Credit Suisse's 5 Top Performance-Based REIT Picks

On June 29, Credit Suisse analyst Ian Weissman and his team released a research note updating equity REIT performance by sector; and identifying the REITs under Credit Suisse's coverage which have the highest upside potential from current price levels. Based upon projected 12 month total returns, the top five Credit Suisse equity REIT picks have a potential total return forecast from 26.9 percent to 35.8 percent. What is even more impressive is that these are highly respected, or "blue-chip," large and mid-cap names, not thinly followed or obscure small-cap picks.

REITs Have Struggled YTD

Overall, equity REIT prices reached their peak in January 2015, after a very strong run during 2014. Since then, some investors have shunned REITs due to rising interest rate fears, while others may have simply chosen to lock-in profits after the strong run last year.

The FTSE NAREIT REIT Index, a measure of broader REIT sector performance, is down 4 percent YTD.

Equity REIT Performance Comparisons

Self-storage REITs have demonstrated relative strength YTD, up 4.2 percent so far in 2015, as shown in the table below.

In fact, of the nine subsectors shown in the table, self-storage REITs have been the top performing group over the past 12 month, 3 year, and 5 year time horizons, as well.

Credit Suisse - REIT Subsector Forecast

Notably, the Credit Suisse report did not cover all REIT subsectors.

However, the table above indicates that Credit Suisse has a positive 12 month outlook, for the (36) REITs which were covered in the report.

Credit Suisse - Top 'Outperform' Rated Picks

Based upon expected total return for the next 12 months, these were the five Credit Suisse top picks: 1.

Simon Property GroupSPG

$53.3 billion cap, 3.5 percent yield, (Regional Malls).

The Credit Suisse $230 target price represents a potential ~35.8 percent total return based upon the recent SPG closing price of $173.91 per share.

Prologis, Inc.PLD

$19.5 billion cap, 3.8 percent yield, (Industrial/Logistics).

The Credit Suisse $49 target price represents a potential ~31.9 percent total return based upon the recent PLD closing price of $38.24 per share.

DDR Corp.DDR

$5.6 billion cap, 4.4 percent yield, (Shopping Centers).

The Credit Suisse $20 target price represents a potential ~30.6 percent total return, based upon the recent DDR closing price of $15.85 per share.

Taubman CentersTCO

$4.3 billion cap, 3.2 percent yield, (Regional Malls).

The Credit Suisse $90 target price represents a potential ~29 percent total return, based upon the recent TCO closing price of $71.54 per share.

Boston Properties, Inc.BXP

$18.5 billion cap, 2.1 percent yield, (Class-A Office).

The Credit Suisse $154 target price represents a potential ~26.9 percent total return, based upon the recent BXP closing price of $123.43 per share.

Credit Suisse - Historical REIT Valuation

The chart below confirms that the recent pull-back in REIT shares during 2015 has created a better entry point for investors based upon price vs. net asset value (NAV).

REITs with a visible runway for future FFO growth tend to trade at premiums to NAV. Embedded portfolio growth opportunities can be from: contractual lease bumps, below market rents, identified redevelopment opportunities, new development and build-to-suit opportunities, as well as acquisition pipelines, which are accretive to earnings.

Investor Takeaway

Many popular REIT names were not included in the Credit Suisse list for consideration. This includes candidates from: self-storage, data center, healthcare, free standing (net-lease), diversified, manufactured housing, and wireless tower sub-sectors, which were not covered in the report. However, these five "brand name" Credit Suisse picks can certainly serve as a starting point which can be used by investors to compare REITs in other subsectors. The key takeaway is that investors who wish to add to REIT positions, or diversify their portfolio to included commercial real estate, can now take advantage of far more attractive valuations than just six months ago.

Market News and Data brought to you by Benzinga APIs

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