Investment idea generation.


Our thoughts.

Land and Buildings Thoughts On Investors Real Estate Trust $IRET

Today Land and Buildings released an investor presentation providing a detailed discussion of the substantial potential downside at Investors Real Estate Trust (NYSE:IRET) (“IRET”, “Investors”, or the “Company”). The presentation is available at Investors Real Estate Trust is an owner of multifamily, senior housing and medical office properties across North Dakota, Minnesota and the greater Midwest.

“A perfect storm has developed at IRET which we believe will cause 35 percent downside to its share price,” said Land and Buildings Founder and Chief Investment Officer Jonathan Litt. “IRET is saddled with an overleveraged balance sheet and has seen a dramatic downturn in several of its markets following the collapse in oil prices. Apartment rents are down more than 50 percent in some markets, significant new competitive construction is occurring and IRET has several developments still to come on line in energy-exposed North Dakota markets. We estimate the dividend should be reduced by half and earnings estimates may need to be cut by 15 percent or more. Given our background on the sell-side, we believe it is important to draw attention to situations where our analysis and experience tells us that companies are not just undervalued, but overvalued as well.”

Land and Buildings believes IRET has 35% downside to a $4.40 Fair Value given:

  • Premium valuation to underlying real estate value while comparable apartment REITs1 trade at deep discounts
  • Fundamentals are deteriorating and apartment NOIs declining as IRET’s markets are losing jobs, apartment supply ramps at 2-3x national average2 and energy-exposed markets are experiencing up to 50%+ rent declines
  • Overpaid dividend should be reduced by half, by our calculations, as earnings estimates likely need to be cut by 15%+ and deferred maintenance capex overstates cash flow, in our view
  • Development is challenged and we believe is likely to lead to significant impairments at numerous assets
  • Senior housing risk (~20% of total IRET NOI), in our view, is pronounced as portfolio has only one tenant, many assets are subscale in tertiary markets and US supply growth is surging
  • Leverage is too high, we believe, with no clear path to debt reduction