STIFEL: Rtl REIT - Retail REIT Comp Sheets 9/20/16

FULL REPORT

Retail REIT Comp Sheets 9/20/16

REITs were down 0.65% last week, but are up 9.6% YTD. Retail REITs are performing in line with the REIT index YTD, up 9.65%, as regional malls are up 8.4% and shopping centers are up 11.6%.
The REIT sector is trading at a 1.4% discount to NAV. Regional malls are attractively priced to the REIT sector, in our view, trading at a 13.2% discount to NAV while shopping centers are trading at a 1.3% premium to NAV.

• General Growth Properties (GGP, $28.16, Buy) and Simon Property Group (SPG, $208.73, Buy) along with retail licensing firm Authentic Brands completed the bankruptcy court approved acquisition of Aeropostale. The consortium submitted a bid of $243.3 million for 229 stores. The consortium negotiated with other mall owners to keep another 171 stores open in exchange for rent concessions. Aeropostale operates over 600 stores and while there will be some store closures, the amount is much more manageable following the rent concession agreements.
• Sears Holdings (SHLD, $12.12, NC) exercised its right under a master lease with Seritage Growth Properties (SRG, $47.01, NC) to terminate the lease with respect to 17 unprofitable stores totaling 1.7 million sf of GLA. Sears expects to vacate the stores in January 2017 and will pay rent until that time. Sears will also pay Seritage a termination fee equal to one year of the annual base rent plus estimated operating expenses. The annual base rent of the 17 stores is approximately $5.8 million or 2.8% of Seritage’s total annual base rent as of 6/30/16.
• Taubman Centers (TCO, $74.11, NC) announced that Peter J. Sharp will assume the position of President, Taubman Asia, as current President Rene Tremblay transitions to Chairman of Taubman Asia, effective January 1, 2017. Mr. Sharp was previously at Walmart International, serving as President of Walmart Asia Realty, overseeing Walmart’s Asia real estate portfolio and leading Walmart’s expansion into China and entry into India, Japan, and South Korea.
• Golfsmith International filed for Chapter 11 bankruptcy with plans to reorganize or find a buyer for the company. Golfsmith’s restructuring plans include the closing of 20 underperforming stores and refinancing of debt. The company operates 109 Golfsmith stores in the U.S.
• Kite Realty completed its initial public debt offering of $300 million of 10-year notes at 4%. KRG plans to use the proceeds to pay off its $200 million term loan due in July 2019 and other debt repayments, redevelopment, and possible acquisitions.

Pricing as of 9/16/16 close.

NOTE: Additional Disclosures can be found on page 2 as well as pages 11-14.

Aeropostale, Inc. is a client of Stifel or an affiliate or was a client of Stifel or an affiliate within the past 12 months.

Aeropostale, Inc. is provided with investment banking services by Stifel or was provided with investment banking services by Stifel or an affiliate within the past 12 months.

Stifel or an affiliate has received compensation for investment banking services from Aeropostale, Inc. in the past 12 months.

Stifel or an affiliate expects to receive or intends to seek compensation for investment banking services from Aeropostale, Inc. in the next 3 months.

STIFEL: Healthcare REITs - NIC Conference Fall 2016 - Key Takeaways

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NIC Conference Fall 2016 - Key Takeaways

• We attended the 2016 Fall NIC Conference (September 14 & 15) in Washington D.C. where we met with seniors housing operators, healthcare REITs and property owners as well as capital providers and industry figures. Here we summarize some of the themes discussed and give some key meeting takeaways from seniors housing and REIT management teams.

• Seniors housing supply remains the topic du jour. Many operators we spoke to are understandably concerned about rising supply in the industry. A key difference we see between this year's conversations and the prior year is that many of the private operators we've spoken to are seeing supply impact their business personally, not just in the national headlines or competitors. Despite the supply issues, operators largely remain cautiously optimistic on seniors housing outlook.

• As a response to the wave of new development, it appears that lenders are tightening standards of lending to developers, which could slow future development and help to bring supply back in line with demand. We noticed fewer developers at this conference than in the past.

