Monogram Trading At Significant Discount, But Canaccord Worried About Short-Term Headwinds

Canaccord Genuity’s Ryan Meliker believes Monogram Residential Trust Inc MORE is a good stock to own for the latter half of 2017 when the headwinds facing the company ease up and the NOI ramps stabilize. Until then, however, the stock could see limited upside.

Meliker initiated coverage of the company with a Hold rating and price target of $11.

NAV Discount

“Monogram offers an extremely high quality portfolio at about a 12% discount to NAV,” the analyst mentioned, while adding that “the company's development pipeline will drive close to $1 per share in value creation as the assets achieve stabilization, yielding an attractive value proposition.”

Meliker pointed out that there were near term headwinds that could prevent the NAV discount from narrowing, such as selling pressure from a retail shareholder base, which is in the money around $10 per share, a preferred equity “hurdle” that caps the stock at about $11.50 in the near term, and a development pipeline that is expected to stabilize only in 2H17.

Value Creation

“With 8 properties in lease-up and a 9th under construction, MORE offers substantial cash flow growth, with limited development risk as construction is mostly completed,” according to the Canaccord Genuity report.

Meliker expects NAV accretion of $0.92 per share from the company’s asset development pipeline.

“We believe the market will only give full credit for the NOI from these assets as they approach stabilization, limiting recognition of the development value before 2H17,” the analyst added.

At time of writing, Monogram was up 1.48 percent on the day, trading at $9.93.