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

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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.

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  • 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.

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  • 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.

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  • 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.