01/08/23 05:10 PM EST

SUNDAY NIGHT REIT READ | SD WHISTLEBLOWER CASE ACTIVITY + EPR FEEDBACK | 1.8.23 (INVH, EPR, MPW)

Rob Simone, CFA

Takeaway: City of SD assigns Deputy City Attorney to follow case / participate w/ Plaintiff team

Hedgeye Cartoon of the Day: Clown Show

It is 1.8.23, and Active Short MPW is overvalued by... whatever the current share price is. HERE is our running "cheat sheet" of issues.

WEEKLY VALUATION HANDBOOK PDF LINK

Ticker: INVH

Company Name: Active Short Invitation Homes

Subsector: Single-Family Rentals (SFR)

Headline: City of SD appears to take active roll w/ plaintiff team

As a reminder, early last week the judge in Active Short INVH's qui tam case finally denied Plaintiff's motion to dismiss.
Second, and immediately following the denial, the city of San Diego assigned a Deputy City Attorney for the interested party (the city) as part of the Plaintiff team, meaning that SD is now (we think) likely taking a more active role in the case, along with other municipalities that took interest over the Summer 2022.
Our read is that, if there were to be a settlement negotiation, at the very least SD has to be in agreement with both the private plaintiffs and INVH. SD is obviously directly interested in the outcome via a potential settlement over lost fees, punitive damages, treble damages, potential lose property taxes, etc.
We think this is NOT a good development for INVH.

Figure 1: Snip from 1/4 Docket Filing

Source: U.S. District Court for the Southern District of CA

Ticker: EPR

Company Name: Active Short EPR Properties

Subsector: Triple-Nets

Headline: Feedback points from the EPR black book last week

First, and we are sincerely glad about this, there was general appreciation that we did work on this name, given that it is (1) often overlooked by both the buy- and sell-sides, and (2) that it is unique in many respects.
We would say near-unilateral agreement that the stock is not "cheap." Clients especially liked the cap rate spread to BBB yields metric, which shows that spreads have barely widened despite >30% of EPR's rent either residing in Chapter 11 or in relatively imminent danger of filing.
Some clients are actively handicapping the likelihood of a credit downgrade at EPR itself if and when AMC files, which they believe would be devastating to the share price in the near- to intermediate-term. While we did not address this topic directly in the presentation, we agree.
This may seem surprising, but some clients actually thought we were being too generous, and that there might be more downside in shares than we had handicapped. Recall we spoke about a share price needing to be "in the mid-$20/share" before taking a look at the stock on the long side. Believe it or not, some clients looking to get long actually want to see more downside first towards the low-$20/share range.
Clients thought we were undershooting the likelihood of an AMC BK filing. To be clear, we think that IS a very likely scenario, we just wanted to address the topic responsibly and especially since a colleague at Hedgeye covers the stock. We are going to do some more work on it and will have additional thoughts.
Finally, several clients had not considered the OpCo conversion scenarios that we presented, and after weighing the +/-'s (1) agreed that they could make sense, but (2) still doubted whether there would be enough time and space to avoid an ultimate dividend cut at EPR. We still think its possible to see value diminution and an elevated payout run concurrently with each other, but will continue thinking through it.

Ticker: MPW

Company Name: Active Short Medical Properties (Dis)Trust

Subsector: Triple-Net Hospitals (just MPW standing alone)

Headline: Reminder, we wrote last night HERE about additional vendor payment issues at Steward

Figure 2: Updated Hedgeye REITs Position Monitor