Parkway Properties Is Now A Buy, According To Stifel

• Shares of Parkway Properties Inc PKY have appreciated 7.83 percent over the past three months, from a low of $15.32 on September 4.
• Stifel’s John W. Guinee has upgraded the rating on the company from Hold to Buy, with a price target of $19.50.
• While expressing optimism regarding the real estate valuation metrics, Guinee also mentioned that the company’s core portfolio was high quality and the management team deserved credit.

Analyst John Guinee elaborated that with total dispositions of $506 million in 2015, for about $126/SF, the company has exited 15 low quality assets. “These sales are expected to exceed acquisitions by roughly $220mm; further delevering the balance sheet.”

Guinee expects Parkway Properties’ implied NOI cap rate to increase by about 60 bps at a fixed share price over the next two years, while the improvement in the portfolio would make it easier to underwrite. Guinee also expects the Houston accounting for 26 percent of the estimated cash NOI for 2016 to become less of an issue going forward.

In addition, a majority of the company’s portfolio offers both occupancy gains and rental rate increases.

Guinee also mentioned that “while the Sunbelt acquisition low-hanging fruit has likely all been picked, we have been impressed with Parkway's Sunbelt value-add investment strategy and execution.”

The FY2016 and FY2017 FFO and FAD per share estimates have been raised to imply annual growth of 6.7 percent and 16 percent, respectively, during 2015-2017.