “simplifying” the company, its financials remain among the most complex in the
REIT space.

WRE continues to shift focus towards multifamily, which we think is positive. In the meantime, however, we are not big fans of the
Washington, D.C. office market and think the transformation could take some time for WRE. Several office vacancies should be backfilled
Washington REIT WRE UW and turn the core portfolio cash flows positive in early 2020, and the contribution from multifamily development should also help during the
year. We would look to how 2020 dispositions and acquisitions shape up to better understand the 2021E earnings trajectory. This could
take a couple more quarters.

We think the stock remains very cheap relative to underlying asset value. However, we don’t think the company’s special board
committee is likely to find a way to unlock this value in the next couple quarters. We think instead CLI will need to dispose of its suburban
Mack-Cali Realty CLI UW
office portfolio and show progress on Waterfront leasing, which has been pretty weak, before some corporate event is likely. We would
watch for one or more of these items to emerge through the year.

Source: J.P. Morgan

Michael W. Mueller, CFA

(1-212) 622-6689
michael.w.mueller@jpmorgan.com

Atlanta: Key Office Stats

Figure 127: Atlanta Office Vacancy and Rent Growth
2.3% 18.0%
Rent Growth - left axis
1.8% Vacancy (%) - right axis 16.0%

1.3% 14.0%

0.8% 12.0%

0.3% 10.0%

-0.2% 8.0%

-0.7% 6.0%
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020E 2021E 2022E 2023E

Source: CoStar.

Figure 128: Atlanta Office Completions and Non-Farm Payroll Job Growth

Net Completions (%) - left axis Non-farm Payroll Jobs Y/Y Growth (%) - right axis
1.9% 4.0%

1.4% 3.0%

0.9% 2.0%

0.4% 1.0%

-0.1% 0.0%

-0.6% -1.0%
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019E 2020E 2021E 2022E 2023E

Source: Bureau of Labor Statistics, CoStar and J.P. Morgan calculations. Note: Completions are as a percent of stock.

Figure 129: Atlanta Office Transaction Volume and Cap Rate Trends
$6.0 9.0%

$5.0 8.0%

Transaction Volume ($bil)

$4.0 7.0%
Average Cap Rate (%)

$3.0 6.0%

$2.0 5.0%

$1.0 4.0%

$0.0 3.0%
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 YTD

Source: Real Capital Analytics estimates.

Michael W. Mueller, CFA

(1-212) 622-6689
michael.w.mueller@jpmorgan.com

Austin: Key Office Stats

Figure 130: Austin Office Vacancy and Rent Growth
2.3% Rent Growth - left axis 18.0%

Vacancy (%) - right axis

1.8% 16.0%

1.3% 14.0%

0.8% 12.0%

0.3% 10.0%

-0.2% 8.0%

-0.7% 6.0%

-1.2% 4.0%
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020E 2021E 2022E 2023E

Source: CoStar.

Figure 131: Austin Office Completions and Non-Farm Payroll Job Growth

Net Completions (%) - left axis Non-farm Payroll Jobs Y/Y Growth (%) - right axis
6.0% 6.0%

5.0% 5.0%

4.0% 4.0%

3.0% 3.0%

2.0% 2.0%

1.0% 1.0%

0.0% 0.0%
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019E 2020E 2021E 2022E 2023E

Source: Bureau of Labor Statistics, CoStar and J.P. Morgan calculations. Note: Completions are as a percent of stock.

Figure 132: Austin Office Transaction Volume and Cap Rate Trends
$3.0 9.0%

$2.5 8.0%

$2.0 Transaction Volume ($bil) 7.0%

Average Cap Rate (%)

$1.5 6.0%

$1.0 5.0%

$0.5 4.0%

$0.0 3.0%
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 YTD

Source: Real Capital Analytics estimates.

Michael W. Mueller, CFA

(1-212) 622-6689
michael.w.mueller@jpmorgan.com

Boston: Key Office Stats

Figure 133: Boston Office Vacancy and Rent Growth
3.0% 14.0%
Rent Growth - left axis
2.5% Vacancy (%) - right axis 12.0%

2.0% 10.0%

1.5% 8.0%

1.0% 6.0%

0.5% 4.0%

0.0% 2.0%

-0.5% 0.0%
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020E 2021E 2022E 2023E

Source: CoStar.

Figure 134: Boston Office Completions and Non-Farm Payroll Job Growth

Net Completions (%) - left axis Non-farm Payroll Jobs Y/Y Growth (%) - right axis
2.0% 2.5%

1.6% 2.0%

1.2% 1.5%

0.8% 1.0%

0.4% 0.5%

0.0% 0.0%
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019E 2020E 2021E 2022E 2023E

Source: Bureau of Labor Statistics, CoStar and J.P. Morgan calculations. Note: Completions are as a percent of stock.

Figure 135: Boston Office Transaction Volume and Cap Rate Trends
$10.0 10.0%
Transaction Volume ($bil)

Average Cap Rate (%)

$8.0 8.0%

$6.0 6.0%

$4.0 4.0%

$2.0 2.0%

$0.0 0.0%
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 YTD

Source: Real Capital Analytics estimates.

Michael W. Mueller, CFA

(1-212) 622-6689
michael.w.mueller@jpmorgan.com

Charlotte: Key Office Stats

Figure 136: Charlotte Office Vacancy and Rent Growth

2.5% 18.0%
Rent Growth - left axis
2.0% Vacancy (%) - right axis 16.0%

1.5% 14.0%

1.0% 12.0%

0.5% 10.0%

0.0% 8.0%

-0.5% 6.0%

-1.0% 4.0%
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020E 2021E 2022E 2023E
Source: CoStar.

Figure 137: Charlotte Office Completions and Non-Farm Payroll Job Growth

Net Completions (%) - left axis Non-farm Payroll Jobs Y/Y Growth (%) - right axis
4.0% 4.0%

3.0% 3.1%

2.0% 2.2%

1.0% 1.3%

0.0% 0.4%

-1.0% -0.5%
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019E 2020E 2021E 2022E 2023E

Source: Bureau of Labor Statistics, CoStar and J.P. Morgan calculations. Note: Completions are as a percent of stock.

Figure 138: Charlotte Office Transaction Volume and Cap Rate Trends
$2.5 9.0%

$2.0 8.0%

$1.5 Transaction Volume ($bil) 7.0%

Average Cap Rate (%)

$1.0 6.0%

$0.5 5.0%

$0.0 4.0%
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 YTD

Source: Real Capital Analytics estimates.

Michael W. Mueller, CFA

(1-212) 622-6689
michael.w.mueller@jpmorgan.com

Dallas: Key Office Stats

Figure 139: Dallas Office Vacancy and Rent Growth
1.6% 18.0%
Rent Growth - left axis
Vacancy (%) - right axis
1.2% 17.0%

0.8% 16.0%

0.4% 15.0%

0.0% 14.0%

-0.4% 13.0%
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020E 2021E 2022E 2023E
Source: CoStar.

Figure 140: Dallas Office Completions and Non-Farm Payroll Job Growth
Net Completions (%) - left axis Non-farm Payroll Jobs Y/Y Growth (%) - right axis
3.0% 4.0%

2.4% 3.2%

1.8% 2.4%

1.2% 1.6%

0.6% 0.8%

0.0% 0.0%
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019E 2020E 2021E 2022E 2023E

Source: Bureau of Labor Statistics, CoStar and J.P. Morgan calculations. Note: Completions are as a percent of stock.

Figure 141: Dallas Office Transaction Volume and Cap Rate Trends
$7.0 9.0%
Transaction Volume ($bil)

Average Cap Rate (%)

$5.6 8.4%

$4.2 7.8%

$2.8 7.2%

$1.4 6.6%

$0.0 6.0%
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 YTD

Source: Real Capital Analytics estimates.

Michael W. Mueller, CFA

(1-212) 622-6689
michael.w.mueller@jpmorgan.com

Los Angeles: Key Office Stats

Figure 142: Los Angeles Office Vacancy and Rent Growth
2.4% 13.0%
Rent Growth - left axis
Vacancy (%) - right axis
1.8% 12.2%

1.2% 11.4%

0.6% 10.6%

0.0% 9.8%

-0.6% 9.0%
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020E 2021E 2022E 2023E
Source: CoStar.

Figure 143: Los Angeles Office Completions and Non-Farm Payroll Job Growth
Net Completions (%) - left axis Non-farm Payroll Jobs Y/Y Growth (%) - right axis
1.3% 3.0%

1.0% 2.0%

0.7% 1.0%

0.4% 0.0%

0.1% -1.0%

-0.2% -2.0%
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019E 2020E 2021E 2022E 2023E

Source: Bureau of Labor Statistics, CoStar and J.P. Morgan calculations. Note: Completions are as a percent of stock.

Figure 144: Los Angeles Office Transaction Volume and Cap Rate Trends
$15.0 7.5%

$12.0 7.0%

$9.0 Transaction Volume ($bil)

6.5%

Average Cap Rate (%)

$6.0 6.0%

$3.0 5.5%

$0.0 5.0%
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 YTD

Source: Real Capital Analytics estimates.

Michael W. Mueller, CFA

(1-212) 622-6689
michael.w.mueller@jpmorgan.com

New York: Key Office Stats

Figure 145: New York Office Vacancy and Rent Growth
2.0% 10.0%
Rent Growth - left axis
Vacancy (%) - right axis
1.5% 9.6%

1.0% 9.2%

0.5% 8.8%

0.0% 8.4%

-0.5% 8.0%
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020E 2021E 2022E 2023E
Source: CoStar.

Figure 146: New York Office Completions and Non-Farm Payroll Job Growth

Net Completions (%) - left axis Non-farm Payroll Jobs Y/Y Growth (%) - right axis
1.5% 3.5%

1.1% 2.8%

0.7% 2.1%

0.3% 1.4%

-0.1% 0.7%

-0.5% 0.0%
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019E 2020E 2021E 2022E 2023E

Source: Bureau of Labor Statistics, CoStar and J.P. Morgan calculations. Note: Completions are as a percent of stock.

Figure 147: New York Office Transaction Volume and Cap Rate Trends
$35.0 6.0%

$28.0 5.6%

Transaction Volume ($bil)

$21.0 Average Cap Rate (%) 5.2%

$14.0 4.8%

$7.0 4.4%

$0.0 4.0%
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 YTD

Source: Real Capital Analytics estimates.

Michael W. Mueller, CFA

(1-212) 622-6689
michael.w.mueller@jpmorgan.com

Philadelphia: Key Office Stats

Figure 148: Philadelphia Office Vacancy and Rent Growth

1.2% 13.0%
Rent Growth - left axis
Vacancy (%) - right axis
0.8% 12.0%

0.4% 11.0%

0.0% 10.0%

-0.4% 9.0%

-0.8% 8.0%
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020E 2021E 2022E 2023E
Source: CoStar.

Figure 149: Philadelphia Office Completions and Non-Farm Payroll Job Growth

Net Completions (%) - left axis Non-farm Payroll Jobs Y/Y Growth (%) - right axis
1.0% 2.0%

0.7% 1.6%

0.4% 1.2%

0.1% 0.8%

-0.2% 0.4%

-0.5% 0.0%
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019E 2020E 2021E 2022E 2023E
Source: Bureau of Labor Statistics, CoStar and J.P. Morgan calculations. Note: Completions are as a percent of stock.

Figure 150: Philadelphia Office Transaction Volume and Cap Rate Trends
$3.0 9.0%

$2.4 8.4%

Transaction Volume ($bil)

Average Cap Rate (%)

$1.8 7.8%

$1.2 7.2%

$0.6 6.6%

$0.0 6.0%
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 YTD
Source: Real Capital Analytics estimates.

Michael W. Mueller, CFA

(1-212) 622-6689
michael.w.mueller@jpmorgan.com

San Francisco: Key Office Stats

Figure 151: San Francisco Office Vacancy and Rent Growth

5.0% 14.0%
Rent Growth - left axis
Vacancy (%) - right axis
4.0% 12.0%

3.0% 10.0%

2.0% 8.0%

1.0% 6.0%

0.0% 4.0%
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020E 2021E 2022E 2023E
Source: CoStar.

Figure 152: San Francisco Office Completions and Non-Farm Payroll Job Growth

Net Completions (%) - left axis Non-farm Payroll Jobs Y/Y Growth (%) - right axis
2.5% 5.5%

1.9% 4.1%

1.3% 2.7%

0.7% 1.3%

0.1% -0.1%

-0.5% -1.5%
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019E 2020E 2021E 2022E 2023E
Source: Bureau of Labor Statistics, CoStar and J.P. Morgan calculations. Note: Completions are as a percent of stock.

Figure 153: San Francisco Office Transaction Volume and Cap Rate Trends
$10.0 7.0%

Transaction Volume ($bil)

Average Cap Rate (%)

$8.0 6.6%

$6.0 6.2%

$4.0 5.8%

$2.0 5.4%

$0.0 5.0%
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 YTD
Source: Real Capital Analytics estimates.

Michael W. Mueller, CFA

(1-212) 622-6689
michael.w.mueller@jpmorgan.com

Seattle: Key Office Stats

Figure 154: Seattle Office Vacancy and Rent Growth

2.0% 14.0%
Rent Growth - left axis
Vacancy (%) - right axis
1.4% 12.0%

0.8% 10.0%

0.2% 8.0%

-0.4% 6.0%

-1.0% 4.0%
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020E 2021E 2022E 2023E
Source: CoStar.

Figure 155: Seattle Office Completions and Non-Farm Payroll Job Growth

Net Completions (%) - left axis Non-farm Payroll Jobs Y/Y Growth (%) - right axis
3.0% 3.5%

2.4% 2.4%

1.8% 1.3%

1.2% 0.2%

0.6% -0.9%

0.0% -2.0%
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019E 2020E 2021E 2022E 2023E
Source: Bureau of Labor Statistics, CoStar and J.P. Morgan calculations. Note: Completions are as a percent of stock.

Figure 156: Seattle Office Transaction Volume and Cap Rate Trends
$6.5 8.0%
Transaction Volume ($bil)

Average Cap Rate (%)

$5.2 7.4%

$3.9 6.8%

$2.6 6.2%

$1.3 5.6%

$0.0 5.0%
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 YTD
Source: Real Capital Analytics estimates.

Michael W. Mueller, CFA

(1-212) 622-6689
michael.w.mueller@jpmorgan.com

Washington D.C.: Key Office Stats

Figure 157: Washington D.C. Office Vacancy and Rent Growth

0.7% 15.0%
Rent Growth - left axis
Vacancy (%) - right axis
0.5% 14.0%

0.3% 13.0%

0.1% 12.0%

-0.1% 11.0%

-0.3% 10.0%
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020E 2021E 2022E 2023E
Source: CoStar.

Figure 158: Washington D.C. Office Completions and Non-Farm Payroll Job Growth

Net Completions (%) - left axis Non-farm Payroll Jobs Y/Y Growth (%) - right axis
1.5% 2.0%

1.2% 1.6%

0.9% 1.2%

0.6% 0.8%

0.3% 0.4%

0.0% 0.0%
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019E 2020E 2021E 2022E 2023E
Source: Bureau of Labor Statistics, CoStar and J.P. Morgan calculations. Note: Completions are as a percent of stock.

Figure 159: Washington D.C. Office Transaction Volume and Cap Rate Trends
$6.0 7.0%

Transaction Volume ($bil)

$4.8 Average Cap Rate (%) 6.6%

$3.6 6.2%

$2.4 5.8%

$1.2 5.4%

$0.0 5.0%
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 YTD
Source: Real Capital Analytics estimates.

Michael W. Mueller, CFA

(1-212) 622-6689
michael.w.mueller@jpmorgan.com

Health Care REITs: Capital deployment

thesis is playing out; SHOP headwinds
still a focus, though
The health care REITs have underperformed the overall REIT group by ~630 bps
Figure 160: YTD Total Returns on an YTD basis. What is interesting is that the health care REITs were
MSCI US REIT Index 21.9% outperforming the overall group by ~300 bps until Ventas’s 3Q earnings release,
S&P 500 28.9% in which it disclosed an unexpected drop-off in senior housing (SHOP)
Health Care REITs 15.6% fundamentals. Since the release, the health care REITs have lagged the broader
Source: Bloomberg; J.P. Morgan as of REIT group by ~670 bps. Even though companies were executing on their
12/13/19 respective external growth strategies, our take is that concerns stemming from
VTR’s 3Q SHOP results and subsequent pre-NAREIT outlook deck have weighed
on the sector’s recent stock performance.

Figure 161: Recent Stock Performance

Health Care, REIT and S&P 500 Performance
2014 2015 2016 2017 2018 2019 YTD
Bloomberg REIT Health Care Index 33.6% -6.5% 7.0% 0.6% 7.1% 15.6%
MSCI US REIT Index 30.4% 2.5% 8.6% 5.1% -4.5% 21.9%
S&P 500 Index 13.7% 1.4% 12.0% 21.8% -4.4% 28.9%

Bloomberg Health Care REIT Index Relative Performance

vs. MSCI US REIT Index 321 bps (900 bps) (162 bps) (453 bps) 1,164 bps (630 bps)
vs. S&P 500 Index 1,993 bps (785 bps) (496 bps) (2,123 bps) 1,152 bps (1,327 bps)
Source: Bloomberg as of 12/13/2019

As we move into 2020, we are maintaining our constructive outlook for the health
care REIT sector. From a macro perspective, the backdrop we see today looks
good for the sector. The 10-year Treasury yield is lower at 1.8%, and the JPM
house view is for just a modest increase in 2020 to ~2.05%. The health care REIT
average dividend yield of 5.2% stands out given the low rate environment. The
consensus and JPM view for the S&P 500 EPS growth is ~10%. A reduction in
broader market growth outlook (like we saw in 2H 2018 and all of 2019) could be
a positive for the group, as its relative growth profile would be enhanced.

Looking more closely at the health care REIT business prospects, our call last year
that we would see heavy disposition volumes moderate and acquisition activity
accelerate has played out. We walk through these numbers and trends below, but
we have seen close to $13 billion of announced acquisitions this year for our
coverage universe, which is close to triple of what was announced in 2018. The
health care REITs generally have strong equity and debt costs, and management
teams are taking advantage of this and playing offense.

We do see there being a few key risks to our positive outlook for the stocks,
though. Most notably, even though we have seen a steady decline in senior
housing development starts over the past several quarters, SHOP SS NOI growth
rates are still reflecting supply and labor cost impact, and continue to be a
headwind for the overall sector...albeit with some sizable variances among the
companies. As we saw with the sector’s stock performance following Ventas’s
call for a weaker SHOP outlook, the stocks are still sensitive to changes in SHOP
growth expectations, even though REIT external growth engines are working well.
A more macro level risk is that an unexpected increase in interest rates (10-Year

Michael W. Mueller, CFA

(1-212) 622-6689
michael.w.mueller@jpmorgan.com

Treasury) and/or a risk-on stock market could cause the health care REITs to lag
other property types.

Some Key Items for 2020

Generally viewed as a defensive segment of the REIT space…The health care
REIT sector often gets painted with a broad brush as a defensive property type
because of a few factors. From a stock attribute perspective, the sector carries an
above-average dividend yield of ~5.2%, which is ~150 bps higher than the overall
REIT group average. This higher yield compensates for what can often be lower
organic growth profiles but arguably makes the sector more interest rate sensitive
than other property types with lower yields and higher organic growth potential.
From a business perspective, the defensive label is often applied to the sector
because many companies employ long-term triple net lease structures (which can
reduce short-term volatility), and the inherent nature of being tied to health care
and/or seniors related properties has a more necessity-based demand.

…..but company dynamics and risk profiles within the sector can vary a lot.
The health care REIT sector is comprised of companies that have exposures to a
number of property types such as retirement communities, assisted living,
hospitals, medical office/outpatient facilities, post-acute/skilled nursing, and life
science/educational. We typically see long-term triple-net leases used for hospital,
skilled nursing/post-acute, and some senior housing investments, and operating
lease structures utilized for the various office-related assets and a good portion of
senior housing investments (SHOP) where the REIT takes on day-to-day operating
risk. Even the “big three” (WELL, PEAK, VTR) have notable portfolio
differences as it relates to SHOP, MOB/outpatient, hospital, and life science
(related) exposures. As it relates to external growth, every company in our
universe employs an acquisition strategy, and most have some sort of a
development pipeline as well. Even though the sector often gets billed as
defensive, it has not been immune to operational issues over time, which has led to
rent restructurings, higher yielding dispositions, and write-downs. The good news
is that high level management commentary for most companies is signaling that
the companies moving past recent years’ restructurings/clean-up (such as with
PEAK’s recent transactions to reduce its Brookdale exposure) and are playing
offense again.

