Jefferies Debuts 'Lucky 7' - Top REIT Picks For 2015

During 2014 publicly traded equity REITs that own commercial real estate had a banner year. The MSCI REIT Index (RMZ) clocked in with returns of just over 25 percent, or about double the gains of the S&P 500 in 2014. After such great performance by the RMZ -- ending 2014 just 5 percent below its all-time high -- what should REIT investors expect for 2015? REITs Poised To Hit New Highs According to Jefferies REIT analyst Omotayo Okusanya, 2015 equity REIT performance will be positive, driven by: • U.S. GDP growth estimated by Jefferies to be 3.3 percent. • An expectation of continuing low interest rates and availability of capital. • REIT NOI growth fueled by increased demand and relatively limited new supply. Jefferies is forecasting a 13 percent total return for REITs in 2015. Jefferies "Lucky 7" Top REIT Picks In addition to continued strong performance for the entire REIT sector, Jefferies has chosen seven of its Buy rated REITs as top picks. They are presented in order of conviction along with a brief justification for each pick: 1. CyrusOne, Inc. CONE is one of five data center REITs. This subsector should continue to benefit from an improving overall business environment, as well as continued growth in outsourcing, wireless data, cloud computing and big data. However, the PT was reduced to $32 from $34, with Jefferies noting CONE has a 30 percent industry exposure to oil and gas. 2. SL Green Realty SLG is an office REIT with a portfolio concentration in NYC. Jefferies expects CBD (central business district) office fundamentals to continue on an upward trend noting: accelerating economic growth, improving employment figures and easy access to relatively cheap capital. While considerable NYC office development is underway, demand continues to outstrip supply in the short term. PT was increased from $130 to $142. 3. CubeSmart CUBE is one of four self-storage REITs. With occupancy already at high levels, Jefferies sees short duration leases (typically month to month) being able to be re-priced at higher rates, leading to growth in SS NOI, (same store net operating income). PT was increased from $24 to $27. 4. Omega Healthcare Inc. OHI growth will be accelerated by the AVIV acquisition in 2015. Jefferies sees healthy earnings accretion from debt refinancing occurring in a low interest rate environment. Notably OHI is trading at 14.2x AFFO, or about a 13 percent discount to healthcare REIT peers. PT was increased from $43 to $47. 5. Mall landlord Simon Property Group SPG; and 7. Power Center focused DDR Corp. DDR, were both valuation calls. Jefferies viewed them as relatively "inexpensive stocks" with solid earnings outlooks that "underperformed" last year. The Simon PT was increased from $201 to $220; while the DDR Corp. PT was increased from $21 to $22. 6. Mid-America Apartments MAA is poised to benefit from SS NOI growth in the 4 to 5 percent range, as the company continues accretive growth resulting from upgrading units in its existing portfolio . Jefferies noted that MAA could benefit from multiple expansion as it trades at a 14.9x forward FFO, compared to its multifamily REIT peers trading at an average of 21.3x FFO. PT was increased from $71 to $88. Investor Takeaway Jefferies feels that the REIT sector is poised for another leg up, albeit a much smaller increase compared to the "perfect storm" of 2014. Investors looking to include REITs in a diversified portfolio can also choose from an array of REIT ETF options or mutual funds. • http://www.benzinga.com/general/education/14/12/5078858/4-popular-equity-reit-etfs-should-the-average-investor-take-a-look However, for investors willing to spend the time to do their own diligence, this short-list of REIT top picks compiled by Jefferies can provide a convenient place to start.