05/05/22 06:58 AM EDT

REITS DAILY BRIEF | 5.5.22 | (HR/HTA/WELL, LSI, NSA)

Rob Simone, CFA

@HedgeyeREITs

Takeaway: WELL likely playing chess here, but shots fired by HR

Hedgeye Cartoon of the Day: In the Room With Us

Tickers: HR, HTA, WELL

Subsector: MOBs

Headline: Best Idea Long HR confirms WELL offer, sends message in our view

Apparently WELL (Party F) did not "sweeten" the terms of its offer, based on HR's disclosure this morning it received a letter on 5/3 reiterating the all-cash $31.75/sh bid originally submitted on 3/28 as per HTA's disclosure. WELL has apparently submitted THREE letters with the same terms on 3/28, 4/14 and then again on 5/3, all rejected by HR's Board. This is the first time investors have been made aware of the third letter publicly to our knowledge.
We think HR could be sending a public message to WELL, i.e. "we are willing to deal, but if you want to play ball you need to make a better offer." There is really no other reason to disclose that, in our view, other than to say publicly "pay up, or go pound sand" and/or to portray WELL as a non-serious bidder up to this point. Either way, it is likely meant to compel WELL to put its best foot forward. Both HR and HTA reiterated (for now) their commitment to close the original merger.
On the WELL side we suspect that it is attempting to derail the HTA transaction via the 2/3 HR shareholder vote given (1) immediate cash consideration to HR holders and (2) the Street's immediate dissatisfaction with the HTA transaction post-announcement. There is also a decent chance, given its persistence, that WELL could be preparing to go hostile with a tender. Regardless, it does not seem that WELL is going away here with the HR/HTA merger not closing until 3Q22 and subject to shareholder approval, including the high vote hurdle on the HR side.
We think either (1) WELL raises its offer through a combination of incremental cash/stock to the mid-$30/share range (given its current share price/valuation it has the ability to pay that), or (2) the original HR/HTA merger proceeds with upside for the combined entity (new HR) to the same per share range.
Either way, staying Long HR here with an upside catalyst in Quad 4. In scenario 2 above HTA also stands to benefit on the long side. The risk/reward here is much more favorable to HTA on the long side versus a month ago when we first added HR as a long.
As a reminder, yesterday we added WELL to our Short Bench.

Tickers: LSI, NSA

Subsector: Self-Storage

Headline: Rounding out self-storage 1Q22 results, not much incremental w/ pending RoC slowdown

Figure 1: LSI 1Q22 Earnings Variances

PDF LINK

Source: Company reports, Hedgeye.

Figure 2: NSA 1Q22 Earnings Variances

PDF LINK

Source: Company reports, Hedgeye.

A SPECIAL NOTE: We will be at Hedgeye Live – our first annual subscriber conference. It’s from 5/12-15 at the Hyatt Regency in Greenwich, CT. In addition to all the other Hedgeye Live events, I’m hosting an exclusive “idea dinner” with attendees (capacity capped at 18), as well as a deep-dive breakout session Saturday morning If you’re interested in learning more/joining me at Hedgeye Live, contact support@hedgeye.com

Prior Notes:

5.4.22 - REITS DAILY BRIEF | 5.4.22 | (EXR/PSA 1Q22 RESULTS)

5.3.22 - REITS DAILY BRIEF | 5.3.22 | (HR, HTA)

5.1.22 - SUNDAY NIGHT REIT READ | 5.1.22 | (AMH, MPW)

4.29.22 - MPW HEARING FOOTSTEPS? | 4.29.22 | (MPW)

4.28.22 - AVB 1Q22 RESULTS | BIG BEAT DIDN'T HAPPEN, BUT FY22 OUTLOOK RAISED | 4.28.22 | (AVB)

4.27.22 - INVH 1Q22 RESULTS | ROC ROLLING OVER EVERYWHERE | 4.27.22 | (INVH, AMH)

4.26.22 - EQR 1Q22 RESULTS | DISAPPOINTING QUARTER | 4.26.22 | (EQR)

4.26.22 - REITS DAILY BRIEF | 4.26.22 | (AVB 1Q22 PREVIEW)

4.25.22 - REITS DAILY BRIEF | 4.25.22 | (EQR 1Q22 PREVIEW)

4.24.22 - SUNDAY NIGHT REIT READ | 4.24.22 | (AMH, INVH, TCN)

4.22.22 - EVENT REPLAY: MPW BEST IDEA SHORT BLACK BOOK (MPW)