Small Cap Real Estate Stocks To Outperform In The Year Ahead, (CSA, KRG, KRC, LHO, HST)

Citigroup Global Markets believes that small cap stocks in Real Estate Investment Trusts (REITs) are expected to outperform in the coming year.

Some of the firm’s favourite stocks include Cogdell Spencer Inc. (NYSE: CSA), Kite Realty Group Trust (NYSE: KRG), Kilroy Realty Corporation (NYSE: KRC), LaSalle Hotel Properties (NYSE: LHO), and Host Hotels and Resorts Inc. (NYSE: HST). Citigroup maintained a Buy rating and reduced the risk rating for Cogdell and Spencer to High from Speculative reflecting lower levels of volatility in the economic and financial environment. The firm upgraded the rating on Kite Realty Group to Buy, reflecting a number of positive catalysts on the horizon. For Kilroy Realty Corporation, the firm reiterated a Buy rating reflecting attractive relative valuation and low balance sheet leverage.

The firm believes future lease-up opportunities in an improving economy could be a possible catalyst. Citigroup reiterated Buy rating for LaSalle Hotel Properties for the following reasons 1) recently renovated portfolio with the potential to gain market share in early stages of cyclical recovery; 2) strong balance sheet positioned for external growth; 3) experienced senior management team.

The firm increased 2010-11 Fund From Operations (FFO) estimates for Host Hotels and Resorts Inc. to reflect the company's recent $400m convertible notes issuance, the proceeds of which will be used to redeem higher coupon senior notes. The firm views each of the companies as discounted value opportunities with most names significantly underperforming peers year to date.