Pennsylvania REIT loses Buy rating amid acquisition

Though the stock trades at a 27% discount to his estimated NAV (assumes a 7.25% cap rate) and portfolio fundamentals are improving, Stifel's Nathan Isbee cuts the stock to Hold from Buy following this week's announcement of the Springfield Town Center acquisition.

PEI is paying "full price," says Isbee, getting an initial yield of just 4.1% slowly ramping up and stabilizing at 5.5% in 2018. The company will need to raise $190M-$200M to fund the purchase without boosting its leverage. Look for PEI to use asset sales as opposed to an equity offering given the discount the shares are trading at.

In another Stifel move in the REIT sector, Essex Property Trust (ESS) loses its Buy rating after a big move this year (up 20%). Essex is in the process of moving ahead with its deal to buy BRE Properties for a mixture of cash and stock.

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