Construction Trends: Retailing Revolution in Focus

Transcription

1 Construction Trends: Retailing Revolution in Focus Prepared and Presented by: Richard Hastings Macro Strategist Seaport Global Securities LLC FCFP Credit & A/R Professional Retreat Day Hosted by The Federation of Credit Lafayette Hill, PA April 11, 2017

2 Disclaimers This report should not be used as a complete analysis of the company, industry or security discussed in the report. Additional information is available upon request. The price, price target, market cap, estimates, opinions and other information in this report are subject to change without notice. This material has been prepared by Seaport Global Securities LLC, a division of Seaport Global Holdings LLC, a U.S. registered broker-dealer, member FINRA and SiPC, employing appropriate expertise, and in the belief that it is fair and not misleading. Information, opinions or recommendations contained in the reports and updates are submitted solely for advisory and information purposes. Seaport Global is the global brand name for Seaport Global Securities LLC ( SPGS ) and its affiliates worldwide. The information upon which this material is based was obtained from sources believed to be reliable, but has not been independently verified. Therefore, we cannot guarantee its accuracy. Additional and supporting information is available upon request. This is not an offer or solicitation of an offer to buy or sell any security or investment. Any opinions or estimates constitute our best judgment as of this date, and are subject to change without notice. Not all products and services are available outside of the US or in all US states Seaport Global Securities LLC. All rights reserved. No part of this report may be reproduced or distributed in any manner without the written permission of Seaport Global Securities LLC. Seaport Global Securities LLC specifically prohibits the re-distribution of this report, via the Internet or otherwise, and accepts no liability whatsoever for the actions of third parties in this respect. 2

3 The Lineup US migrations, and major metro prices. 2. Severe bear market in retailer real estate. 3. Amazon.com. The universe. 4. Multifamily snapshot. 5. Residential snapshot. 3

4 Migrations Some people talk funny. Image: Goodfellas, Warner Bros. 4

5 77% Image: United Van Lines, LLC. Annotations; SGS 5

6 United Van Lines: 2015 Migrations, Inbound, Outbound Rank Inbound Outbound 1 South Dakota New Jersey 2 Vermont Illinois 77% 3 Oregon New York 4 Idaho Connecticut 5 South Carolina Kansas 6 Washington Kentucky 7 District of Columbia West Virginia 8 North Carolina Ohio 9 Nevada Utah 10 Arizona Pennsylvania Data source: United Van Lines, LLC, 2015 National Movers Study. Interpretation: Seaport Global Securities 6

7 South Dakota 2016: Job Growth, Family Growth Image: United Van Lines, LLC 7

8 New Jersey 2016: Gotta Go Image: United Van Lines, LLC. 8

9 Denver Dallas Portland Seattle Charlotte Boston San Francisco National-US Atlanta Composite-20 Los Angeles San Diego Cleveland Composite-10 Minneapolis Detroit Washington DC New York Chicago Tampa Miami Phoenix Las Vegas S&P CoreLogic Case-Shiller Prices: From June 2006 to Jan (40)% (30)% (20)% (10)% 0% 10% 20% 30% 40% 50% Data source: S&P Dow Jones Indices. Interpretation: Seaport Global Securities Likely markets for home equity growth, in certain zip codes within these metros. Demand for home equity credit could be coming partly from these markets. A measure of how much their selected metros have gained or lost since the overall housing price peak, June

10 S&P CoreLogic Case-Shiller Prices: Jan vs. 5-yr. Average Portland Seattle San Francisco Denver Miami Las Vegas Dallas Tampa San Diego Los Angeles Detroit Atlanta Phoenix Composite-20 National-US Composite-10 Boston Charlotte Minneapolis Chicago New York Cleveland Washington DC 0% 5% 10% 15% 20% 25% 30% Data source: S&P Dow Jones Indices. Interpretation: Seaport Global Securities Big migration destinations in the West are leaders, but other cities with speculative momentum like Miami are showing continued strength. 10

