Moody's Corporation · NYSE:MCO
Moody's — Moody's Analytics — Q3 2020 Earnings Presentation
32 slides from Moody's's earnings presentation, Nov 12, 2020
Slide 1: Quarterly Economic Briefing Q3 2020
Quarterly Economic Briefing Q3 2020 Victor Calanog, PhD | Head of CRE Economics November 12, 2020
Slide 2: Agenda
Agenda 1. Briefing on economic and policy issues pertinent to multifamily and CRE 2. How did properties perform in the most recent quarter/period for income drivers like rents and vacancies? 3. Trends in pricing drivers via the CRE capital markets, financing issues, and shifting predictions about va
Slide 3: An Historic Drop, An Historic Recovery. But Are We "Done"?
1 An Historic Drop, An Historic Recovery. But Are We “Done”?
Slide 4: Quarterly GDP Growth & Components
Quarterly GDP Growth & Components 40 6 5.1 4.9 33.1 5 30 GDP 4 20 3 10 3.2 3.6 3.2 3.2 5.1 4.9 3.3 3.3 2.5 3.2 2.9 3.5 3.1 2.9 1.5 2.6 3.5 Percentage 3.2 1.7 0.5 3.6 0.5 3.2 3.2 1.9 3.3 3.3 1.3 2.2 2.52.2 0.1 2.0 1.92.0 1.9 1.7 2.3 2.32.0 2.9 3.9 2.2 3.8 2.7 2.1 1.3 2.42.0 2.1 2.1 20 1.7 0.5 1.9 -1.
Slide 5: Alternative Trajectories of Recovery
Alternative Trajectories of Recovery Real GDP, annualized quarter/quarter growth rate 40.0% 30.0% 20.0% 10.0% 0.0% -10.0% -20.0% -30.0% -40.0% 2018Q4 2019Q4 2020Q4 2021Q4 2022Q4 Baseline Recession Protracted Slump Sources: BEA; Moody’s Analytics Quarterly Economic Briefing | November 12, 2020 5
Slide 6: The Labor Markets Through October
The Labor Markets Through October Job Creation and the Unemployment Rate 5000 24.0% Change Employment Unemployment Rate Yearly Wage Growth NAIRU 0 20.0% Wage Growth and Unemployment -5000 16.0% Payrolls (Thousands) -10000 12.0% -15000 8.0% -20000 4.0% -25000 0.0% Jan Jan Jan Jan Jan Jan Jan Jan Jan
Slide 7: The Economic Outlook
The Economic Outlook Key Takeaways » No official word as to whether the recession is over, but strong third quarter growth figures suggest that we have entered an expansionary period. » Wide availability of vaccines not likely till at or around April – assuming relative efficacy is established befor
Slide 8: National Market Updates
2 National Market Updates
Slide 9: National Apartment Market
National Apartment Market Quarterly & Annual Market Conditions Asking Percent Effective Percent Vacancy Asking Percent Effective Percent Vacancy Year Qtr Year Rent Change Rent Change Rate Rent Change Rent Change Rate 2013 3 $1,135 1.1% $1,090 1.1% 4.4% 2010 $1,044 1.7% $991 2.3% 6.6% » Vacancy rates
Slide 10: National Apartment Market: Supply & Demand Trends
National Apartment Market Supply & Demand Trends 400 9% Forecast 350 8% 300 7% 250 6% Units (In Thousands) Vacancy Rate 200 5% 150 4% 100 3% 50 2% 0 1% -50 0% 1984 1988 1992 1996 2000 2004 2008 2012 2016 2020 2024 Source: Moody’s Analytics REIS; Top 50 Primary Apartment Markets Completions Net Absor
Slide 11: National Office Market
National Office Market Quarterly & Annual Market Conditions Net Asking Percent Effective Percent Vacancy Net Asking Percent Effective Percent Vacancy Year Qtr Year Absorption Rent Change Rent Change Rate Absorption Rent Change Rent Change Rate » Office vacancies rose by 2013 3 7.2 $29.11 0.5% $23.51
Slide 12: National Office Market: Supply & Demand Trends
National Office Market Supply & Demand Trends 200 28% Forecast » Office vacancies expected to approach record highs in late 2021 or 150 24% early 2022, depending on the geographic market. 100 20% Square Feet (In Millions) » As some offices reopen, future Vacancy Rate 50 16% demand for office space r
Slide 13: National Retail Market
National Retail Market Quarterly & Annual Market Conditions Neighborhood & Community Neighborhood & Community Net Asking Percent Effective Percent Vacancy Net Asking Percent Effective Percent Vacancy Year Qtr Year Absorption Rent Change Rent Change Rate Absorption Rent Change Rent Change Rate 2013 3
Slide 14: National Retail Market: Supply & Demand Trends
National Retail Market Supply & Demand Trends » Retail vacancies expected to break 75 14% Forecast historic highs – up to 12.6% by 2021, and remain elevated through 2022 60 12% before declining somewhat. » Rent forecasts are expected to be 45 10% almost double the magnitude of Square Feet (in Millio
Slide 15: Industrial: Holding Steady in the Third Quarter
Industrial: Holding Steady in the Third Quarter 1.6% 12% Effective Rent Growth Vacancy Rate 1.2% 11% » Flex/R&D vacancies up by 20 Flex/R&D Effective Rent Growth bps in the third quarter to Vacancy Rate 0.8% 10% 10.3%. 0.4% 9% » Asking rents up by 0.2% but 0.0% 8% effective rents flat. -0.4% 7% Effe
Slide 16: National Hotel Market
National Hotel Market Quarterly Market Conditions Percent Occupancy Percent Percent Year Qtr ADR RevPAR Change Rate Change Change ➢ Outsized effect of pandemic on hotel 2015 4 $119 0.8% 64.7% 0.2% $77 1.1% performance metrics – unsurprising, 2016 1 $120 0.8% 64.3% -0.7% $77 0.1% 2016 2 $120 0.0% 65.
