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Real estate activist Litt bets against IRET

Published 04/27/2016, 02:29 PM
Updated 04/27/2016, 02:30 PM
Real estate activist Litt bets against IRET
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By Michael Flaherty

NEW YORK (Reuters) - An activist hedge fund focused on real estate launched its first public bet against a company on Wednesday, prompting Investors Real Estate Trust shares to fall more than 11 percent.

Land & Buildings, founded by former Citigroup (NYSE:C) analyst Jonathan Litt, released an investor presentation that showed IRET's debt levels and exposure to North Dakota's struggling economy were among the reasons why the real estate investment trust's stock was set to fall nearly 40 percent to a fair value of $4.40.

IRET shares fell to $6.22 on news of the activist campaign, which was first reported by Reuters early on Wednesday.

The Minot, North Dakota-based REIT, in an emailed statement, disputed Land & Buildings' claims.

"The Company remains focused on building shareholder value through execution of its strategic plan, and disagrees with the analysis in the presentation," IRET said. IRET said it was taking steps to reduce expenses and to strengthen its balance sheet.

IRET, which owns multifamily, senior housing and medical office properties across the Midwest, has a market value of nearly $1 billion.

Activist hedge funds typically buy minority stakes in companies and then push for changes that would boost their stock.

Land & Buildings has waged campaigns for change at such companies as MGM Resorts International and New York REIT Inc. The fund, based in Stamford, Connecticut, manages about $200 million of assets.

Occasionally activists, most notably Pershing Square's William Ackman, will make public a short position, or bet against a company it believes is overvalued.

Land & Buildings said in its presentation that IRET was continuing to add properties even as rental income in some energy-exposed markets have fallen by half. IRET has acquired more than $140 million of apartment assets so far this year, Land & Buildings said.

North Dakota, one of IRET's top markets, has been hit hard by the plunge in energy prices, a factor that Land & Buildings said it believed would take a toll on the REIT.

IRET has $1.1 billion in debt and $49 million in cash on its balance sheet, according to Thomson Reuters data.

In its analysis, Land & Buildings compares IRET to four public apartment REITs. All four stock prices trade at an average 25 percent discount to their estimated net asset value, Land & Buildings said, while IRET trades at around a 17 percent premium.

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