CITI - Financials & REITs Updates
Financials & REITs
Starwood Property Trust, Inc. (STWD, Buy, $24PT) – Donald Fandetti increases target price to $24 from $20 and reiterates Buy for STWD. Q2 Results — STWD reported core EPS of $0.50, in-line with our and consensus estimates of $0.50. GAAP earnings were $0.47. BV was down slightly to $16.96 from $16.98 q/q. The quarterly dividend is $0.48. Implications — STWD had a solid quarter in spite of market volatility. We believe STWD is well positioned in the CRE lending markets with ample room for growth. And their CRE servicing business offers a nice hedge as they will earn more fees as the industry moves towards more special serviced loans. With the US economy holding up, the 10- year US treasury yield at 1.57%, STWD offers an attractive 8.6% dividend yield. We are raising our target to $24 on updated comp valuations and a more stable credit market. No change to our forward earnings estimates. BXMT and STWD remain our favored names in the mortgage REIT sector.
Traditional Asset Managers (AB, APAM, IVZ) –Bill Katz maintains that an absence of active growth continues. Another Challenging Flow Month, For Some — With APAM and AB showing Active ‘core’ net outflows, though IVZ had solid organic growth, even after adjusting for one-time low-fee mandate wins. While industry flows remain tough to come by, these collective prints reinforce a growing bifurcation between 5 strategic ‘winners’ (BLK, AMG, IVZ) and laggards (BEN, APAM, WDR), with 10%+ organic loss rates no longer abnormal at the latter – see also 8/8, BEN: July AUM: Print Points To Continued, Widespread Attrition. Prints also set a quite low bar for LM (July AUM on 8/10 pre-market), we expect.
Howard Hughes Corp (HHC, Buy, $166PT )—Will Randow maintains his Buy rating for HHC. Yesterday (8/8), HHC released 2CQ16 results, which included unadjusted EPS of $0.16 on net income of $7M. Excluding market-to-market adjustments for management’s warrants and non-operating items (e.g. D&A, given HHC’s is a real estate company), adjusted net income amounted to $67M in the quarter versus $24M in 2Q15. HHC reported strong equity JV income due to $48M of land sales at The Summit (that resulted in $9M in JV earnings), a luxury golf course development within Summerlin. In addition, the company noted Two Merriweather, a 130K square feet office building (incl. 30K in retail) in Columbia, MD is 58% pre-leased, with construction commencing during 3Q16. The $41M project is projected to reach stabilized NOI of $3.6M. In Hawaii, Waiea has 91% of units under contract, Anaha has 92%, and Ae’o has 52% under contract. The three towers are scheduled to be completed in 4Q16, summer 2017, and late 2018, respectively. The target price has been increased to $166 from $165.