Kimco Realty Corporation KIM NYSE Buy Retail REITs

Transcription

1 One Year Price Chart August 2, 2016 Kimco Realty Corporation KIM NYSE Buy Retail REITs Analysis of Sales/Earnings Strong Interest In TSA Vacancies Highlight Portfolio Quality; Increase Target to $33 Kimco s upgraded portfolio is performing well despite a pickup in retailer bankruptcies and store closures. Portfolio fundamentals are healthy and while the recent bankruptcy activity could weigh on 2H16 and 2017 growth, KIM will likely re-tenant the spaces with higher quality, better credit retailers that should drive more traffic to the center. KIM is focused on achieving its strategic initiatives to position the portfolio for sustainable 3% growth; pushing rents, re-tenanting underperforming retailers, and executing on its multi-billion dollar redevelopment pipeline to strengthen future growth. We maintain our Buy rating and increase our target price to $33 based on a 10% premium to our $30 NAV estimate at a 5.5% cap rate. KIM reported 2Q FFO of $0.38, in line with our estimate and consensus. KIM s 2Q adjusted FFO, which excludes transactional income was $0.37. KIM reduced its 2016 FFO guidance to $1.34-$1.42 from $1.54-$1.62 to reflect upcoming debt prepayment penalties and charges related to the upcoming TRS merger into the parent REIT. KIM maintained its adjusted FFO guidance of $1.48-$1.52. KIM will merge its taxable REIT subsidiary, Kimco Realty Services, into the REIT in 3Q. The merger will transfer ~30 centers KIM developed under its former merchant building program that are long-term holds and other non-core investment. The merger will lower tax provisions and lead to minor G&A reduction through reduced compliance costs. Same store NOI in the U.S. portfolio increased 3.1% (2.8% excluding redevelopment) in 2Q against a 3.7% comp. KIM maintained its full year same store NOI guidance of 2.5%-3.5% despite the pending 2H16 drag as the Sports Authority locations close. Sports Authority was a top 10 tenant for KIM with 23 locations representing 1.1% - as retailers acquired two leases at auction. KIM has executed one lease and is working towards LOI's on ALL the remaining spaces. The early, strong leasing activity on the TSA stores should limit 2017 earnings dilution and highlights the quality of the KIM portfolio, in our view. The closures are a long-term positive, in our view, allowing KIM to upgrade the tenant mix at a center with a higher quality retailer and mark rents to market, strengthening future growth. Pro-rata leased occupancy in the U.S. portfolio increased 30 bps y/y and 20 bps sequentially to 96%. KIM s occupancy will likely fluctuate in the quarters due to store closures and re-tenanting activity. KIM s anchor occupancy is 98.3% and small shop occupancy is 89.2%, up 120 bps y/y and 60 bps sequentially. KIM's small shop occupancy goal is to reach 90% by year-end. Changes Previous Current Rating Buy Target Price $31.00 $33.00 FY16E FFO $1.58 $1.35 FY17E FFO $1.67 $1.62 FY16E FAD 1.25 FY17E FAD 1.36 Price (08/02/16): $ Week Range: $32 $22 Market Cap.(mm): 13,262.6 Shr.O/S-Diluted (mm): Enterprise Val. (mm): $19,925.0 Avg Daily Vol (3 Mo): 2,852,531 Dividend($ / %) $1.02 / 3.2% S&P Index 2, Price is intraday 8/2/16. FFO 2015A 2016E 2017E Q1 $0.37 $0.38A $0.38 Q A 0.40 Q Q FY Dec $1.56A $1.35 $1.62 P/FFO 20.2x 23.4x 19.5x FAD 2015A 2016E 2017E Q A 0.34 Q A 0.34 Q Q FY Dec 1.31A P/FAD 24.1x 25.3x 23.2x Nathan Isbee nisbee@stifel.com (443) Jennifer Hummert hummertj@stifel.com (443) Stifel Equity Trading Desk (800) Stifel does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. All relevant disclosures and certifications appear on pages 5-7 of this report.