SHOP performance continues to weigh on the sector’s comp NOI growth. We

estimate that overall SS NOI growth for our coverage universe will come in at
~1.8% for 2019 and decline to ~1.4% in 2020. One factor negatively impacting the
2020 trend is Ventas’s pre-NAREIT messaging that 2H 2019 SHOP (Senior
Housing Operating / RIDEA) NOI trends have been worse than expected and will
also negatively impact 2020 results. Supply-driven weakness, particularly in
secondary markets, was flagged and an important driver of this updated view.

Backing up for moment, the tables below illustrate how the SHOP assets had a
positive influence on overall SS NOI growth rates for the sector (PEAK, VTR,
WELL in our coverage universe) a few years ago, but they have moderated in
recent years due to headwinds from new supply and higher labor costs and have
been a headwind to overall growth. In 2019, this has been particularly true for
VTR and PEAK. As it relates to WELL, recall that management does not update
its property segment SS NOI outlooks, but its YTD SHOP SS NOI growth had
been trending well above its initial SHOP and overall SS NOI growth outlooks
(we do anticipate some 2020 moderation though). Despite the sector’s current

100

Michael W. Mueller, CFA

(1-212) 622-6689
michael.w.mueller@jpmorgan.com

SHOP headwinds, management teams continue to be quite positive about the

growing demand picture over the next 5-10 years. One other company-specific
item worth noting relating to PEAK is that the YOY SHOP SS NOI headwinds
coming from its transition portfolio (which comped down in the mid-teens
previously and are weighing on its overall SHOP SS NOI performance) improved
over each of the last few quarters, and comps are approaching breakeven.

Figure 162: SHOP vs Total Portfolio Cash SS NOI Growth

FY 2015 FY 2016 FY 2017 FY 2018
SHOP Total SHOP Total SHOP Total SHOP Total
PEAK 3.7% 0.5% 6.6% 3.7% 0.2% 3.4% -3.8% 1.4%
VTR 2.3% 3.8% 2.3% 2.9% 1.3% 2.5% -2.1% 1.2%
WELL 3.1% 3.1% 3.3% 3.0% 2.5% 2.7% 0.4% 1.6%

1Q19 2Q19 3Q19 2019 Guidance

SHOP Total SHOP Total SHOP Total SHOP Total
PEAK -7.7% 3.0% -2.3% 3.5% -6.0% 2.4% -5.0% 2.25-3.25%
VTR -2.2% 1.1% -2.9% 0.3% -5.0% 1.0% (5)-(4)% 0-0.3%
WELL 3.0% 3.1% 3.3% 3.1% 2.8% 2.6% 0.5-2.0% 2.25-2.75%
Source: Company filings, J.P. Morgan
Note: PEAK's 2019 SHOP SSNOI growth midpoint outlook of 5% has not been updated since 4Q18. WELL has not updated its
2.25-2.75% outlook since 4Q18 too.

There have been some marginal improvements in the national senior housing
supply picture. Per NIC data, national assisted living supply growth (% of
inventory under construction) peaked around the beginning of 2018 at ~10%.
Since then, the growth rate has declined steadily and stood at ~7%+ as of 3Q
2019. Over that time period, it estimated that rental growth declined from a peak
of ~3.5%+ down to a growth rate in the low-2%s. While it can take the market
several quarters to years to fully absorb new deliveries, the declining delivery
trend is nonetheless a marginal positive and encouraging.

Figure 163: Assisted Living Senior Housing Supply Trends

4.00% 10.00%

3.50% 9.00%

8.00%
3.00%
7.00%
2.50%
6.00%
2.00%
5.00%
1.50%
4.00%
1.00%
3.00%

0.50% 2.00%
Rent growth (Left) % of units under construction (Right)
0.00% 1.00%
Sep-06
Mar-07
Sep-07
Mar-08
Sep-08
Mar-09
Sep-09
Mar-10
Sep-10
Mar-11
Sep-11
Mar-12
Sep-12
Mar-13
Sep-13
Mar-14
Sep-14
Mar-15
Sep-15
Mar-16
Sep-16
Mar-17
Sep-17
Mar-18
Sep-18
Mar-19
Sep-19

Source: NIC, Bloomberg, J.P. Morgan as of 3Q19

101

Michael W. Mueller, CFA

(1-212) 622-6689
michael.w.mueller@jpmorgan.com

WELL, VTR, and PEAK each lay out in their supplements what they see as their
portfolios’ exposure to new supply. For WELL, the company disclosed in its 3Q19
supplemental using a 3-mile radius that ~10% of SHOP NOI could potentially be
impacted by new supply coming online. For PEAK, the company disclosed in its
3Q19 supplemental using a 5-mile radius that ~33% of its SHOP NOI has
exposure to new supply. Lastly, for VTR, it disclosed in its 3Q19 supplemental
that about ~27% of its overall SHOP NOI has direct exposure to new supply
(based on 3- or 7-mile trade areas).

The sector is back to being a net deployer of capital. Consistent with our 2019
Outlook thesis for the health care REITs, disposition/clean-up activity moderated
significantly compared to 2018 levels, and management teams took advantage of
strong capital costs by ramping up new acquisition activity. We calculate that the
YTD level of closed/announced acquisitions of ~$12+ billion (on closed/
announced activity) is roughly 2.5x 2018’s volume.

Figure 164: Investment/Disposition Activity* for Our Coverage Universe (2015 – 2019 YTD)

(in $ billions)
$16.0
Total Investment Activity Dispositions and Loan Payoffs
$14.0 $13.7
$12.6
$12.0

$10.0
$8.5
$7.8
$8.0 $7.2

$6.0 $5.0 $4.7

$4.5 $4.2
$4.0 $2.7
$2.0

$0.0
FY 2015 FY 2016 FY 2017 FY 2018 2019 YTD

*Total investment activity includes acquisitions, JVs, and loan/mortgage investments; 2019 YTD activity includes all
closed/announced investments and dispositions.
Source: Company filings, J.P. Morgan

Some larger transactions that occurred during 2019 were VTR’s $1.65B
acquisition of Le Groupe Maurice (Canadian senior housing), WELL’s $1.25B
CNL MOB acquisition, PEAK’s $445 million acquisition of Discovery Senior
Living assets, and MPW’s $1.55B acquisition of the Prospect Health portfolio.
Additionally, the MOB-focused REITs (HTA and HR) became more acquisitive in
2019 as well after a relatively quiet 2018.

102

Michael W. Mueller, CFA

(1-212) 622-6689
michael.w.mueller@jpmorgan.com

Figure 165: 2018 and 2019 YTD Total Acquisition and Loan Investment Activity* for Our
Coverage Universe (Closed/Announced)
$4,500 $4,169
(in $ millions)
$4,000
$3,455
$3,500
2018 Acquisitions/Loan Inv. $2,983
$3,000
$2,505
2019 YTD Acquisitions/Loan Inv. $2,365
$2,500
$2,000
$1,500
$1,000
$508 $532
$316
$500 $111 $18 $228 $62
$0
HR HTA MPW PEAK WELL VTR
*Total investment activity includes acquisitions, JVs, development funding and loan/mortgage investments.
Source: Company filings, J.P. Morgan

The focus on development has become more prominent. While we have

historically seen a lot of acquisition/consolidation in the health care space,
virtually all of the health care REITs in our coverage universe are deploying some
capital toward development. Taking a step back, we generally like development.
By taking on development risk, REITs have the ability to produce returns that are
in excess of private market values…adding to bottom-line FFO and driving
NAV/share growth. Additionally in the health care space, given the focus on
operator/tenant relationships, new development can be a way for the REITs to
piggyback off of and help facilitate partners/operators/tenants’ growth plans.

In terms of pound-for-pound exposure, we see that the aggregate total expected

investment (TEI) stands at 3+% of the group’s total market capitalization, up
about ~100 bps from this time last year. Within the group, PEAK has the largest
pound-for-pound development exposure, which is largely comprised of its life
science development projects (~90% of TEI). VTR has also ramped up on
development activity, as evidenced by the meaningful increase in exposure –
driven largely by the $1.5B university-based R&I program it announced earlier in
the year.

Figure 166: Development Pipelines (in $ thousands)

Development / Pipeline Size Development / Pipeline Size
Company Redevelopment as % of TMC Redevelopment as % of TMC
Pipeline as of 3Q18 (at YE 2018) Pipeline as of 3Q19 (at YE 2019)
HR $76,120 1.4% $91,920 1.6%
HTA $144,237 1.7% $197,173 2.2%
MPW $180,562 1.8% $177,391 1.1%
PEAK $1,003,175 4.6% $1,286,017 5.3%
WELL $660,646 1.5% $1,144,011 2.4%
VTR $730,400 2.1% $1,698,500 5.0%
Total/Weighted Average 2.3% 3.4%
Simple Average 2.2% 2.9%
Source: Company filings, J.P. Morgan

103

Michael W. Mueller, CFA

(1-212) 622-6689
michael.w.mueller@jpmorgan.com

Valuation levels are strong...but that can be a good thing. We calculate that the
health care REITs trade at a 5.4% implied cap rate, which is 10bps above the
overall REIT implied cap rate, but at this level it translates into ~19.6% NAV
premium. While this premium puts the group into expensive territory relative to
where we believe underlying NAVs are, it provides the companies with strong
currencies to continue to deploy capital accretively. This is a much better
alternative than having cheap valuations that put the group “into a box” from an
external growth perspective.

Looking at leveraged trading multiples, we calculate that the group trades at 16.1x
2020E FFO and 18.4x 2020E AFFO, which compares to 20.0x and 21.9x for the
overall REIT group, respectively. Our take is that this disconnect is at least
partially driven by relative cap rates versus other property types as well as slightly
higher leverage levels. Lastly, from a yield perspective, we calculate that the
Health Care sector’s yield of 5.2% is 150 bps higher than that of the overall REIT
group, which could be attractive to income-oriented investors.

Figure 167: Valuation Summary

2020E Dividend Implied
P / FFO P / AFFO Yield Cap Rate
Health Care REITs 16.1x 18.4x 5.2% 5.4%
Ov erall REIT group 20.0x 21.9x 3.7% 5.3%
Source: Bloomberg, SNL, and J.P. Morgan as of 12/13/19. Note: Implied cap rate is a weighted average by total market cap based
on our coverage universe

104

Michael W. Mueller, CFA

(1-212) 622-6689
michael.w.mueller@jpmorgan.com

Figure 168: Current Thoughts on Our Healthcare REIT Coverage Universe

Company Ticker Rating J.P. Morgan Views
Healthcare HR N From an operating perspective, management continues to do a good job in terms of improving rent spreads and putting larger
Realty escalators into its leases compared to several years ago…and these have helped to drive better core growth. On the external
growth front, what is most notable is that HR has stepped up its acquisition activity in 2019 (~$340 million YTD), and we suspect
this trend could continue in 2020.
Healthcare HTA OW We are moving from Neutral to Overweight, as we believe HTA is finally on the cusp of returning to a more normalized growth
Trust of rate. Following the low cap rate Duke MOB acquisition and subsequent disposition activity, earnings growth has been muted. The
America pace of investment activity has begun to pick up, both in terms of acquisitions and development/redevelopment announcements,
which should bode well for marginal growth. The stock also trades at a notable implied cap rate discount and yield premium
versus its closest peer...offering some relative value.
Healthpeak PEAK OW Healthpeak should enter 2020 with a stronger, de-risked portfolio compared to what it had in most of 2018 and 2019 due to a
Properties series of transactions that effectively restructured/sold some senior housing assets reduced its exposure to Brookdale. Equally
important, it has a visible $1+ billion (predominantly life science) development pipeline, and management has taken advantage of
its strong capital costs by stepping up the pace of acquisitions. On the negative side, SHOP SS NOI performance has been fairly
weak due primarily to a pool of assets that were transitioned to new operators, but these comps have shown sequential
improvement over the past few quarters and were approaching breakeven.
Medical MPW OW MPW's growth engine is its acquisition pipeline, and activity continues to be robust. YTD 2019 announced investment activity is
Properties north of $4B, which should help to further diversify the company’s tenant exposures (i.e., reducing Steward). Equally important,
Trust management’s messaging about the potential 2020 pipeline has been quite positive as well. Separately, the stock also offers a
high ~5% yield that should be attractive for income-oriented investors.
Ventas VTR N Ventas is arguably the most topical health care REIT stock heading into 2020 given its pre-NAREIT messaging that SHOP SS
NOI (and bottom-line FFO growth) were trending weaker than expected, which would weigh on 2020 results. The stock certainly
screens as being considerably cheaper than WELL and PEAK (implied cap, multiples, dividend yield) as a result of this news.
This presents a real opportunity for the stock, but we suspect that the company will have to show at least a couple of quarters of
marginal improvement for it to begin to close the valuation gap again. That said, the mid-5%'s dividend yield should be attractive
for income investors.
Welltower WELL N We have moved from an Overweight rating to a Neutral on Welltower (WELL), but we continue to have a positive bias and see
the stock as a long-term, core holding for investors. Our 2019 thesis of the company transitioning from being a net-seller to a net
deployed of capital (taking advantage of its strong currency) has played out, and we see this positive trend continuing in 2020.
Where we are a little more concerned at the margin is largely tied to two factors. First, Street estimates for 2020 (and 2021) look
too high, and we suspect they will need to ratchet down. This usually produces headwinds, not tailwinds. Second, given the
company’s strong relative SHOP performance in 2019 (particularly given a competitor’s notable 2H headwinds), we suspect the
stock could be quite sensitive to any moderation in this core growth metric.
Source: J.P. Morgan

105

Michael W. Mueller, CFA

(1-212) 622-6689
michael.w.mueller@jpmorgan.com

Net Lease REITs: Stay positive despite

risk of rotation away from “defense”
We have a bullish view on net lease REIT stocks going into 2020. As we go to
print, the broader equity market has shifted to a more offensive stance (strong
Figure 169: YTD Total Returns November job print, some tariff resolution, U.K. elections), which typically
MSCI US REIT Index 21.9%
creates a headwind for lower-risk sectors like REITs…and the more “defensive”
S&P 500 28.9%
yield-oriented property types within the REIT group, like net lease. But despite
Net Lease REITs 26.0%
this rotation and potential risk going into 2020, we think the space can thread the
needle by 1) driving acquisitions that should result in at least sector-matching
Source: Bloomberg; J.P. Morgan as of 12/13/19
earnings growth and 2) providing higher yields and lower multiples to investors.
The combination should provide an attractive total return to investors.

Capital costs are low, giving companies the green light to make accretive
investments... In the last year, capital costs for net lease companies have declined.
Specifically, the debt costs are down and the stocks are priced higher, affording
companies the opportunity to issue equity at attractive valuations and purchase
real estate at a higher return than what is implied by the public markets. Currently,
we estimate implied cap rates on the net lease sector to be about 5.5%, or down
80 bps from 6.3% at the end of 2018. This is significant because most net lease
assets are trading at 6.0-7.5% cap rates in the private market, which provides net
lease REITs a meaningful positive spread. Balance sheets are also in generally
good shape, with the sector’s 5.4x net debt/EBITDA being about in line with the
overall REIT group’s 5.6x.

…and management teams are talking up deal pipelines. Most net lease REITs
have a strong pipeline of deals for 2020 coming off a strong 2019. Management
teams across the board sound optimistic in being able to source and close on a
large number of transactions. Initial guidance from – or indications of what is in
the pipeline at – companies like Realty Income (O), Spirit (SRC), Safehold
(SAFE), and Four Corners (FCPT) looks good, and in the aggregate we think
2020 numbers can be achieved with deal levels that are lower than what was seen
in 2019. For instance, the net lease REIT we cover should end 2019 having done
about $9.3 billion in acquisitions and other investments. We assume in our models
that this figure for the same group of companies is $8.0 billion in 2020, despite a
private market that seems to be robust.

106

Michael W. Mueller, CFA

(1-212) 622-6689
michael.w.mueller@jpmorgan.com

Figure 170: Investment Activity for Net Lease REITs in Our Coverage Universe
(in $millions)
2019E 2020E
EPR $776 $975
FCPT $159 $220
GTY $78 $100
LXP $658 $600
O $3,451 $2,400
SAFE $1,692 $1,000
SRC $1,183 $850
VER $459 $1,050
WPC $837 $800
Total* $9,293 $7,995
Source: J.P. Morgan
*Includes only our covered company universe

Earnings growth should keep up with the rest of the REIT group and with
higher yields. We expect net lease REITs to post 2020 FFO growth of 6.3%,
better than the 4.3% we expect from REITs (ex tech REITs). For 2020 AFFO
growth, we estimate 5.7% for the net lease space versus 6.3% for REITs (ex tech
REITs). Historically, the move away from more economically sensitive property
types to a defensive sector like net lease would cost investors 200-400 bps of
growth – and perhaps more in a strong economy. We think the growth now
between net lease and the rest of the space is in a very tight band, which we find
attractive. As it relates to dividends, net lease REITs currently yield 4.9%, or
120 bps above the 3.7% of the entire REIT space.

Underlying tenant credit has been stable so far. Tenant credit is one of the most
important metrics when looking at net lease REITs. Many portfolios have large
brands occupying individual small assets, such as Walgreens, CVS, Starbucks,
Burger King, Dollar Store, AutoZone, and others. Other net lease REITs are
effectively financing larger and sometimes complex assets like ski operations,
casinos, warehouses, manufacturing facilities, and regional offices. Credit quality
runs a wide range, and if an industry runs into trouble, there is risk it can impact a
number of names in the space. Currently there has been very little in the way of
credit issues in the net lease space, and occupancy is running generally in the 99%
range.

Financial transparency is good. We think investors in the REIT space continue

to lean toward financially transparent and simple stories, and net lease fits this bill.
Few companies have complex accounting, joint ventures, or other income streams
at this point. Financial disclosure and metrics have improved, and there is more
and more consistency across the space in reporting – even if we don’t agree with
all of the AFFO and same store growth definitions.

On the risk side, there is real competition for deals given everyone’s growth
mandate… With all the companies in the space in the hunt for deals, there is
going to be competition, which could keep pricing full in the private market. As
noted above, management teams have been encouraging on the pipeline front, but

107

Michael W. Mueller, CFA

(1-212) 622-6689
michael.w.mueller@jpmorgan.com

a number of the companies in the space do have overlapping “buy boxes,” so one
can reasonably question if there is going to be enough good acquisitions to go
around. This has not been an issue so far, but it is something to watch.

…valuations look high on a real estate basis… Net lease REITS have recorded a
strong return in 2019 at +26%. There is always the circular dynamic here where
the higher valuations afford the companies lower capital costs and thus the ability
to make more accretive investments through stock issuance. But on the flipside,
for those looking purely at accessing cheap real estate, you likely won’t find it
here. We estimate that the group is trading at a 28% premium to underlying
NAV/share.

…and net lease stocks are often a bond proxy, which makes them susceptible
to being sold off if rates move higher. Net lease REITs are still viewed in the
market as a more rate sensitive property type within a rate sensitive sector. As
noted at the outset, capital can rotate out of these stocks if equity markets take on a
more offensive posture and/or interest rates move higher. In its extreme, this could
come back to snub growth if access to equity capital becomes more expensive and
cuts into investment spreads.

Navigating the space in 2020 – balance valuation and find stories that are
turning the corner. Our top stock preferences in the net lease REIT space are
EPR, SRC, and VER – all rated OW. The name we would put on the radar for
2020 is Four Corners (FCPT – N). Given its smaller size, if it finds a larger-than-
expected deal pipeline, it could easily surprise on the upside with respect to 2020
and 2021 growth.

