A real estate earnings call season for the ages
Execs get candid, poetic, and defensive- sometimes all at once
UPDATED: May 14, 12:45 p.m.: After the roadshow, there are few theatrical moments in the life of a publicly traded real estate company.
But four times a year, executives gear up to update analysts and investors on their earnings, a periodic glimpse into the inner workings of even the most buttoned-up owners, operators, lenders and brokerages.
Those scripted (and unscripted) remarks took on added meaning over the past few weeks as companies reported their first updates since the coronavirus struck. Real estate chiefs, like their peers across industries, delivered performances that were at times poetic, gloomy, blunt, optimistic and opportunistic.
Some were chomping at the bit. “Frankly, I have been dying to get on this call because I could not believe that anybody thought we were having a problem,” said Brian Harris, CEO of Ladder Capital, a frequent Trump lender and one of several mortgage REITs facing margin calls. Ladder’s core earnings fell 34 percent year-over-year to $30.9 million during the first quarter.
Vornado Realty Trust, which says it is losing $9 million a month due to the pandemic, opened its call with a moment of silence for lives lost — including Stanley Chera, the prominent retail developer and father of Haim Chera, Vornado’s head of retail.
CEO and chair Steven Roth described the pandemic as a “never-before situation” with life turned upside down, people and businesses hurting and an uncertain future. He called 2020 a “lost year, a tragic abyss.”
Cushman & Wakefield opened the call with a shout-out to its own employees taking care of essential facilities including New York-Presbyterian Hospital, which has been at the forefront of caring for coronavirus patients in New York City.
With so much uncertainty, many were reluctant to forecast too far into the future.
Cushman pulled its full-year revenue guidance, as did Marriott and Zillow. Equity Commonwealth was reluctant to say much at all about its pandemic strategy (or lack thereof).
“It’s our general view that we’re early in this,” CEO David Helfand said. “We’re sort of six weeks in and it’s still unfolding, and it’s still very difficult to predict what direction it’s going to go.”
During its call Tuesday, Macerich CEO Tom O’Hern said the first-quarter results “seem, frankly, not that relevant” in light of the pandemic. The mall landlord collected just 26 percent of rent nationwide.
Other leaders are putting on a scrappy front.
Starwood CEO Barry Sternlicht compared the pandemic to World War III, and said “we’re about halfway through.”
“It’s really ugly,” he acknowledged. “But obviously when it’s really ugly, it’s a good time to invest.” The REIT reported a net loss of $66.8 million, compared to net income of $70.4 million in 2019’s first quarter. Revenue was $312.6 million, up from $310.5 million.
SL Green Realty, New York’s largest office landlord, also opted for war metaphors. CEO Marc Holliday described his team as “commercial real estate sharpshooters,” poised for battle – aka the reopening of offices.
Until then, he said the company was making sure everyone remains connected and “zoomed-in like a sniper’s crosshair.”
Was the upbeat outlook a show for investors and analysts? To a certain degree, that’s what earnings calls are about.
Brokerage giant Realogy, which reported a $462 million loss during the first quarter, mostly due to an impairment charge, said transaction volume was down 20 to 25 percent.
“This is actually better than I thought it would be when the crisis began,” said the firm’s CEO Ryan Schneider. Zillow CEO Rich Barton said “we have passed peak fear.”
Vornado’s Roth acknowledged the REIT’s share price dropped more than $25 per share since the pandemic struck ( equating to a roughly $5 billion drop in value.) “I think this is a gross exaggeration,” he said.
Redfin CEO Glenn Kelman thanked overworked analysts for staying on the call longer. “We know how hard you’re going to be working tonight, so just bear that in mind when you put the buy rating on Redfin,” he joked. “I don’t mean that. Just call it like you see it.”
With nearly all of the executives calling in from home, things got personal.
Starwood president Jeffrey DiModica said he and others have been camped out at Sternlicht’s house — a sprawling mansion in Miami Beach.
During Zillow’s May 7 call, Barton, who has said his employees can work remotely for the rest of the year, lamented his lack of a home office.
“Right now I’m in my bedroom because I have three kids on Zoom school all over the house,” he said. He recalled that his father had a home office, though he himself never saw the need.
“Well,” he said, “I see the need now.”
Empire State Realty Trust — which is hosting trivia contests for staff and compiled “quarantine playlists” — momentarily deflected a question as execs scrambled to get the answer.
“We’re not trying to be cute here. We’re all of us in different locations,” said Greg Faje, vice president of investor relations. “You know us well enough to know we’re not that cute. We’re not that attractive.”
Some said they see the worst in the rearview mirror. “We have passed peak fear,” Barton said, describing sentiment among home buyers and sellers.
Marriott CEO Arne Sorenson, who has slashed tens of thousands of jobs, said April seemed to be the “bottom.” The hotel company is keeping close tabs on demand in China, where the first Covid cases were reported. Likewise, Cushman said it moved one million people — or 10,000 companies — back into buildings it manages in China.
Bosses jumped on the chance to plug the value of office space. (Not that everyone agrees: Twitter said Tuesday that its employees can work from home indefinitely.)
“Work from home has proven serviceable at best,” said Holliday. “Count me out as someone who believes that [the] future of work will be at home in a bedroom with a laptop computer and spotty Wi-Fi connections.”
Cushman recently published a 300-page reopening manual for landlords and tenants; two weeks ago, it hosted a webcast on reopening that attracted 12,000 participants across 8,000 companies.
“When the time comes, many places of work will reopen,” said the firm’s CEO, Brett White, but acknowledged that the environment would feel “like anything but normal.”
With broad swaths of the economy still shut down, companies fixated on liquidity, which will separate those who can pounce on deals from those struggling to survive.
SL Green told participants it’s preparing a $1 billion cushion. “In the current environment, cash is king,” CFO Matthew DiLiberto said. “We actually call this the billion-dollar plan.” The REIT would have hit that cushion had an $815 million sale of the Daily News Building not been scuttled by the pandemic.
Redfin sold a $70 million stake to private equity firm Durable, and Kelman said the move was necessary given “all heck breaking loose in the last two weeks of March.” The discount brokerage reported a $60 million loss during the first quarter, down from a loss of $67 million in the same period last year.
Cushman executives used the word “liquidity” 20 times during a May 7 call — emphasizing how it built up “strong liquidity,” “ample liquidity,” and “surplus liquidity.” The company ended the first quarter with $1.4 billion on hand, including $380 million in cash and a $1 billion credit facility. But it’s still hoarding cash, and has cut capital expenditures “to the bare bones.”
Zillow said it ended the quarter with $2.6 billion in cash and investments, the highest in its history.
In part, Zillow’s war chest reflects the suspension of its capital-intensive home-buying program. Invoking Star Wars, Barton said he’s eager to start buying again.
“It’s time for us to get back to business,” he said, “and get Hans Solo out of that Carbonite.”