2 Leasing spreads increased 16.2% in 2Q on one million sf as renewals/options increased 10.7% and new leases increased 29.8%. KIM is pushing rents in a limited supply environment and leasing spreads should stay in the high single to low double-digit levels in KIM has the opportunity to generate outsized leasing spreads on 94 anchor leases, representing 1.7 million sf expiring through 2018, well below current market rents. KIM will renew some of these leases at market rents, but will allow some of the leases to expire to pursue re-tenanting and/or redevelopment opportunities, creating additional value. KIM is also taking advantage of the favorable leasing environment to increase the contractual rent steps in its leases, strengthening growth. KIM has roughly $1 billion of redevelopment projects in various stages, including 39 centers under active redevelopment for a cost of $341 million. KIM has identified a $2 billion+ shadow pipeline of potential redevelopment opportunities that should keep the pipeline full for the foreseeable future. KIM is aggressively pursuing redevelopment opportunities throughout its portfolio to drive NOI growth and compress the cap rates on its centers. KIM s redevelopment pipeline encompasses a variety of projects from the development of pads and outparcels to major redevelopments of existing centers to the addition of mixed-use components. KIM expects to spend $225-$325 million annually on development/redevelopment activity over the next five years, with estimated incremental returns of 8%-13% on the projects. Most of the projects in the current pipeline average $15-$20 million, but the average project spend will likely increase for opportunities in the shadow pipeline, which include the addition of more mixed-use components to centers. KIM is prudently proceeding with the development of mixed-use components at its centers, in our view, by entering ground leases with proven operators or partnering with a proven operator. At Wilde Lake in Columbia, MD, KIM entered a ground lease on the land with a multifamily operator for the 230 residential units under development. At Pentagon Centre in Pentagon City, VA, KIM has partnered with a proven multifamily operator, Bozzuto, on the apartment towers. KIM is also mitigating its risk by developing in multiple phases. KIM is under construction on one apartment tower at Pentagon Centre, but has entitlements for four towers. The addition of a mixed-use component allows KIM to unlock more value from the real estate, in our view, creating a revenue stream from previously underutilized space while increasing traffic and demand at the retail center. KIM has a few new developments in process, but expects the activity to remain on the margin. Each of KIM s new developments has a story with good retailer demand with strong pre-leasing. KIM estimates the developments will deliver over the next 4-5 years with an estimated cost of $740 million and returns of 7%-9%. At Grand Parkway in Houston, TX, Target is the lead anchor and all the other anchor and junior anchor space is leased. KIM is working on leasing the small-shop space and the second phase of the development. Promenade at Christiana is in Newark, DE a half mile from Christiana Mall. The planned 435k sf power center is 80% pre-leased. Dania Pointe is the largest development in the pipeline; KIM has begun site work on the phase I 300k sf open-air retail center anchored by Costco and is in negotiations with over 70 retailers for the 550k sf phase II lifestyle center. KIM is evaluating the various developers/operators for the planned residential, which could be both multifamily and condos, hotel, and office components. KIM will likely ground lease the land for the mixed-use components. The redevelopment of the former Owings Mills Mall in Baltimore, MD will commence this summer with the demolition of the former Page 2

