Baron Funds: “There is Compelling Upside Potential for Douglas Emmett (DEI)”
Baron Funds, an investment management firm, released its “Baron Focused Growth Fund” first quarter 2023 investor letter, a copy of which can be downloaded here. During the quarter ending on March 31, 2023, the Fund's Institutional Shares exhibited a notable increase of 14.49%. This remarkable performance can be attributed to the resilience and robust demand witnessed by companies held within the Fund's portfolio. Spare some time to check the fund’s top 5 holdings to know more about their top bets for 2023.
In its Q1 2023 investor letter, Baron Focused Growth Fund mentioned Douglas Emmett, Inc. (NYSE:DEI) and explained its insights for the company. Founded in 2005, Douglas Emmett, Inc. (NYSE:DEI) is a Santa Monica, California-based real estate investment trust company with a $2.5 billion market capitalization. Douglas Emmett, Inc. (NYSE:DEI) delivered a -19.96% return since the beginning of the year, while its 12-month returns are down by -43.42%. The stock closed at $12.50 per share on June 14, 2023.
Here is what Baron Focused Growth Fund has to say about Douglas Emmett, Inc. (NYSE:DEI) in its Q1 2023 investor letter:
"Douglas Emmett is an office REIT that owns and manages buildings in West Los Angeles, the San Fernando Valley, and Honolulu. Its share price declined 20.9% in the first quarter and hurt performance by 41 bps. The company continues to be hurt by challenges due to work-from-home trends and having lots of space to lease as a large number of short-term leases expire. About 15% to 20% of its leases roll off in any given year, and Douglas Emmett has had to negotiate in a tough environment. However, we believe over the long term, the company has significant growth potential driven by occupancy recoupment of 1,000 bps from today’s levels, the eventual firming of pricing power that will occur once they reach a lease rate of 90%, and a modest development pipeline. The stock is now significantly below its pre-COVID price and trades cheaply at just 14 times net operating income. Its 6.2% dividend yield is well covered and its share price is below $300 per square foot for an irreplaceable office portfolio. This compares to the over $1,000 per square foot valuation for properties that have traded in the private market pre-COVID. While we expect business conditions to remain challenging, we believe there is compelling upside potential for this stock. This is if its highly discounted multiple re-rates even modestly or the company is able to sell assets at accretive values."
STUDIO GRAND OUEST/Shutterstock.com
Our calculations show that Douglas Emmett, Inc. (NYSE:DEI) was not able to secure a spot on our list of the 30 Most Popular Stocks Among Hedge Funds. Douglas Emmett, Inc. (NYSE:DEI) was in 22 hedge fund portfolios at the end of the first quarter of 2023, compared to 22 funds in the previous quarter. Douglas Emmett, Inc. (NYSE:DEI) delivered a 5.64% return in the past 3 months. You can find other investor letters from hedge funds and prominent investors on our hedge fund investor letters Q1 2023 page.
Suggested Articles:
Disclosure: None. This article is originally published at Insider Monkey.
