FBR Capital Remains Bullish Following Select Income REIT's (SIR) 3Q Miss
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FBR Capital maintained an Outperform rating on Select Income REIT (NASDAQ: SIR), and cut the price target to $34.00 (from $35.00), following the company's 3Q earnings report. Adjusted EBITDA decreased 1.6% to $83.3 million, versus the consensus of $84.9 million. The shortfall was partially due to the absorption of tax and utility expenses at two recently vacated properties in suburban Boston. Normalized FFO decreased 3.4% to $0.69, below the consensus of $0.71.
Analyst Bryan Maher commented, "SIR posted a modest 3Q16 miss as utility costs related to materially warmer temperatures this summer and two recent vacancies pushed expenses higher. Although SIR is predominantly a single-tenant net lease REIT, when a building is vacated, SIR absorbs the expenses (utilities and property taxes) until the property is re-leased. Total revenue of $115.0 million was just short of our $115.6 million estimate, while occupancy held steady at 96.8% versus 2Q16. While we have not modeled for material acquisition activity (other than what has been announced), we would note that management commented on its earnings call that the acquisition environment is experiencing "aggressive property valuations" and has thus been relatively inactive. That said, management also noted that since the end of the summer, it is seeing materially more deals to review. We continue to believe that SIR owns a high-quality portfolio of commercial and industrial assets and that the shares trade at a very attractive at 13.3x 2016E EBITDA. We reiterate our Outperform rating, but our price target comes down $1 to $34."
Shares of Select Income REIT closed at $25.51 yesterday.
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