3 mall. The anchors are over 70% pre-leased and KIM is estimating a 2H19 completion. KIM took another large step in the completion of its portfolio simplification goals with the sale of 22 centers in Canada for a gross sales price of $474.4 million. KIM has six centers remaining in Canada following the sales and is on track to exit Canada by year-end. KIM also sold 12 non-core centers in the U.S. and one land parcel for gross sales price of $221.6 million. KIM raised its disposition guidance to $1-$1.15 billion from $825-$975 billion. KIM acquired the remaining 45% ownership interest in Oakwood Plaza and its Dania Pointe development for $134.6 million in 2Q. Dania Pointe is a mixed-use ground up development that includes 900k sf of retail, 1,000 residential units, two hotels totaling 300 rooms, and two office towers. Phase I of the retail is a traditional open-air power center and is under construction. Construction on phase II which includes a lifestyle center, residential towers, and office buildings is scheduled to commence at the end of Upon completion Dania Pointe will be KIM s highest NOI producing center. KIM also acquired an improved land parcel at its Jericho Commons center in Jericho, NY. KIM s balance sheet is in good shape, in our view, consolidated net-debt-to-adjusted EBITDA is 5.7x and 6.0x including KIM s pro-rata share of JV debt. KIM is targeting a lower consolidated net debt-to-adjusted EBITDA ratio over the next five years, reducing the ratio below 5.5x. KIM is repaying mortgages to grow its unencumbered asset pool and improving its debt metrics to position the balance sheet for a ratings upgrade, reducing its cost of capital. KIM will prepay $428 million of secured and unsecured debt due in KIM is prepaying $137 million of mortgage debt at a weighted average interest rate of 6.32% and redeeming $291 million of 5.7% notes originally scheduled to mature in KIM is also redeeming two tranches of Canadian notes totaling $350 million CAD scheduled to mature in 2018 and KIM will record prepayment charges of $48 million in 3Q in connection with the redemptions. KIM will fund the redemptions through borrowings on its line of credit and asset sale proceeds. We are reducing our 2016 and 2017 FFO estimates to $1.35 and $1.62 to reflect one-time items, higher 2016 dispositions, and the drag from the Sports Authority closures. We are introducing our 2018 FFO estimate of $1.69. Our 2016 and 2017 adjusted FFO estimates are $1.48 and $1.55. Target Price Methodology/Risks Our $33 target price is based on a 10% premium to our $30 NAV estimate at a 5.5% cap rate. Risks to our target price include a broad-based economic downturn or recession, interest rate movements, and general market risk, including continued upheaval in the mortgage-backed securities market and weakening commercial real estate fundamentals. Company-specific risks include weakening real estate fundamentals and balance sheet risk. Company Description Kimco Realty Corporation is an equity real estate investment trust (REIT) engaged in owning, operating, developing, and acquiring neighborhood and community shopping centers. Kimco owns interests in 537 properties, totaling approximately 86 million square feet in 36 states and Puerto Rico. The company is the nation's largest neighborhood and community shopping center REIT. Page 3

4 Kimco Realty Corporation Nathan Isbee & Jennifer Hummert Quarterly Earnings Model Stifel (in $ thousands, except per share data) Assumptions: 2015 A 1Q16 A 2Q16 A 3Q16 E 4Q16 E 2016 E 1Q17 E 2Q17 E 3Q17 E 4Q17 E 2017 E 2018 E Acquisitions (dispositions) during quarter (1) $1,310,424 ($91,269) $147,420 $120,000 $25,000 $201,151 $25,000 $25,000 $25,000 $25,000 $100,000 $100,000 Rate of return on acquisitions (annually) 6.6% 7.0% 6.0% 5.5% 6.0% 6.1% 6.0% 6.0% 6.0% 6.0% 6.0% 6.3% Development put in service during quarter (1) $80,000 $20,000 $20,000 $40,000 $40,000 $120,000 $20,000 $20,000 $40,000 $40,000 $120,000 $120,000 Rate of return on development (annually) 8% 5.0% 7.0% 8.0% 8.0% 7% 5.0% 7.0% 8.0% 8.0% 7% 7% Revenue growth - existing properties (quarterly) 14.6% (1.2%) (2.0%) 0.3% 1.5% 1.2% 0.1% 0.5% 0.8% 1.0% 2.0% 3.2% Operating exps. & real