Friday, KeyBanc Capital downgraded SL Green Realty Corp. (SLG), Sovran Self Storage Inc. (SSS), Maguire Properties Inc. (MPG), and BRE Properties Inc. (BRE) shares to Underweight from Hold.
The brokerage maintained its price target on SLG stock at $10, on SSS shares at $25, on MPG stock at $1.50, and on BRE stock at $23. The brokerage lowered its 2008 FFO per share estimate for SSS to $3.27 from $3.29, and its 2009 estimate to $3.13 from $3.24.
The brokerage downgraded Home Properties Inc. (HME) shares to Hold from Buy. The brokerage lowered its 2008 FFO per share estimate for HME to $3.68 from $3.75, and its 2009 estimate to $3.44 from $3.52. However, the brokerage upgraded Health Care REIT Inc. (HCN) shares to Buy from Hold with a price target of $41.
Additionally, KeyBanc lowered its price target on Avalonbay Communities Inc. (AVB) stock to $48 from $53, while maintaining its Underweight rating. The brokerage reduced its price target on Post Properties Inc. (PPS) stock to $13 from $16, while maintaining its Underweight rating.
Analyst Jordan Sadler said that following a 40% decline in 2008, he expects REITs to trade down in 2009 as debt deflation, declining earnings and deleveraging put pressure on the stocks. The analyst expects REIT shares will be down 10%-20% in 2009. Incorporating the 7% average dividend yield, the analyst expects the REITs to deliver a negative 3% to negative 13% total return in 2009.
There are two distinct challenges in forecasting the fate of the REIT sector in 2009: capital; and fundamentals. The analyst expects capital to trump fundamentals through much of 2009. While there is a chance that global efforts to solve the crisis of investor confidence will be successful, the analyst expects it will take a long time to repair the damaged psyches and balance sheets of investors and consumers.
In the analyst's view, asset values will be forced lower as cap rates will need to rebound to more "foolproof" levels for investors to be compelled back to investing in real estate, this means attractive unleveraged cap rates once it becomes more readily apparent that a recovery is forthcoming. Given the overwhelming issues associated with capital, fundamentals are likely secondary, but still important.
The analyst does not expect REITs to head straight down in 2009, as a gradual credit market thaw and government stimulus packages could provide support to equities. However, the analyst expects lower earnings and forced asset sales/foreclosures to put pressure on real estate valuations throughout the year. Given a longer-term perspective, REIT valuations will likely prove to be reasonably attractive today.
In the near term, the brokerage expects many of those with the best balance sheets will continue to outperform. While this trade may seem long in the tooth, the brokerage thinks it will be increasingly justified, as earnings for these players hold up better than their peers, the best capitalized players also seem well positioned to realize attractive investment opportunities.
The analyst favors a mix of both lower and higher leverage stocks, though the latter group must have strong liquidity and/or fundamentals. In the analyst's view, the most defensive fundamentals for 2009 will be the least worst sectors, he expects those with longer-term leases to hold up relatively better, including health care, triple net and select office/mixed office REITs. The analyst's views lower-quality retail, multifamily and storage fundamentals as having greater risk.
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June 12, 2026 17:14 ET Major central bank action was the focus this week in economic news. The European Central Bank became the first major central bank to move in response to the rising inflationary pressures in the backdrop of the conflict in the Middle East. In North America, the U.S. inflation and trade data as well as Canada’s central bank decision gained attention. The Chinese trade data was the main news in Asia.