11 Retail Crisis: Contagion, one day? 11

12 0% Retail REITs: Bear Market (>-20%) and More -5% July 2016 peak. -10% 77% -15% -20% -25% -30% Retail, All Free Standing Regional Malls Shopping Centers Price change from the July 2016 peak. Through March 10, Weekly Prices. Data source: FactSet. Interpretation: Seaport Global Securities 12

13 US Land, Equal Weighted Index, Quarterly % The long correction begins? 50 Log basis Data source: CoStar Commercial Repeat Sales Indices/CoStar Group, Inc. Interpretation: Seaport Global Securities 13

14 250 Major Property Types, Value Weighted Indexes, Monthly US VW composite US CRE Investment Grade US VW Multifamily % The long correction begins? 50 Log basis Data through Jan VW=value weighted. Data source: CoStar Commercial Repeat Sales Indices/CoStar Group, Inc. Interpretation: Seaport Global Securities 14

15 Doh! Then lease rates go down. Number of eligible tenants going down. Growth of new prospective tenants decelerating. Risk of a major, sector-level tenant contraction. 15

16 Retail-centric Commercial Real Estate (Key Groupings): Jan New Construction Value versus Trailing Averages January 2017 Values Multi-retail $1.56 billion General merchandise $143 million Shopping center $1.08 billion Shopping mall $305 million 3-year average -5.96% % -3.65% 20.13% 77% 5-year average 2.34% % 11.34% 27.27% 10-year average -7.48% % 1.40% 29.38% January 2017 values Other commercial $497 million Building supply store $30 million Other (clothing, furniture, office supplies), $364 million Warehouse $1.71 billion Mini-storage $182 million 3-year average 12.11% % 39.28% 23.68% 84.75% 5-year average 20.67% % 56.28% 55.76% % 10-year average -7.53% % 27.59% 68.87% % Data source: Census Bureau. Interpretation: Seaport Global Securities 16

17 Game over? Image: Amazon.com 17

18 Image: Slice Intelligence, Inc. Echo turns up the volume, Feb. 1,

19 Regrets, I ve had a few But then again, too few to mention I did what I had to do And saw it through without exemption That s really weird because that mall developer looks just like Frank Sinatra. Lyrics: My Way, Reprise Records, Image: WSJ, Sinatra vs. My Way, June

20 Image: Brand Finance. Global

21 Brand name Brand value ($MM) 2017 YoY % change Google $109,470 24% Apple $107,141-27% Amazon.com $106,396 53% AT&T $87,016 45% Microsoft $76,265 13% Samsung Group $66,219 13% Verizon $65,875 4% Walmart $62,211 16% Facebook $61,998 82% ICBC $47,832 32% China Mobile $46,734-6% Toyota $46,255 7% Wells Fargo $41,618-6% China Construction Bank $41,377 17% NTT Group $40,542 28% McDonald's $38,966-9% BMW $37,124 6% Shell $36,783 16% T (Deutsche Telekom) $36,433 10% IBM $36,112 14% Data: Brand Finance. Global

22 Amazon.com: What It Said About 2016 Amazon announced that it will create more than 100,000 new, full-time, fullbenefit jobs in the US over the next 18 months, and will include positions across the country for all types of experience, education and skill levels. Fulfillment by Amazon (FBA) delivered more than two billion units on behalf of sellers in 2016, and the number of active sellers using FBA grew more than 70%. Using the FBA service, Amazon sellers from more than 130 countries fulfilled orders to customers in 185 countries. In 2016, there were over 100,000 sellers with sales of more than $100,000 selling on Amazon. In the fourth quarter, FBA units represented more than 55% of total thirdparty units. Amazon introduced Amazon Go in Seattle, a new kind of store with no checkout required. With Just Walk Out Shopping, customers simply take the products they want, and go. [Amazon's] checkout-free shopping experience is made possible by the same types of technologies used in self-driving cars: computer vision, sensor fusion and deep learning. Source: Amazon.com, Q earnings release 22

23 Bite 23

24 1200% Amazon Services and Apple: Growth Since Q % 800% 600% Amazon service revenues Apple total revenues 77% 400% 200% 0% -200% Data sources: FactSet; Company SEC filings. Interpretation: Seaport Global Securities 24