estate taxes as % of rental revenues 27.1% 25.7% 25.4% 26.0% 27.0% 26.0% 26.0% 25.5% 26.0% 27.0% 26.1% 26.1% NOI growth on acquired properties (quarterly) 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% G&A as % of net operating income 14.7% 14.7% 14.0% 13.5% 13.2% 13.8% 14.3% 13.2% 12.6% 12.5% 13.1% 12.6% Average interest rate on average debt outstanding (annually) 4.0% 4.0% 3.9% 3.8% 3.8% 3.8% 3.8% 3.8% 3.9% 3.9% 3.8% 3.9% Additional debt issued (retired) during quarter 729,982 (191,540) 150, ,968 11,560 77,016 8,774 15,895 35,945 30,936 91,550 95,485 Additional preferred stock issued during quarter Additional common equity issued during quarter - 100,633-31,423 32, , Additional common shares issued during quarter - 3,620-1,000 1,000 5, FFO/stock price multiple Ending common stock price $27.18 $29.00 $31.00 $32.00 $32.00 $32.37 $33.00 $34.00 $35.00 $35.00 $35.38 $38.67 NOI from existing properties: (2) Existing property rental income $1,144,474 $293,091 $287,115 $285,828 $291,837 $1,157,871 $291,016 $293,195 $296,414 $300,700 $1,181,326 $1,219,388 Less operating expenses, real estate taxes & land sale costs (310,552) (75,318) (72,927) (74,315) (78,796) (301,356) (75,664) (74,765) (77,068) (81,189) (308,686) (318,634) NOI from existing properties (2) 833, , , , , , , , , , , ,754 NOI from acquired property - cumulative (2) ,942 2,982 4,924 3,389 3,799 4,214 4,633 16,035 22,934 NOI from development put in service - cumulative (2) ,191 3,167 2,866 3,371 4,382 5,630 16,249 30,353 Total NOI (2) 833, , , , , , , , , , , ,041 Other income and expenses: Management, development & leasing fee income 22,295 4,111 4,373 5,045 4,413 17,942 4,152 4,417 5,095 4,457 18,121 18,302 Interest and other income 44,235 (170) (1,012) 2,500 2,500 3, (1,012) 2,500 2,500 4,488 4,488 Gain (loss) on sale of assets 125,813 26,896 39, , ,000 2,000 General and administrative expenses (122,735) (31,929) (29,928) (28,948) (28,804) (119,609) (31,690) (29,779) (28,721) (28,722) (118,912) (120,361) FFO Contribution from joint ventures 547,332 83, ,155 27,360 27, ,719 26,275 26,684 27,518 27, , ,560 Equity in income in other real estate investments 36,090 10,799 7,959 5,000 20,000 43,758 7,500 7,500 10,000 10,000 35,000 20,000 Other expense (45,383) (5,840) (52,213) (1,000) (1,000) (60,053) (1,000) (1,000) (1,000) (1,000) (4,000) (4,000) EBITDA 1,441, , , , ,876 1,075, , , , , , ,029 Reconciliation of EBITDA to funds from operations (FFO): Less: Interest expense (218,891) (52,451) (50,479) (49,802) (49,702) (202,434) (50,461) (50,579) (51,494) (51,815) (204,349) (212,085) Less: Noncontrolling Interests - net FFO adjustments (6,028) (1,441) (1,419) (1,500) (1,500) (5,860) (1,500) (1,500) (1,500) (1,500) (6,000) (6,000) Less: Dividends on nonconvertible preferred stock (55,410) (11,338) (11,338) (11,338) (11,338) (45,352) (11,338) (11,338) (11,338) (11,338) (45,352) (45,352) Less: Provision for income taxes (60,230) (12,112) 246 (44,500) (1,500) (57,866) (1,500) (1,500) (1,500) (1,500) (6,000) (6,000) Add: Other nonrecurring (revenues) & expenses (456,089) (69,009) (81,479) (48,000) - (198,488) Funds from operations (FFO) $644,921 $158,439 $158,321 $69,748 $178,836 $565,344 $163,045 $167,994 $178,003 $178,883 $687,925 $715,592 Normalized Funds from Operations 605,113 $153,078 $155,734 $153,748 $158, ,396 $155,545 $160,494 $170,503 $171, , ,592 Add: Non-real estate depreciation & amortization 10,686 2,405 2,179 3,000 3,000 10,584 3,000 3,000 3,000 3,000 12,000 12,000 Less: Straight-line rents (14,840) (4,586) (5,316) (3,500) (3,500) (16,902) (3,500) (3,500) (3,500) (3,500) (14,000) (14,000) Less: Non-revenue cap. ex. & 2nd generation leasing costs (94,600) (20,800) (23,300) (25,000) (30,000) (99,100) (15,000) (20,000) (25,000) (30,000) (90,000) (90,000) Add; non-cash charges (1,701) (11,404) (3,175) 84,500 (4,500) 65,421 (4,500) (4,500) (4,500) (4,500) (18,000) (18,000) Funds available for distribution (FAD) $544,466 $124,054 $128,709 $128,748 $143,836 $525,347 $143,045 $142,994 $148,003 $143,883 $577,925 $605,592 