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

FULL REPORT

Weekly REITCap: Portfolio Managers Guide to PropertyREITs – September 23, 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 22, the MSCI US REIT Index (RMZ) return was +3.9% versus the S&P 500 return of +1.4%. The NASDAQ was +1.7%, the DJIA was +1.0%, the Russell 2000 was +3.0%, the DJ Utilities were +4.5%, and the S&P Financials were +0.6%.

• The best-performing REIT subsectors last week were Industrial (+5.3%), Triple-Net Lease (+5.1%), and Student & Manufactured Housing (+5.0%), while the worst were Single-Family Rentals (+0.2%), Hotels (+1.7%), and Regional Mall (+2.6%).

• The best-performing REIT stocks last week were GEO (+14.4%), DOC (+8.3%), and UHT (+8.1%), while the worst were CBL (-2.7%), PEB (-1.7%), and CUZ (-0.7%)..

• YTD REITs are now outperformingthe S&P 500 by 560bps. The REIT sector is now +13.9% in 2016, while the S&P 500 is +8.2%, both on a total return basis. YTD the Russell 2000 total return is +11.2%, the NASDAQ is +6.6%, the DJIA is +5.6%, the DJ Utilities are +20.5%, and the S&P Financials are +2.2%.

• The best-performing REIT subsectors YTD are Triple-Net Lease (+33.9%), Industrial (+32.3%), and Healthcare (+23.6%), while the worst are Storage (-8.4%), Single-Family Rentals (+2.6%), and Apartments (+3.0%).

• The best-performing REIT stocks YTD are SNH (+68.0%), GOV (+60.5%), and NXRT (+58.8%), while the worst are CXW (-36.3%), NYRT (-17.2%), and FPO (-15.2%).

• Over the past 12 months, the REIT sector total return is +22.5%, while the S&P 500 is +14.6%. Over the last 3 months, the REIT sector total return is +4.4%, while the S&P 500 is +4.9%.

• The US is outperformingmany of the major global real estate markets YTD. The YTD US REITtotal return of +13.9% compares to -0.6% for Europe, +10.7% for Asia, -8.7% for the UK, and +11.8% 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 (4.4%)

• 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.

• Our favorite small-cap REITs are ADC, AHH, CIO, MNR and TIER. We also like MAA and NNN among the mid-cap names, and AIV, EQR, and O among the large-cap REITs.

• We have MNR management on the road next week.

• No changes to our earnings and fair value estimates this week.

Write here...

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

FULL REPORT

Weekly REITCap: Portfolio Managers Guide to Property REITs – September 15, 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 14, the MSCI US REIT Index (RMZ) return was -6.1% versus the S&P 500 return of -2.7%. The NASDAQ was -2.1%, the DJIA was -2.7%, the Russell 2000 was -3.9%, the DJ Utilities were -2.6%, and the S&P Financials were -2.9%. The best-performing REIT subsectors last week were Single-Family Rentals (-0.5%), Apartments (-4.5%), and Storage (-4.6%), while the worst were Healthcare (-7.6%), Data Centers and Towers (-7.0%), and Office-Suburban (-6.9%). The best-performing REIT stocks last week were AFCO (+22.1%), GEO (+2.2%), and CXW (+0.1%), while the worst were WPG (-12.8%), FPO (-12.5%), and IRET (-11.1%). .

YTD REITs are now outperformingthe S&P 500 by 350bps. The REIT sector is now +9.1% in 2016, while the S&P 500 is +5.7%, both on a total return basis. YTD the Russell 2000 total return is +6.7%, the NASDAQ is +3.3%, the DJIA is +3.5%, the DJ Utilities are +14.5%, and the S&P Financials are +1.0%. The best-performing REIT subsectors YTD are Triple-Net Lease (+26.7%), Industrial (+25.2%), and Healthcare (+17.3%), while the worst are Storage (-11.4%), Apartments (-2.6%), and Single-Family Rentals (+2.2%). The best-performing REIT stocks YTD are SNH (+55.7%), NXRT (+52.2%), and GOV (+49.6%), while the worst are CXW (-37.5%), GEO (-19.0%), and FPO (-17.9%). .

Over the past 12 months, the REIT sector total return is +20.3%, while the S&P 500 is +11.3%. Over the last 3 months, the REIT sector total return is +1.8%, while the S&P 500 is +3.0%. The US is outperformingmany of the major global real estate markets YTD. The YTD US REIT total return of +9.1% compares to -2.6% for Europe, +8.3% for Asia, -11.2% for the UK, and +10.4% for Australia. REIT sector’s average cash dividend yield is 3.9%. This compares to the average yields on the 10-year Treasury (1.7%) and Moody’s Baa Corporate Bond Index (4.4%). .