Figure 171: Valuation Summary for Net Lease REITs in Our Coverage Universe
Stock Premium / Implied 2020E 2020E growth 2021E growth
Ticker Price JPM Rating Dividend Yield Discount to NAV Cap Rate P/FFO P/AFFO FFO AFFO FFO AFFO EV / EBITDA
Agree Realty ADC $67.98 NC 3.4% 32% NA 20.9 21.0 8.3% 8.1% 7.4% 6.8% 26.3x
EPR Properties EPR $68.07 Neutral 6.6% 17% 7.0% 12.5 12.4 -0.7% 0.0% 8.3% 8.1% 21.4x
Essential Property Realty EPRT $24.66 NC 3.7% 33% NA 18.4 19.4 15.5% 13.6% 11.9% 10.2% 20.8x
Four Corners Property Trust FCPT $27.06 N 4.5% 14% 5.3% 17.5 18.1 7.7% 8.2% 5.3% 5.3% 19.8x
Gaming & Leisure Properties GLPI $41.64 OW - Greff 6.7% 8% NA 13.3 11.6 9.0% 2.2% 3.2% 1.7% 14.0x
Getty Realty GTY $32.57 Underweight 4.5% 31% 6.2% 17.5 18.3 2.0% 2.6% 5.3% 5.8% 18.6x
Lexington Realty Trust LXP $10.50 Neutral 4.0% 9% 6.5% 13.8 17.4 -3.8% 3.4% 2.2% 8.5% 15.4x
M GM Growth Properties M GP $29.67 OW - Greff 6.4% -8% NA 13.0 12.4 4.1% 3.6% -3.9% 5.5% 17.4x
National Retail Properties NNN $51.30 NC 4.0% 18% NA 17.9 17.6 4.4% 4.5% 4.9% 5.1% 21.8x
Realty Income O $71.73 Neutral 3.8% 61% 4.6% 20.1 20.0 9.0% 8.7% 7.6% 7.6% 25.1x
Safehold SAFE $38.56 Neutral 1.6% 50% 2.8% 25.4 63.8 62.3% 135.9% 13.9% 17.4% 23.6x
Spirit Realty SRC $48.34 Overweight 5.1% 22% 6.1% 15.6 15.3 -6.5% -14.8% 6.3% 4.8% 16.4x
VEREIT VER $9.13 Overweight 6.0% 19% 6.3% 14.0 13.8 NA -3.2% 5.2% 3.9% 16.1x
VICI VICI $24.85 NC 4.8% 16% NA 15.2 14.7 18.1% 14.5% 9.2% 7.7% 17.9x
W.P. Carey WPC $76.67 Neutral 5.4% 28% 5.7% 16.5 15.1 3.2% 1.9% 4.3% 3.5% 18.5x
Total net lease average 4.9% 28% 5.5% 16.8 17.1 6.3% 5.7% 5.2% 5.8% 20.1x

Total REIT Industry 3.7% 4% 5.3% 20.0 21.9 4.3% 6.3% 4.7% 4.7% 20.7x
Source: Bloomberg, J.P. Morgan Estimates as 12/17/2019

108

Michael W. Mueller, CFA

(1-212) 622-6689
michael.w.mueller@jpmorgan.com

Figure 172: Current Thoughts on Our Net Lease REIT Coverage Universe
Company Ticker Rating J.P. Morgan Views
We think EPR starts 2020 with an improved portfolio, higher earnings quality, and a liquid balance sheet after its exit
from charter schools in late 2019. It has stated its intention to make a casino acquisition in the coming quarters, and
EPR Properties EPR OW
we think deal volume overall in 2020 could prove to be quite strong. We think earnings growth into 2021 should thus
be above average. Valuation is discounted relative to net lease peers, and the dividend yield is high.
SRC has completed its transformation of the company in the past year and has set a meaningful bar for acquisitions
in 2020. Management has expressed a good deal of confidence in the plan and its platform going forward, and we are
Spirit Realty SRC OW
inclined to think there is a good chance estimates could trend up this year. There is room for multiple re-rating as the
story unfolds.
The company finally “cleared the deck” by settling years-old litigation for about $1 billion in recent months. It can now
return to growth by utilizing the in-place platform to make acquisitions, and there remains opportunities to lower its
VEREIT VER OW
cost of capital by taking out its high-coupon preferred stock. The key will be how quickly management demonstrates
that it can turn the deal machine on. We like the ~6% yield in the meantime.
We like the company’s high quality, though concentrated, portfolio and the fact that it has a pipeline of outparcel
acquisitions all teed up and ready to close. Further, as a smaller cap name, it can move the needle much easier than
Four Corners FCPT N
some of its peers when making acquisitions. Management does not provide deal guidance and tends to be very
selective on acquisitions, but if deal flow starts to come in strong, it could provide a catalyst.
The “blue chip” in the net lease REIT space, it expanded its “buy box” in 2019 by moving into Europe – specifically
Realty Income O N buying a portfolio of Sainsbury’s supermarkets in the U.K. We think O’s low capital costs help provide good earnings
visibility because investment spreads are outsized.
The combination of interest rates coming down and SAFE’s deal pipeline gaining traction marked a pivotal year for
the company in 2019. It now has attractive capital costs (50% NAV premium) and has put together a unique debt
Safehold SAFE N
structure for deals. We think this stock can garner attention from investors looking for ultra-long duration to add to
portfolios. The pushback is its high cash flow multiple (65x) while it ramps the business.
The company should near the end of its transformation in 2020 from a net lease office REIT to a pure net lease
industrial REIT. As the year progresses, we think a better picture of whether it can return to growth or not in 2021
Lexington Realty LXP N
should emerge. Lower cap ex requirements that come from industrial assets should help cash flow conversion, but
the industrial acquisition market remains very heated, so competition for assets will likely be fierce.
2019 deal flow did not surprise on the upside, and it enters 2020 with dilution from its sale of the New York Times
W.P. Carey WPC N office condominium and some tenant credit drags. Nonetheless, we think WPC’s cost of capital is attractive, and it
has the benefit of a broad “buy box” that includes Europe and sizable deal platform.
Despite trading at a healthy premium to NAV and having a low-leverage balance sheet, GTY has put up spotty deal
Getty Realty GTY UW flow. It operates in a narrow space relating to autos (i.e., gas stations, auto parts, etc.). Financials have become a bit
less noisy with more consistent reporting, which is positive.
Source: J.P. Morgan.

109

Michael W. Mueller, CFA

(1-212) 622-6689
michael.w.mueller@jpmorgan.com

Appendix
Appendix I: Equity REIT Industry Summary as of 12/17/2019

Figure 173: Equity REIT Industry Summary

Equity Total Net Debt Lvg. Lvg. To Prem/
Div. 2020E Payout Ratio Market Preferred Market Debt/ -To- -To- Pvt. Mkt. (Disc)
Property Type Yield FFO AFFO Capitalization Stock Debt Capitalization EBITDA TMC TMC Value To NAV

Technology 2.6% 59.8% 56.1% $259,464,246 $107,000 $94,265,090 $353,836,336 6.1x 26.6% 26.7% 31.0% 0.3%
Health Care 5.2% 80.3% 91.2% $110,069,201 $0 $57,054,538 $167,123,739 6.0x 34.1% 34.1% 36.7% 18.6%
Industrial 2.6% 59.5% 71.7% $103,603,120 $776,487 $26,100,308 $130,479,915 4.9x 20.0% 20.6% 21.9% 8.2%
Lodging 6.5% 73.2% 94.1% $26,606,563 $1,500,971 $17,177,873 $45,285,407 6.7x 37.9% 41.2% 37.8% (13.1%)
Manufactured Housing 1.9% 55.6% 61.7% $27,139,744 $0 $5,698,987 $32,838,731 4.4x 17.4% 17.4% 21.0% 26.4%
Office 3.2% 52.4% 74.6% $137,489,247 $2,714,957 $74,032,753 $214,236,956 5.5x 34.6% 35.8% 33.2% (8.5%)
Regional Mall 6.5% 68.0% 81.1% $59,796,794 $1,437,884 $54,969,876 $116,204,554 6.0x 47.3% 48.5% 41.2% (23.1%)
Residential 2.8% 58.1% 62.5% $168,863,787 $3,158,865 $63,253,538 $235,276,190 5.9x 26.9% 28.2% 28.5% 1.8%
Self Storage 3.8% 72.5% 79.7% $60,545,691 $3,766,250 $11,221,659 $75,533,600 2.7x 14.9% 19.8% 19.6% (1.0%)
Strip Center 4.5% 66.8% 85.5% $62,930,804 $2,133,174 $35,271,087 $100,335,065 5.9x 35.2% 37.3% 35.1% (7.7%)
Triple Net Lease 4.9% 81.4% 78.5% $97,643,840 $2,245,831 $44,853,086 $144,742,757 5.4x 30.7% 32.3% 44.3% 33.9%

REIT Industry Total/Wtd. Avg. 3.7% 64.3% 71.6% $1,114,153,038 $17,841,419 $483,898,795 $1,615,893,251 5.6x 29.9% 31.0% 32.5% 3.5%
Source: J.P. Morgan, Company reports, Bloomberg, SNL Financial.

110

Michael W. Mueller, CFA

(1-212) 622-6689
michael.w.mueller@jpmorgan.com

Figure 174: Equity REIT Industry Summary – Earnings Analysis

EV/ P/FFO P/AFFO 2019E Growth 2020E Growth 2021E Growth

Property Type EBITDA 2019E 2020E 2021E 2019E 2020E 2021E FFO AFFO FFO AFFO FFO AFFO

Technology 23.8x 26.9x 24.4x 22.5x 24.5x 22.5x 20.6x 7.7% 6.0% 7.7% 8.6% 8.5% 9.1%
Health Care 17.8x 16.3x 16.0x 15.5x 18.8x 18.3x 17.6x (1.3%) (2.0%) 2.3% 3.1% 3.3% 4.0%
Industrial 24.6x 26.0x 23.9x 22.9x 32.1x 29.0x 27.5x 7.2% 8.4% 8.5% 10.5% 4.4% 5.2%
Lodging 17.6x 10.4x 10.9x 11.0x 13.2x 13.9x 13.8x (0.7%) (2.3%) (4.7%) (4.6%) (0.7%) 0.4%
Manufactured Housing 26.1x 31.7x 29.4x 27.6x 35.6x 32.6x 30.1x 7.3% 7.6% 7.7% 9.2% 6.7% 8.3%
Office 19.4x 18.6x 17.9x 17.0x 27.7x 23.1x 22.6x 4.4% 6.1% 4.0% 10.6% 5.8% 9.2%
Regional Mall 15.2x 11.0x 10.9x 10.5x 13.0x 12.9x 12.3x 0.5% 4.0% 1.3% 1.5% 3.9% 4.7%
Residential 21.9x 20.4x 20.9x 19.6x 25.3x 23.3x 23.1x 5.6% 5.2% 5.7% 6.6% 6.3% 6.6%
Self Storage 19.0x 19.5x 18.9x 18.3x 21.4x 20.7x 20.2x 2.4% 0.2% 2.9% 3.1% 3.1% 2.7%
Strip Center 17.5x 15.8x 15.4x 14.8x 21.5x 19.7x 18.2x (0.2%) (2.5%) 1.9% 7.5% 4.0% 8.3%
Triple Net Lease 19.7x 9.9x 17.1x 16.2x 19.4x 17.2x 16.3x 0.9% (0.7%) 4.0% 4.9% 5.2% 5.1%

REIT Industry Weighted 20.7x

Average 20.1x 19.8x 18.7x 23.8x 21.7x 20.7x 4.1% 3.7% 4.9% 6.8% 5.6% 6.7%
Source: J.P. Morgan, Company reports, Bloomberg, SNL Financial.

111

Michael W. Mueller, CFA

(1-212) 622-6689
michael.w.mueller@jpmorgan.com

Figure 175: Equity REIT Industry Summary – Market Data

20-Day Correlation To
Avg. Daily Vol. (000s) S&P Russell Utilities Beta Price Change Total Return
Property Type Shares $ 500 NASDAQ 2000 (1) (2) MTD QTD YTD MTD QTD YTD

Technology 1,058 $160,353 0.35 0.30 0.23 0.53 0.66 (1.7%) (5.4%) 33.2% (1.4%) (5.1%) 35.9%
Health Care 2,100 $71,630 0.23 0.20 0.16 0.55 0.54 (5.8%) (11.7%) 9.9% (5.7%) (10.9%) 15.1%
Industrial 1,023 $58,128 0.53 0.48 0.46 0.52 0.78 (4.4%) 3.5% 44.1% (4.4%) 3.6% 47.3%
Lodging 2,202 $35,358 0.63 0.57 0.68 0.32 0.92 3.4% 3.6% 8.3% 3.4% 3.7% 12.4%
Manufactured Housing 843 $88,596 0.28 0.28 0.20 0.59 0.53 (8.2%) 1.8% 44.3% (8.2%) 1.8% 46.7%
Office 693 $30,216 0.52 0.49 0.47 0.53 0.76 (2.4%) 2.1% 20.7% (2.3%) 2.4% 24.0%
Regional Mall 1,902 $64,245 0.39 0.37 0.42 0.38 0.67 (4.6%) (8.6%) (16.9%) (4.5%) (7.3%) (12.3%)
Residential 1,104 $61,469 0.42 0.36 0.31 0.58 0.56 (5.1%) (4.9%) 22.8% (5.1%) (4.6%) 25.8%
Self Storage 1,035 $102,756 0.14 0.12 0.05 0.45 0.44 (2.8%) (13.9%) 5.4% (2.1%) (13.1%) 9.1%
Strip Center 979 $25,674 0.44 0.40 0.42 0.50 0.75 (5.4%) (3.9%) 18.7% (5.2%) (3.1%) 23.9%
Triple Net Lease 1,932 $57,881 0.33 0.30 0.25 0.55 0.52 (6.2%) (4.4%) 20.3% (6.1%) (4.0%) 25.4%

REIT Industry Wtd. Avg. 1,352 $68,755 0.38 0.35 0.31 0.52 0.64 (4.2%) (4.7%) 17.4% (4.0%) (4.2%) 21.6%
Source: J.P. Morgan, Company reports, Bloomberg, SNL Financial
(1) Dow Jones Utility Average, (2) Relative to S&P 500

112

Michael W. Mueller, CFA

(1-212) 622-6689
michael.w.mueller@jpmorgan.com

Appendix II: Health Care REITs as of 12/17/2019

Figure 176: Health Care REITs – Pricing and Balance Sheet Data
Stock Payout Ratio Equity Total Net Debt Lvg. Lvg. To Est. Prem /
Price Dividend 2020E Shares Market Market Debt/ -To- -To- Pvt. Mkt. NAV / (Disc)

Com pany Ticker 12/17/19 Amt. Yield FFO AFFO & Units Capitalization Capitalization EBITDA TMC TMC Value Share To NAV

CareTrust REIT, Inc. CTRE $20.51 $0.90 4.4% $0.63 62.5% 95,103 $1,950,568 $2,510,950 5.2x 22.3% 22.3% 26.9% $16.01 28.1%
Healthpeak Properties, Inc. PEAK $32.03 $1.48 4.6% 81.9% 98.3% 504,095 $16,146,163 $23,263,592 6.5x 30.6% 30.6% 33.5% $28.08 14.1%
Welltow er Inc WELL $77.40 $3.48 4.5% 82.5% 92.3% 405,758 $31,405,669 $45,530,284 5.9x 31.0% 31.0% 36.3% $61.21 26.5%
Healthcare Realty HR $32.17 $1.20 3.7% 73.6% 95.1% 131,368 $4,226,115 $5,580,272 5.3x 24.3% 24.3% 24.8% $31.22 3.1%
Healthcare Trust of America HTA $29.21 $1.26 4.3% 74.1% 92.0% 209,093 $6,107,607 $8,674,615 5.9x 29.6% 29.6% 28.6% $30.60 (4.5%)
LTC Properties LTC $43.75 $2.28 5.2% 75.1% 78.9% 39,752 $1,739,137 $2,424,360 4.4x 28.3% 28.3% 32.6% $35.57 23.0%
Medical Properties Trust MPW $19.89 $1.04 5.2% 66.4% 82.6% 459,778 $9,144,984 $15,241,216 7.0x 40.0% 40.0% 45.1% $16.11 23.5%
National Health Inv estors, Inc. NHI $78.62 $4.20 5.3% 73.8% 79.0% 43,956 $3,455,839 $4,906,375 4.7x 29.6% 29.6% 34.5% $62.65 25.5%
Omega Healthcare Inv estors OHI $40.67 $2.68 6.6% 83.7% 91.7% 224,365 $9,124,941 $13,760,973 5.3x 33.7% 33.7% 43.0% $27.43 48.3%
Senior Housing Properties SNH $7.46 $0.60 8.0% 51.5% NA 237,900 $1,774,736 $5,431,139 7.6x 67.3% 67.3% NA NA NA
Ventas Inc. VTR $55.83 $3.17 5.7% 86.1% 98.9% 375,715 $20,976,168 $33,169,778 6.3x 36.8% 36.8% 37.9% $53.24 4.9%
Sabra SBRA $20.74 $1.80 8.7% 96.0% 98.5% 193,697 $4,017,274 $6,630,185 5.8x 39.4% 39.4% 43.0% $17.87 16.1%

Property Type Total / Wtd. Average 5.2% 80.3% 91.2% $110,069,201 $167,123,739 6.0x 34.1% 34.1% 36.7% 18.6%

REIT Industry Total / Wtd. Average 3.7% 64.3% 71.6% $1,114,153,038 $1,615,893,251 5.6x 29.9% 31.0% 32.5% 3.5%
Source: J.P. Morgan, Company reports, Bloomberg, SNL Financial.

113

Michael W. Mueller, CFA

(1-212) 622-6689
michael.w.mueller@jpmorgan.com

Figure 177: Health Care REITs – Earnings Analysis

EV/ FFO AFFO P/FFO P/AFFO 2019E Growth 2020E Growth 2021E Growth

Company Ticker EBITDA 2019E 2020E 2021E 2019E 2020E 2021E 2019E 2020E 2021E 2019E 2020E 2021E FFO AFFO FFO AFFO FFO AFFO

CareTrust REIT, Inc. CTRE 23.6x $1.33 $1.42 $1.57 $1.39 $1.44 $1.57 15.4x 14.4x 13.1x 14.8x 14.2x 13.0x 4.1% 7.5% 7.1% 3.7% 9.9% 9.3%
Healthpeak Properties, Inc. PEAK 22.1x $1.76 $1.81 $1.87 $1.54 $1.51 $1.57 18.2x 17.7x 17.1x 20.8x 21.3x 20.4x (2.9%) (2.7%) 2.5% (2.1%) 3.4% 4.3%
Welltow er Inc WELL 18.7x $4.16 $4.22 $4.35 $3.66 $3.77 $3.92 18.6x 18.3x 17.8x 21.2x 20.5x 19.7x 3.4% 1.7% 1.3% 3.2% 3.1% 3.9%
Healthcare Realty HR 23.3x $1.59 $1.63 $1.69 $1.19 $1.26 $1.23 20.3x 19.7x 19.1x 27.1x 25.5x 26.1x 0.8% 9.8% 2.8% 6.3% 3.3% (2.3%)
Healthcare Trust of America HTA 20.6x $1.64 $1.70 $1.76 $1.31 $1.37 $1.42 17.8x 17.2x 16.6x 22.3x 21.3x 20.6x 1.4% 2.4% 3.5% 4.7% 3.4% 3.6%
LTC Properties LTC 15.5x $3.00 $3.04 $3.17 $2.87 $2.89 $3.06 14.6x 14.4x 13.8x 15.3x 15.1x 14.3x (1.4%) 1.1% 1.1% 0.9% 4.4% 5.7%
Medical Properties Trust MPW 17.4x $1.32 $1.57 $1.65 $1.02 $1.26 $1.37 15.0x 12.7x 12.1x 19.5x 15.8x 14.5x (3.2%) (7.2%) 18.2% 23.2% 5.3% 8.8%
National Health Inv estors, Inc. NHI 16.1x $5.49 $5.69 $5.88 $5.12 $5.32 $5.63 14.3x 13.8x 13.4x 15.4x 14.8x 14.0x (0.3%) 0.9% 3.6% 3.9% 3.3% 5.8%
Omega Healthcare Inv estors OHI 15.9x $2.96 $3.20 $3.36 $2.73 $2.92 $3.10 13.8x 12.7x 12.1x 14.9x 13.9x 13.1x (0.2%) (3.0%) 8.3% 7.2% 5.0% 6.0%
Senior Housing Properties SNH 11.6x $1.66 $1.17 $1.18 NA NA NA 4.5x 6.4x 6.3x NA NA NA 4.4% NA (29.8%) NA 0.8% NA
Ventas Inc. VTR 16.6x $3.83 $3.68 $3.74 $3.32 $3.21 $3.30 14.6x 15.2x 14.9x 16.8x 17.4x 16.9x (5.8%) (7.1%) (4.0%) (3.4%) 1.7% 3.0%
Sabra SBRA 14.3x $1.87 $1.88 $1.89 $1.86 $1.83 $1.79 11.1x 11.1x 11.0x 11.2x 11.3x 11.6x (18.7%) (14.6%) 0.3% (1.5%) 1.0% (1.9%)

Property Type Wtd. Average 17.8x 16.3x 16.0x 15.5x 18.8x 18.3x 17.6x (1.3%) (2.0%) 2.3% 3.1% 3.3% 4.0%

REIT Industry Total / Wtd. Average 20.7x 20.1x 19.8x 18.7x 23.8x 21.7x 20.7x 4.1% 3.7% 4.9% 6.8% 5.6% 6.7%
Source: J.P. Morgan, Company reports, Bloomberg, SNL Financial.

