Stifel Downgraded Highwoods, Boston Properties And Brandywine Realty...But Why?

In separate reports published Thursday, Stifel analyst John W. Guinee downgraded the ratings on Brandywine Realty Trust BDN, Highwoods Properties Inc HIW and Boston Properties, Inc. BXP from Buy to Hold.

In the report Stifel noted that there was increasing concern surrounding:

1. Continued weakness in non-REIT dedicated investment interest in REITs
2. Investors being more attracted towards Blue Chip REITs and/or secondary names “with action-driven catalysts”

Analyst John Guinee added that although the REIT environment was characterized by “attractive discounts to net asset value,” attractive and rising dividends and high FFO/FAD multiples, investors were being dissuaded by:

• “A perception of rising interest rates over time
• Private investors with a cost of capital advantage
• Solid, but not exceptional fundamentals”

“We view Boston Properties as a best-in-class office REIT with an impressive long-term track record of value creation for shareholders. Once in a while however, the share price becomes rich relative to peers as near-term catalysts subside,” Guinee wrote.

Stifel added that while Brandywine enjoyed an attractive valuation relative to peers, “a lack of catalysts for the REIT and investor ambivalence in general towards the Philadelphia and Washington, D.C. office markets have resulted in significant underperformance.” Brandywine’s shares have declined 13.8 percent year-to-date, versus a 5.9 percent decline in the RMZ.

While noting that Highwoods was a “best-in-class, non-Gateway city office REIT made attractive by its Sunbelt-focused office portfolio, development pipeline and experienced but conservative management team,” Guinee explained that the downgrade reflected that the near-term catalysts were already priced into the shares.