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. .

Our favorite small-cap REITs are ADC, AHH, CIO, MNR and TIER. We also like MAA and NNN among the mid-cap names, and AIV, EQR, and O among the large-cap REITs. We had STOR management on the road earlier this week. Our thanks to Chris Volk and Mary Fedewa. We updated our Fair Value estimates this week for AFCO and PPS as a result of their pending acquisitions. See Figure 6 for complete details.

Janney/FPI: Buying AFCO in an all-stock transaction

FULL REPORT

REITS

Robert Stevenson,

Farmland Partners Inc. (FPI) - BUY

Buying AFCO in an all-stock transaction

Flash Takeaways:

FPI has agreed to acquire American Farmland Company (AFCO, NEUTRAL, $8.00 Fair Value) in an all-stock transaction expected to close in late 4Q16 (or early 1Q17). Each AFCO shareholder will receive 0.7417 shares of FPI stock, valuing AFCO at $8.23 per share as of Friday’s close (in-line with our Fair Value estimate). Given the length of AFCO’s strategic review process, we do not expect a superior offer to emerge.

Analysts Notes:

• Deal expected to be accretive to earnings. FPI management believes that on a pro-forma basis, the transaction would increase FPI’s 2016 revenue by ~$16M (from $26M to $42M) and that it will be ~10% accretive to FPI’s AFFO per share in 2017 (~20% accretive once synergies are fully realized). We believe much of the cost savings comes from eliminating AFCO’s G&A as AFCO’s external manager (Prudential) is being retained (at least for now).

.

• FPI will have a nearly $400M market cap. Already the largest and most diversified public farmland REIT, this transaction will push FPI towards $400M of market capitalization (~$850 million of enterprise value) and give the combined REIT greater liquidity. Importantly, FPI will keep AFCO's attractively priced debt in-place (FPI’s Net Debt to EV is expected to decrease from 44% to 40% post-transaction).

.

• FPI will own more than 133,000 acres nationwide. With FPI's primarily row crop farmland and AFCO's primarily specialty and permanent crop farms, the combined portfolio will be composed of 293 farms (133,000 acres) across 16 states, with 2,000 acres under development and be 78% row crop, 22% permanent/specialty crop by value. FPI’s pro forma market exposures would break down as: West Coast (31%), Corn Belt (29%), Southeast (21%), Delta (12%), and High Plains (8%).

.

• Cowan joining FPI as President. FPI’s existing management team will remain in-place, with AFCO’s Robert Cowan joining FPI as President, and AFCO board members D. Dixon Boardman and Thomas Gimbel joining FPI’s board (increasing the board size from 6 to 8).

.

• We are maintaining our Buy rating on FPI, as well as our $12.50 Fair Value estimate.

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.

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.

Janney/IRET: IRET selling Senior Housing portfolio for $280M; Positive for the stock

FULL REPORT

Investors Real Estate Trust (IRET) - BUY

IRET selling Senior Housing portfolio for $280M; Positive for the stock

Flash Takeaways:

IRET announced it entered into agreements to sell 26 senior housing properties and 1 multifamily property for $236M. While we had been expecting IRET to announce a significant amount of non-core asset sales next week in concert with its F1Q17 earnings, we view the potential exit of the senior housing business for gross proceeds of nearly $280M to be a significant positive for the stock.

Analysts Notes:

• Selling additional senior housing assets to Edgewood. On August 31, IRET announced that it had entered into six separate sales agreements with affiliates of Edgewood Senior Living to sell 26 of IRET's senior housing properties (Edgewood currently operates 25 of the 26 assets) and one multifamily asset for gross proceeds of $236M.

.

• Entire senior housing portfolio could be gone for $279.5M. If this transaction closes (expected in calendar 2017), along with Edgewood’s previously exercised purchase option on 8 other senior housing properties in Idaho for $43.5M, IRET will have sold its senior housing portfolio for $279.5M of gross proceeds.

.

• The six transactions are subject to various conditions (including each sale being contingent on the closing of the other sales) and breakdown as follows: (1) 5 properties with 386 units in Cheyenne, Casper, and Laramie, WY for $53.0M; (2) 2 properties with 256 units in Hermantown, MN for $36.8M; (3) 4 properties with 220 units in Virginia, MN, Kalispell, MT and Omaha and Hastings, NE, for $32.3M; (4) 5 properties with 514 units in East Grand Forks and Brainerd, MN, Bismarck and Fargo, ND and Rapid City SD for $71.0M; (5) 9 properties with 278 units in ND, SD, NE, and MT for $28.8M; and (6) 1 property with 97 units and one townhome property with 24 units in Sartell, MN for $14.0M.

.