114

Michael W. Mueller, CFA

(1-212) 622-6689
michael.w.mueller@jpmorgan.com

Figure 178: Health Care REITs – Market Data

20-Day Correlation To Price Change Total Return
Avg. Daily Vol. (000s) S&P Russell Utilities Beta Month to Quarter to Year to Month to Quarter to Year to

Com pany Ticker Shares $ 500 NASDAQ 2000 (1) (2) Date Date Date Date Date Date

CareTrust REIT, Inc. CTRE 1,111 $23,096 0.30 0.29 0.27 0.48 0.67 (1.8%) (12.7%) 11.1% (1.8%) (12.7%) 14.3%
Healthpeak Properties, Inc. PEAK 4,039 $137,850 0.18 0.13 0.11 0.56 0.49 (8.2%) (10.1%) 14.7% (8.2%) (9.2%) 20.0%
Welltow er Inc WELL 2,051 $170,044 0.19 0.16 0.09 0.59 0.51 (8.5%) (14.6%) 11.5% (8.5%) (13.7%) 16.4%
Healthcare Realty HR 921 $30,177 0.28 0.25 0.22 0.61 0.56 (3.1%) (4.0%) 13.1% (3.1%) (3.1%) 17.4%
Healthcare Trust of America HTA 1,829 $54,812 0.23 0.20 0.19 0.61 0.52 (3.8%) (0.6%) 15.4% (3.8%) 0.5% 19.3%
LTC Properties LTC 259 $11,914 0.32 0.30 0.27 0.46 0.62 (6.5%) (14.6%) 5.0% (6.5%) (13.9%) 9.8%
Medical Properties Trust MPW 6,190 $127,571 0.42 0.38 0.35 0.51 0.71 (4.2%) 1.7% 23.7% (3.0%) 3.0% 30.5%
National Health Inv estors, Inc. NHI 223 $17,908 0.32 0.32 0.29 0.57 0.56 (2.9%) (4.6%) 4.1% (2.9%) (4.6%) 8.2%
Omega Healthcare Inv estors OHI 2,093 $87,668 0.28 0.28 0.22 0.42 0.58 (3.2%) (2.7%) 15.7% (3.2%) (1.2%) 23.9%
Senior Housing Properties SNH 1,882 $14,032 0.27 0.27 0.28 0.41 0.74 1.9% (19.4%) (36.3%) 1.9% (18.2%) (31.0%)
Ventas Inc. VTR 2,371 $135,874 0.12 0.11 0.05 0.55 0.46 (4.3%) (23.6%) (4.7%) (4.3%) (23.6%) (1.3%)
Sabra SBRA 2,235 $48,611 0.45 0.46 0.45 0.47 0.84 (6.9%) (9.7%) 25.8% (6.9%) (7.8%) 37.1%

Property Type Wtd. Average 2,100 $71,630 0.23 0.20 0.16 0.55 0.54 (5.8%) (11.7%) 9.9% (5.7%) (10.9%) 15.1%

REIT Industry Wtd. Average 1,352 68,755 0.38 0.35 0.31 0.52 0.64 (4.2%) (4.7%) 17.4% (4.0%) (4.2%) 21.6%
Source: J.P. Morgan, Company reports, Bloomberg, SNL Financial
(1) Dow Jones Utility Average, (2) Relative to S&P 500

115

Michael W. Mueller, CFA

(1-212) 622-6689
michael.w.mueller@jpmorgan.com

Appendix III: Industrial REITs as of 12/17/2019

Figure 179: Industrial REITs – Pricing and Balance Sheet Data

Stock Payout Ratio Equity Total Net Debt Lvg. Lvg. To Est. Prem/
Price Dividend 2020E Shares Market Market Debt/ -To- -To- Pvt. Mkt. NAV / (Disc)
Company Ticker 12/17/19 Am t. Yield FFO AFFO & Units Capitalization Capitalization EBITDA TMC TMC Value Share To NAV

Duke Realty DRE $34.06 $0.94 2.8% 61.7% 65.6% 371,237 $12,644,332 $15,546,594 4.9x 18.7% 18.7% 19.7% $31.77 7.2%
EastGroup Properties EGP $132.26 $3.00 2.3% 57.0% 76.2% 38,409 $5,080,003 $6,207,014 4.9x 18.2% 18.2% 20.6% $113.03 17.0%
First Industrial Realty FR $40.80 $0.92 2.3% 50.9% 65.2% 129,396 $5,279,357 $6,710,624 4.9x 21.3% 21.3% 22.4% $38.41 6.2%
Liberty Property Trust LPT $58.87 $1.64 2.8% 61.5% 80.2% 151,810 $8,937,055 $12,021,429 6.2x 25.7% 25.7% 27.7% $53.05 11.0%
Monmouth Real Estate Inv estment Corporation MNR $14.86 $0.68 4.6% 75.8% 88.7% 96,399 $1,432,489 $2,620,095 6.0x 32.1% 45.3% 44.9% $15.13 (1.8%)
Ply mouth Industrial REIT PLYM $18.47 $1.50 8.1% 70.0% 92.3% 14,454 $266,961 $713,485 7.3x 45.1% 62.6% 62.2% $18.80 (1.8%)
Prologis PLD $87.31 $2.12 2.4% 57.8% 67.4% 655,362 $57,219,656 $70,901,168 4.9x 19.2% 19.3% 20.2% $82.36 6.0%
Rex ford Industrial Realty REXR $44.87 $0.74 1.6% 56.4% 87.8% 111,943 $5,022,883 $6,048,882 4.7x 14.2% 17.0% 20.1% $36.53 22.8%
Stag Industrial, Inc. STAG $30.35 $1.43 4.7% 74.4% 93.4% 137,091 $4,160,706 $5,707,706 4.7x 25.9% 27.1% 27.9% $29.10 4.3%
Terreno Realty Corporation TRNO $53.12 $1.08 2.0% 70.3% 87.6% 67,012 $3,559,678 $4,002,918 3.5x 11.1% 11.1% 12.9% $44.50 19.4%

Property Type Total / Wtd. Average 2.6% 59.5% 71.7% $103,603,120 $130,479,915 4.9x 20.0% 20.6% 21.9% 8.2%

REIT Industry Total / Wtd. Average 3.7% 64.3% 71.6% $1,114,153,038 $1,615,893,251 5.6x 29.9% 31.0% 32.5% 3.5%
Source: J.P. Morgan, Company reports, Bloomberg, SNL Financial.

116

Michael W. Mueller, CFA

(1-212) 622-6689
michael.w.mueller@jpmorgan.com

Figure 180: Industrial REITs – Earnings Analysis

EV/ FFO AFFO P/FFO P/AFFO 2019E Growth 2020E Growth 2020E Growth
Company Ticker EBITDA 2019E 2020E 2021E 2019E 2020E 2021E 2019E 2020E 2021E 2019E 2020E 2021E FFO AFFO FFO AFFO FFO AFFO

Duke Realty DRE 23.3x $1.44 $1.52 $1.61 $1.39 $1.43 $1.51 23.6x 22.4x 21.2x 24.5x 23.8x 22.6x 8.2% 10.0% 5.5% 3.1% 5.7% 5.1%
EastGroup Properties EGP 26.5x $4.96 $5.27 $5.58 $3.65 $3.94 $4.12 26.7x 25.1x 23.7x 36.3x 33.6x 32.1x 6.2% 11.5% 6.2% 8.0% 5.9% 4.7%
First Industrial Realty FR 22.4x $1.74 $1.81 $1.89 $1.43 $1.41 $1.48 23.5x 22.6x 21.5x 28.5x 28.9x 27.5x 8.6% 11.7% 4.0% (1.3%) 4.7% 5.1%
Liberty Property Trust LPT 22.7x $2.58 $2.67 $2.79 $2.03 $2.05 $2.20 22.8x 22.1x 21.1x 29.0x 28.8x 26.7x (3.8%) 5.0% 3.3% 0.7% 4.6% 7.7%
Monmouth Real Estate Inv estment Corporation MNR 20.4x $0.87 $0.90 $0.93 $0.78 $0.77 $0.79 17.1x 16.6x 16.1x 19.2x 19.4x 18.8x (2.0%) (4.5%) 3.2% (1.2%) 3.2% 3.3%
Ply mouth Industrial REIT PLYM 18.4x $2.15 $2.14 $2.21 $1.49 $1.63 $1.75 8.6x 8.6x 8.4x 12.4x 11.4x 10.6x 39.0% 119.1% (0.1%) 9.1% 3.0% 7.7%
Prologis PLD 25.3x $3.31 $3.67 $3.80 $2.72 $3.15 $3.29 26.4x 23.8x 23.0x 32.1x 27.7x 26.5x 9.0% 7.6% 10.9% 15.6% 3.5% 4.6%
Rex ford Industrial Realty REXR 33.4x $1.21 $1.31 $1.40 $0.77 $0.84 $0.91 37.1x 34.2x 32.0x 58.6x 53.2x 49.5x 8.1% 16.0% 8.5% 10.1% 6.8% 7.5%
Stag Industrial, Inc. STAG 18.1x $1.82 $1.92 $2.00 $1.44 $1.53 $1.59 16.6x 15.8x 15.2x 21.0x 19.8x 19.0x 1.7% 4.0% 5.4% 6.2% 4.0% 4.0%
Terreno Realty Corporation TRNO 35.6x $1.41 $1.54 $1.68 $1.10 $1.23 $1.36 37.8x 34.6x 31.6x 48.4x 43.1x 39.2x 6.9% 6.4% 9.2% 12.2% 9.4% 10.0%

Property Type Wtd. Average 24.6x 26.0x 23.9x 22.9x 32.1x 29.0x 27.5x 7.2% 8.4% 8.5% 10.5% 4.4% 5.2%

REIT Industry Total / Wtd. Average 20.7x 20.1x 19.8x 18.7x 23.8x 21.7x 0.1x 4.1% 3.7% 4.9% 6.8% 5.6% 6.7%
Source: J.P. Morgan, Company reports, Bloomberg, SNL Financial.

117

Michael W. Mueller, CFA

(1-212) 622-6689
michael.w.mueller@jpmorgan.com

Figure 181: Industrial REITs – Market Data

20-Day Correlation To Price Change Total Return
Avg. Daily Vol. (000s) S&P Russell Utilities Beta Month to Quarter to Year to Month to Quarter to Year to
Company Ticker Shares $ 500 NASDAQ 2000 (1) (2) Date Date Date Date Date Date

Duke Realty DRE 2,183 $76,082 0.45 0.41 0.35 0.57 0.67 (3.2%) 0.3% 31.5% (3.2%) 0.9% 35.2%
EastGroup Properties EGP 208 $27,968 0.53 0.51 0.47 0.59 0.73 (2.9%) 5.8% 44.2% (2.9%) 5.8% 46.9%
First Industrial Realty FR 1,015 $42,669 0.59 0.54 0.52 0.58 0.78 (4.2%) 3.1% 41.4% (4.2%) 3.1% 44.0%
Liberty Property Trust LPT 1,419 $86,789 0.42 0.41 0.40 0.40 0.72 (4.5%) 14.7% 40.6% (4.5%) 14.7% 44.1%
Monmouth Real Estate Inv estment Corporation MNR 380 $5,717 0.31 0.31 0.37 0.33 0.62 (3.1%) 3.1% 19.8% (3.1%) 4.3% 25.8%
Ply mouth Industrial REIT PLYM 77 $1,414 0.15 0.18 0.20 (0.07) 0.52 (0.4%) 0.8% 46.5% (0.4%) 0.8% 55.9%
Prologis PLD 2,786 $252,354 0.58 0.51 0.48 0.53 0.83 (4.6%) 2.5% 48.7% (4.6%) 2.5% 51.7%
Rex ford Industrial Realty REXR 760 $35,719 0.51 0.48 0.50 0.48 0.73 (6.2%) 1.9% 52.3% (6.2%) 1.9% 54.4%
Stag Industrial, Inc. STAG 1,036 $31,927 0.53 0.50 0.52 0.52 0.76 (2.1%) 3.0% 22.0% (2.1%) 3.7% 27.5%
Terreno Realty Corporation TRNO 366 $20,644 0.52 0.50 0.52 0.43 0.71 (8.0%) 4.0% 51.0% (8.0%) 4.5% 53.4%

Property Type Wtd. Average 1,023 $58,128 0.53 0.48 0.46 0.52 0.78 (4.4%) 3.5% 44.1% (4.4%) 3.6% 47.3%

118

Michael W. Mueller, CFA

(1-212) 622-6689
michael.w.mueller@jpmorgan.com

Appendix IV: Lodging REITs as of 12/17/2019

Figure 182: Lodging REITs – Pricing and Balance Sheet Data

Stock Payout Ratio Equity Total Net Debt Lvg. Lvg. To Est. Prem /
Price Dividend 2020E Shares Market Market Debt/ -To- -To- Pvt. Mkt. NAV / (Disc)
Com pany Ticker 12/17/19 Amt. Yield FFO AFFO & Units Capitalization Capitalization EBITDA TMC TMC Value Share To NAV

Ashford Hospitality AHT $2.70 $0.24 8.9% $0.22 33.3% 124,051 $334,937 $5,052,798 10.4x 82.2% 93.4% 87.4% $5.50 (50.9%)
Diamondrock Hospitality DRH $10.93 $0.50 4.6% 50.9% 62.3% 200,994 $2,196,859 $3,393,484 4.5x 35.3% 35.3% 34.7% $11.22 (2.6%)
Host Hotels HST $18.34 $0.80 4.4% 47.4% 60.2% 718,500 $13,177,290 $18,215,290 9.8x 27.7% 27.7% 24.9% $21.19 (13.4%)
Summit Hotel Properties INN $11.98 $0.72 6.0% 56.5% 72.7% 105,379 $1,262,435 $2,360,782 4.6x 36.5% 46.5% 45.0% $12.76 (6.1%)
Pebblebrook Hotel Trust PEB $26.32 $1.52 5.8% 61.7% 74.9% 130,810 $3,442,907 $6,504,313 4.7x 39.2% 47.1% 42.4% $31.74 (17.1%)
RLJ Lodging Trust RLJ $17.55 $1.32 7.5% 72.5% 96.2% 170,632 $2,994,598 $5,315,682 3.5x 43.7% 43.7% 40.6% $19.88 (11.7%)
Sunstone Hotel Inv estors SHO $14.22 $2.28 16.0% 219.4% 289.5% 224,862 $3,197,537 $4,443,058 1.0x 23.8% 28.0% 25.0% $16.61 (14.4%)

Property Type Total / Wtd. Average 6.5% 73.2% 94.1% $26,606,563 $45,285,407 6.7x 37.9% 41.2% 37.8% (13.1%)

REIT Industry Total / Wtd. Average 3.7% 64.3% 71.6% $1,114,153,038 $1,615,893,251 5.6x 29.9% 31.0% 32.5% 3.5%
Source: J.P. Morgan, Company reports, Bloomberg, SNL Financial.

119

Michael W. Mueller, CFA

(1-212) 622-6689
michael.w.mueller@jpmorgan.com

Figure 183: Lodging REITs – Earnings Analysis

EV/ FFO AFFO P/FFO P/AFFO 2019E Growth 2020E Growth 2021E Growth

Company Ticker EBITDA 2019E 2020E 2021E 2019E 2020E 2021E 2019E 2020E 2021E 2019E 2020E 2021E FFO AFFO FFO AFFO FFO AFFO

Ashford Hospitality AHT 13.9x $1.05 $1.08 $0.92 $0.59 $0.72 $0.73 2.6x 2.5x 2.9x 4.6x 3.8x 3.7x (9.3%) (37.2%) 2.3% 22.0% (14.5%) 1.4%
Diamondrock Hospitality DRH 13.7x $1.01 $0.98 $1.00 $0.85 $0.80 $0.78 10.9x 11.1x 10.9x 12.9x 13.6x 14.0x 2.5% 19.4% (2.4%) (5.4%) 1.7% (2.7%)
Host Hotels HST 35.2x $1.77 $1.69 $1.69 $1.39 $1.33 $1.34 10.4x 10.9x 10.9x 13.2x 13.8x 13.7x 0.7% (4.4%) (4.6%) (4.6%) (0.1%) 1.0%
Summit Hotel Properties INN 13.5x $1.25 $1.28 $1.25 $0.98 $0.99 $0.97 9.6x 9.4x 9.6x 12.3x 12.1x 12.4x (3.5%) 2.0% 1.7% 1.4% (2.0%) (2.0%)
Pebblebrook Hotel Trust PEB 12.5x $2.59 $2.47 $2.44 $2.09 $2.03 $1.99 10.2x 10.7x 10.8x 12.6x 13.0x 13.3x 4.9% 8.6% (4.9%) (2.6%) (1.2%) (2.2%)
RLJ Lodging Trust RLJ 13.2x $1.99 $1.82 $1.87 $1.52 $1.37 $1.37 8.8x 9.6x 9.4x 11.6x 12.8x 12.8x (10.5%) (10.1%) (8.7%) (9.4%) 2.8% (0.2%)
Sunstone Hotel Inv estors SHO 13.5x $1.10 $1.04 $0.98 $0.85 $0.79 $0.82 12.9x 13.7x 14.5x 16.8x 18.1x 17.3x (4.0%) (11.0%) (5.9%) (7.1%) (5.4%) 4.1%

Property Type Wtd. Average 17.6x 10.4x 10.9x 11.0x 13.2x 13.9x 13.8x (0.7%) (2.3%) (4.7%) (4.6%) (0.7%) 0.4%

REIT Industry Total / Wtd. Average 20.7x 20.1x 19.8x 18.7x 23.8x 21.7x 20.7x 4.1% 3.7% 4.1% 3.7% 4.1% 3.7%

Source: J.P. Morgan, Company reports, Bloomberg, SNL Financial.

Figure 184: Lodging REITs – Market Data

Ashford Hospitality AHT 476 $1,278 0.34 0.28 0.42 0.23 0.95 (1.8%) (17.4%) (31.6%) (1.8%) (17.4%) (27.3%)
Diamondrock Hospitality DRH 2,104 $21,710 0.67 0.63 0.70 0.36 0.94 6.1% 6.6% 20.4% 6.1% 6.6% 26.5%
Host Hotels HST 8,003 $140,600 0.64 0.58 0.69 0.32 0.90 4.9% 6.1% 10.0% 4.9% 6.1% 13.7%
Summit Hotel Properties INN 709 $8,502 0.59 0.53 0.64 0.37 0.89 (1.2%) 3.3% 23.1% (1.2%) 4.8% 31.0%
Pebblebrook Hotel Trust PEB 1,209 $31,475 0.62 0.59 0.70 0.22 1.02 0.5% (5.4%) (7.0%) 0.5% (5.4%) (3.3%)
RLJ Lodging Trust RLJ 1,084 $18,363 0.64 0.57 0.67 0.35 0.99 2.7% 3.3% 7.0% 2.7% 3.3% 13.2%
Sunstone Hotel Inv estors SHO 1,831 $25,578 0.61 0.55 0.68 0.34 0.83 1.6% 3.5% 9.3% 1.6% 3.5% 10.5%

Property Type Wtd. Average 2,202 $35,358 0.63 0.57 0.68 0.32 0.92 3.4% 3.6% 8.3% 3.4% 3.7% 12.4%

120

Michael W. Mueller, CFA

(1-212) 622-6689
michael.w.mueller@jpmorgan.com

Appendix V: Manufactured Housing REITs as of 12/17/2019

Figure 185: Manufactured Housing – Pricing and Balance Sheet Data
Stock Payout Ratio Equity Total Net Debt Lvg. Lvg. To Est. Prem/
Price Dividend 2020E Shares Market Market Debt/ -To- -To- Pvt. Mkt. NAV / (Disc)

Company Ticker 12/17/19 Amt. Yield FFO AFFO & Units Capitalization Capitalization EBITDA TMC TMC Value Share To NAV

Equity Lifesty le Properties ELS $68.90 $1.23 1.8% $0.54 61.4% 192,574 $13,268,322 $15,667,142 4.6x 15.3% 15.3% 18.8% $53.89 27.9%
Sun Communities SUI $149.20 $3.00 2.0% 56.9% 62.0% 92,972 $13,871,422 $17,171,589 4.3x 19.2% 19.2% 22.9% $119.44 24.9%

Property Type Total / Wtd. Average 1.9% 55.6% 61.7% $27,139,744 $32,838,731 4.4x 17.4% 17.4% 21.0% 26.4%

REIT Industry Total / Wtd. Average 3.7% 64.3% 71.6% $1,114,153,038 $1,615,893,251 5.6x 29.9% 31.0% 32.5% 3.5%
Source: J.P. Morgan, Company reports, Bloomberg, SNL Financial.

