Merrill Lynch In Full REIT Upgrade Mode - The Sequel
Been a while since we heard from the most popular (and profitable) research (and trading) desk on Wall Street. Last night Merrill analyst Craig Schmidt went to town upgrading pretty much anything he could get his hands on. To wit, all from the last 24 hours:
Simon Property: "We are moving from Neutral to Buy on Simon given the company’s opportunity to boost external growth (and improve SPG’s core U.S. portfolio) as they prepare to become a major player in the emerging “M&A” market in U.S. retail real estate. We are modeling acquisitions of $1 billion in ’10 at an 8.5% cap rates. These new assumptions take our ’10 estimate from $5.75 to $5.95."
Federal Realty: "Quality premium justifies Neutral rating. We are upgrading Federal Realty from Underperform to Neutral due to the fact the stock’s premium relative to its peers (on a price-to-FFO multiple basis) has contracted from 42% to 26% during the beta rally. [TD: upgrade on underperformance vs peers based on beta, not on fundamentals... fucking brilliant].
Developers Diversified: "Maintain Neutral, raising price objective. We are raising our DDR PO from $3.50 to $5.00 based on a higher forward NAV (from $3.76 to $4.84), and a modest reduction in our price objective’s discount to that forward NAV (was 5% is now 0%). We are also raising our ’10 FFO per share estimate from $1.44 to $1.59, to reflect the reduction in dilution given the issuance of fewer shares at the stock’s current price. [Give it 2 weeks until ML does another follow on here].
Taubman Centers: "Maintain Neutral, raising price objective [take DDR template, change name of company, recycle everything else]. We believe that Taubman is positioned with a solid balance sheet and has better than average liquidity than many of its retail REIT peers."
Likely much more coming over the next week as economic fundamentals and beta underperformance over the past 2 months has drastically changed the prospects for REITs.
All in all, a nice preamble for SPG to raise yet another round (2nf, 3rd, 9th - I have lost track at this point) of equity, compliments of the ever gregarious with other people's money Merrill Lynch sales/trading desk.