• Discounting rate seems to be a tool that operators are widely using to attract new residents and prop up occupancy. On average, the discount equates to one month's rent, but may take the form of a waiver in community fee, first month free or other discounts.

• Labor cost inflation complicates matters. Rising minimum wages, increased threshold for full-time vs. hourly employees and competition in a tight labor market mean that labor expense growth may outpace revenue growth, especially on the coasts.

NIC Conference Meeting Takeaways - Fall 2016

CareTrust (CTRE, $14.22, Hold)

• Continues to find small portfolios in secondary markets to execute sale leaseback transactions with quality operators.
• Has the capacity to do and has looked at larger deals, but small deals still move the needle.
• Open to SNF acquisitions but with operators other than Ensign as diversification of operator base is still a priority.
• Believes secondary and tertiary markets like Iowa, Nebraska and other Middle America states, are less impacted by change to value-based systems due to lower competition.

New Senior (SNR, $11.30, Hold)

• Believes there is an abundance of capital in the space looking for yield, especially private equity formed capital.
• Believes the gap between buyer and seller expectations is narrowing, but transactions are taking longer to close than historically.
• Believes HCREITs are largely being more selective in the deals they pursue.
• Seeing operators using incentives such as reduction of one-month non-refundable deposit to drive occupancy.
• Expects to close on some dispositions in the fourth quarter.

Sabra (SBRA, $23.42, Hold)

• Bulk of the SBRA owned GEN operated assets being marketed (19 of 29) are located in Kentucky. The balance is located amongst six other states, primarily Midwest.
• Seniors housing pipeline is active, primarily secondary markets with yields in the 7% range.
• Expects rent coverage ratio to stabilize and largely be flat over the next 12 months.
• Seeing foreign investors interested in SNF JVs as they are attracted to the yield.

Brookdale (BKD, $17.31, Hold)

• Announced dispositions should close by year end 2016 barring any licensing issue delays. The remaining dispositions are primarily legacy Emeritus assets.
• Management believes the market is active with buyers as smaller players are looking to build out portfolios.
• Using a discounting strategy to improve occupancy for facilities with lower occupancy; the incentives are not typically offered at high occupancy facilities.
• Houston and San Antonio have been identified as challenging markets.

HCP Inc. (HCP, $37.03, Sell)

• Looking to reduce senior housing portfolio as a % of total (currently 50%) as well as BKD exposure (post-spin 34%). Target exposure to BKD is around 20%. Will be selective in senior housing acquisitions.
• Concurrently, would like to grow its RIDEA portfolio and add new operating partners. Cap rates on new HCP RIDEA transactions are 6% to 7% range.
• Interested in growing MOB portfolio. This is likely to involve higher volume of smaller transaction rather than larger portfolio transactions.
• Spin-co has begun marketing its capital structure to investors.

Welltower (HCN, $73.61, Buy)

• Actively marketing $500M to $1.0B of GEN assets. Expects to meaningfully reduce GEN exposure over the next 12 months.
• Pursuing acquisitions in the senior housing and MOB spaces. Given high valuations of MOB space, HCN will grow through one-off transactions and with existing partners via development opportunities.
• The company has limited interest in life science or hospital assets.

LTC Corp (LTC, $50.59, Hold)

• With $82M in transactions closed YTD, LTC believes it can hit $100M by year-end.
• Observes increased interest in smaller deals in the market, which is consistent with what we’ve heard at the conference. LTC is currently underwriting new SNFs at 8.0% to 8.5% and private pay senior housing at ~7%
• Management is confident in the stability of its operators.
• Management anticipates renewing its Sunrise master lease in line with the current lease.

Capital Senior Living (CSU, $17.06, Hold)

• Optimistic that three transactions that were delayed for either licensing or labor issues will close before year-end.
• Experienced lower wage inflation relative to peers due to the lower level of care provided and the geography of CSU facilities.
• Expects operations to bounce back after a weak 2Q. Management not seeing supply in its markets as a concern.