Slide 17: Specialty Sector Updates
3 Specialty Sector Updates
Slide 18: Self Storage in the Third Quarter
Self Storage in the Third Quarter » Occupancies improved by 30 National Occupancy Rates (50 Metropolitan Areas) 90% basis points to 86.1%. And this despite the fact that there has 88% been a 46% increase in projected supply growth relative to end-2019 forecasts. 86% » Rents for 10x10 climate 84% con
Slide 19: Student Housing in the Third Quarter
Student Housing in the Third Quarter Regional Rent Growth, Fall 2019 – Fall 2020 » Tables present Fall 2019 to Fall 2020 actual changes in vacancies and West rents across subtypes. Southwest » In general, properties that rented by the Unit fared relatively better, with Midwest Fall 2020 vacancies en
Slide 20: Seniors Housing in the Third Quarter
Seniors Housing in the Third Quarter Aggregate Vacancy Rate Subsector Rent Growth Rates 16.0% 2.7% Independent Living Assisted Living 2.4% 15.0% Memory Care Skilled Nursing 2.1% 14.0% 1.8% 13.0% 1.5% 12.0% 1.2% 0.9% 11.0% 0.6% 10.0% 0.3% 9.0% 0.0% 2018Q3 2019Q1 2019Q3 2020Q1 2020Q3 2018Q3 2019Q1 201
Slide 21: LIHTC in the Third Quarter
LIHTC in the Third Quarter Top Five Affordable Housing Markets by 2020Q3 Rent Growth » Performance metrics remain 2.0% 7% tight for LIHTC markets, with vacancies actually improving by 1.0% 6% 10 basis points to 2.4% in the second quarter. 0.0% 5% » Construction was not suspended for affordable housi
Slide 22: CRE Capital Markets
4 CRE Capital Markets
Slide 23: Transaction Activity Decline – a Familiar Pattern
Transaction Activity Decline – a Familiar Pattern Compare and contrast this with 2008-2009 $120 Transaction Volume (In $Billions) $100 $80 $60 $40 $20 $- 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Source: Moody’s Analytics REIS Apartment Office Retail Industrial Quarterly
Slide 24: Cap Rate Forecasts
Cap Rate Forecasts Implied Value Declines for 2020 13% » Given major economic distress, Apartment Office Retail Industrial Hotel expect cap rates to rise over the 12% course of 2021. Implied value 11% declines will differ across 10% property types, with multifamily 9% and industrial holding up 8% re
Slide 25: Peak to Trough Estimates – Moody's CPPI
Peak to Trough Estimates – Moody’s CPPI Comparison Between Great Recession and Great Lockdown Source: Moody’s Analytics Quarterly Economic Briefing | November 12, 2020 25
Slide 26: PREA Consensus Forecasts
PREA Consensus Forecasts An Alternative, More Optimistic View Appreciation Return Appreciation Return Appreciation Return Appreciation Return 2020 2021 2022 2020-2024 (Per Year) National - All Property Types (NPI) -6.8% -1.9% 2.9% 0.2% Office -6.8% 3.5% 2.5% -0.5% Retail -15.4% -5.9% 1.0% -3.7% Indu
Slide 27: Should These Be Your 'Comps' Then?
Should These Be Your ‘Comps’ Then? Aggregate Indiv Indiv Lower Upper Category Count Change % Average Median Bound Bound Hotel Extended Stay 4 -27.5% -26.1% -32.5% -36.0% -3.3% Full Service 50 -23.6% -26.5% -26.5% -64.8% 24.2% Limited Service 63 -27.1% -29.6% -31.9% -63.2% 37.8% Total 117 -24.8% -28.
Slide 28: Questions from Participants and Closing Remarks
5 Questions from Participants and Closing Remarks
Slide 29: Q&A
Q&A Quarterly Economic Briefing | November 12, 2020 29
Slide 30: Summary & Parting Thoughts
Summary & Parting Thoughts » Third quarter GDP growth figures were stronger than expected (relative to consensus). We are now ‘only’ 3.5% below year-end 2019 levels. » Though better than what we expected at the ‘height of uncertainty’ last March/April, have we truly passed the ‘height of this pandem
Slide 31: moodysanalytics.com
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Slide 32: Quarterly Economic Briefing | November 12, 2020
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