NEW YORK An activist hedge fund focused on the real estate sector is launching its first public bet against the shares of a company, targeting Investors Real Estate Trust (IRET.N), according to documents obtained by Reuters.
Land and Buildings, the real estate activist firm founded by a former Citigroup analyst, says IRETs debt levels and its exposure to North Dakotas struggling economy are among the reasons why the real estate investment trusts stock is set to fall nearly 40 percent to a fair value of $4.40, the documents show. The stock currently trades at $7 per share.
The Minot, North Dakota-based company, which owns multifamily, senior housing and medical office properties across the Midwest, has a market value of nearly $1 billion. The company did not immediately return a call and email seeking comment.
Activist hedge funds typically buy minority stakes in companies and then push for changes that will drive shares higher. Stamford, Connecticut-based Land and Buildings, founded by Jonathan Litt, has waged campaigns for changes at such companies as MGM Resorts International (MGM.N) and New York REIT Inc. (NYRT.N).
But occasionally activists, most notably Pershing Squares William Ackman, will make public a short position, or bet against a company it believes is overvalued.
In the Land and Buildings documents, the activist says IRET is continuing to build up properties even as some energy-exposed markets have seen rental income fall by half. The company has acquired more than $140 million of apartment assets so far this year, Land and Buildings says in its presentation.
North Dakota, one of IRETs top markets, has been hit hard by the plunge in energy prices, a factor that Land and Buildings believes will take its toll on the REIT.
A March US Department of Labor report showed that employment in North Dakota fell 4.5 percent from the year ago period, the largest percentage decline of all states.
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 and 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 and Buildings says, while IRET trades at around a 17 percent premium.
(Reporting by Michael Flaherty)