HHC - Piper Sandler upgrades Douglas Emmett; says implied cap rate discount to NAV 'too wide'

2023-04-05 12:21:11 ET

Piper Sandler upgraded Douglas Emmett ( NYSE: DEI ) to Overweight from Neutral, saying the REIT's implied cap rate and discount to net asset value is "too wide".

"We believe DEI's implied cap rate of 11.5% and ~70% discount to NAV (using a ~6% cap rate) is way too wide, especially for a company with a net debt to adj. EBITDA of 8.8x for 2023E vs. PSC Office peer average of 9.3%, ~55% and 10.4x, respectively," said analyst Alexander Goldfarb.

He noted that Douglas Emmett's ( DEI ) core small tenants remain active, while its multifamily deliveries are exceeding pro forma. "Finally, the exodus from Brookfield DTLA adds demand for DEI's portfolio on the Westside of Los Angeles."

Price target was raised to $15 from $13, implying potential upside of 22.3% to its last close.

Wall Street analysts on average rated Douglas Emmett ( DEI ) Hold, contrasting Piper Sandler's stance. SA Quant rated the stock Sell .

Piper Sandler reiterated its Overweight rating on Howard Hughes ( HHC ), given strong home sales across its master planned communities and continued demand for condos at Ward Village.

As for office REITs, it said, "Despite a lack of catalysts and suspense waiting for restoration of the mortgage markets, we believe office has now sold off sufficiently to begin to get more constructive where valuation and balance sheets make sense."

Earlier, Douglas Emmett ( DEI ) was cut to Underperform at BMO Capital .

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