FFO per common share equivalent - diluted $1.56 $0.38 $0.38 $0.17 $0.42 $1.35 $0.38 $0.40 $0.42 $0.42 $1.62 $1.69 Recurring FFO per common share - diluted $1.46 $0.37 $0.37 $0.36 $0.38 $1.48 $0.37 $0.38 $0.40 $0.40 $1.55 $1.64 FAD per common share equivalent $1.31 $0.30 $0.31 $0.31 $0.34 $1.25 $0.34 $0.34 $0.35 $0.34 $1.36 $1.43 Dividends per share $0.96 $0.26 $0.26 $0.26 $0.26 $1.02 $0.27 $0.27 $0.27 $0.27 $1.08 $1.14 Weighted average common shares: Common Shares Outstanding at End of Period 413, , , , , , , , , , , ,998 Weighted Avg. Shares Outstanding - Basic 411, , , , , , , , , , , ,979 Converted warrants, options, pref., debs. (treasury method) 3,130 2,305 2,302 2,302 2,302 2,303 2,302 2,302 2,302 2,302 2,302 2,302 Weighted Avg. Shares Outstanding - Diluted 414, , , , , , , , , , , ,281 Balance Sheet Information: Average debt outstanding 5,437,448 5,269,386 5,175,640 5,242,301 5,301,565 5,301,565 5,311,732 5,324,066 5,349,986 5,383,427 5,383,427 5,478,839 Ending debt outstanding 5,376,310 5,162,462 5,188,817 5,295,785 5,307,345 5,307,345 5,316,118 5,332,013 5,367,958 5,398,895 5,398,895 5,494,380 Preferred stock outstanding 800, , , , , , , , , , , ,000 Ending common shares outstanding 413, , , , , , , , , , , ,998 Equity Market Capitalization 12,037,048 12,813,058 13,870,330 14,162,469 14,460,068 14,460,068 14,869,405 15,152,144 15,439,102 15,730,281 15,730,281 17,118,654 Total Market Capitalization 18,517,602 19,079,764 20,163,392 20,562,498 20,871,657 20,871,657 21,289,768 21,588,401 21,911,305 22,233,420 22,233,420 23,717,278 Debt/Total Market Cap 35.0% 32.8% 31.2% 31.1% 30.7% 30.7% 30.2% 29.8% 29.5% 29.2% 29.2% 27.8% Ratios: Interest coverage Fixed charges coverage Adjusted EBITDA/EV (3) 7.0% 6.3% 5.9% 4.3% 4.6% 4.7% 4.2% 4.3% 4.4% 4.3% 4.2% 4.1% EV/Adjusted EBITDA (3) Dividend yield (dividend/stock price) 3.5% 3.6% 3.3% 3.2% 3.2% 3.2% 3.2% 3.2% 3.1% 3.1% 3.1% 2.9% FFO growth (per share) 7.4% 8.6% 0.0% (55.3%) 147.1% (13.5%) (9.5%) 5.3% 5.0% 0.0% 20.5% 4.0% FFO payout ratio - diluted 61.7% 67.1% 67.1% 150.0% 60.7% 75.8% 71.1% 67.5% 64.3% 64.3% 66.6% 67.6% FAD payout ratio - diluted 73.1% 85.0% 82.3% 82.3% 75.0% 81.5% 79.4% 79.4% 77.1% 79.4% 79.2% 79.9% (1) Assumes midperiod acquisition or development revenue convention. (2) Net operating income (NOI) is defined as rental revenue plus tenant reimbursements less property-level operating expenses and real estate taxes. (3) Adjusted EBITDA equals EBITDA less property sale gains and straight line rents. Source: Stifel estimates and company data 91919_337243_bb9a8037-0c68-408b-a1af-ab6dd8cafcfd.xlsxModel Page 4

5 Important Disclosures and Certifications I, Nathan Isbee, certify that the views expressed in this research report accurately reflect my personal views about the subject securities or issuers; and I, Nathan Isbee, certify that no part of my compensation was, is, or will be directly or indirectly related to the specific recommendations or views contained in this research report. Our European Policy for Managing Research Conflicts of Interest is available at Rating and Price Target History for: Kimco Realty Corporation (KIM) as of /30/13 B:$24 01/05/15 B:$27 02/25/15 B:$29 03/30/16 B:$ Q2 Q3 Q1 Q2 Q3 Q1 Q2 Q3 Q1 Q2 Q Rating Key B - Buy UR - Under Review H - Hold NR - No Rating S - Sell NA - Not Applicable I - Initiation SU - Rating Suspended D - Discontinued Created by BlueMatrix For a price chart with our ratings and any applicable target price changes for KIM go to The rating and target price history for Kimco Realty Corporation and its securities prior to February 25, 2015, on the above price chart reflects the research analyst's views under a different rating system than currently utilized at Stifel. For a description of the investment rating system previously utilized go to. Stifel or an affiliate expects to receive or intends to seek compensation for investment banking services from Kimco Realty Corporation in the next 3 months. Stifel or an affiliate is a market maker or liquidity provider in the securities of