Monmouth Real Estate To Experience Slower External Growth, Says B Riley FBR

Monmouth R.E. Inv. Corp. MNR reported fiscal 2018 first-quarter results Wednesday, with the company's core funds from operations improving from 20 cents per share last year to 22 cents per share.

The Analyst

B Riley FBR analyst Craig Kucera downgraded Monmouth Real Estate from Buy to Neutral and lowered the price target from $18.50 to $16.50.

The Thesis

Monmouth Real Estate is likely to experience slower external growth beyond its $78 million acquisition pipeline, Kucera said in a Friday note. (See the analyst's track record here.) 

The muted expectations are based on new build-to-suit opportunities as well as expectations that the company's same-store growth will lag industrial peers due to its triple-net lease structure, Kucera said. 

The in-line NAV multiple; a more challenging external growth environment; and the potential for additional pressure on the company's securities portfolio prompted the downgrade, according to B Riley FBR. 

Q1 revenues were more or less in-line at $32.9 million, while core FFO trailed estimates due to higher-than-expected operating expenses and G&A accounting.

"Given a tight industrial market, MNR management did complete a decent amount of leasing in Q1 (six of 16 leases) at 4-percent GAAP leasing spreads, and we do not anticipate any meaningful downtime from remaining lease expirations this year," the analyst said. 

Citing the 1-cent miss on Q1 core FFO, B Riley FBR adjusted its earnings estimates, lifting the 2018 core FFO by 1 cent per share and lowering the 2019 estimate by 1 cent per share.

The Price Action

Monmouth Real Estate shares are up close to 4 percent over the past year.

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