Figure 186: Manufactured Housing – Earnings Analysis

EV/ FFO AFFO P/FFO P/AFFO 2019E Growth 2020E Growth 2021E Growth
Company Ticker EBITDA 2019E 2020E 2021E 2019E 2020E 2021E 2019E 2020E 2021E 2019E 2020E 2021E FFO AFFO FFO AFFO FFO AFFO

Equity Lifesty le Properties ELS 30.5x $2.10 $2.25 $2.39 $1.84 $2.00 $2.15 32.8x 30.6x 28.8x 37.4x 34.5x 32.0x 8.1% 10.7% 7.4% 8.3% 6.2% 7.7%
Sun Communities SUI 23.1x $4.89 $5.28 $5.65 $4.40 $4.84 $5.27 30.5x 28.3x 26.4x 33.9x 30.8x 28.3x 6.5% 4.6% 7.9% 10.1% 7.1% 8.8%

Property Type Wtd. Average 26.1x 31.7x 29.4x 27.6x 35.6x 32.6x 30.1x 7.3% 7.6% 7.7% 9.2% 6.7% 8.3%

REIT Industry Total / Wtd. Average 20.7x 20.1x 19.8x 18.7x 23.8x 21.7x 20.7x 4.1% 3.7% 4.1% 3.7% 4.1% 3.7%
Source: J.P. Morgan, Company reports, Bloomberg, SNL Financial.

121

Michael W. Mueller, CFA

(1-212) 622-6689
michael.w.mueller@jpmorgan.com

Figure 187: Manufactured Housing – Market Data

Equity Lifesty le Properties ELS 1,047 $75,313 0.24 0.24 0.16 0.56 0.50 (7.0%) 3.1% 41.9% (7.0%) 3.1% 44.0%
Sun Communities SUI 640 $101,880 0.32 0.32 0.24 0.62 0.56 (9.4%) 0.5% 46.7% (9.4%) 0.5% 49.2%

Property Type Wtd. Average 843 $88,596 0.28 0.28 0.20 0.59 0.53 (8.2%) 1.8% 44.3% (8.2%) 1.8% 46.7%

122

Michael W. Mueller, CFA

(1-212) 622-6689
michael.w.mueller@jpmorgan.com

Appendix VI: Office REITs as of 12/17/2019

Figure 188: Office REITs – Pricing and Balance Sheet Data
Stock Payout Ratio Equity Total Net Debt Lvg. Lvg. To Est. Prem /
Price Dividend 2020E Shares Market Market Debt/ -To- -To- Pvt. Mkt. NAV / (Disc)
Com pany Ticker 12/17/19 Amt. Yield FFO AFFO & Units Capitalization Capitalization EBITDA TMC TMC Value Share To NAV

Alex andria Real Estate ARE $154.90 $4.12 2.7% 55.9% 71.0% 111,986 $17,346,631 $23,911,467 6.8x 27.1% 27.5% 29.3% $141.52 9.5%
Boston Properties BXP $134.47 $3.92 2.9% 52.6% 73.2% 172,580 $23,206,833 $34,916,615 6.4x 33.0% 33.5% 33.1% $136.91 (1.8%)
Brandy w ine Realty Trust BDN $14.90 $0.76 5.1% 52.0% 71.7% 178,066 $2,653,184 $4,991,723 6.4x 46.8% 46.8% 40.4% $19.36 (23.0%)
Columbia Property Trust, Inc. CXP $20.25 $0.84 4.1% 56.8% 72.0% 116,909 $2,367,400 $3,512,625 6.3x 32.6% 32.6% 25.6% $28.47 (28.9%)
Corporate Office Properties OFC $28.31 $1.10 3.9% 51.9% 71.4% 113,339 $3,208,627 $5,031,624 5.8x 36.1% 36.2% 32.9% $32.74 (13.5%)
Cousins Properties CUZ $39.68 $1.16 2.9% 41.5% 56.1% 148,507 $5,892,758 $7,900,421 4.4x 25.4% 25.4% 26.5% $37.43 6.0%
Douglas Emmett DEI $42.33 $1.12 2.6% 50.8% 62.4% 201,506 $8,529,748 $12,332,191 5.5x 30.8% 30.8% 30.0% $43.93 (3.7%)
Equity CommonWealth REIT EQC $31.51 $0.00 0.0% 0.0% 0.0% 121,973 $3,843,365 $3,869,261 -28.7x 0.7% 0.7% 0.7% $32.30 (2.4%)
Franklin Street Properties FSP $8.48 $0.36 4.2% 43.5% 124.1% 107,231 $909,320 $1,875,639 6.9x 51.5% 51.5% 48.0% $9.75 (13.0%)
Easterly Gov ernment Properties, Inc. DEA $22.87 $1.04 4.5% 84.7% 93.4% 82,960 $1,897,301 $2,800,858 6.5x 32.3% 32.3% 35.5% $19.81 15.4%
Empire State Realty Trust, Inc. ESRT $13.73 $0.42 3.1% 46.3% 67.4% 319,082 $4,380,996 $6,079,528 3.9x 27.9% 27.9% 21.3% $19.70 (30.3%)
Office Properties Income Trust OPI $30.90 $2.20 7.1% 40.9% 0.0% 48,203 $1,489,483 $4,041,467 6.3x 63.1% 63.1% 52.0% $48.93 (36.8%)
Highw oods Properties HIW $46.32 $1.90 4.1% 52.9% 84.8% 106,474 $4,931,878 $7,317,980 5.0x 32.2% 32.6% 30.3% $51.53 (10.1%)
Hudson Pacific Properties, Inc. HPP $35.94 $1.00 2.8% 45.9% 81.3% 310,586 $11,162,477 $14,366,470 7.0x 22.3% 22.3% 17.9% $47.36 (24.1%)
Kilroy Realty Corp. KRC $82.06 $1.94 2.4% 47.6% 72.4% 102,995 $8,451,796 $11,662,223 6.5x 27.5% 27.5% 27.3% $83.19 (1.4%)
Mack-Cali Realty CLI $20.42 $0.80 3.9% 48.3% 67.1% 100,530 $2,052,816 $4,661,928 9.0x 56.0% 56.0% 47.9% $28.28 (27.8%)
Paramount Group, Inc. PGRE $13.49 $0.40 3.0% 40.7% 63.5% 252,628 $3,407,957 $6,984,691 7.6x 51.2% 51.2% 41.9% $19.66 (31.4%)
Piedmont Office Realty Trust PDM $21.43 $0.84 3.9% 46.5% 79.0% 125,783 $2,695,530 $4,357,506 5.8x 38.1% 38.1% 34.4% $25.24 (15.1%)
PS Business Parks PSB $163.30 $4.20 2.6% 58.9% 68.8% 34,735 $5,672,244 $6,631,994 -0.2x 0.0% 14.5% 17.2% $133.32 22.5%
SL Green Realty SLG $89.02 $3.54 4.0% 51.7% 82.1% 86,668 $7,715,185 $18,171,579 9.6x 54.7% 57.5% 50.8% $116.90 (23.8%)
Vornado VNO $65.00 $2.64 4.1% 74.3% 116.9% 205,011 $13,325,715 $24,749,681 9.2x 42.4% 46.2% 38.6% $88.49 (26.5%)
Washington REIT WRE $29.32 $1.20 4.1% 74.3% 87.7% 80,082 $2,348,004 $4,069,487 9.3x 42.3% 42.3% 42.4% $29.25 0.2%

Property Type Total / Wtd. Average 3.2% 52.4% 74.6% $137,489,247 $214,236,956 5.5x 34.6% 35.8% 33.2% (8.5%)

REIT Industry Total / Wtd. Average 3.7% 64.3% 71.6% $1,114,153,038 $1,615,893,251 5.6x 29.9% 31.0% 32.5% 3.5%
Source: J.P. Morgan, Company reports, Bloomberg, SNL Financial

123

Michael W. Mueller, CFA

(1-212) 622-6689
michael.w.mueller@jpmorgan.com

Figure 189: Office REITs – Earnings Analysis

EV/ FFO AFFO P/FFO P/AFFO 2019E Growth 2020E Growth 2021E Growth
Company Ticker EBITDA 2019E 2020E 2021E 2019E 2020E 2021E 2019E 2020E 2021E 2019E 2020E 2021E FFO AFFO FFO AFFO FFO AFFO

Alex andria Real Estate ARE 22.6x $6.98 $7.37 $7.73 $5.34 $5.80 $6.17 22.2x 21.0x 20.0x 29.0x 26.7x 25.1x 5.7% 8.3% 5.6% 8.7% 4.9% 6.3%
Boston Properties BXP 20.1x $6.91 $7.45 $7.77 $4.37 $5.36 $5.65 19.5x 18.0x 17.3x 30.8x 25.1x 23.8x 9.7% 6.2% 7.9% 22.6% 4.2% 5.5%
Brandy w ine Realty Trust BDN 12.5x $1.42 $1.46 $1.57 $1.05 $1.06 $1.19 10.5x 10.2x 9.5x 14.2x 14.1x 12.5x 4.9% 3.9% 2.6% 1.1% 7.3% 12.0%
Columbia Property Trust, Inc. CXP 15.3x $1.49 $1.48 $1.58 $1.15 $1.17 $1.16 13.6x 13.7x 12.9x 17.6x 17.4x 17.5x (2.9%) 14.4% (0.5%) 1.4% 6.4% (0.6%)
Corporate Office Properties OFC 14.3x $2.03 $2.12 $2.26 $1.45 $1.54 $1.66 13.9x 13.4x 12.5x 19.6x 18.4x 17.1x 0.6% 6.5% 4.1% 6.5% 6.9% 7.6%
Cousins Properties CUZ 19.0x $2.88 $2.79 $2.97 $1.87 $2.07 $2.19 13.8x 14.2x 13.4x 21.2x 19.2x 18.1x 14.7% 11.8% (2.9%) 10.5% 6.2% 6.0%
Douglas Emmett DEI 19.0x $2.09 $2.21 $2.32 $1.64 $1.80 $1.92 20.3x 19.2x 18.2x 25.7x 23.6x 22.1x 3.3% 19.2% 5.8% 9.2% 5.2% 6.8%
Equity CommonWealth REIT EQC 38.9x $0.80 $0.70 $0.67 $0.68 $0.61 $0.56 39.4x 45.3x 47.0x 46.3x NA 56.3x 23.5% 466.7% (13.1%) NA (3.6%) (8.2%)
Franklin Street Properties FSP 13.9x $0.89 $0.83 $0.84 $0.27 $0.29 $0.25 9.6x 10.2x 10.1x 32.0x 29.2x 34.6x (7.7%) (43.6%) (6.5%) 9.4% 1.4% (15.5%)
Easterly Gov ernment Properties, Inc. DEA 22.1x $1.19 $1.23 $1.26 $1.07 $1.11 $1.13 19.2x 18.6x 18.2x 21.4x 20.5x 20.3x 1.9% 18.7% 2.8% 4.3% 2.6% 1.0%
Empire State Realty Trust, Inc. ESRT 17.1x $0.87 $0.91 $0.95 $0.60 $0.62 $0.65 15.8x 15.1x 14.5x 22.8x 22.0x 21.1x (3.4%) (14.2%) 4.5% 3.3% 4.3% 4.3%
Office Properties Income Trust OPI 10.1x $5.99 $5.38 $5.29 NA NA NA 5.2x 5.7x 5.8x NA NA NA (9.6%) NA (10.2%) NA (1.7%) NA
Highw oods Properties HIW 16.2x $3.35 $3.59 $3.69 $1.91 $2.24 $2.34 13.8x 12.9x 12.6x 24.2x 20.7x 19.8x (2.6%) (6.5%) 7.1% 17.1% 2.8% 4.5%
Hudson Pacific Properties, Inc. HPP 31.5x $2.02 $2.18 $2.35 $1.03 $1.23 $1.43 17.8x 16.5x 15.3x 35.0x 29.2x 25.1x 8.5% (2.9%) 7.9% 19.8% 7.9% 16.3%
Kilroy Realty Corp. KRC 21.0x $3.75 $4.08 $4.60 $2.00 $2.68 $3.34 21.9x 20.1x 17.8x 41.0x 30.6x 24.6x 8.0% 0.8% 8.6% 33.7% 12.9% 24.5%
Mack-Cali Realty CLI 14.9x $1.62 $1.66 $1.81 $0.99 $1.19 $1.28 12.6x 12.3x 11.3x 20.7x 17.1x 15.9x (11.8%) 4.3% 2.5% 21.0% 9.4% 7.6%
Paramount Group, Inc. PGRE 15.8x $0.97 $0.98 $0.94 $0.55 $0.63 NA 14.0x 13.7x 14.4x 24.8x NA NA 2.7% 0.0% 2.0% NA (5.0%) NA
Piedmont Office Realty Trust PDM 14.3x $1.77 $1.81 $1.89 $1.11 $1.06 $1.41 12.1x 11.9x 11.3x 19.3x 20.2x 15.2x 2.2% 12.8% 1.8% (4.3%) 4.9% 32.3%
PS Business Parks PSB 25.1x $6.92 $7.13 $7.43 $5.82 $6.10 $6.50 23.6x 22.9x 22.0x 28.1x 26.8x 25.1x 7.0% 11.2% 3.0% 4.9% 4.2% 6.4%
SL Green Realty SLG 16.4x $6.92 $6.84 $7.49 $3.92 $4.31 $4.91 12.9x 13.0x 11.9x 22.7x 20.7x 18.1x 4.6% 22.3% (1.1%) 10.0% 9.5% 13.9%
Vornado VNO 24.4x $3.42 $3.55 $3.88 $2.49 $2.26 $2.62 19.0x 18.3x 16.8x 26.1x 28.8x 24.8x (7.1%) 5.6% 3.8% (9.2%) 9.2% 16.0%
Washington REIT WRE 21.1x $1.71 $1.62 $1.75 $1.52 $1.37 $1.56 17.2x 18.1x 16.8x 19.3x 21.4x 18.8x (8.1%) (1.0%) (5.4%) (10.0%) 8.2% 14.2%

Property Type Wtd. Average 19.4x 18.6x 17.9x 17.0x 27.7x 23.1x 22.6x 4.4% 6.1% 4.0% 10.6% 5.8% 9.2%

REIT Industry Total / Wtd. Average 20.7x 20.1x 19.8x 23.8x 21.7x 4.1% 3.7% 4.9% 6.8% 5.6% 6.7%

Source: J.P. Morgan, Company reports, Bloomberg, SNL Financial.

124

Michael W. Mueller, CFA

(1-212) 622-6689
michael.w.mueller@jpmorgan.com

Figure 190: Office REITs – Market Data

20-Day Correlation To Price Change Total Return
Avg. Daily Vol. (000s) S&P Russell Utilities Beta Month to Quarter to Year to Month to Quarter to Year to

Company Ticker Shares $ 500 NASDAQ 2000 (1) (2) Date Date Date Date Date Date

Alex andria Real Estate ARE 675 $108,023 0.50 0.48 0.40 0.59 0.70 (4.7%) 0.6% 34.4% (4.7%) 0.6% 37.2%
Boston Properties BXP 495 $68,140 0.61 0.56 0.57 0.55 0.86 (2.9%) 3.7% 19.5% (2.9%) 3.7% 22.1%
Brandy w ine Realty Trust BDN 1,465 $22,252 0.56 0.52 0.53 0.51 0.79 (3.4%) (1.7%) 15.8% (3.4%) (0.4%) 21.9%
Columbia Property Trust, Inc. CXP 588 $12,035 0.58 0.54 0.52 0.47 0.84 (2.5%) (4.3%) 4.7% (1.4%) (3.3%) 8.7%
Corporate Office Properties OFC 548 $15,780 0.36 0.31 0.34 0.52 0.64 (3.0%) (4.9%) 34.6% (3.0%) (4.9%) 38.6%
Cousins Properties CUZ 723 $29,011 0.47 0.46 0.43 0.53 0.72 (2.0%) 5.6% 25.6% (2.0%) 6.4% 29.6%
Douglas Emmett DEI 783 $34,197 0.54 0.53 0.47 0.60 0.72 (3.9%) (1.2%) 24.0% (3.9%) (1.2%) 26.4%
Equity CommonWealth REIT EQC 580 $18,780 0.38 0.34 0.42 0.38 0.56 (4.1%) 2.5% 16.9% (4.1%) 2.3% 16.8%
Franklin Street Properties FSP 314 $2,724 0.33 0.30 0.42 0.41 0.72 (2.6%) 0.2% 36.1% (2.6%) 1.3% 42.6%
Easterly Gov ernment Properties, Inc. DEA 669 $15,410 0.35 0.34 0.35 0.44 0.58 (1.7%) 7.4% 45.9% (1.7%) 8.6% 53.6%
Empire State Realty Trust, Inc. ESRT 1,195 $16,540 0.44 0.41 0.39 0.59 0.71 (1.6%) (3.8%) (3.5%) (1.6%) (3.8%) (1.5%)
Office Properties Income Trust OPI 221 $7,267 0.40 0.43 0.49 0.33 1.08 (7.4%) 0.8% 12.4% (7.4%) 2.6% 21.1%
Highw oods Properties HIW 690 $32,609 0.49 0.46 0.48 0.50 0.75 (4.6%) 3.1% 19.7% (4.6%) 4.1% 24.8%
Hudson Pacific Properties, Inc. HPP 757 $27,032 0.56 0.56 0.49 0.52 0.79 0.4% 7.4% 23.7% 0.4% 7.4% 26.4%
Kilroy Realty Corp. KRC 558 $46,242 0.56 0.54 0.49 0.53 0.78 (1.4%) 5.4% 30.5% (1.4%) 5.4% 33.0%
Mack-Cali Realty CLI 557 $11,863 0.41 0.43 0.41 0.40 0.76 (4.5%) (5.7%) 4.2% (4.5%) (4.8%) 8.2%
Paramount Group, Inc. PGRE 1,305 $17,755 0.56 0.53 0.54 0.52 0.74 (0.7%) 1.0% 7.4% (0.7%) 1.0% 9.8%
Piedmont Office Realty Trust PDM 905 $19,883 0.46 0.42 0.47 0.52 0.69 (3.1%) 2.6% 25.8% (3.1%) 3.6% 31.0%
PS Business Parks PSB 83 $14,396 0.42 0.39 0.35 0.58 0.66 (7.5%) (10.3%) 24.7% (6.9%) (9.7%) 27.9%
SL Green Realty SLG 816 $70,819 0.62 0.59 0.55 0.52 0.89 4.3% 8.9% 12.6% 4.3% 8.9% 16.0%
Vornado VNO 992 $64,272 0.54 0.50 0.49 0.53 0.79 0.7% 2.1% 4.8% 0.7% 3.1% 9.1%
Washington REIT WRE 318 $9,715 0.42 0.37 0.46 0.45 0.68 (5.6%) 7.2% 27.5% (5.6%) 7.2% 31.7%

Property Type Wtd. Average 693 $30,216 0.52 0.49 0.47 0.53 0.76 (2.4%) 2.1% 20.7% (2.3%) 2.4% 24.0%

125

Michael W. Mueller, CFA

(1-212) 622-6689
michael.w.mueller@jpmorgan.com

Appendix VII: Regional Mall REITs as of 12/17/2019

Figure 191: Regional Mall REITs – Pricing and Balance Sheet Data
Stock Payout Ratio Equity Total Net Debt Lvg. Lvg. To Est. Prem/
Price Dividend 2020E Shares Market Market Debt/ -To- -To- Pvt. Mkt. NAV / (Disc)

Company Ticker 12/17/19 Amt. Yield FFO AFFO & Units Capitalization Capitalization EBITDA TMC TMC Value Share To NAV

CBL & Associates CBL $1.05 $0.00 0.0% $0.00 0.0% 226,987 $238,336 $5,551,020 11.7x 84.4% 95.7% 90.3% $2.52 (58.3%)
Pennsy lv ania REIT PEI $5.24 $0.84 16.0% 69.2% 128.2% 79,625 $417,235 $2,850,374 10.9x 71.9% 85.4% 77.8% $8.74 (40.0%)
Simon Property Group SPG $144.66 $8.40 5.8% 66.9% 78.5% 353,624 $51,155,248 $84,837,058 5.6x 39.6% 39.7% 34.8% $178.57 (19.0%)
Tanger Factory Outlet SKT $14.89 $1.42 9.5% 65.4% 83.3% 97,474 $1,451,388 $3,207,275 6.2x 54.7% 54.7% 49.9% $18.09 (17.7%)
Taubman Centers TCO $29.59 $2.70 9.1% 72.6% 99.8% 87,644 $2,593,383 $7,841,183 8.2x 62.3% 66.9% 43.9% $76.48 (61.3%)
The Macerich Company MAC $25.95 $3.00 11.6% 84.5% 101.3% 151,877 $3,941,205 $11,917,645 9.1x 66.9% 66.9% 50.8% $50.82 (48.9%)

Property Type Total / Wtd. Average 6.5% 68.0% 81.1% $59,796,794 $116,204,554 6.0x 47.3% 48.5% 41.2% (23.1%)

REIT Industry Total / Wtd. Average 3.7% 64.3% 71.6% $1,114,153,038 $1,615,893,251 5.6x 29.9% 31.0% 32.5% 3.5%
Source: J.P. Morgan, Company reports, Bloomberg, SNL Financial.

