NEW YORK (TheStreet) -- Select Income REIT (SIR) shares dropped -5.4% to $26.37 on Tuesday after the real estate investment trust announced that it was spending $2.7 billion in cash and stock options to buy REIT Cole Corporate Income Trust.
The deal expands the company's presence to 35 states from 21 states, while adding 64 office and industrial properties to the company's portfolio.
The deal in total is worth $3 billion and is expected to close in the first quarter of the next fiscal year.
TheStreet Ratings team rates SELECT INCOME REIT as a Hold with a ratings score of C. TheStreet Ratings Team has this to say about their recommendation:
"We rate SELECT INCOME REIT (SIR) a HOLD. The primary factors that have impacted our rating are mixed - some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. The company's strengths can be seen in multiple areas, such as its robust revenue growth, expanding profit margins and good cash flow from operations. However, as a counter to these strengths, we also find weaknesses including disappointing return on equity and feeble growth in the company's earnings per share."
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- The revenue growth came in higher than the industry average of 10.6%. Since the same quarter one year prior, revenues rose by 23.1%. This growth in revenue does not appear to have trickled down to the company's bottom line, displayed by a decline in earnings per share.
- The gross profit margin for SELECT INCOME REIT is rather high; currently it is at 65.32%. It has increased from the same quarter the previous year. Along with this, the net profit margin of 53.30% significantly outperformed against the industry average.
- Compared to where it was 12 months ago, the stock is up, but it has so far lagged the appreciation in the S&P 500. Despite the fact that it has already risen in the past year, there is currently no conclusive evidence that warrants the purchase or sale of this stock.
- SELECT INCOME REIT' earnings per share from the most recent quarter came in slightly below the year earlier quarter. Stable earnings per share over the past year indicate the company has managed its earnings and share float. We anticipate this stability to falter in the coming year and, in turn, the company to deliver lower earnings per share than prior full year. During the past fiscal year, SELECT INCOME REIT increased its bottom line by earning $2.11 versus $2.10 in the prior year. For the next year, the market is expecting a contraction of 3.3% in earnings ($2.04 versus $2.11).
- The company's current return on equity has slightly decreased from the same quarter one year prior. This implies a minor weakness in the organization. When compared to other companies in the Real Estate Investment Trusts (REITs) industry and the overall market, SELECT INCOME REIT's return on equity is below that of both the industry average and the S&P 500.
- You can view the full analysis from the report here: SIR Ratings Report
EXCLUSIVE OFFER: See inside Jim Cramer's multi-million dollar charitable trust portfolio to see the stocks he and Stephanie Link think could be potentially HUGE winners. Click here to see the holdings for FREE.