With the 10-year yield rising toward 3 percent and boosting costs of capital, cap rates and dividend yields, 2018 isn’t looking so great for real estate investment trusts.
One analyst anticipates a 5-percent decline in the MSCIUSREIT INDEX (NYSE: RMZ) partly driven by underperformance in two component stocks.
BMO Capital Markets analyst John Kim downgraded Boston Properties, Inc. (NYSE: BXP) and Healthcare Realty Trust Inc (NYSE: HR) to Market Perform and lowered their respective price targets from $135 to $134 and from $34 to $33.
The rating changes were largely justified by assumed increases in interest and cap rates.
At the same time, Healthcare Realty is seen to have expended potential profits from its industry-leading assets.
“While we believe HR has the highest-quality MOB [medical office building] portfolios among REITs, we believe it is largely reflected in its premium valuation,” Kim wrote in a Tuesday note.
Meanwhile, Boston Properties’ unattractiveness is essentially relative.
“While BXP trades at a discount to NAV [net asset value], we see deeper value elsewhere in the office REIT sector,” Kim wrote.
Their individual circumstances are compounded by expectations of industry earnings misses in funds from operations, fostered by a peak in occupancy, lack of accretion in debt refinancing and limited opportunity for external growth.
Healthcare Realty fell 2 percent and Boston Properties 1 percent.
3 REITs To Get Bullish On In 2018
KeyBanc's Guide To REITs In 2018: Expect 5-10% Returns
Latest Ratings for BXP
|Jan 2018||BMO Capital||Downgrades||Outperform||Market Perform|
|Aug 2017||RBC Capital||Downgrades||Top Pick||Outperform|
View More Analyst Ratings for BXP
View the Latest Analyst Ratings
See more from Benzinga
© 2018 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.