JEFFERIES - SEGRO (SGRO LN, HOLD, PT: 425.00p)

FULL REPORT

First View: Cash Box for Development Funding [Mike Prew, Andrew Gill]

SGRO 9.9% cash box placing of 74.8m new ords to raise c. £340m to fund near-term development and capture the pick-up in pre-leasing activity in core markets with £6m net rent signed since 30 June. Accompanying trading update reaffirms continuing pick-up in UK tenant demand post BREXIT vote. £456m of cap ex has been identified over the next 2yrs of which £199m is committed to the current pipeline and a further £140m on the potential pipeline which are either pre-let or agreed subject to planning approval.There are further speculative, urban warehouse development projects totaling £117m, of which management expects most to commence within the next 6 to 12mths subject to continuing favourable occupier markets. The shares have bounced to a -3% discount to NAV and yield 3.6% after the sector fillip on GICS reclassification of REITs as a separate S&P/MSCI sector (1/9/16). Should have been debt financed and confirms our suspicion that the sector is expensive post the BREXIT currency bounce.

STIFEL: SBRA ($25.46, Hold) - Post 2Q16 Update: Reducing GEN Exposure; Forest Park Largely Settled; Raising Estimates, but Maintain Outlook

FULL REPORT

FULL MODEL

Post 2Q16 Update: Reducing GEN Exposure; Forest Park Largely Settled; Raising Estimates, but Maintain Outlook

SBRA is marketing GEN properties to reduce exposure. Pipeline and liquidity look good. We are raising estimates on 2Q performance, but given the pressures on SNF census and coverage, maintain neutral outlook.

 
Raising Estimates for the 2Q16 Beat: We are raising our 2016 FFO/FAD to $2.29/$2.21 from $2.25/$2.11 due to the 2Q16 beat, better than expected investment activity post quarter, and higher straight line rent as management is not expecting write-offs of accumulated rent receivables and higher GAAP rents due to lease extensions. We are also raising our 2017 FFO/FAD to $2.32/$2.28 from $2.30/$2.20.

Reducing GEN Exposure: SBRA entered into an agreement with Genesis Healthcare (GEN - Hold-$2.30) to market 29 additional facilities leased to GEN. Total dispositions will reduce GEN from 78 properties to 43 or around 27% of revenues. SBRA expects to receive $200M to $250M in net proceeds from the sale of GEN assets which they believe could be accomplished by 2Q17- end.

Solid Pipeline & Liquidity: Post-quarter, Sabra invested $87.6M in two seniors housing and one skilled nursing property and announced it would invest an additional $22M in a senior housing property. The 3Q investments topped what we had modeled. Management is optimistic about the investment pipeline which they peg at $300M and is comprised of mostly assisted living and memory care properties. SBRA has ample pro forma liquidity (over $500M) so we do not see a need to raise equity near term.

Forest Park Fully Repaid; Guarantee Recovery Potential: SBRA received full repayment on the Forest Park loans in the amount of $285.5M, which included $8.9M prior period interest income and fees. There is potential to collect additional funds from tenant lease guarantee. SBRA has offered a discount to the amount owed to speed up the collection process, but management is open to pursuing litigation.

Coverages Contract, Not Surprised: Same-property stabilized skilled nursing coverage contracted to 1.26x from 1.34x sequentially, including Sabra's largest tenant, Genesis Healthcare, which reported fixed charge coverage decline to 1.27x from 1.34x in 1Q16. We were not surprised by this given GEN's weak 4Q15 and 1Q16 performance. Holiday Retirement portfolio held steady at 1.18x.

Maintain Outlook: Overall we view 2Q as positive. SBRA received full payment on the Forest Park loan and is reducing its GEN exposure and tenant concentration. However, there is uncertainty surrounding the amount of future rent credits awarded to GEN (in the amount of 7.5% of the net proceeds on GEN asset sales). Given ongoing supply risks in senior housing and pressures on skilled nursing census, we maintain our neutral outlook.

PARETO Securities UPDATE: Victoria Park - The current portfolio is not enough

The current portfolio is not enough Three recently announced acquisitions have pushed the share far ahead of our target price, which is justified. Nevertheless, the full potential in the total portfolio is fully reflected in the current share price, without discounting for time and risk. Additional acquisitions would also be a trigger to the case, but should need an equity injection and would hence be less share-driving. We hike our target price to SEK 25 (17.5) but reiterate our SELL recommendation. A larger balance sheet allows for a higher target price The new acquisitions (see next page for details) certainly lift the warranted value and are the main reason for our target price hike – long-term potential has indeed increased. However, the recent share rally has effectively erased the potential, since we once again believe the market has discounted more than the full potential from the added property assets, in terms of earnings/value-generating renovations. At SEK 25 (our new target price), the share trades at a 4% NAV premium in a “fully renovated portfolio scenario”, given the assumptions we use. A trigger to the case would be of course new acquisitions, which to some extent are already reflected in the current price, in our view. A required yield cut would be another trigger, but is not potent enough for us to take a positive stance. We calculate ~SEK 170m in H2 2016 unrealised value increases from investments (SEK 719m for full year 2016) and SEK 502m (including SEK 42m from Limhamn co-ops) for 2017E. Significant premium despite value growth ahead Although we are in general positive towards the business model, value creation to a moderate risk, we cannot justify a positive stance. We calculate SEK 425-450m in value-creating capex annually for 2017-2018E, which would provide SEK 400-500m in excess property values. That will take P/NAV to 144% in 2017E and 124% 2018E, which makes us believe that the share is fully valued near term. Complete report in attached PDF

CITI - Weekly REIT and Lodging Strategy

REPORT

Weekly REIT and Lodging Strategy — Mike Bilerman argued ”it’s not what you say, it’s what you do” in our second quarter earnings preview last week. But that doesn’t mean one should ignore what management teams are saying. Notable Quotables — After listening to almost 150 conference calls and re-reading over 2,000 pages of transcripts, we have aggregated over 250 notable quotes that capture the current state of the real estate market, property sector themes and individual company positioning. In this weekly, we include quotes organized by theme including the transaction markets and cap rates, globalmacro economy, capital markets, operating fundamentals organized by sector, new development and some good ol’ quick witted humor.