STIFEL: ADC ($47.80, Buy) - Takeaways From Management Meetings With Agree Realty Corporation

FULL REPORT

Takeaways From Management Meetings With Agree Realty Corporation

• Hosted Management Meetings. We recently hosted meetings with Agree Realty Corporation's management.
• Why ADC? Agree has a high-quality net-lease pure-play retail REIT portfolio that has been transformed over the last few years. The company's size and unique growth platform could result in some of the best AFFO growth of the next few years. The dividend is well-covered and should continue to grow. Additionally, ADC has one of the strongest balance sheets in the sector.

• Main Message. Management's main message is that the company has created value and continues to create value across its three platforms.

• Diversified Business Model. Agree has three growth platforms: acquisitions, development, and Partner Capital Solutions (PCS). Acquisitions yields are in the mid-7.0% range, development yields are in the 9.0% range, and PCS yields are somewhere in between.

• How Is ADC Differentiated From Its Peers? Management believes it differentiates itself from the other net-lease peers in that it focuses strictly on retail, is a real estate focused company as opposed to being more of a finance company, and management believes its development capabilities also stand out.

• Becoming More Relevant. Agree has become increasingly more relevant in the triple-net sector and among REIT investors as it has reached a certain mass and size. The company’s enterprise value is currently $1.5 billion.

• Should Have Some of the Best AFFO Growth Among the Group. Our 2016, 2017, and 2018 AFFO estimates are $2.53, $2.84, and $3.05, respectively. On an AFFO basis, the company also has some of the highest expected CAGR from 2014-2017E of 8.5%, above the sector average of 6.2%. The cumulative growth is third behind Gramercy Property Trust (26.6%) and STORE Capital Corporation (10.1%).

• Economies of Scale. The company today has 25 employees, up from only 12 just 36 months ago. The company has quadrupled over the last few years. Management believes it can double the size of the company by acquiring $250-$275 million/year of acquisitions with $50-$100 million of development with very little incremental SG&A. This could provide further earnings upside for the company. Management felt the optimal size for the enterprise is ~$3.0 billion.

• Recent Value Creation Opportunities. Some recent and current value creation opportunities include a Starbucks turn-key lease at the strip center in Lakeland, FL, a ground-lease Chick-fil-A in Frankfort, KY, a ground-lease Texas Roadhouse in Mount Pleasant, MI, and the Family Fare Quick Stop in Marshall, MI. Another opportunity is the 20,745 sf Off Broadway lease in Boynton Beach, FL that expires next year. The lease was an original Borders location and accounts for half of the rent roll.in 2017. The property could be expanded by 15,500 sf and re-leased at higher rates.

• YTD Acquisition Volume. YTD, Agree has purchased $192 million of acquisitions at a 7.8% cap rate. Acquisition volume included a $79.5 million, 11-property portfolio with a weighted average lease term of 11.4 year with assets primarily located in L.A. and S.F. as well as Seattle, Austin, Denver, and Orlando. Acquisition guidance is $250-$275 million, which was increased 40.0%. Additionally, the company's PCS division has completed or commenced nine projects.

• Portfolio Statistics. The company’s portfolio is 99.6% leased, with a weighted average lease term of 11.0 years, one of the longest in the industry. Only 12.4% of revenue is rolling in the next five years. The company has the highest investment-grade concentration (46.1%) among its peers. Although non-investment grade, Hobby Lobby and Tractor Supply have solid balance sheets.

• Has Pared Down Walgreens Exposure. Exposure to the company's top tenant Walgreens is currently 13.7%, down from 21.9% as of January 2015. Last quarter, ADC sold a Walgreens in Port St. John, Florida for $7.3 million, or a 5.5% cap rate. It hopes to sell $20-$50 million of Walgreens this year at very attractive cap rates. Overall pharmacy concentration has been reduced by over 1,100 bps over the same time-frame. Management would like to continue to reduce Walgreens concentration to below 10.0% by year-end 2017 and below 5.0% over the next 3-4 years.

• Recently Added New Director. Last week, ADC appointed Merrie S. Frankel to its board of directors. She will replace outgoing board member Eugene Silverman, who has served for over 20 years on the board. Ms. Frankel most recently worked for Moody's Investors Service for the last 18 years in the Commercial Real Estate Finance Group as VP and senior credit officer.