• We are maintaining our Buy rating on IRET, as we view this transaction (when it closes) as a positive for IRET's repositioning efforts, as well as a positive for the stock. We are also maintaining our $7 Fair Value estimate and our F2017 FFO per share estimate of $0.47 at this time.

JANNEY: REITS Mirror, Mirror: 2Q16 Revisions to Apartment Same-Store Estimates

FULL REPORT

We are updating our 2016 and 2017 same-store NOI, revenue, and expense growth estimates for the 8 major apartment REITs following 2Q16 earnings (see Figure 1). Importantly, our estimates continue to be predicated on a US economy (including job growth) and interest rates similar to today going forward. We are also not expecting any significant benefit in 2017 from the “odd year bounce” of the last few years. On a weighted average basis, we now expect 4.8% SS revenue growth and 5.5% SS NOI growth for the peer group in 2016 (-10bps from last quarter), and 4.0% and 4.4% in 2017 (-10bps from last quarter), respectively.

AIMCO (AIV) – Management SS NOI growth guidance is +5.5% to +6.5%, with a YTD actual of +5.5%. We are expecting +4.6% SS revenue growth and +5.7% SS NOI growth in 2016, and +4.0% and +4.4% in 2017. Our 2016 estimates are consistent with our previous estimates (following 1Q16 earnings), while our 2017 NOI estimate improved 30bps.

AvalonBay (AVB) – Management SS NOI growth guidance is +5.0% to 5.75%, with a YTD actual of +6.4%. We are expecting +4.7% SS revenue growth and +5.6% SS NOI growth in 2016, and +3.9% and +4.3% in 2017 based on additional softening in NYC and SF. Our 2016 estimates have been revised downward (consistent with AVB’s own guidance), while our 2017 estimates are marginally lower (-10bps).

.

Camden (CPT) – Management SS NOI growth guidance is +4.0% to +4.5%, with a YTD actual of +5.1%. We are expecting +4.2% SS revenue growth and +4.4% SS NOI growth in 2016, and +3.8% and +4.0% in 2017. Our 2016 estimates have been revised slightly upward on lower expenses, while our 2017 estimates remain unchanged.

Equity Residential (EQR) – Management SS NOI growth guidance is +3.75% to 4.25%, with a YTD actual of +5.9%. We are expecting +3.7% SS revenue growth and +4.2% SS NOI growth in 2016, and +3.6% and +3.8% in 2017 based on additional softening in NYC and SF. Our 2016 estimates have been revised downward (consistent with EQR’s own guidance), while our 2017 NOI estimate is now 40bps lower.

.

Essex (ESS) – Management SS NOI growth guidance is +7.7% to +8.5%, with a YTD actual of +8.5%. We are expecting +6.9% SS revenue growth and +8.4% SS NOI growth in 2016, and +5.4% and +6.4% in 2017 based on additional softening in NoCal. Our 2016 estimates have been revised downward by 20bps (ESS also lowered its guidance), while our 2017 estimates are roughly flat as we had been expecting some reversion to the mean on the West Coast next year.

Mid-America (MAA) – Management SS NOI growth guidance is +4.75% to +5.25%, with a YTD actual of +6.4% (note: MAA is 1 of 2 to raise their SS NOI guidance this year). We are expecting +4.3% SS revenue growth and +5.0% SS NOI growth in 2016, and +3.7% and +4.0% in 2017 as MAA has more difficult occupancy comparisons going forward. Our 2016 NOI growth has been revised upward by 70bps on both higher revenue and lower expense growth, while our 2017 NOI estimate is now 30bps higher given our expectations of continued strength. Our numbers for 2017 do not include PPS.

.

Post (PPS) – Management SS NOI growth guidance is +2.5% to +3.3%, with a YTD actual of +2.9% (note: PPS is the other that raised their SS NOI guidance this year). We are expecting +3.1% SS revenue growth and +2.7% SS NOI growth in 2016, and +3.1% and +2.7% in 2017 for the legacy PPS portfolio (PPS' announced acquisition by MAA should close by YE2016). Our 2016 NOI growth has been revised upward by 40bps on slightly higher revenue and 30bps lower expense growth.

.

UDR (UDR) – Management SS NOI growth guidance is +6.5% to +7.0%, with a YTD actual of +6.8%. We are expecting +5.6% SS revenue growth and +6.6% SS NOI growth in 2016, and +4.2% and +4.7% in 2017, making UDR second to only ESS in terms of expected 2017 performance. Our 2016 NOI growth remains in-line with our previous expectations, while our 2017 NOI estimate is now 60bps higher given our expectations of continued strength in UDR’s non-core markets.

Buy-rated AIV, MAA, and EQR remain our favorite names in the apartment REIT space.