OPINL - Office REITs: The New Normal

• The future of work is here, and nearly everyone besides office landlords are quite content. For office REITs, the "new normal" of hybrid work environments brings both new challenges and opportunities.
• Eighteen months after "two weeks to slow the spread," office utilization rates have recovered only a fraction of pre-COVID levels, particularly in dense coastal markets with longer and more transit-heavy commutes.
• A "new normal" on several levels, office REITs - which historically traded at persistent premiums - have become relative "value plays" in the post-pandemic period, while dividend yields have swelled.
• Trading at steep discounts to private-market-implied pricing based on recent comparable transactions, investors would benefit from a long-overdue wave of M&A to capture these value-creation opportunities.
• While WFH headwinds will persist, the office REIT outlook has brightened in recent months - particularly for REITs focused on more business-friendly Sunbelt regions - following solid earnings results and favorable private-market pricing.

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