• Dividend. In early May, Agree raised its quarterly dividend 3.20% to $0.48 or annual yield of 4.02%. The current 2016E 76.0% FAD payout is below the group average by 200 bps and at the lower-end of management's payout range. This means the company has ample cushion to raise the dividend going forward.

• Obtained $100 Million Of Unsecured Financings Earlier This Quarter. In early July, ADC obtained $100 million of unsecured financings with a weighted average lease term of 10 years at a blended interest rate of 3.87%. The financings consist of a seven-year $40 million unsecured term loan at 3.0% and a 12-year $60 million privately placed senior unsecured note at 4.42%. The company is likely eligible for an investment grade rating but does not feel it needs one at its current size.

• Strong Balance Sheet. The company’s balance sheet remains strong, in our view, with net-debt+preferred/EV at a healthy 25.4%, one of the lowest in the sector, and net-debt+preferred to EBITDA at 5.1x, also among the lowest in the sector. No debt matures until 2018.

• Valuation. Our 2Q16 NAV per share estimate of $42.00 reflects a 6.0% cap rate. Our value range of $47.50-$37.50 reflects cap rates of 5.5%-6.5%. Shares currently trade at an implied 5.5% cap rate and at a 13.8% premium to our NAV. Our estimated 2017 AFFO multiple is 16.9x, almost 3.5x below National Retail Properties (NNN, $49.42, Buy) and Realty Income (O, $65.54, Buy).

Target Price Methodology/Risks

Our target price of $54.00 reflects a 17.7x our 2018 AFFO estimate of $3.05. Risks to our target price include a prolonged economic downturn or recession, interest rate movements, and general market risk, including continued weakness in the mortgage-backed securities market and commercial real estate fundamentals.

Farmland Partners to Acquire American Farmland Co. in Stock-for-Stock Transaction

FULL REPORT

On the morning of September 12, Farmland Partners Inc. (FPI – Outperform) announced that it had entered into an agreement to acquire American Farmland Company (AFCO – Outperform) in a stock-for-stock transaction, creating the largest publicly traded farmland REIT. The merger is expected to grow FPI's total acreage by 15% and should yield a combined company with a market cap of roughly $360 million based on yesterday's close. We view the acquisition as a positive for shareholders of FPI as the new company should benefit from increased scale, better access to capital, a more attractive cost of capital, and cost-related synergies, which should ultimately drive AFFO growth. We believe that increased earnings power will further support the company's quarterly dividend of $0.1275, which currently offers a ~4.5% yield to buyers at these levels. Reflecting the announcement, as well as some adjustments made to our AFFO assumptions, we are increasing our FPI estimates for FY16 AFFO per share to $0.38 from $0.19 and our FY17 AFFO per share estimate to $0.48 from $0.26. We are also modestly increasing our NAV per share estimate for FPI from $12.03 to $12.09.

CITI - REITs: drafting winners for 2H16...4 categories to put money to work

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Careful player/stock selection is critical at this stage, especially following an unexpected ~4% selloff in stocks the day before the draft. Our strategy is to own a mix of “top line marquee players” that can provide reliable defense and growth from their best in class management teams, assets, markets and financial strength (AKR, BXP, SPG), a few “creative coaches” that have developed unique plays for their team that haven't yet been fully materialized on the field (FCEA, GGP, SLG, HST), a handful of "breakout players" that could see some near term catalysts to drive their performance above fans’ expectations (HLT, RPAI, SUI, VNO) and a couple of players off the “injured reserve” list that can be drafted at a good price given recent weak performance (AVB, LSI).

Weekly REIT and Lodging Strategy: Citi’s Fantasy REIT Draft – A Guide to the Draft

Top-Line Marquee Players

While everyone wants to own as many top line players as possible, they traditionally come at a hefty price, especially with REITs up ~10% YTD. Our top line "picks" AKR, BXP and SPG share some similar characteristics: 1) high quality asset portfolios in good markets, 2) deep and experienced management teams, 3) same store growth that is generally toward the high end of the peer range, 4) solid balance sheet capacity, and 5) continued value creation and growth through development and redevelopment programs.

