UPDATE: MLV & Co. Reiterates On Government Properties Income Trust On Investment In SIR

In a report published Thursday, MLV & Co. analyst Jonathan Petersen reiterated a Hold rating on Government Properties Income Trust (NYSE: GOV), but lowered the price target from $24.00 to $23.00.

In the report, MLV & Co noted, “Last week, GOV announced that it would buy 21.5M shares of SIR from CWH for $31.50 per share, or $677M, which represented a $1.50/sh premium to the market price on July 8th—the day before the acquisition was announced.

"The purchase is a clear indication that a hostile takeover of SIR by an activist is very unlikely, since GOV is externally managed by the same company, RMR. Accordingly, the stock has declined in value by about $0.85 and is about $2.35 below GOV's purchase price. Therefore, the acquisition has been dilutive to NAV so far; however, we expect the investment to be approximately 7% accretive to FFO once long-term debt and equity are in place (see Exhibit 1 for leverage sensitivity). Our primary concern with the acquisition is that ~30% of GOV's EBITDA will now come from SIR, which means GOV went from a stock that was almost exclusively exposed to government assets to approximately 70% government, 15% Hawaii industrial, and 15% single-tenant office. We believe this makes GOV less appealing to investors looking for direct exposure to government-leased real estate.

"We are lowering our price target to $23, from $24, due to NAV dilution from the acquisition. We maintain our HOLD rating.”

Government Properties Income Trust closed on Wednesday at $24.94.