Figure 192: Regional Mall REITs – Earnings Analysis

EV/ FFO AFFO P/FFO P/AFFO 2019E Growth 2020E Growth 2021E Growth
Com pany Ticker EBITDA 2019E 2020E 2021E 2019E 2020E 2021E 2019E 2020E 2021E 2019E 2020E 2021E FFO AFFO FFO AFFO FFO AFFO

CBL & Associates CBL 14.0x $1.33 $1.27 $1.26 $0.32 $0.33 $0.39 0.8x 0.8x 0.8x 3.2x 3.2x 2.7x (22.8%) (7.7%) (4.9%) 2.5% (0.8%) 17.1%
Pennsy lv ania REIT PEI 13.7x $1.11 $1.21 $1.26 $0.71 $0.66 $0.74 4.7x 4.3x 4.2x 7.4x 8.0x 7.1x (28.1%) (8.2%) 9.6% (7.4%) 3.7% 12.6%
Simon Property Group SPG 16.0x $12.37 $12.56 $13.06 $10.84 $10.70 $11.20 11.7x 11.5x 11.1x 13.3x 13.5x 12.9x 2.0% 3.3% 1.5% (1.3%) 4.0% 4.7%
Tanger Factory Outlet SKT 11.7x $2.29 $2.17 $2.24 $1.72 $1.71 $1.80 6.5x 6.9x 6.6x 8.7x 8.7x 8.3x (7.6%) (11.5%) (5.1%) (0.6%) 3.4% 5.8%
Taubman Centers TCO 14.3x $3.69 $3.72 $3.85 $1.70 $2.71 $2.82 8.0x 8.0x 7.7x 17.4x 10.9x 10.5x (3.5%) 45.2% 0.8% 58.9% 3.6% 4.3%
The Macerich Company MAC 13.3x $3.54 $3.55 $3.66 $2.90 $2.96 $3.07 7.3x 7.3x 7.1x 8.9x 8.8x 8.4x (8.2%) (6.8%) 0.4% 2.0% 3.2% 3.7%

Property Type Wtd. Average 15.2x 11.0x 10.9x 10.5x 13.0x 12.9x 12.3x 0.5% 4.0% 1.3% 1.5% 3.9% 4.7%

REIT Industry Total / Wtd. Average 20.7x 20.1x 19.8x 18.7x 23.8x 21.7x 20.7x 4.1% 3.7% 4.1% 3.7% 4.1% 3.7%
Source: J.P. Morgan, Company reports, Bloomberg, SNL Financial.

126

Michael W. Mueller, CFA

(1-212) 622-6689
michael.w.mueller@jpmorgan.com

Figure 193: Regional Mall REITs – Market Data

20-Day Correlation To Price Change Total Return
Avg. Daily Vol. (000s) S&P Russell Utilities Beta Month to Quarter to Year to Month to Quarter to Year to

Com pany Ticker Shares $ 500 NASDAQ 2000 (1) (2) Date Date Date Date Date Date

CBL & Associates CBL 2,895 $3,207 0.36 0.31 0.39 0.18 1.41 (27.1%) (18.6%) (45.3%) (27.1%) (18.6%) (42.7%)
Pennsy lv ania REIT PEI 1,367 $7,486 0.37 0.35 0.41 0.23 1.04 (9.0%) (8.4%) (11.8%) (9.0%) (5.1%) 1.6%
Simon Property Group SPG 1,713 $252,981 0.39 0.37 0.41 0.40 0.65 (4.3%) (7.1%) (13.9%) (4.3%) (5.8%) (9.4%)
Tanger Factory Outlet SKT 2,455 $37,982 0.31 0.26 0.38 0.24 0.69 (2.2%) (3.8%) (26.4%) (2.2%) (1.7%) (20.5%)
Taubman Centers TCO 820 $26,188 0.38 0.38 0.43 0.37 0.77 (8.9%) (27.5%) (35.0%) (6.9%) (25.9%) (30.5%)
The Macerich Company MAC 2,164 $57,626 0.43 0.42 0.51 0.25 0.81 (3.6%) (17.9%) (40.0%) (3.6%) (15.7%) (34.6%)

Property Type Wtd. Average 1,902 $64,245 0.39 0.37 0.42 0.38 0.67 (4.6%) (8.6%) (16.9%) (4.5%) (7.3%) (12.3%)

127

Michael W. Mueller, CFA

(1-212) 622-6689
michael.w.mueller@jpmorgan.com

Appendix VIII: Residential REITs as of 12/17/2019

Figure 194: Residential REITs – Pricing and Balance Sheet Data
Stock Payout Ratio Equity Total Net Debt Lvg. Lvg. To Est. Prem /
Price Dividend 2020E Shares Market Market Debt/ -To- -To- Pvt. Mkt. NAV / (Disc)

Company Ticker 12/17/19 Am t. Yield FFO AFFO & Units Capitalization Capitalization EBITDA TMC TMC Value Share To NAV

American Campus Communities ACC $45.51 $1.88 4.1% 74.6% 81.3% 138,800 $6,316,766 $9,680,235 6.8x 34.7% 34.7% 32.1% $51.37 (11.4%)
AIMCO AIV $50.46 $1.56 3.1% 59.4% 66.8% 156,804 $7,912,330 $12,268,218 7.6x 34.7% 35.5% 36.8% $47.77 5.6%
American Homes 4 Rent AMH $25.34 $0.20 0.8% 16.5% 19.5% 352,738 $8,938,382 $12,659,247 4.3x 22.4% 29.4% 29.9% $24.77 2.3%
Preferred Apartment Communities APTS $13.37 $1.05 7.9% 70.4% 107.1% 46,191 $617,580 $5,837,254 10.5x 54.8% 89.4% 88.4% $14.86 (10.0%)
Av alonBay Communities AVB $206.64 $6.08 2.9% 62.2% 65.2% 139,675 $28,862,504 $36,223,783 4.6x 20.3% 20.3% 20.3% $206.70 (0.0%)
Camden Property Trust CPT $104.53 $3.20 3.1% 58.1% 66.8% 100,839 $10,540,701 $13,018,088 3.9x 19.0% 19.0% 19.4% $102.33 2.1%
Equity Residential EQR $80.11 $2.27 2.8% 61.8% 72.5% 385,077 $30,848,520 $39,877,736 4.7x 22.5% 22.6% 22.6% $80.40 (0.4%)
Essex Property Trust ESS $296.19 $7.80 2.6% 55.6% 60.0% 68,461 $20,277,464 $26,325,605 5.2x 23.0% 23.0% 24.3% $274.87 7.8%
Front Yard Residential Corp RESI $12.21 $0.60 4.9% 212.4% -456.9% 53,881 $657,881 $2,275,338 19.0x 71.1% 71.1% 66.5% $15.13 (19.3%)
Inv itation Homes INVH $28.69 $0.52 1.8% 38.6% 48.0% 544,949 $15,634,578 $24,290,471 8.5x 35.6% 35.6% 35.6% $28.69 0.0%
Mid-America Apartment MAA $128.08 $4.00 3.1% 61.0% 70.3% 118,140 $15,131,389 $19,683,852 4.5x 22.9% 23.1% 24.4% $119.66 7.0%
JBG Smith Properties JBGS $39.09 $0.90 2.3% 59.6% 85.7% 149,327 $5,837,192 $7,543,028 5.9x 22.6% 22.6% 21.3% $42.15 (7.3%)
Nex point Residential NXRT $43.72 $1.25 2.9% 55.2% 56.0% 24,873 $1,087,454 $2,248,051 13.3x 51.6% 51.6% 52.7% $41.83 4.5%
Bluerock Residential Grow th BRG $11.67 $0.65 5.6% 382.4% 90.5% 31,305 $365,328 $1,691,193 10.5x 74.2% 78.4% 74.3% $14.68 (20.5%)
Independence Realty Trust In IRT $13.79 $0.72 5.2% 90.8% 111.5% 91,776 $1,265,588 $2,248,124 9.5x 43.7% 43.7% 43.4% $13.99 (1.4%)
UDR, Inc. UDR $45.71 $1.37 3.0% 62.3% 68.1% 318,751 $14,570,130 $19,405,968 6.3x 24.9% 24.9% 26.1% $42.86 6.7%

Property Type Total / Wtd. Average 2.8% 58.1% 62.5% $168,863,787 $235,276,190 5.9x 26.9% 28.2% 28.5% 1.8%

REIT Industry Total / Wtd. Average 3.7% 64.3% 71.6% $1,114,153,038 $1,615,893,251 5.6x 29.9% 31.0% 32.5% 3.5%
Source: J.P. Morgan, Company reports, Bloomberg, SNL Financial.

128

Michael W. Mueller, CFA

(1-212) 622-6689
michael.w.mueller@jpmorgan.com

Figure 195: Residential REITs – Earnings Analysis

EV/ FFO AFFO P/FFO P/AFFO 2019E Growth 2020E Growth 2021E Growth
Company Ticker EBITDA 2019E 2020E 2021E 2019E 2020E 2021E 2019E 2020E 2021E 2019E 2020E 2021E FFO AFFO FFO AFFO FFO AFFO

American Campus Communities ACC 19.5x $2.43 $2.52 $2.67 $2.24 $2.31 $2.46 18.7x 18.1x 17.0x 20.3x 19.7x 18.5x 5.7% 7.1% 3.5% 3.3% 6.0% 6.2%
AIMCO AIV 22.0x $2.49 $2.63 $2.80 $2.19 $2.34 $2.51 20.2x 19.2x 18.0x 23.0x 21.6x 20.1x 1.0% 1.5% 5.3% 6.5% 6.7% 7.2%
American Homes 4 Rent AMH 20.3x $1.12 $1.22 $1.34 $0.96 $1.03 $1.16 22.7x 20.8x 18.9x 26.5x 24.7x 21.8x 5.0% 20.2% 8.9% 7.2% 10.4% 13.0%
Preferred Apartment Communities APTS 20.4x $1.41 $1.49 $1.64 $0.87 $0.98 $1.16 NA 9.0x 8.2x NA 13.6x 11.6x NA NA 5.5% 12.6% 9.7% 17.9%
Av alonBay Communities AVB 22.5x $9.32 $9.78 $10.39 $8.75 $9.33 $9.93 22.2x 21.1x 19.9x 23.6x 22.2x 20.8x 3.6% 2.9% 4.9% 6.6% 6.2% 6.4%
Camden Property Trust CPT 21.4x $5.02 $5.51 $5.88 $4.31 $4.79 $5.15 20.8x 19.0x 17.8x 24.2x 21.8x 20.3x 5.1% 7.0% 9.8% 11.1% 6.7% 7.4%
Equity Residential EQR 21.2x $3.48 $3.67 $3.90 $3.01 $3.13 $3.35 23.0x 21.8x 20.5x 26.6x 25.6x 23.9x 6.8% 9.0% 5.6% 3.9% 6.2% 7.1%
Essex Property Trust ESS 22.3x $13.32 $14.04 $14.83 $12.08 $13.01 $13.80 22.2x 21.1x 20.0x 24.5x 22.8x 21.5x 5.9% 4.1% 5.4% 7.7% 5.7% 6.1%
Front Yard Residential Corp RESI 26.8x ($0.57) $0.28 $0.45 ($1.00) ($0.13) $0.06 -21.6x 43.2x 27.2x -12.2x -93.0x 217.9x (18.0%) 54.8% (149.9%) (86.9%) 59.1% (142.7%)
Inv itation Homes INVH 24.2x $1.26 $1.35 $1.43 $1.03 $1.08 $1.15 22.8x 21.3x 20.1x 27.9x 26.5x 24.9x 7.1% 8.7% 6.9% 5.4% 5.8% 6.2%
Mid-America Apartment MAA 19.8x $6.42 $6.56 $6.87 $5.49 $5.69 $5.98 19.9x 19.5x 18.7x 23.3x 22.5x 21.4x 6.4% 6.7% 2.1% 3.6% 4.7% 5.1%
JBG Smith Properties JBGS 26.4x $1.48 $1.51 $1.65 $0.86 $1.05 $1.11 26.4x 25.9x 23.8x 45.5x 37.2x 35.2x 8.8% (35.8%) 2.0% 22.1% 8.9% 5.7%
Nex point Residential NXRT 26.5x $1.82 $2.26 $2.45 $1.89 $2.23 $2.23 24.0x 19.3x 17.8x 23.1x 19.6x 19.6x 14.9% 5.6% 24.1% 18.2% 8.3% (0.1%)
Bluerock Residential Grow th BRG 14.1x ($0.02) $0.17 $0.25 $0.59 $0.72 $0.68 -686.5x 68.6x 46.1x 19.6x 16.3x 17.2x (107.9%) (14.7%) (1100.0%) 20.9% 48.8% (5.8%)
Independence Realty Trust In IRT 22.4x $0.69 $0.79 $0.85 $0.58 $0.65 $0.66 20.0x 17.4x 16.2x 23.6x 21.3x 20.9x (3.4%) (10.0%) 14.9% 10.6% 7.4% 2.2%
UDR, Inc. UDR 24.5x $2.08 $2.20 $2.31 $1.92 $2.01 $2.12 22.0x 20.8x 19.8x 23.8x 22.7x 21.6x 6.4% 7.0% 5.8% 4.7% 4.8% 5.2%

Property Type Wtd. Average 21.9x 20.4x 20.9x 19.6x 25.3x 23.3x 23.1x 5.6% 5.2% 5.7% 6.6% 6.3% 6.6%

REIT Industry Total / Wtd. Average 20.7x 20.1x 19.8x 18.7x 23.8x 21.7x 20.7x 4.1% 3.7% 4.9% 6.8% 5.6% 6.7%

Source: J.P. Morgan, Company reports, Bloomberg, SNL Financial.

129

Michael W. Mueller, CFA

(1-212) 622-6689
michael.w.mueller@jpmorgan.com

Figure 196: Residential REITs – Market Data

20-Day Correlation To Price Change Total Return
Avg. Daily Vol. (000s) S&P Russell Utilities Beta Month to Quarter to Year to Month to Quarter to Year to
Com pany Ticker Shares $ 500 NASDAQ 2000 (1) (2) Date Date Date Date Date Date

American Campus Communities ACC 659 $31,111 0.38 0.34 0.30 0.56 0.63 (5.3%) (5.3%) 10.0% (5.3%) (4.4%) 14.4%
AIMCO AIV 1,114 $58,681 0.47 0.39 0.36 0.58 0.69 (6.2%) (3.2%) 15.4% (6.2%) (2.5%) 18.9%
American Homes 4 Rent AMH 1,672 $44,029 0.45 0.45 0.36 0.49 0.70 (5.1%) (2.1%) 27.7% (5.1%) (2.1%) 28.5%
Preferred Apartment Communities APTS 252 $3,417 0.19 0.17 0.24 0.40 0.55 (2.9%) (7.5%) (4.9%) (1.0%) (5.6%) 2.1%
Av alonBay Communities AVB 540 $115,211 0.47 0.41 0.33 0.64 0.67 (3.6%) (4.0%) 18.7% (3.6%) (4.0%) 21.4%
Camden Property Trust CPT 488 $53,613 0.44 0.37 0.32 0.59 0.65 (6.3%) (5.8%) 18.7% (5.6%) (5.1%) 22.4%
Equity Residential EQR 1,684 $141,828 0.41 0.34 0.29 0.59 0.64 (5.9%) (7.1%) 21.4% (5.9%) (7.1%) 24.0%
Essex Property Trust ESS 422 $130,944 0.34 0.30 0.21 0.53 0.57 (5.1%) (9.3%) 20.8% (5.1%) (9.3%) 23.2%
Front Yard Residential Corp RESI 319 $3,844 0.17 0.17 0.29 0.20 0.63 5.3% 5.6% 39.9% 5.3% 5.6% 45.8%
Inv itation Homes INVH 7,070 $211,217 0.43 0.40 0.32 0.57 NA (6.0%) (3.1%) 42.9% (6.0%) (2.7%) 45.8%
Mid-America Apartment MAA 587 $78,803 0.39 0.33 0.28 0.66 0.63 (5.9%) (1.5%) 33.8% (5.9%) (0.8%) 38.4%
JBG Smith Properties JBGS 666 $26,214 0.54 0.48 0.52 0.39 NA (2.0%) (0.3%) 12.3% (2.0%) 0.3% 14.2%
Nex point Residential NXRT 119 $5,698 0.16 0.14 0.16 0.30 0.48 (8.6%) (6.5%) 24.7% (8.0%) (5.8%) 28.2%
Bluerock Residential Grow th BRG 141 $1,694 0.23 0.18 0.26 0.35 0.56 (4.8%) (0.8%) 29.4% (4.8%) (0.8%) 35.1%
Independence Realty Trust In IRT 436 $6,297 0.32 0.31 0.30 0.51 0.60 (7.7%) (3.6%) 50.2% (7.7%) (3.6%) 57.1%
UDR, Inc. UDR 1,493 $70,909 0.43 0.35 0.30 0.62 0.65 (4.9%) (5.7%) 15.4% (4.9%) (5.0%) 18.9%

Property Type Wtd. Average 1,104 $61,469 0.42 0.36 0.31 0.58 0.56 (5.1%) (4.9%) 22.8% (5.1%) (4.6%) 25.8%

130

Michael W. Mueller, CFA

(1-212) 622-6689
michael.w.mueller@jpmorgan.com

Appendix IX: Self Storage REITs as of 12/17/2019

Figure 197: Self-Storage REITs – Pricing and Balance Sheet Data
Stock Payout Ratio Equity Total Net Debt Lvg. Lvg. To Est. Prem/
Price Dividend 2020E Shares Market Market Debt/ -To- -To- Pvt. Mkt. NAV / (Disc)

Company Ticker 12/17/19 Am t. Yield FFO AFFO & Units Capitalization Capitalization EBITDA TMC TMC Value Share To NAV

Ex tra Space Storage EXR $102.69 $3.60 3.5% 71.1% 74.5% 135,435 $13,907,865 $19,003,737 5.6x 26.8% 26.8% 29.1% $91.86 11.8%
Public Storage PSA $205.24 $8.00 3.9% 73.1% 82.2% 174,655 $35,846,290 $41,936,392 0.9x 5.5% 14.5% 13.8% $217.02 (5.4%)
Life Storage LSI $103.46 $4.00 3.9% 67.5% 74.8% 46,904 $4,852,725 $6,784,165 5.5x 28.5% 28.5% 28.8% $101.97 1.5%
CubeSmart CUBE $30.39 $1.32 4.3% 76.5% 81.0% 195,420 $5,938,811 $7,809,306 4.4x 24.0% 24.0% 22.8% $32.32 (6.0%)

Property Type Total / Wtd. Average 3.8% 72.5% 79.7% $60,545,691 $75,533,600 2.7x 14.9% 19.8% 19.6% (1.0%)

REIT Industry Total / Wtd. Average 3.7% 64.3% 71.6% $1,114,153,038 $1,615,893,251 5.6x 29.9% 31.0% 32.5% 3.5%
Source: J.P. Morgan, Company reports, Bloomberg, SNL Financial.

Figure 198: Self-Storage REITs – Earnings Analysis

EV/ FFO AFFO P/FFO P/AFFO 2019E Growth 2020E Growth 2021E Growth
Company Ticker EBITDA 2019E 2020E 2021E 2019E 2020E 2021E 2019E 2020E 2021E 2019E 2020E 2021E FFO AFFO FFO AFFO FFO AFFO

Ex tra Space Storage EXR 21.3x $4.86 $5.06 $5.24 $4.65 $4.84 $4.91 21.1x 20.3x 19.6x 22.1x 21.2x 20.9x 4.7% 6.2% 4.1% 3.9% 3.5% 1.6%
Public Storage PSA 18.1x $10.71 $10.94 $11.21 $9.51 $9.74 $9.97 19.2x 18.8x 18.3x 21.6x 21.1x 20.6x 1.5% (2.6%) 2.1% 2.4% 2.5% 2.4%
Life Storage LSI 19.1x $5.61 $5.92 $6.24 $5.07 $5.35 $5.67 18.5x 17.5x 16.6x 20.4x 19.3x 18.2x 2.0% 1.4% 5.7% 5.5% 5.3% 6.0%
CubeSmart CUBE 18.5x $1.68 $1.73 $1.80 $1.59 $1.63 $1.70 18.1x 17.6x 16.9x 19.2x 18.6x 17.8x 2.4% 1.8% 2.8% 2.8% 4.3% 4.5%

Property Type Wtd. Average 19.0x 19.5x 18.9x 18.3x 21.4x 20.7x 20.2x 2.4% 0.2% 2.9% 3.1% 3.1% 2.7%

REIT Industry Total / Wtd. Average20.7x 20.1x 19.8x 18.7x 23.8x 21.7x 20.7x 4.1% 3.7% 4.9% 6.8% 5.6% 6.7%
Source: J.P. Morgan, Company reports, Bloomberg, SNL Financial.