Creative Coaches

Creative coaches are not afraid to think outside of the box and come up with unique plays to beat the competition. These coaches are often underappreciated or viewed as “higher risk”, given their strategies haven't been fully materialized on the field yet. However, these coaches offer the potential for higher reward in our view, given good anticipation in taking the right risks. Our “Creative Coach” draft picks include FCEA, GGP, SLG and HST.

Breakout Players

Some players are drafted to serve as a near term catalyst to help drive their team's performance above fan's expectations. The team likely has solid bones but needs an edge to drive performance higher in the near term. We looked for breakout players with one or more near term catalysts that could drive performance above expectations and drafted HLT, RPAI, SUI and VNO.

Injured Reserve

Some injuries are temporary while others are season-ending. When a player is coming off of an injury, a team can pick them up for below their actual value. Herein we highlight stocks that have underperformed for company and sector specific reasons that we believe have the potential to outperform over the next 12-months. Our Injured Reserve picks include AVB and LSI.

STIFEL: FPI ($11.10, Buy) - FPI Merging with AFCO

FULL REPORT FPI Merging with AFCO

FPI Merging with AFCO. This morning, Farmland Partners Inc. (FPI, $11.10, Buy) announced that it was merging with American Farmland Company (AFCO, $6.04, Not Covered). FPI will become the largest and most diversified public Farmland REIT. The transaction will close later this year or early 2017. In mid-April AFCO announced that it was exploring strategic alternatives.

Combined Portfolio. The transaction will give FPI a bigger and more diversified portfolio. The merged entity will own more than 133,000 acres (293 farms) in 16 states throughout the Midwest, the Plains, the Delta, and on the coasts. 74% of the portfolio will be row crops and 26% specialty crops.   Larger Enterprise. The company will have an enterprise value over $850 million, will somewhat de-lever FPI, and provide synergies. Pro forma 2016 revenue increases from $26 million to $42 million.   Accretive to 2017 AFFO. The merger will be 10.0% accretive to 2017 AFFO and could be as high as 20.0% accretive post synergies.   Management Team. FPI's CEO and chairman, Paul A. Pittman, will remain in his role as well as CFO Luca Fabbri. Robert L. Cowan will come aboard as president when the merger closes. AFCO's CEO Thomas S. T. Gimbel and chairman D. Dixon Boardman will join FPI's board.

NOMURA JAPAN DAILY SUMMARY & RESEARCH - REITS

FULL REPORT

Near-term earnings likely to depend on real estate sales and condo business 
Tokyu Fudosan Holdings has no major projects under development for long-term holding and rental until the planned completion of the Shibuya Dogenzaka 1-chome and Shibuya Nanpeidai projects in 20/3 and the Takeshiba and Shibuya Station Sakuragaoka Exit projects in 21/3. We expect the company to sell Yokohama Minatomirai 21-32, which is being developed near condominiums and slated for completion in 18/3. After completion, we expect a stable contribution to profit growth from the sale of the Higashi Ikebukuro 1-chome Cinema Complex, a project in which the company disclosed its involvement on 9 August 2016, as well as retail stores, restaurants, and business hotels in Futako Tamagawa, Ginza 1-chome, Shimbashi 3-chome, and Osaka Shinsaibashi 2-chome. Our views are unchanged, and we maintain our forecasts, target price, and Buy rating. Our target price is based on NAV calculated from a cap rate of 4.3%, and the shares look undervalued considering the implied cap rate of 5.3% based on the 8 September closing price.

Janney/REITs: Weekly REITCap: Portfolio Managers Guide to Property REITs

FULL REPORT REITS

Weekly REITCap: Portfolio Managers Guide to Property REITs – September 9, 2016

Our Weekly REITCap Portfolio Managers Guide provides general corporate information, total returns, valuation and balance sheet measures for 150+ property REITs across the major asset types (e.g. office, multifamily, retail, industrial), as well as more esoteric REITs (such as the prisons and towers).