Kimco Realty Corporation. The equity research analyst(s) responsible for the preparation of this report receive(s) compensation based on various factors, including Stifel s overall revenue, which includes investment banking revenue. Our investment rating system is three tiered, defined as follows: BUY -We expect a total return of greater than 10% over the next 12 months with total return equal to the percentage price change plus dividend yield. HOLD -We expect a total return between -5% and 10% over the next 12 months with total return equal to the percentage price change plus dividend yield. SELL -We expect a total return below -5% over the next 12 months with total return equal to the percentage price change plus dividend yield. Occasionally, we use the ancillary rating of SUSPENDED (SU) to indicate a long-term suspension in rating and/or target price, and/or coverage due to applicable regulations or Stifel policies. SUSPENDED indicates the analyst is unable to determine a reasonable basis for rating/target price or estimates due to lack of publicly available information or the inability to quantify the publicly available information provided by the company and it is unknown when the outlook will be clarified. SUSPENDED may also be used when an analyst has left the firm. Of the securities we rate, 49% are rated Buy, 42% are rated Hold, 3% are rated Sell and 6% are rated Suspended. Page 5

6 Within the last 12 months, Stifel or an affiliate has provided investment banking services for 15%, 7%, 0% and 13% of the companies whose shares are rated Buy, Hold, Sell and Suspended, respectively. Additional Disclosures Please visit the Research Page at for the current research disclosures and respective target price methodology applicable to the companies mentioned in this publication that are within Stifel's coverage universe. For a discussion of risks to target price please see our stand-alone company reports and notes for all Buy-rated and Sell-rated stocks. The information contained herein has been prepared from sources believed to be reliable but is not guaranteed by us and is not a complete summary or statement of all available data, nor is it considered an offer to buy or sell any securities referred to herein. Opinions expressed are subject to change without notice and do not take into account the particular investment objectives, financial situation or needs of individual investors. Employees of Stifel, or its affiliates may, at times, release written or oral commentary, technical analysis or trading strategies that differ from the opinions expressed within. Past performance should not and cannot be viewed as an indicator of future performance. As a multi-disciplined financial services firm, Stifel regularly seeks investment banking assignments and compensation from issuers for services including, but not limited to, acting as an underwriter in an offering or financial advisor in a merger or acquisition, or serving as a placement agent in private transactions. Affiliate Disclosures Stifel, includes Stifel Nicolaus & Company ( SNC ), a US broker-dealer registered with the United States Securities and Exchange Commission and the Financial Industry National Regulatory Authority and Stifel Nicolaus Europe Limited ( SNEL ), which is authorized and regulated by the Financial Conduct Authority ( FCA ), (FRN ) and is a member of the London Stock Exchange. Registration of non-us Analysts: Any non-us research analyst employed by SNEL contributing to this report is not registered/qualified as a research analyst with FINRA and is not an associated person of the US broker-dealer and therefore may not be subject to FINRA Rule 2241 or NYSE Rule 472 restrictions on communications with a subject company, public appearances, and trading securities held by a research analyst account. Country Specific and Jurisdictional Disclosures United States: Research produced and distributed by SNEL is distributed by SNEL to Major US Institutional Investors as defined in Rule 15a-6 under the US Securities Exchange