131

Michael W. Mueller, CFA

(1-212) 622-6689
michael.w.mueller@jpmorgan.com

Figure 199: Self-Storage REITs – Market Data

20-Day Correlation To Price Change Total Return
Avg. Daily Vol. (000s) S&P Russell Utilities Beta Month to Quarter to Year to Month to Quarter to Year to

Company Ticker Shares $ 500 NASDAQ 2000 (1) (2) Date Date Date Date Date Date

Ex tra Space Storage EXR 1,026 $108,156 0.23 0.21 0.14 0.48 0.51 (3.2%) (12.1%) 13.5% (2.3%) (11.3%) 17.3%
Public Storage PSA 993 $208,790 0.08 0.07 (0.01) 0.42 0.40 (2.6%) (16.3%) 1.4% (1.6%) (15.5%) 5.0%
Life Storage LSI 371 $40,088 0.25 0.20 0.19 0.54 0.51 (5.5%) (1.8%) 11.3% (5.5%) (0.9%) 15.9%
CubeSmart CUBE 1,752 $53,990 0.19 0.18 0.13 0.51 0.48 (1.5%) (12.9%) 5.9% (1.5%) (12.9%) 9.0%

Property Type Wtd. Average 1,035 $102,756 0.14 0.12 0.05 0.45 0.44 (2.8%) (13.9%) 5.4% (2.1%) (13.1%) 9.1%

132

Michael W. Mueller, CFA

(1-212) 622-6689
michael.w.mueller@jpmorgan.com

Appendix X: Strip Center REITs as of 12/17/2019

Figure 200: Strip Center REITs – Pricing and Balance Sheet Data
Stock Payout Ratio Equity Total Net Debt Lvg. Lvg. To Est. Prem /
Price Dividend 2020E Shares Market Market Debt/ -To- -To- Pvt. Mkt. NAV / (Disc)
Company Ticker 12/17/19 Amt. Yield FFO AFFO & Units Capitalization Capitalization EBITDA TMC TMC Value Share To NAV

American Assets Trust AAT $44.36 $1.20 2.7% $0.49 80.8% 76,348 $3,386,776 $4,750,625 5.5x 28.7% 28.7% 26.8% $48.89 (9.3%)
Agree Realty ADC $67.98 $2.34 3.4% 72.3% 72.4% 42,760 $2,906,855 $3,851,743 6.1x 24.5% 24.5% 29.2% $53.49 27.1%
Acadia Realty AKR $25.70 $1.16 4.5% 82.3% 99.8% 91,715 $2,357,076 $3,342,060 6.5x 29.5% 29.5% 28.1% $27.44 (6.3%)
Brix mor Property Group BRX $20.95 $1.14 5.4% 58.2% 75.8% 297,846 $6,239,874 $11,115,327 6.7x 43.9% 43.9% 42.6% $22.02 (4.9%)
Cedar Shopping Centers CDR $2.65 $0.20 7.5% 44.1% 89.6% 85,944 $227,752 $1,034,636 8.4x 62.4% 78.0% 63.6% $5.37 (50.7%)
Federal Realty FRT $127.16 $4.20 3.3% 64.2% 79.1% 76,749 $9,759,354 $13,268,327 5.3x 25.2% 26.4% 24.5% $140.81 (9.7%)
SITE Centers SITC $13.39 $0.80 6.0% 70.5% 88.1% 180,715 $2,419,774 $5,075,842 6.4x 42.0% 52.3% 46.6% $16.86 (20.6%)
Kimco Realty KIM $20.40 $1.12 5.5% 74.8% 97.4% 421,776 $8,604,230 $15,876,984 7.7x 41.3% 45.8% 46.8% $19.57 4.3%
Kite Realty Group Trust KRG $18.24 $1.27 7.0% 81.8% 95.8% 86,074 $1,569,990 $2,795,690 6.3x 43.8% 43.8% 38.9% $22.35 (18.4%)
RPT Realty RPT $14.58 $0.88 6.0% 81.0% 147.3% 88,443 $1,289,499 $2,315,120 6.3x 40.3% 44.3% 43.2% $15.24 (4.3%)
Regency Centers REG $61.48 $2.34 3.8% 60.1% 74.6% 168,308 $10,347,576 $14,792,248 5.0x 30.0% 30.0% 27.4% $70.13 (12.3%)
Retail Opportunity Inv estments Corp. ROIC $17.20 $0.79 4.6% 69.9% 97.7% 125,927 $2,165,944 $3,585,812 7.0x 39.6% 39.6% 37.3% $18.93 (9.1%)
Retail Properties of America RPAI $13.06 $0.66 5.1% 60.6% 87.8% 213,655 $2,790,334 $4,429,867 5.3x 37.0% 37.0% 31.6% $16.58 (21.2%)
Saul Centers BFS $50.24 $2.12 4.2% 65.6% 77.1% 30,989 $1,556,897 $2,863,425 6.4x 35.5% 45.6% 38.5% $67.33 (25.4%)
Urstadt-Biddle Properties UBA $23.51 $1.10 4.7% 73.8% 85.9% 39,635 $931,826 $1,445,817 3.7x 22.4% 35.6% 35.4% $23.68 (0.7%)
Urban Edge Properties UE $18.66 $0.88 4.7% 73.5% 84.6% 127,017 $2,370,129 $3,999,043 5.6x 40.7% 40.7% 34.6% $24.23 (23.0%)
Weingarten Realty WRI $30.79 $1.58 5.1% 75.2% 93.1% 130,137 $4,006,918 $5,792,499 4.9x 30.8% 30.8% 29.2% $33.24 (7.4%)

Property Type Total / Wtd. Average 4.5% 66.8% 85.5% $62,930,804 $100,335,065 5.9x 35.2% 37.3% 35.1% (7.7%)

REIT Industry Total / Wtd. Average 3.7% 64.3% 71.6% $1,114,153,038 $1,615,893,251 5.6x 29.9% 31.0% 32.5% 3.5%

Source: J.P. Morgan, Company reports, Bloomberg, SNL Financial.

133

Michael W. Mueller, CFA

(1-212) 622-6689
michael.w.mueller@jpmorgan.com

Figure 201: Strip Center REITs – Earnings Analysis

EV/ FFO AFFO P/FFO P/AFFO 2019E Growth 2020E Growth 2021E Growth

Company Ticker EBITDA 2019E 2020E 2021E 2019E 2020E 2021E 2019E 2020E 2021E 2019E 2020E 2021E FFO AFFO FFO AFFO FFO AFFO

American Assets Trust AAT 20.8x $2.22 $2.43 $2.59 $1.00 $1.49 $2.20 20.0x 18.2x 17.2x 44.6x 29.9x 20.2x 5.9% (32.5%) 9.4% 49.2% 6.3% 48.1%
Agree Realty ADC 25.3x $2.98 $3.24 $3.47 $2.98 $3.23 $3.46 22.8x 21.0x 19.6x 22.8x 21.0x 19.6x 3.8% 5.4% 8.7% 8.6% 7.3% 7.0%
Acadia Realty AKR 22.2x $1.41 $1.41 $1.49 $1.11 $1.16 $1.22 18.2x 18.2x 17.3x 23.1x 22.1x 21.0x 2.5% 9.2% (0.2%) 4.4% 5.6% 5.2%
Brix mor Property Group BRX 15.6x $1.93 $1.96 $2.04 $1.40 $1.50 $1.58 10.8x 10.7x 10.3x 15.0x 13.9x 13.3x (3.4%) (4.7%) 1.3% 7.6% 4.0% 5.1%
Cedar Shopping Centers CDR 13.8x $0.45 $0.45 $0.47 $0.23 $0.22 $0.25 5.9x 5.8x 5.6x 11.5x 11.9x 10.8x (17.6%) (37.8%) 1.3% (2.9%) 3.5% 9.7%
Federal Realty FRT 17.7x $6.36 $6.54 $6.85 $4.94 $5.31 $5.60 20.0x 19.4x 18.6x 25.8x 23.9x 22.7x 2.3% 2.0% 2.8% 7.6% 4.6% 5.4%
SITE Centers SITC 15.7x $1.24 $1.13 $1.15 $0.91 $0.91 $0.95 10.8x 11.8x 11.6x 14.6x 14.7x 14.2x 27.0% (33.0%) (8.4%) (0.7%) 1.6% 4.1%
Kimco Realty KIM 18.0x $1.45 $1.50 $1.55 $1.15 $1.15 $1.23 14.0x 13.6x 13.1x 17.8x 17.7x 16.5x (1.2%) 8.3% 2.9% 0.3% 3.7% 7.2%
Kite Realty Group Trust KRG 14.9x $1.61 $1.55 $1.61 $1.43 $1.33 $1.38 11.4x 11.8x 11.4x 12.7x 13.8x 13.3x (19.4%) (13.2%) (3.4%) (7.6%) 3.5% 3.8%
RPT Realty RPT 16.1x $1.09 $1.09 $1.12 $0.40 $0.60 $0.79 13.4x 13.4x 13.1x 36.1x 24.4x 18.4x (19.2%) (43.2%) (0.0%) 47.8% 2.8% 32.7%
Regency Centers REG 17.9x $3.86 $3.89 $4.00 $3.16 $3.14 $3.29 15.9x 15.8x 15.4x 19.4x 19.6x 18.7x 0.7% 5.6% 0.9% (0.8%) 2.8% 5.0%
Retail Opportunity Inv estments Corp. ROIC 17.9x $1.11 $1.13 $1.17 $0.75 $0.81 $0.84 15.5x 15.3x 14.8x 23.0x 21.3x 20.4x (2.6%) (4.8%) 1.4% 8.1% 3.5% 4.5%
Retail Properties of America RPAI 14.6x $1.07 $1.09 $1.11 $0.65 $0.75 $0.77 12.2x 11.9x 11.7x 20.2x 17.3x 17.1x 3.6% 4.9% 2.1% 16.7% 1.8% 1.5%
Saul Centers BFS 17.2x $3.20 $3.23 $3.35 $2.79 $2.75 $2.93 15.7x 15.6x 15.0x 18.0x 18.3x 17.1x 1.8% 6.6% 0.9% (1.5%) 3.7% 6.5%
Urstadt-Biddle Properties UBA 16.6x $1.39 $1.49 NA $0.96 $1.28 NA 16.9x NA NA 24.5x NA NA (5.4%) (32.6%) NA NA NA NA
Urban Edge Properties UE 19.3x $1.17 $1.20 $1.26 $0.97 $1.04 $1.13 15.9x 15.6x 14.8x 19.2x NA NA (10.9%) 2.5% 2.4% NA 5.2% 8.7%
Weingarten Realty WRI 16.6x $2.09 $2.10 $2.18 $1.62 $1.70 $1.77 14.7x 14.6x 14.1x 18.9x 18.1x 17.4x (8.0%) (7.0%) 0.6% 4.4% 3.9% 4.2%

Property Type Wtd. Average 17.5x 15.8x 15.4x 14.8x 21.5x 19.7x 18.2x (0.2%) (2.5%) 1.9% 7.5% 4.0% 8.3%

REIT Industry Total / Wtd. Average 20.7x 20.1x 19.8x 18.7x 23.8x 21.7x 20.7x 4.1% 2.8% 4.9% 6.8% 5.6% 6.7%
Source: J.P. Morgan, Company reports, Bloomberg, SNL Financial.

134

Michael W. Mueller, CFA

(1-212) 622-6689
michael.w.mueller@jpmorgan.com

Figure 202: Strip Center REITs – Market Data

American Assets Trust AAT 293 $13,612 0.38 0.35 0.34 0.54 0.62 (6.7%) (5.1%) 10.4% (6.1%) (4.5%) 13.2%
Agree Realty ADC 387 $28,015 0.20 0.22 0.15 0.40 0.50 (9.1%) (7.1%) 15.0% (9.1%) (7.1%) 17.8%
Acadia Realty AKR 551 $14,601 0.51 0.48 0.50 0.49 0.83 (4.4%) (10.1%) 8.2% (4.4%) (10.1%) 11.5%
Brix mor Property Group BRX 2,770 $60,029 0.53 0.50 0.51 0.49 0.94 (4.5%) 3.3% 42.6% (4.5%) 4.7% 52.1%
Cedar Shopping Centers CDR 261 $704 0.25 0.21 0.37 0.30 0.80 (0.7%) (11.7%) (15.6%) (0.7%) (10.2%) (9.8%)
Federal Realty FRT 333 $43,376 0.44 0.41 0.40 0.59 0.68 (3.7%) (6.6%) 7.7% (3.7%) (6.6%) 10.2%
SITE Centers SITC 1,162 $16,472 0.44 0.37 0.43 0.38 0.90 (7.6%) (11.4%) 21.0% (6.2%) (10.1%) 28.3%
Kimco Realty KIM 3,752 $79,435 0.40 0.36 0.40 0.48 0.79 (5.6%) (2.3%) 39.2% (5.6%) (1.0%) 45.6%
Kite Realty Group Trust KRG 635 $12,060 0.50 0.46 0.53 0.38 0.90 (5.7%) 12.9% 29.5% (5.7%) 12.9% 40.6%
RPT Realty RPT 706 $10,252 0.44 0.39 0.47 0.44 0.81 (1.4%) 7.6% 22.0% (1.4%) 7.6% 28.6%
Regency Centers REG 992 $63,139 0.44 0.39 0.37 0.55 0.69 (5.5%) (11.5%) 4.8% (5.5%) (10.7%) 8.6%
Retail Opportunity Inv estments Corp. ROIC 1,097 $19,656 0.54 0.52 0.53 0.51 0.80 (5.7%) (5.7%) 8.3% (4.6%) (4.6%) 13.3%
Retail Properties of America RPAI 1,831 $25,166 0.43 0.40 0.43 0.45 0.78 (8.2%) 6.0% 20.4% (8.2%) 6.0% 25.4%
Saul Centers BFS 43 $2,225 0.33 0.32 0.43 0.36 0.68 (5.5%) (7.8%) 6.4% (5.5%) (6.9%) 10.7%
Urstadt-Biddle Properties UBA 85 $2,049 0.30 0.28 0.39 0.42 0.60 (3.5%) (0.8%) 22.3% (3.5%) 0.4% 28.9%
Urban Edge Properties UE 806 $16,301 0.54 0.50 0.54 0.46 0.89 (10.0%) (5.7%) 12.3% (8.9%) (4.6%) 17.6%
Weingarten Realty WRI 938 $29,369 0.50 0.46 0.53 0.48 0.76 (3.3%) 5.7% 24.1% (2.1%) 7.0% 31.2%

Property Type Wtd. Average 979 $25,674 0.44 0.40 0.42 0.50 0.75 (5.4%) (3.9%) 18.7% (5.2%) (3.1%) 23.9%

135

Michael W. Mueller, CFA

(1-212) 622-6689
michael.w.mueller@jpmorgan.com

Appendix XI: Triple Net Lease REITs as of 12/17/2019

Figure 203: Triple Net Lease REITs – Pricing and Balance Sheet Data
Stock Payout Ratio Equity Total Net Debt Lvg. Lvg. To Est. Prem/
Price Dividend 2020E Shares Market Market Debt/ -To- -To- Pvt. Mkt. NAV / (Disc)
Company Ticker 12/17/19 Amt. Yield FFO AFFO & Units Capitalization Capitalization EBITDA TMC TMC Value Share To NAV

EPR Properties EPR $68.07 $4.50 6.6% $0.83 86.2% 78,272 $5,327,975 $8,839,006 7.0x 35.5% 39.7% 43.5% $58.15 17.1%
Four Corners Property Trust FCPT $27.06 $1.22 4.5% 79.1% 81.6% 68,707 $1,859,200 $2,484,200 4.7x 25.2% 25.2% 27.8% $23.68 14.3%
Gaming and Leisure Properties, Inc. GLPI $41.64 $2.80 6.7% 109.8% 88.3% 212,603 $8,852,789 $14,353,931 6.1x 38.3% 38.3% NA NA NA
Getty Realty Corp GTY $32.57 $1.48 4.5% 79.4% 84.9% 41,893 $1,364,450 $1,813,474 4.1x 24.8% 24.8% 30.2% $24.79 31.4%
Lex ington Realty Trust LXP $10.50 $0.42 4.0% 55.3% 69.5% 248,241 $2,606,525 $4,103,979 5.3x 34.1% 36.5% 38.6% $9.61 9.3%
MGM Grow th Properties MGP $29.67 $1.88 6.3% 92.2% 81.7% 233,894 $6,939,635 $11,678,385 4.5x 37.0% 37.0% NA NA NA
National Retail Properties NNN $51.30 $2.06 4.0% 71.8% 70.7% 171,637 $8,804,991 $12,301,414 4.1x 23.3% 28.4% 31.7% $43.84 17.0%
Realty Income Corporation O $71.73 $2.73 3.8% 76.4% 75.9% 326,373 $23,410,764 $30,448,153 5.5x 23.1% 23.1% 32.7% $44.47 61.3%
Safehold Inc SAFE $38.56 $0.62 1.6% 41.0% 103.3% 47,810 $1,843,566 $3,401,545 11.2x 45.8% 45.8% 55.9% $25.71 50.0%
Spirit Realty Capital SRC $48.34 $2.50 5.2% 80.4% 79.0% 99,408 $4,805,385 $7,131,992 4.0x 30.2% 32.6% 37.1% $39.62 22.0%
VEREIT, Inc. VER $9.13 $0.55 6.0% 84.4% 83.0% 1,094,225 $9,990,274 $16,596,513 4.4x 33.9% 39.8% 44.1% $7.66 19.2%
W.P. Carey & Co. WPC $76.67 $4.14 5.4% 89.2% 81.5% 171,491 $13,148,186 $19,582,897 5.8x 32.9% 32.9% 38.4% $60.13 27.5%

Property Type Total / Wtd. Average 4.9% 81.4% 78.5% $97,643,840 $144,742,757 5.4x 30.7% 32.3% 44.3% 33.9%

REIT Industry Total / Wtd. Average 3.7% 64.3% 71.6% $1,114,153,038 $1,615,893,251 5.6x 29.9% 31.0% 32.5% 3.5%
Source: J.P. Morgan, Company reports, Bloomberg, SNL Financial.

