Sunday, September 17, 2006

Hit #113

Windrose Medical Properties (WRS), an REIT focused on hospitals and other medical facilities was acquired last week by its larger competitor Health Care REIT (HCN), in an all stock deal. The buyout values Windrose at $18.06/share, a premium of 33.7% over my average cost of $13.5/share.

While a cash deal would have been equally welcome, this deal is still attractive for holders of Windrose with a much lower cost-basis than the buy price, as they will effectively get a higher yield on their new HCN shares. HCN, at its current price, yields around 6%.

A few other REITs still remain attractive, though in the non-specialty office sector the recent M&A binge has reduced the number of publicly traded companies dramatically. Well over half of all office REITs have disappeared over the last 2 years. I had last posted on this topic when Prentiss Properties got bought out. Another office REIT I had been watching for a while, but never found a good enough entry point for, was Glenborough Realty (GLB), some of whose properties I passed by everyday. They got acquired around 2 weeks ago by a Morgan Stanley group.

Among the remaining ones, here is a short list of attractive or worth-watching candidates:
  • Mission West Properties(MSW) : I now own a few shares. The insider trading pattern is mixed and a better entry point may present itself.
  • Digital Realty (DLR): The stock looks expensive without supporting insider activity. I will be waiting for a much better price.
  • Extra Space Storage (EXR): The storage space sector has seen its own version of a mini consolidation boom. Extra Space seems to have some prominent locations. The insider buying is extremely strong. I have just recently opened a small position and will be looking to add more. Two other small players, U-Store-It (YSI) and Sovran Self Storage (SSS) are worth watching. The former has some strong insider buying of late.
  • Trustreet Properties (TSY) : Owns mainly restaurant properties. Nothing to recommend this currently.
  • Educational Realty (EDR) : an REIT focused on campus housing. Still looks attractive, along with the other player, American Campus Communities (ACC). Both have insider buying recently. GMH Communities (GCT), another campus housing REIT, also looks interesting, especially with Vornado Realty owning a sizable stake.
  • Senior residence REITs: I have not yet looked into this subsector, but it should be another promising area for consolidation as well as a way for other REITs to diversify via acquisitions. Will post more when I have some picks.
  • Mills Corp (MLS): This troubled REIT owning retail properties could be acquired or could see a huge gain from here if the recently uncovered problems turn out to be less severe than expected. Highly speculative and recommended only to those with a strong stomach for high risk plays.

Previous hit - Internet Security Systems (#112)


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