STIFEL: Rtl REIT - Retail REIT Comp Sheets 10/10/16

FULL REPORT

Retail REIT Comp Sheets 10/10/16

REITs had a tough start in October, down 5.3% last week. REITs are up 6.0% YTD. Retail REITs are underperforming the REIT index YTD, up 4.3%, as regional malls are up 2.3% and shopping centers are up 7.4%.
The REIT sector is trading at a 4.2% discount to NAV. Regional malls are attractively priced to the REIT sector, in our view, trading at an 18.3% discount to NAV while shopping centers are trading at a 3.6% discount to NAV.

• Tanger Factory Outlet Centers (SKT, $36.75, Hold) sold an additional $100 million of its 3.125% 10-year notes. SKT completed the initial $250 million note offering in August 2016. The additional $100 million of proceeds will be used to pay down borrowings on its lines of credit after paying off the $96.9 million mortgage on Savannah in late September. SKT acquired its partner’s 50% interest in Savannah in August for $111.9 million - $15 million in cash and the assumption of the $96.9 million mortgage.

• SKT broke ground on its new outlet center development in Fort Worth, TX, adjacent to the Texas Motor Speedway. The 350k sf center is over 60% pre-leased and SKT is planning for a 2017 holiday opening. SKT acquired the land for $11.2 million.

• Washington Prime Group (WPG, $11.55, NC) named Lou Conforti as CEO. Mr. Conforti has served as interim CEO since June 2016. Prior to joining WPG, Mr. Conforti was the executive director and global head of strategy at Colony Capital, served as the global head of real estate for UBS O’Connor, and head of real estate investments at Stark Investments.

• Fitch affirmed DDR’s (DDR, $16.40, NC) credit rating of BBB- with a stable outlook. Fitch noted the improvement in quality in DDR’s real estate, management’s focus on streamlining the business, continued capital recycling activity, and high quality tenant base.

• Fitch affirmed Federal Realty’s (FRT, $145.20, Hold) credit rating of A- with a stable outlook. Fitch noted the consistent and steady cash flow generated by FRT’s portfolio, prudent capital allocation, and redevelopment and mixed-use development opportunities within the portfolio.

Pricing as of 10/7/16 close.

STIFEL: HR ($34.82, Buy) - Updating Model; Reiterate Buy Rating

MODEL
REPORT

pdating Model; Reiterate Buy Rating

Updating model to increase assumed share count to reflect HR's previously announced share issuance. We maintain Buy rating and positive outlook.

Updating Estimates: Updating estimates to adjust for higher average shares outstanding in 3Q. HR had 115.8M shares outstanding as of July 29. We expect slightly lower 3Q per share FFO of $0.39 FFO for 3Q16, down from $0.41 and 2016E FFO decreases to $1.62 from $1.66. Updated estimate is largely in line with consensus after adjustment. Overall, we believe these are minor changes and continue to have a positive outlook on the stock.

Favorable Outlook for MOB REITs: We believe medical office buildings have the most compelling fundamentals among healthcare REIT asset classes and expect MOB focused REITs to outperform the sector as a whole. MOBs are less exposed to oversupply risks, as in seniors housing, and are insulated from direct government reimbursement risk when compared to skilled nursing and hospitals.

Second Quarter Recap: Healthcare Realty reported $0.42 FFO per share compared to our $0.42 estimate and consensus of $0.42. We calculate $0.39 FAD per share, which was slightly ahead of our $0.38 estimate and consensus. FAD growth was driven by strong same-property occupancy and rate growth. Expected investments are slightly better, offset by some additional share issuance. Overall, we see it as a good quarter with not much variance from our expectations.

Reiterate Buy Rating and $36 Target Price; Maintain Favorable Outlook: We have made marginal adjustments to our model to account for the additional equity issuance. We are reiterating our $36 price target and Buy rating. We believe medical office buildings have the most compelling fundamentals among healthcare REITs.

