Tech Companies Are In California: Long CA Apartment REITs

Summary

• Tech stocks have soared while apartment REITs with significant California exposure bounce around 52 week lows.
• There are 20 companies which have a market capitalization greater than $80 billion located in California (sum total market cap greater than $7.4 trillion).  No other state comes close.
• We don't expect work from home to be a permanent, five days a week situation to last forever. We expect the base of high income workers to remain in California.
• Beyond simply going to work, there are many other quality of life reasons (weather, topography, schools, lifestyle, culture, abundance of nearly everything) which draw knowledge workers to California.
• On a variety of metrics, the California exposed apartment REITs are very, very cheap.  When Mr. Market realizes that California exposure is a positive rather than a negative, we expect shares to soar.

California has some challenges - the government is big. Taxes are high. Covid related shutdowns have shut down film/television production in LA. Very few people are traveling which has crippled LA's hotels, restaurants, theaters, retail, etc. Things are challenging right now in California. But there are a few things that are incredibly positive.

First consider that California, which is the 7th largest economy in the world, has 20 companies (19 of which are tech companies) with market capitalizations in excess of $80 billion:

Company	Market Cap*
Apple	2,137
Google	1,111
Facebook	835
Visa	449
Tesla	417
Nvidia	311
Salesforce	248
Adobe	245
PayPal	239
Netflix	232
Intel	210
Cisco	178
Oracle	175
Broadcom	136
Qualcomm	130
AMD	98
ServiceNow	92
Intuit	89
Zoom	83
Intuitive Surgical	83
Total Market Cap (USD billion)	7,498

Click to enlarge

Between $20 and $80 billion market cap, there are another 25+ companies located in California (including VMWare, Autodesk, Ring Central Roku, Workday, Snap, Twitter just to name a few). There are so many tech companies in California.

Almost all of these companies are hiring. Many of the jobs are located in California. People will still go into the office (probably less than before) but that doesn't really matter too much for my CA real estate thesis.

The people that work for these companies are humans. Rich humans. Rich humans who live & work in California. On average the people that work at these companies earn in well excess of $130k per year. They have plenty of money to spend- not only for rent but for a bit of everything. Restaurants (when they are eventually re-open), travel (why not head down from SF to LA or San Diego for the weekend?). Has anyone talked to anyone who makes over $100k per isn't like crazy excited to resume travel once things 'get back to normal'?

Analyst’s Disclosure:I am/we are long EQR.

Author is long AVB, ESS. Author lives in California.