Seeking Alpha

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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