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Yet another type of Special Situation...REIT Conversions



May 20, 2012 – Comments (0) | RELATED TICKERS: SBAC , EQIX

Wow, I just came across a really cool article about companies that convert into REITs and how it causes the market to increase their multiples.

One example from the article is SBA Communications.  Many believe that the company will convert into a REIT like its fellow tower operator American Tower did recently.

According to Barron's Michael Santoli, the average REIT currently trades at 22 times AFFO, a measure comparable to operating cash flow. SBAC is currently only trading at 17 times.  Were it to convert and trade at a sector average multiple, this stock could rise from its current $50/share to $66.

Another example of a company that could potentially convert into a REIT is Equinix (EQIX).  I wish that I had hopped on this trendy data center "cloud" play earlier this year 50% lower, but if what Jeff Kolitch of the Baron Real Estate Fund is correct there's still a lot of upside.  According to a recent Barron's article:

"At its recent price of $153, the stock was trading around 14 times operating cash flow. Equinix's stated goal is to double revenue and cash flow by 2015. Applying a current REIT multiple on that larger cash-flow number, Kolitch argues that the stock can exceed $400 within a few years."

Anyhow, it's a really cool article that is definitely worth checking out.  A REIT conversion definitely qualifies as a special situation in my book.  As one that will pay dividends as well it's doubly attractive to me.

Changing Their Stripes

Thanks for reading.  I hope that everyone is having a nice weekend.  It's beautiful here. 


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