Morgan Stanley's American Tower Valuation, Rexford Industrial's Latest Buy & Other REIT Movers
Some analysts have turned bearish on the REIT space.
Wireless communication tower giant American Tower Corporation (NYSE:AMT) was downgraded from Overweight to Equal-Weight by Morgan Stanley on September 3, 2014. Morgan Stanley also lowered its price target on American Tower from $101 to $98 -- slightly below the company's current market price.
An Analyst Ratings Network analyst survey shows one Hold and 12 Buy recommendations on the company, along with one Strong-Buy recommendation. Wall Street's consensus price target is $104.33.
Bank of America Merrill Lynch, meanwhile, downgraded the $1.6 billion-market cap Select Income REIT (NYSE: SIR) to Underperform on Wednesday. The REIT continues to be under selling pressure since it announced it will enter into an agreement to acquire an 18 million-square-foot portfolio of office, industrial and healthcare assets from American Realty Capital Properties (NASDAQ: ARCP).
The deal, which was revealed on Tuesday, is for close to $3 billion in cash and stock. The company's common share dividend is now yielding about 7.3%.
In a recent Wall Street Journal article, Wells Fargo analyst Brendon Maiorana was quoted in a note to clients, remarking: "There appears to be no upside potential in the Cole portfolio…The impetus from this transaction appears to be increasing size, which also increases fees to [Reit Management & Research]."
REITs In The News
The $26.7 billion US wireless tower leader Crown Castle International Corp. (NYSE: CCI) received a favorable IRS private letter ruling, or PLR, on September 2, 2014 regarding the classification of both its outdoor and indoor small cell network assets as real estate. Lease income derived from more than 13,000 Crown Castle small cell nodes was considered to be real estate income as well.
Crown Castle's favorable PLR appears to be consistent with other recent IRS rulings, including those regarding telecom assets owned by Windstream and billboard and outdoor advertising assets owned by Lamar Advertising and CBS Outdoor being classified as real estate for the purposed of taxation as REITs.
Rexford Industrial Realty Inc (NYSE: REXR) is a real estate investment trust focused on owning and operating industrial properties in Southern California, or SoCal, infill markets. The company announced on September 2, 2014 the $5 million acquisition of a 55,516 square foot industrial building located in San Fernando for $5.1 million, or $91 per square foot.
Additionally, the company sold a 38,000 square foot industrial building located in Illinois for $1.8 million -- the last remaining asset outside of SoCal.
A Pure-Play On SoCal Growth
Many of Rexford's industrial facilities are located in close proximity to the ports of Los Angeles and Long Beach, two of the busiest ports in the U.S. The Rexford business model will also benefit from an added boost in demand for warehouse and logistics space created by the growth in e-commerce.
The SoCal industrial market is the largest in the U.S. containing approximately two billion square feet of space packed into a densely populated region. The lack of vacant land, combined with the layers of approvals and environmental regulations required for new development, makes the existing Rexford Industrial infill locations valuable assets to own.
Other Notable Real Estate News
A September 2, 2014 Bloomberg article detailed global industrial real estate giant Prologis Inc's (NYSE: PLD) latest foray into Western Europe; this week the focus was on Spain. Norges Bank Investment Management, which manages the world's largest sovereign wealth fund, bought a portfolio of real estate in Madrid and Barcelona through a joint venture with Prologis.
The portfolio includes about 960,000 square feet in Barcelona and 676,000 square feet in Madrid, San Francisco-based Prologis said.
Additionally, luxury homebuilder Toll Brothers Inc (NYSE: TOL) reported earnings for the quarter ended July 31, 2014. The company's net income more than doubled to $0.53 per share from $0.26, and quarterly revenue increased by 53 percent year over year to nearly $1 billion.
Toll Brothers sold more homes at higher prices during the quarter, however, future guidance dampened spirits for the homebuilding sector on Wall Street. The stock traded down almost five percent at the close of the market on September 3, 2014.
Disclosure: At the time of this writing, Bill Stoller had no position in the equities mentioned in this report.
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