MIZUHO SECURITIES USA INC. | US EQUITY RESEARCH
Summary
The Honolulu MSA continues to thrive, supported by a vibrant tourism industry that is undisturbed by the recent currency fluctuations that have slowed other US tourist destinations (i.e., NYC, SoFL). More flights to Asia (and Europe) bode well for the MSA and the prospects of the retail assets we visited.
Key Points
Honolulu Retail Tours. Aloha! We recently spent time in Honolulu (Oahu) with AAT senior management and toured several retail REIT properties. For our coverage, key takeaways include AAT’s solid positioning in Honolulu, which supports our favorable view on its n/t growth prospects; favorable l/t prospects for TCO's International Market Place project, given superior location, though lease up has been a bit slower than expected (making 2018 the "impact” year); and GGP’s Ala Moana, the island’s powerhouse, continues to perform strongly and should benefit most from a rail-line slated for completion by 2021.
AAT Positioned for Above-Average Growth through 2017-18. We have long been fans of the AAT story – a high quality, West Coast / Hawaii owner and operator of retail, office and apartment assets trading at a discount to peers, despite a stronger n/t earnings growth profile and supported by a liquid, flexible b/s. We downgraded AAT in July on valuation.
We Like TCO's International Market Place’s (IMP) Future. TCO's recently opened mall faces stiff competition on Waikiki from existing street retail, as well as from GGP’s Ala Moana asset (two miles away). That said, we came away incrementally positive on IMP’s prospects, due to its superior location and a strong, tourism-fueled local economy. Currently 50% occupied / 80% leased, we are looking for full occupancy by 1H17, suggesting 2018 is the “impact year”.
GGP’s Ala Moana the Undisputed Powerhouse…with Upside. With 2.4M sq ft of retail and inline sales ~$1300-1400 psf, Ala Moana is the most productive retail asset in Hawaii and most valuable mall in the US. Strong tourism is a key driver, but not the only driver - 54% of shoppers are tourists or p/t residents. Looking ahead, a new rail line from west side of the island will terminate in front of Ala Moana, driving more traffic to the mall; rail line expected to be complete by 2021. Lastly, condo sales are coming along well, with sales psf >$2k.
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