25 300% Amazon and Apple: Growth Since Q % 200% Amazon total revenues Apple total revenues 150% 100% 50% 0% -50% Data sources: FactSet; Company SEC filings. Interpretation: Seaport Global Securities 25

26 Sector Impacts 26

27 77% Space: Moving feet from stores and adding them to distribution. Probably not a wash, in our opinion. Image: CBRE Research 27

28 17.5% Nonstore Sales % Ex-Autos Retail Sales 15.0% 12.5% Latest December value hits 15.53% of ex-autos. Amazon.com says hello. 10.0% 7.5% Dec. 2014, 13.88%; Dec. 2015, 14.54%; Dec. 2016, 15.47%. 5.0% 2.5% 0.0% Nimda, Code Red, Sircam, other viruses hit the internet. Solid orange trendline is the 12-month moving average. Solid dark gray trendline is the linear regression of all shown values. *Lining up December spikes. Through January Data source: Census Bureau. Interpretation: Seaport Global Securities 28

29 30.0% Amazon.com: % of Nonstore Retail Sales, Quarterly 25.0% 20.0% 15.0% 10.0% 15.55% 13.46% 13.64% 14.56% Including Amazon.com service revenues % 19.28% 20.96% 18.69% 17.79% 17.72% 19.92% 17.02% 15.72% 15.36% 17.54% 21.41% 23.74% 22.91% 23.07% 24.56% 25.98% 5.0% 0.0% Data sources: Amazon.com; Factset; Census Bureau. Interpretation: Seaport Global Securities 29

30 4.0% Amazon.com: % of Ex-Autos Retail Sales, Quarterly 3.5% 3.0% 2.5% 2.0% 1.5% 1.0% 1.71% 1.42% 1.31% Headed towards about 4.2% of Ex-Autos in Q Includes Amazon.com's service revenues. 1.42% 2.01% 1.70% 1.56% 1.70% 2.36% 2.06% 1.83% 1.96% 2.60% 2.33% 2.18% 2.39% 3.13% 2.89% 2.78% 3.01% 3.69% 0.5% 0.0% Data sources: Amazon.com; Factset;Census Bureau. Interpretation: Seaport Global Securities 30

31 Image courtesy of The IHL Group 31

32 Image: Slice Intelligence 32

33 Look out. Image: Slice Intelligence 33

34 Stop it. That was a store? Seriously, that s the last time Image: National Weather Service 34

35 Multifamily Snapshot Deceleration underway. Interest rate impacts evolving. 35

36 $6,000 US Multi-Family Commercial Construction, Private Sector 80% $5,000 60% $4,000 $3,000 $2,000 $1,000 YoY from rolling 9-month sums Monthly, in billions USD, left axis 77% 40% 20% 0% (20)% (40)% $0 Through January Data is not seasonally adjusted. (60)% Data source: Census Bureau. Interpretation: Seaport Global Securities 36

37 20% 18% 16% 14% Multi-Family as % All Residential Construction likely surpassed 2008, if we adjust for the bubble financing surge. And if we adjust for the plunge in residential building after mid % 12% 10% 8% 6% 4% Through January Data is not seasonally adjusted. Data source: Census Bureau. Interpretation: Seaport Global Securities 37

38 Units, Authorizations, not Started (000s) After peak pipeline demand in 2015, multi-family now going through a slower growth phase as inventory and price risks 77% increase *MA=moving average. Data source: Census Bureau. Interpretation: Seaport Global Securities 38

39 1, Units Under Construction, and US Population Not seasonally adjusted 5+ units, under construction (left axis, 000s) US population (right axis, in millions) 77% Cannot go straight up Data sources: Federal Reserve; Census Bureau. Interpretation: Seaport Global Securities 39

40 60% 5+ Units Under Construction: YoY % from 12-mo. MA* 40% Fed funds rate increases by 843% between Jan and Feb % 77% 0% (20)% (40)% (60)% Fed funds rate increased by 79% in a year. *MA=moving average. Data source: Census Bureau. Interpretation: Seaport Global Securities 40