Act of 1934, as amended. SNEL is a non-us broker-dealer and accordingly, any transaction by Major US Institutional Investors in the securities discussed in the document would need to be effected by SNC. SNC may also distribute research prepared by SNEL directly to US clients that are professional clients as defined by FCA rules. In these instances, SNC accepts responsibility for the content. Research produced by SNEL is not intended for use by and should not be made available to retail clients, as defined by the FCA rules. Canadian Distribution: Research produced by SNEL is distributed in Canada by SNC in reliance on the international dealer exemption. This material is intended for use only by professional or institutional investors. None of the investments or investment services mentioned or described herein is available to other persons or to anyone in Canada who is not a permitted client as defined under applicable Canadian securities law. UK and European Economic Area (EEA): This report is distributed in the EEA by SNEL, which is authorized and regulated in the United Kingdom by the FCA. In these instances, SNEL accepts responsibility for the content. Research produced by SNEL is not intended for use by and should not be made available to non-professional clients. The complete preceding 12-month recommendations history related to recommendation(s) in this research report is available at Brunei: This document has not been delivered to, registered with or approved by the Brunei Darussalam Registrar of Companies, Registrar of International Business Companies, the Brunei Darussalam Ministry of Finance or the Autoriti Monetari Brunei Darussalam. This document and the information contained within will not be registered with any relevant Brunei Authorities under the relevant securities laws of Brunei Darussalam. The interests in the document have not been and will not be offered, transferred, delivered or sold in or from any part of Brunei Darussalam. This document and the information contained within is strictly private and confidential and is being distributed to a limited number of accredited investors, expert investors and institutional investors under the Securities Markets Order, 2013 ("Relevant Persons") upon their request and confirmation that they fully understand that neither the document nor the information contained within have been approved or licensed by or registered with the Brunei Darussalam Registrar of Companies, Registrar of International Business Companies, the Brunei Darussalam Ministry of Finance, the Autoriti Page 6

7 Monetari Brunei Darussalam or any other relevant governmental agencies within Brunei Darussalam. This document and the information contained within must not be acted on or relied on by persons who are not Relevant Persons. Any investment or investment activity to which the document or information contained within is only available to, and will be engaged in only with Relevant Persons. In jurisdictions where Stifel is not already licensed or registered to trade securities, transactions will only be affected in accordance with local securities legislation which will vary from jurisdiction to jurisdiction and may require that a transaction carried out in accordance with applicable exemptions from registration and licensing requirements. Non-US customers wishing to effect transactions should contact a representative of the Stifel entity in their regional jurisdiction except where governing law permits otherwise. US customers wishing to effect transactions should contact their US salesperson. The recommendation contained in this report was produced at 2 August :55EDT and disseminated at 2 August :55EDT Additional Information Is Available Upon Request 2016 Stifel. This report is produced for the use of Stifel customers and may not be reproduced, re-distributed or passed to any other person or published in whole or in part for any purpose without the prior consent of Stifel. Stifel, Nicolaus & Company, Incorporated, One South Street, Baltimore, MD Page 7