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Monday, North American real estate edition


Apair of analyst teams initiated on Global Medical REIT on July 11 in the wake of its $130.4million IPO, whichclosed July 1.

BB&TCapital Markets' David Toti, with Evan Smith and Charles Avery, launchedcoverage of the company with a "hold" rating and a $10.50 pricetarget. The BB&T team cited the company's "unique attributes" aswell as its experienced management team as positives that mitigate an"above-average risk set" that includes its small size, externalmanagement, small asset pool and underfunded dividend, among other things. Theteam also likes the fact that the company's single-tenant, specialty medicalfacility focus remains "highly fragmented and ripe for consolidation."

"Ina nutshell, the planned growth-via-acquisition strategy of spread investingshould remain effective," the BB&T team said. "The continuationof an ultra-low rate environment suggests execution is likely to be successfuland near-term accretive."

CompassPoint's Steve Shaw initiated coverage of Global Medical REIT with a"buy" rating and a $12.00 price target. Like the BB&T team, Shawlikes the company's seasoned management team.

"Giventhat each individual member of the management team has a distinguishedbackground in either real estate or healthcare, we are confident in theirability to expand the portfolio through the accretive investment of IPOproceeds," he said.

Shawalso pointed to a bevy of favorable industry trends in his rationale: An agingU.S. population; a growing number of insured Americans; increasing health careexpenditures; and a shift toward use of outpatient and specialized facilitiesin lieu of traditional hospitals.


MKMPartners' Megan McGrath upgraded CalAtlantic Group Inc. to "buy" from"neutral" and established a $47.00 price target in a July 11 note.The risk of a negative surprise in company earnings has "lessenedconsiderably," she said, now that the company has made it through the"difficult" post-merger quarters.

McGrathalso likes the company's exposure to the stronger U.S. housing markets as wellas the broader macro picture.

"Withmortgage rates recently closing in on all-time lows and recent more positivejobs data, we believe that now is a good opportunity to pick up a solid builderoperating in solid markets for an attractive valuation."


CreditSuisse's Michael Dahl, Matthew Bouley and Anthony Trainor in a July 11 notedowngraded Meritage HomesCorp. to "underperform" from "neutral" anddowngraded Toll BrothersInc. to "neutral" from "outperform," as thetrio adopted "a more neutral stance" around homebuilders ahead ofsecond-quarter earnings.

TheCredit Suisse team characterized the recent decline in traffic, as registeredby the firm's June survey of real estate agents, as a "worrisome"sign pointing to near-term challenges for the industry — despite declininginterest rates.

"Thestocks have rallied 15% since we turned more positive in early March … but itappears the selling season ended on a weaker note, now suggesting 2Q ordergrowth likely won't accelerate and that we may not hear sufficiently positivecomments on July," the Credit Suisse team said.

Thedecline in the June real estate agent survey was the fourth-largest drop in thesurvey's history, the team noted. Agents attributed the pullback in traffic tothe general lack of affordable, quality product; buyer pushback on pricing; andbroader concerns about the health of the economy and financial markets.

Stifel analysts Matthew Heinz and James Holmes downgradedCoreSite Realty "sell" from "hold," stating that while the stock hasbeen a "standout performer" in terms of execution andshareholder-value creation, the current valuation at 25x the team's 2017estimated AFFO leaves it little wiggle room for upcoming results and guidance.

Further, the team sees the potential for near-term revenueand EBITDA headwinds due to weakening interconnection-pricing tailwinds, keycustomer renewal risk and a possible erosion of market share given thecompany's limited capacity for signing multi-megawatt hyperscale tenants.