For the week ending September 8, the MSCI US REIT Index (RMZ) return was +0.9% versus the S&P 500 return of +0.5%. The NASDAQ was +0.6%, the DJIA was +0.3%, the Russell 2000 was +1.5%, the DJ Utilities were +2.6%, and the S&P Financials were +0.2%. The best-performing REIT subsectors last week were Data Centers and Towers (+2.3%), Triple-Net Lease (+2.2%), and Office-Suburban (+2.1%), while the worst were Hotels (-2.7%), Storage (-0.6%), and Apartments (-0.1%). The best-performing REIT stocks last week were GEO (+10.6%), IRT (+6.8%), and MNR (+5.4%), while the worst were CMCT (-8.2%), AHT (-5.0%), and HST (-4.3%). .

YTD REITs are now outperformingthe S&P 500 by 640bps. The REIT sector is now +14.8% in 2016, while the S&P 500 is +8.4%, both on a total return basis. YTD the Russell 2000 total return is +10.8%, the NASDAQ is +5.0%, the DJIA is +6.1%, the DJ Utilities are +18.0%, and the S&P Financials are +3.9%. The best-performing REIT subsectors YTD are Triple-Net Lease (+34.0%), Industrial (+32.2%), and Healthcare (+25.4%), while the worst are Storage (-8.3%), Apartments (+0.2%), and Single-Family Rentals (+2.6%). The best-performing REIT stocks YTD are SNH (+70.2%), GOV (+65.1%), and NXRT (+62.6%), while the worst are CXW (-37.4%), GEO (-19.8%), and NYRT (-14.3%). .

Over the past 12 months, the REIT sector total return is +27.9%, while the S&P 500 is +13.2%. Over the last 3 months, the REIT sector total return is +6.5%, while the S&P 500 is +3.5%. The US is outperformingmany of the major global real estate markets YTD. The YTD US REIT total return of +14.8% compares to +1.8% for Europe, +12.2% for Asia, -6.8% for the UK, and +15.6% for Australia. REIT sector’s average cash dividend yield is 3.7%. This compares to the average yields on the 10-year Treasury (1.6%) and Moody’s Baa Corporate Bond Index (4.2%). .

We remain Neutral on the US Property REITs. With a 10% total return expectation for 2016, we remain Neutral on the US Property REITs, as solid internal growth and continued access to inexpensive and plentiful capital are somewhat offset by strong valuations, greater levels of new supply, and the threat of higher interest rates. In terms of our subsector views, we are positive on the Multifamily, CBD Office, and Industrial subsectors; neutral on Data Centers, Regional Malls, Self-Storage, Shopping Centers, Student & Manufactured Housing, Tower, and Triple-Net; and negative on Diversified, Healthcare, Hotels, Suburban Office, and Single-Family REITs. Specific company ratings and operating details can be found inside. .

No changes to our earnings and fair value estimates this week Our favorite small-cap REITs are ADC, AHH, CIO and TIER. We also like MAA and NNN among the mid-cap names, and AIV, EQR, and O among the large-cap REITs. We launched coverage this week of Spirit Realty (SRC) and Monogram Residential (MORE). See our company-specific reports for complete details.

STIFEL: OFC ($29.15, Hold) - Baltimore Washington Corridor Market, Fort Meade, Cybersecurity. Hold.

FULL MODEL FULL REPORT   Baltimore Washington Corridor Market, Fort Meade, Cybersecurity. Hold.

After a number of conversations with local market participants, we are updating our bull/bear case points for Corporate Office Properties Trust, and updating our thoughts on Fort Meade and the Baltimore-Washington Corridor (BW Corridor) office market. Please reference our recent industry note entitled Conference Call 9/7/16 - Value Creation or Destruction and Lease Economics Analysis. SLIDES ATTACHED. Dial-in Info Below. for detail on leasing economics and value creation potential.