41 Residential Snapshot Prices stagnating. Interest rate impacts evolving. 41

42 $400,000 $375,000 $350,000 $325,000 $300,000 New Homes: Average and Median Price Trends Tight supply, slightly higher costs seep into retail prices of new homes. But prices are flattening out, a sign that the cycle is complete. 77% $275,000 $250,000 $225,000 $200,000 $175,000 $150,000 Through January New homes about 11.4% of the total market in January Median prices Average prices Price correction coming in 2017? Data source: Census Bureau. Interpretation: Seaport Global Securities 42

43 0.35% Total Monthly Housing Turnover as % of US Population 0.30% 0.25% 0.20% 77% 0.15% 0.10% 0.05% 0.00% % of Population 12-mo. Moving Avg. Median of all values Data sources: Federal Reserve; Census Bureau; National Association of Realtors. Interpretation: Seaport Global Securities 43

44 Existing Homes Sold, (000s) Final rush, (with bubble-esque financing methods Total existing homes sold 12-month moving average 77% years later. This is where we were. 0 Not seasonally adjusted. Through January 2017 Data source: National Association of Realtors. Interpretation: Seaport Global Securities 44

45 90% 80% 70% 60% With a 34-month moving average overlay New Home Sales as % of Housing Starts* 77% 50% 40% 30% ~25 years 20% Through January 2017 *All units. Data sources: Census Bureau, FactSet. Interpretation: Seaport Global Securities 45

46 50% 40% YoY Growth, Implied Monthly Economic Value, Total Home Sales 30% 20% 10% 77% 0% (10)% (20)% (30)% (40)% (50)% From new and existing homes, by median home prices. With a 21-month moving average in black. All data not seasonally adjusted. Through January 2017 Data sources: Census Bureau, National Association of Realtors. Interpretation: Seaport Global Securities 46

47 $250 Implied Monthly Economic Value of Total Home Sales In $/bln per month $200 $150 77% About 13 years $100 $50 $0 From new and existing homes, by median home prices. With a 12-month moving average in black. All data not seasonally adjusted. Through January 2017 Data sources: Census Bureau, National Association of Realtors. Interpretation: Seaport Global Securities 47

48 15% 14% Existing Condo Sales as % of Total Existing Home Sales With 12-month moving average. Not seasonally unadjusted. 13% 12% 77% 11% 10% 9% 8% A measure of existing attached and/or multifamily units sold (turnover rate). Lower turnover rates suggest fewer multifamily units are sent back into the market (back into the existing inventory pool). 7% Through January 2017 Data sources: Census Bureau; NAR, FactSet. Interpretation: Seaport Global Securities 48

49 25% New Home Sales as % of Total Home Sales 20% 15% 77% From 10% to 15% is obviously a 50% increase 10% 5% 0% Unadjusted basis. Black trendline is the 12-month moving average. Through Jan Data source: Census Bureau. National Assn Realtors. Interpretation: Seaport Global Securities 49

50 70% New Homes For Sale (and Under Construction*) % of Total for Sale 65% 60% Overbooked new home markets typically have a ratio above 60% 55% 77% 50% 45% 40% Recessionary contractions in demand and new supply Typical winter pullbacks 35% 30% *A measure of the "spec" market's direction. Evidence suggests all cyclical New Home recessions involve a decline of this ratio below 50%. Through January 2017 Data source: Census Bureau. Interpretation: Seaport Global Securities. *Under construction and available for sale. 50

51 15 New Home Spec Market Cycles: YoY Trend, bps % 0 (5) (10) Data source: Census Bureau. Interpretation: Seaport Global Securities. *Under construction and available for sale. 51

52 About Us Seaport Global Securities LLC is SEC registered and a member of FINRA and SiPC. The company is a wholly owned subsidiary of Seaport Global Holdings LLC, a diverse international financial services group offering a diverse set of products and services with a global footprint in major market centers both domestically and internationally to meet our client needs. 52