Target Price Methodology/Risks

Our price target of $36 is equal to 21x 2017E FFO, in line with our target multiple for peer Healthcare Trust of America and supported by NAV of $33.

Major Risks Include:

Rising interest rates and/or weaker equity valuation can erode investment spreads. Below estimated acquisition levels and/or investment yield could impair growth rate. Unexpected property level expense growth or lower than expected occupancy due to non-lease renewals or slow lease-up of development could impact margins.

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: H ($50.19, Hold) - Fine-Tuning Estimates

FULL MODEL

FULL REPORT

Fine-Tuning Estimates

• Adjusting Estimates. We are adjusting our 2016 EPS estimate to $1.50 (from $1.52), 2017 EPS estimate to $1.58 (from $1.60) and our 2018 EPS estimate to $1.61(from $1.63) to account for lower RevPAR in 3Q.

• Balance Sheet. We estimate, Hyatt’s unrestricted cash and cash equivalents balance is over $400 million and its consolidated debt was $1.5 billion. The company has $1.5 billion of line capacity. Net debt-to-EV of 22.0% is in-line with the industry average of 21.9%, and net debt-to-2017E EBITDA is 2.4x, slightly above the industry average of 2.2x.

• Valuation. Shares currently trade at a 10.4% discount to our $56.00 estimated NAV, which reflects a 12.0x multiple on franchise and management fees, an 11.0x multiple on owned real estate, and a 7.0x multiple on unconsolidated ventures on 2017 EBITDA estimates. Shares also trade at an 10.8x multiple on our normalized 2017E EBITDA of $789 million. Our estimate excludes the $32 million of stock-based compensation.

STIFEL: Triple-Net - Triple-Net REIT Comp Sheets

FULL REPORT

Triple-Net REIT Comp Sheets 9/18/2016

• REITs Pull Back, Sector Outperforms. The overall REIT sector pulled back 70 bps this past week and is +9.6% YTD. The triple-net sector outperformed gaining 10 bps for the week and is +28.7% YTD.

• Dividend Yield. Triple-net REITs are trading at 16.3x 2017E FFO as compared to equity REITs trading at 17.2x. The current dividend yield for the sector is 4.78% vs. the REIT sector dividend yield of 3.82%. The 96 bps spread is 67 bps below the long-term average spread of 163 bps.

• ADC Management Takeaways. We recently hosted meetings with Agree Realty Corporation's (ADC, $46.41 Buy) management. Management's main message is that the company has created value and continues to create value across its three platforms: acquisitions, development, and Partner Capital Solutions (PCS). 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. Acquisitions yields are in the mid-7.0% range, development yields are in the 9.0% range, and PCS yields are somewhere in between. 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.

• GPT Establishes Strategic Office Partners With TPG. Gramercy Property Trust (GPT, $9.26, Buy) announced that the company has formed Strategic Office Partners with TPG Real Estate. The platform will invest in up to $1.0 billion of single-tenant office assets in high-growth MSAs. The entity will have $400 million of equity and has obtained $200 million of non-course financing. GPT will own a 25.0% interest in the venture. At close, GPT has sold six office assets ($187.5 million) at a 9.5% cap rate with a weighted average lease term of 3.6 years. The assets are located in the Los Angeles MSA, San Francisco Bay Area, the San Diego MSA, Nashville, and Minneapolis.

• Also Receives Investment Grade Rating From Fitch. Fitch provided GPT with an initial BBB rating with a stable outlook. The company also has a BBB- with a stable outlook from S&P and Baa3 with a stable outlook from Moody’s. GPT now has investment grade ratings from all three major rating agencies.

• FCPT Purchases More Restaurants. Four Corners Property Trust (FCPT, $20.01, Not Covered) acquired four KFC restaurants in the Detroit, Michigan MSA for $3.9 million with a weighted average lease terms of 20 years.

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

FULL REPORT

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.

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

FULL REPORT

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.