The Corporate Office Properties Trust bull case is: 1) core portfolio fundamentals continue the bounce off the 3Q15 bottom, 2) cybersecurity spending (government, military, corporate) is expected to aggressively increase, 3) defense contractor demand is expected to pick up, 4) the defense IT niche is unique and 5) dispositions are providing a source of capital for development.   OFC bear case: 1) leasing economics are weak, but middle of the pack for Office REITs, 2) while Fort Meade and the BW corridor is the epicenter for military cybersecurity, other government and corporate cybersecurity has more of a Northern Virginia presence, 3) smaller defense contractors appear to be in an expansion mode, while the larger defense contractors do not appear to be taking more space, 4) defense contractors and the federal government are both notoriously frugal when it comes to leasing space, 5) leasing of informed federal government build-to-suits at National Business Park and Westfield Park totaling 352k SF, may not generate lease revenue until mid 2018. A recent environmental impact report indicates that 2.9mm SF of new development on Fort Meade will be offset by 1.9mm SF of demolition. The timing is 5-10 years. This is in addition to 1) the recently completed 600k SF data center, 2) the 242k SF Joint Cyber Command HQ under construction, 3) the 148k SF Marine Corps Cyber Command about to commence, 4) an estimated $50mm spent annually on infrastructure. Fort Meade is the headquarters for the National Security Administration (NSA), Defense Information Systems Agency (DISA) and roughly 100 other federal government agencies. The federal government appears to have a preference for owning on Fort Meade or leasing 100% of a building at three primary off-base, but fenced and fully secure locations -- National Business Park, Annapolis Junction, Emerson Corporate Center. Interestingly, while the projects on base appear to be very costly, the off-base lease economics appear to be RFP driven and very thin. The 3.9mm SF National Business Park appears to have total availability of roughly 7%, plus the 7% availability in two OFC developments; 310 Sentinel and 540 NB Parkway.   Leasing statistics through 2Q16 for the BWI/Anne Arundel submarket (essentially east of Rte. 1). While absorption averaged 360k SF during 2006-2013, total absorption 2014-1H16 was 132k SF.   We think OFC is appropriately valued at 1) 7.0%/5.9%/5.0% implied NOI/cash flow/CF less G&A cap rates, 2) below our NAV cap rate range of 7.5%-8.0%, 3) 2017E FFO/FAD multiples of 13.9x/17.8x.   We are not adjusting our estimates at this time.

JANNEY - Monogram Residential Trust Inc MORE - BUY Price - $10.59 | Fair Value Estimate - $11.50

FULL REPORT

We are initiating coverage of MORE with a Buy rating. Our $11.50 estimate of fair value implies ~9% upside for the stock, which we believe when combined with a 2.8% dividend yield, provides an attractive potential return in the current market environment.

• Apartment REIT focused on Class A properties. Based in Plano, Texas, MORE owned a portfolio of 54 apartment properties (including 2 under construction) across 10 Coastal and Sunbelt states totaling 15,211 units as of June 30. Also, MORE’s portfolio was 94.6% leased with a weighted average monthly rent of $1,909.

• Reasons to own MORE: One of the newest portfolios, discounted valuation, and growth potential. We see upside to MORE’s stock price given (1) the benefits of one of the newest portfolios in the apartment space, (2) a discounted NAV valuation, and (3) ability to produce outsized growth both internally and externally over the next few years.

• NAV valuations are attractive. MORE is trading at a 5.8% nominal implied capitalization rate (5.5% economic) or $204,000 per unit. This compares to the apartment REIT peer group at 5.3% (4.9%) and $334,000 per unit, respectively. Our $11.50 fair value estimate is based on our DCF valuation model.

• Complexity issues, higher leverage, cost of capital, and less liquidity our biggest concerns. The MORE story is not without risks, most notably: (1) the majority of its assets are owned within JVs, which causes complexity issues and may have difficulty attracting the generalist investor; (2) despite recent improvements, MORE’s leverage levels are significantly higher than its peers; and (3) MORE has a higher cost of (and less access to) capital and less liquidity than its peers.

• We remain Neutral on the US REITs, despite the group having already exceeded our 10% total return expectation for 2016. Heading into 2H16, we believe strong generalist investor interest, solid internal growth, and continued access to inexpensive and plentiful capital are somewhat offset by strong valuations, greater levels of new supply, and the threat of higher interest rates.