2023-03-21 09:53:58 ET
In screening for robust fundamentals and balance sheets (i.e., lower leverage and stronger credit ratings) within the REITs space, Goldman Sachs analyst Caitlin Burrows on Tuesday resumed coverage 13 REITs across three property types: office, retail and industrial.
Office:
Burrows believes office utilization -- generally dented after the pandemic triggered a work-from-home trend -- will improve as "weak or uncertain macro conditions could shift the balance of power more in favor of employers versus employees," she wrote in a note.
That said, while leasing activity it set to improve, it takes a while for those leases to impact physical occupancy.
The analyst reiterated six retail REITs: Tanger Factory Outlet Centers ( NYSE: SKT ) (Buy), Simon Property Group ( NYSE: SPG ) (Buy), Kimco Realty ( NYSE: KIM ) (Buy), Phillips Edison & Company ( NASDAQ: PECO ) (Buy), Brixmor Property Group ( NYSE: BRX ) (Neutral) and The Macerich Company ( NYSE: MAC ) (Sell).
Retail:
Retail leasing has been strong, Burrows said, as customer acquisition costs online remain elevated and increased working from home has made suburban areas more populated.
"We expect the strength of 2022 leasing will continue and will support permanent occupancy growth in 2023 and beyond, where higher occupancy levels and low occupancy costs should create pricing power and" same-store net operating income growth, the note said.
Coverage of Kilroy Realty ( NYSE: KRC ) (Buy), Boston Properties ( NYSE: BXP ) (Neutral), Hudson Pacific Properties ( NYSE: HPP ) (Sell), SL Green Realty ( NYSE: SLG ) (Sell) and Vornado Realty ( NYSE: VNO ) (Sell) all were resumed.
Industrial:
Burrows thinks rent decline risk is minimal, citing "very low existing vacancy and continued high demand (even as it normalizes from a pandemic high)."
While development and acquisitions are poised to supplement earnings growth, "speculative development lease-up timing and transaction volumes are now slower than they were in 2021/2022" due to macroeconomic uncertainty, she added.
Prologis ( NYSE: PLD ) (Buy) and First Industrial Realty ( NYSE: FR ) (Sell) both were resumed.
Within the three property types, SA's Quant system favors Urstadt Biddle Properties ( UBA ) the most, followed by Getty Realty ( GTY ) and Realty Income ( O ).
See why SA contributor Daniel Jones last month thought SKT has more upside potential .
For further details see:
Goldman resumes coverage of 13 REITs in search of strong fundamentals, balance sheets