In separate reports published Wednesday, BMO Capital Markets analyst John Kim recommended four separate REIT names for investors to consider. The recommendations follow a similar report by John Guinee of Stifel who recommended three REIT names.
SL Green: Betting On Execution
Kim initiated coverage of SL Green Realty Corp SLG with an Outperform rating and $127 price target. As a bullish call on the stock is a "bullish call on New York," the city's largest office landlord stands to benefit over the coming years, according to Kim.
Kim continued that New York City is entering an "accelerated" stage of office rental growth (5.6 percent annually through 2018) with rents hitting all-time highs in 2016. In addition, international demand for prime assets will keep asset values "elevated" at a time when the company will be "solidifying" its positions as the leading owner in the key Grand Central and Midtown South areas.
Kim further noted that SL Green will "navigate" through several years of potential execution risks as the company undertakes its largest and most complex development project while undertaking a "significant" amount of debt ($5.6 billion expiring through 2020).
BioMed Realty: A ‘Pioneer' Company
Kim initiated coverage of Biomed Realty Trust Inc BMR with an Outperform rating and $31 price target, noting the company is "one of the pioneers" within the life science real estate industry.
Kim noted that Biomed Realty has a "strong" presence in Boston/Cambridge, San Francisco and San Diego, three of the largest global biotech hubs. The analyst added that the biotech industry is "well-capitalized" with public companies "flourishing." As such, Biomed Realty has benefited by experiencing a sector-leading 5 percent organic growth since 2010 and a 55 percent return on invested capital from its BioMed Ventures unit.
Looking forward, Biomed Realty will fuel further growth through its $996 million development pipeline, with an expected 7.75 percent yield, while 75 percent of its space is already leased.
Boston Properties: Cash And Asset Rich
Kim initiated coverage of Boston Properties, Inc. BXP with an Outperform rating and $136 price target despite the stock lagging the S&P 500 and REIT indices in recent years.
According to Kim, office markets are heading into an "accelerated" growth phase, with Boston Properties being a "prime beneficiary." The analyst is estimating office rental growth in the company's core markets (New York; Boston; Washington, D.C.; San Francisco) to grow at a 5.2 percent compounded growth rate through 2018, outperforming the 2.4 percent growth since 2010.
Kim added that Boston Properties has prepared itself for the expected growth by ramping its development pipeline to $2.4 billion, most notable of which is the $1.1 billion Salesforce Tower in San Francisco and the $205 million Dock72 in Brooklyn. In fact, the company's estimated $237 million of annual free cash flow, coupled with $1.3 billion of cash on the balance sheet, should allow the company to adequately fund its projects.
Finally, Kim noted that Boston Properties has an impressive track record of calling market peaks and troughs. Over the past 10 years, the company has sold $8.1 billion of assets at an "impressive" 67 percent return on capital and paid shareholders $20.63 per share in special dividends since 2005.
Empire State Realty: Empire State Of Mind
Lastly, Kim initiated coverage of Empire State Realty Trust Inc ESRT with an Outperform rating and $21 price target, as the company offers "one of the most compelling" organic growth stories within the entire REIT sector.
Kim continued, explaining that Empire State is now in the "final stages" of transforming the office portion of the Empire State Building into a "high-tech urban campus" through a $291 million renovation endeavor. The analyst added that the renovation has resulted in a 31 percent re-leasing spreads and 28 percent same-store NOI growth in the company's "brief" history as an REIT.
Kim estimated the company will see office re-leasing spreads at 22 percent over the next five years and upside to the current 88.4 percent occupancy rate, which will fuel additional growth. In fact, the analyst suggested the company has "one of the most clear-cut, achievable" growth strategies in the office REIT space with $602 million already spent to redevelop its portfolio and an additional $65 to $105 million in planned spending through 2016.
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