136

Michael W. Mueller, CFA

(1-212) 622-6689
michael.w.mueller@jpmorgan.com

Figure 204: Triple Net Lease REITs – Earnings Analysis

EV/ FFO AFFO P/FFO P/AFFO 2019E Growth 2020E Growth 2021E Growth

Company Ticker EBITDA 2019E 2020E 2021E 2019E 2020E 2021E 2019E 2020E 2021E 2019E 2020E 2021E FFO AFFO FFO AFFO FFO AFFO

EPR Properties EPR 21.4x $5.46 $5.43 $5.88 $5.23 $5.22 $5.67 12.5x 12.5x 11.6x 13.0x 13.0x 12.0x (10.4%) (11.3%) (0.7%) (0.2%) 8.3% 8.6%
Four Corners Property Trust FCPT 19.8x $1.43 $1.54 $1.63 $1.38 $1.49 $1.57 18.9x 17.5x 16.7x 19.6x 18.1x 17.2x 1.9% 1.8% 7.7% 8.2% 5.3% 5.3%
Gaming and Leisure Properties, Inc. GLPI 15.9x $2.55 $2.55 $2.55 $3.17 $3.17 $3.17 16.3x 16.3x 16.3x 13.1x 13.1x 13.1x 8.5% (0.3%) 0.0% 0.0% 0.0% 0.0%
Getty Realty Corp GTY 18.6x $1.83 $1.87 $1.96 $1.82 $1.74 $1.85 17.8x 17.5x 16.6x 17.9x 18.7x 17.6x (0.1%) 9.7% 2.0% (4.1%) 5.3% 6.1%
Lex ington Realty Trust LXP 15.4x $0.79 $0.76 $0.78 $0.58 $0.60 $0.66 13.3x 13.8x 13.5x 18.0x 17.4x 16.0x (18.0%) (24.0%) (3.8%) 3.4% 2.2% 8.5%
MGM Grow th Properties MGP 26.9x $2.04 $2.04 $2.04 $2.30 $2.30 $2.30 14.5x 14.5x 14.5x 12.9x 12.9x 12.9x 0.0% 2.7% 0.0% 0.0% 0.0% 0.0%
National Retail Properties NNN 20.1x $2.76 $2.87 $3.02 $2.79 $2.92 $3.06 18.6x 17.9x 17.0x 18.4x 17.6x 16.8x 4.1% 4.8% 4.2% 4.4% 5.0% 4.9%
Realty Income Corporation O 25.1x $3.28 $3.57 $3.84 $3.31 $3.60 $3.87 21.9x 20.1x 18.7x 21.7x 20.0x 18.5x 5.2% 3.7% 9.0% 8.7% 7.6% 7.6%
Safehold Inc SAFE 23.6x $0.94 $1.52 $1.73 $0.26 $0.60 $0.71 41.2x 25.4x 22.3x 150.5x 63.8x 54.4x NA NA 62.3% 135.9% 13.9% 17.4%
Spirit Realty Capital SRC 16.4x $3.32 $3.11 $3.30 $3.71 $3.16 $3.32 14.5x 15.6x 14.6x 13.0x 15.3x 14.6x (10.9%) (7.4%) (6.5%) (14.8%) 6.3% 4.8%
VEREIT, Inc. VER 16.1x ($0.14) $0.65 $0.69 $0.69 $0.66 $0.69 -65.1x 14.0x 13.3x 13.3x 13.8x 13.3x (7.0%) (4.7%) (3.4%) (3.2%) 5.2% 3.9%
W.P. Carey & Co. WPC 18.5x $4.50 $4.65 $4.85 $4.99 $5.08 $5.26 17.0x 16.5x 15.8x 15.4x 15.1x 14.6x (0.4%) (7.6%) 3.2% 1.9% 4.3% 3.5%

Property Type Wtd. Average 19.7x 9.9x 17.1x 16.2x 19.4x 17.2x 16.3x 0.9% (0.7%) 4.0% 4.9% 5.2% 5.1%

REIT Industry Total / Wtd. Average 20.7x 20.1x 19.8x 18.7x 23.8x 21.7x 20.7x 4.1% 3.7% 4.9% 6.8% 5.6% 6.7%
Source: J.P. Morgan, Company reports, Bloomberg, SNL Financial

137

Michael W. Mueller, CFA

(1-212) 622-6689
michael.w.mueller@jpmorgan.com

Figure 205: Triple Net Lease REITs – Market Data

20-Day Correlation To Price Change Total Return
Avg. Daily Vol. (000s) S&P Russell Utilities Beta Month to Quarter to Year to Month to Quarter to Year to

Company Ticker Shares $ 500 NASDAQ 2000 (1) (2) Date Date Date Date Date Date

EPR Properties EPR 603 $42,685 0.39 0.34 0.31 0.57 0.66 (4.0%) (11.4%) 6.3% (4.0%) (10.5%) 12.3%
Four Corners Property Trust FCPT 397 $11,010 0.20 0.19 0.14 0.58 0.47 (4.4%) (4.3%) 3.3% (4.4%) (4.3%) 7.7%
Gaming and Leisure Properties, Inc. GLPI 938 $39,515 0.48 0.47 0.41 0.45 0.65 (1.3%) 8.9% 28.9% 0.4% 10.7% 38.3%
Getty Realty Corp GTY 89 $2,953 0.44 0.41 0.42 0.61 0.67 (2.9%) 1.6% 10.7% (2.9%) 1.6% 14.4%
Lex ington Realty Trust LXP 1,751 $19,112 0.41 0.40 0.41 0.39 0.69 (5.2%) 2.4% 27.9% (5.2%) 2.4% 32.1%
MGM Grow th Properties MGP 2,833 $86,597 0.57 0.59 0.53 0.43 NA (4.3%) (1.3%) 12.3% (4.3%) (1.3%) 17.5%
National Retail Properties NNN 898 $49,031 0.26 0.24 0.17 0.61 0.53 (8.0%) (9.0%) 5.8% (8.0%) (8.2%) 9.8%
Realty Income Corporation O 1,995 $150,485 0.29 0.25 0.17 0.67 0.56 (6.4%) (6.5%) 13.8% (6.4%) (5.9%) 17.8%
Safehold Inc SAFE 663 $26,256 0.21 0.17 0.26 0.12 NA (5.6%) 26.4% 105.0% (5.6%) 27.0% 108.6%
Spirit Realty Capital SRC 1,384 $70,986 0.40 0.38 0.37 0.47 0.69 (7.7%) 1.0% 37.1% (7.7%) 1.0% 43.2%
VEREIT, Inc. VER 10,641 $101,832 0.37 0.35 0.28 0.57 0.64 (6.5%) (6.6%) 27.7% (6.5%) (6.6%) 33.7%
W.P. Carey & Co. WPC 859 $70,849 0.15 0.14 0.08 0.48 0.45 (8.1%) (14.3%) 17.3% (8.1%) (14.3%) 21.8%

Property Type Wtd. Average 1,932 $57,881 0.33 0.30 0.25 0.55 0.52 (6.2%) (4.4%) 20.3% (6.1%) (4.0%) 25.4%

138

Michael W. Mueller, CFA

(1-212) 622-6689
michael.w.mueller@jpmorgan.com

Appendix XII: Technology REITs as of 12/17/2019

Figure 206: Data Center REITs – Pricing and Balance Sheet Data
Stock Payout Ratio Equity Total Net Debt Lvg. Lvg. To Est. Prem/
Price Dividend 2019E Shares Market Market Debt/ -To- -To- Pvt. Mkt. NAV / (Disc)

Company Ticker 12/17/19 Amt. Yield FFO AFFO & Units Capitalization Capitalization EBITDA TMC TMC Value Share To NAV

Cy rusOne Inc. CONE $62.92 $2.00 3.2% $0.51 51.3% 113,197 $7,122,329 $10,053,429 5.1x 29.2% 29.2% 30.7% $58.50 7.6%
CoreSite Realty Corporation COR $111.73 $4.88 4.4% 89.8% 92.6% 48,460 $5,414,440 $6,986,706 5.3x 22.5% 22.5% 23.9% $103.32 8.1%
Equinix Inc EQIX $557.52 $9.84 1.8% 51.4% 40.5% 79,038 $44,065,266 $56,324,948 4.4x 21.8% 21.8% NA NA NA
American Tow er Corp AMT $211.93 $4.04 1.9% 49.9% 46.7% 442,835 $93,850,022 $122,256,722 5.6x 23.2% 23.2% NA NA NA
Corw n Castle International CCI $133.15 $4.80 3.6% 79.3% 75.2% 416,000 $55,390,400 $79,016,400 6.9x 29.9% 29.9% NA NA NA
SBA Communications SBAC $227.60 NA NA NA NA 112,604 $25,628,670 $37,878,881 8.8x 32.3% 32.3% NA NA NA
Digital Realty Trust DLR $113.81 $4.32 3.8% 64.0% 68.7% 216,924 $24,688,103 $36,479,785 6.6x 32.3% 32.3% 32.4% $113.32 0.4%
QTS Realty Trust, Inc. QTS $50.92 $1.76 3.5% 62.7% 65.3% 64,906 $3,305,016 $4,839,465 6.2x 29.5% 31.7% 30.4% $54.17 (6.0%)

Property Type Total / Wtd. Average 2.6% 59.8% 56.1% $259,464,246 $353,836,336 6.1x 26.6% 26.7% 31.0% 0.3%

REIT Industry Total / Wtd. Average 3.7% 64.3% 71.6% $1,114,153,038 $1,615,893,251 5.6x 29.9% 31.0% 32.5% 3.5%
Source: J.P. Morgan, Company reports, Bloomberg, SNL Financial.

Figure 207: Data Center REITs – Earnings Analysis

EV/ FFO AFFO P/FFO P/AFFO 2019E Growth 2020E Growth 2021E Growth
Company Ticker EBITDA 2019E 2020E 2021E 2019E 2020E 2021E 2019E 2020E 2021E 2019E 2020E 2021E FFO AFFO FFO AFFO FFO AFFO

Cy rusOne Inc. CONE 17.0x $3.58 $3.95 $4.38 $3.46 $3.90 $4.30 17.6x 15.9x 14.4x 18.2x 16.1x 14.6x 9.6% 7.3% 10.5% 12.7% 10.9% 10.2%
CoreSite Realty Corporation COR 22.9x $5.11 $5.44 $5.80 $4.99 $5.27 $5.69 21.9x 20.5x 19.3x 22.4x 21.2x 19.6x 1.1% 6.2% 6.5% 5.7% 6.6% 8.0%
Equinix Inc EQIX 23.3x $16.22 $19.16 $21.86 $22.32 $24.28 $26.23 34.4x 29.1x 25.5x 25.0x 23.0x 21.3x 4.4% 11.1% 18.1% 8.8% 14.1% 8.0%
American Tow er Corp AMT 25.6x $7.53 $8.10 $8.76 $7.84 $8.65 $9.64 28.2x 26.2x 24.2x 27.0x 24.5x 22.0x 3.8% 2.0% 7.6% 10.3% 8.2% 11.4%
Corw n Castle International CCI 23.8x $5.74 $6.05 $6.31 $5.97 $6.38 $6.79 23.2x 22.0x 21.1x 22.3x 20.9x 19.6x 15.4% 8.7% 5.5% 6.9% 4.2% 6.4%
SBA Communications SBAC 27.7x $7.37 $8.52 $9.27 $8.43 $9.30 $10.09 30.9x 26.7x 24.6x 27.0x 24.5x 22.6x 19.1% 12.2% NA 10.3% 8.8% 8.5%
Digital Realty Trust DLR 19.3x $6.63 $6.75 $7.29 $6.04 $6.29 $6.81 17.2x 16.9x 15.6x 18.9x 18.1x 16.7x 0.7% (0.6%) 1.8% 4.2% 7.9% 8.3%
QTS Realty Trust, Inc. QTS 17.7x $2.62 $2.81 $3.18 $2.55 $2.70 $3.08 19.4x 18.1x 16.0x 20.0x 18.9x 16.6x 2.7% 5.9% 7.2% 5.9% 13.1% 14.1%

Property Type Wtd. Average 23.8x 26.9x 24.4x 22.5x 24.5x 22.5x 20.6x 7.7% 6.0% 7.7% 8.6% 8.5% 9.1%

REIT Industry Total / Wtd. Average 20.7x 20.1x 19.8x 18.7x 23.8x 21.7x 20.7x 4.1% 3.7% 4.9% 6.8% 5.6% 6.7%
Source: J.P. Morgan, Company reports, Bloomberg, SNL Financial.

139

Michael W. Mueller, CFA

(1-212) 622-6689
michael.w.mueller@jpmorgan.com

Figure 208: Data Center REITs – Market Data

Cy rusOne Inc. CONE 1,540 $97,335 0.30 0.25 0.24 0.53 0.73 1.0% (20.5%) 19.0% 1.0% (20.5%) 21.8%
CoreSite Realty Corporation COR 244 $27,424 0.51 0.46 0.44 0.61 0.87 (1.5%) (8.3%) 28.1% (1.5%) (8.3%) 32.1%
Equinix Inc EQIX 391 $217,920 0.33 0.25 0.29 0.57 0.65 (1.6%) (3.3%) 58.1% (1.6%) (2.9%) 61.3%
American Tow er Corp AMT 1,398 $297,201 0.31 0.27 0.14 0.54 0.60 (1.0%) (4.2%) 34.0% (1.0%) (4.2%) 35.7%
Corw n Castle International CCI 2,157 $288,945 0.38 0.35 0.29 0.51 0.68 (0.4%) (4.2%) 22.6% 0.5% (3.3%) 26.9%
SBA Communications SBAC 539 $126,884 0.40 0.37 0.32 0.42 0.74 (3.8%) (5.6%) 40.6% (3.8%) (5.5%) 41.0%
Digital Realty Trust DLR 1,696 $200,817 0.38 0.31 0.26 0.62 0.70 (5.9%) (12.3%) 6.8% (5.0%) (11.5%) 10.8%
QTS Realty Trust, Inc. QTS 503 $26,295 0.36 0.30 0.33 0.39 0.83 (4.1%) (1.0%) 37.4% (4.1%) (1.0%) 41.4%

Property Type Wtd. Average 1,058 $160,353 0.35 0.30 0.23 0.53 0.66 (1.7%) (5.4%) 33.2% (1.4%) (5.1%) 35.9%

140

Michael W. Mueller, CFA

(1-212) 622-6689
michael.w.mueller@jpmorgan.com

Appendix XIII: Diversified REITs as of 12/17/2019

Figure 209: Diversified REITs – Pricing and Balance Sheet Data

Stock Payout Ratio Equity Total Net Debt Lvg. Lvg. To Est. Prem /
Price Dividend 2020E Shares Market Market Debt/ -To- -To- Pvt. Mkt. NAV / (Disc)
Com pany Ticker 12/17/19 Am t. Yield FFO & Units Capitalization Capitalization EBITDA TMC TMC Value Share To NAV

Colony Northstar Inc, Class A CLNY $4.47 $0.44 9.8% NA 540,401 $2,415,592 $14,770,437 13.3x 73.9% 83.6% 77.0% $6.83 (34.6%)
Kennedy -Wilson Holdings Inc KW $22.18 $0.88 4.0% NA 143,205 $3,176,296 $9,315,096 NA 65.9% 65.9% 62.6% $25.65 (13.5%)
Wey erhaeuser WY $29.66 $1.36 4.6% NA 745,071 $22,098,806 $28,850,806 5.6x 23.4% 23.4% 22.0% $32.10 (7.6%)
Iron Mountain IRM $31.39 $2.47 7.9% 106.2% 554,481 $17,405,159 $27,863,411 6.6x 37.5% 37.5% NA NA NA
Americold Realty Trust COLD $33.15 $0.80 2.4% 60.8% 194,586 $6,450,526 $8,487,139 5.5x 24.0% 24.0% NA $32.06 3.4%

Property Type Total / Wtd. Average 5.6% 43.5% $51,546,378 $89,286,889 5.9x 40.7% 42.3% 71.5% (5.3%)

REIT Industry Total / Wtd. Average 3.7% 64.3% $1,114,153,038 $1,615,893,251 5.6x 29.9% 31.0% 32.5% 3.5%
Source: J.P. Morgan, Company reports, Bloomberg, SNL Financial.

Figure 210: Diversified REITs – Earnings Analysis

EV/ FFO AFFO P/FFO P/AFFO 2019E Growth 2020E Growth 2021E Growth

Com pany Ticker EBITDA 2019E 2020E 2021E 2019E 2020E 2021E 2019E 2020E 2021E 2019E 2020E 2021E FFO AFFO FFO AFFO FFO

Colony Northstar Inc, Class A CLNY 17.1x $0.45 $0.51 NA $0.33 $0.22 $0.29 9.9x 8.8x NA 13.5x 20.3x 15.4x (35.3%) (40.0%) 13.3% (33.3%) NA
Kennedy -Wilson Holdings Inc KW NA NA NA NA NA NA NA NA NA NA NA NA NA NA NA NA NA NA
Wey erhaeuser WY 26.0x NA NA NA $0.82 $1.40 NA NA NA NA 36.2x 21.2x NA NA (35.4%) NA 70.7% NA
Iron Mountain IRM 18.6x $2.31 $2.33 $2.80 $3.00 $3.30 $3.79 13.6x 13.5x 11.2x 10.5x 9.5x 8.3x 5.0% (1.3%) 0.9% 10.0% 20.2%
Americold Realty Trust COLD 26.8x $1.21 $1.31 $1.47 $1.18 $1.29 $1.44 27.4x 25.2x 22.5x 28.2x 25.8x 23.0x 5.2% 11.2% 8.6% 9.4% 11.9%

Property Type Wtd. Average 21.2x 9.0x 8.6x 7.0x 24.7x 17.6x 12.6x 1.3% (17.3%) 3.2% 31.4% 17.9%

REIT Industry Total / Wtd. Average 20.7x 20.1x 19.8x 18.7x 23.8x 21.7x 20.7x 4.1% 3.7% 4.9% 6.8% 5.6%
Source: J.P. Morgan, Company reports, Bloomberg, SNL Financial.

141

Michael W. Mueller, CFA

(1-212) 622-6689
michael.w.mueller@jpmorgan.com

Figure 211: Diversified REITs – Market Data

20-Day Correlation To Price Change Total Return
Avg. Daily Vol. (000s) S&P Russell Utilities Beta Month to Quarter to Year to Month to Quarter to Year to

Company Ticker Shares $ 500 NASDAQ 2000 (1) (2) Date Date Date Date Date Date

Colony Northstar Inc, Class A CLNY 2,898 $13,749 0.42 0.36 0.41 0.44 1.09 (8.4%) (25.7%) (4.5%) (8.4%) (25.7%) 1.5%
Kennedy -Wilson Holdings Inc KW 280 $6,284 0.54 0.51 0.62 0.22 0.81 (1.9%) 1.2% 22.1% (1.9%) 1.2% 25.7%
Wey erhaeuser WY 3,099 $91,110 0.67 0.63 0.71 0.35 1.05 0.5% 7.1% 35.7% 1.7% 8.3% 43.0%
Iron Mountain IRM 2,305 $75,105 0.42 0.36 0.33 0.44 0.75 (2.3%) (3.1%) (3.1%) (0.4%) (1.2%) 4.3%
Americold Realty Trust COLD 1,844 $65,833 0.23 0.20 0.19 0.39 NA (11.9%) (10.6%) 29.8% (11.9%) (10.6%) 32.2%

Property Type Wtd. Average 2,085 $50,416 0.51 0.46 0.50 0.38 0.80 (2.5%) (0.5%) 19.1% (1.4%) 0.7% 25.6%

142

Michael W. Mueller, CFA

(1-212) 622-6689
michael.w.mueller@jpmorgan.com

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Coverage Universe: Mueller, Michael: Acadia Realty Trust (AKR), Americold Realty Trust (COLD), Brixmor Property Group (BRX),
CBL & Associates Properties (CBL), Duke Realty (DRE), Federal Realty Investment Trust (FRT), First Industrial Realty Trust (FR),
Healthcare Realty Trust (HR), Healthcare Trust of America (HTA), Healthpeak Properties Inc (PEAK), Kimco Realty Corporation
(KIM), Liberty Property Trust (LPT), Macerich (MAC), Medical Properties Trust (MPW), Monmouth Real Estate Investment
Corporation (MNR), Pennsylvania REIT (PEI), Prologis (PLD), Public Storage (PSA), RPT Realty (RPT), Regency Centers (REG),
Retail Opportunity Investments Corp. (ROIC), Retail Properties of America (RPAI), Rexford Industrial Realty (REXR), SITE Centers
Corp (SITC), STAG Industrial, Inc. (STAG), Simon Property Group (SPG), Tanger Factory Outlet Centers (SKT), Taubman Centers
(TCO), Ventas Inc. (VTR), Weingarten Realty Investors (WRI), Welltower Inc. (WELL)
Paolone, Anthony: AIMCO (AIV), Alexandria Real Estate Equities (ARE), American Campus Communities (ACC), American Homes 4
Rent (AMH), AvalonBay Communities (AVB), Boston Properties (BXP), Brandywine Realty Trust (BDN), CBRE Group, Inc (CBRE),
Camden Property Trust (CPT), Corporate Office Properties (OFC), Cousins Properties (CUZ), Cushman & Wakefield (CWK), Douglas
Emmett, Inc. (DEI), EPR Properties (EPR), Equity Residential (EQR), Essex Property Trust (ESS), Four Corners Property Trust (FCPT),
Front Yard Residential (RESI), Getty Realty (GTY), Invitation Homes (INVH), Jones Lang LaSalle Inc (JLL), Kennedy Wilson (KW),
Kilroy Realty (KRC), Lexington Realty Trust (LXP), Mack-Cali Realty (CLI), PS Business Parks (PSB), Piedmont Office Realty Trust
(PDM), RE/MAX Holdings Inc. (RMAX), Realogy Holdings Corp. (RLGY), Realty Income (O), SL Green Realty Corp. (SLG), Safehold

143

Michael W. Mueller, CFA

(1-212) 622-6689
michael.w.mueller@jpmorgan.com

Inc. (SAFE), Spirit Realty (SRC), UDR, Inc. (UDR), VEREIT, Inc. (VER), Vornado Realty Trust (VNO), W.P. Carey (WPC),
Washington Real Estate Investment Trust (WRE)

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145

Michael W. Mueller, CFA

(1-212) 622-6689
michael.w.mueller@jpmorgan.com

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"Other Disclosures" last revised October 26, 2019.

146
Completed 18 Dec 2019 04:42 AM EST Disseminated 18 Dec 2019 04:42 AM EST
This document is being provided for the exclusive use of CHRISTOPHER Olson at JPMorgan Chase & Co. and clients of J.P. Morgan.

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