Analyst Loves Acadia Realty's Strategy, But Not Its Valuation

Acadia Realty Trust AKR may be a long-term winner for investors who want exposure to the next era of retail property, but one analyst says now's the time to be buying the REIT.

The Analyst

KeyBanc analyst Todd Thomas downgraded Acadia from Overweight to Sector Weight.

The Thesis

Acadia is well-positioned in the long-term, but there are too many near-term headwinds to justify buying the stock, Thomas said. (See Thomas' track record here.)

For Acadia, 2018 will be “a year of transition and volatility, given ongoing leasing and redevelopment initiatives, the repayment of high-yielding mezzanine loans and lower levels of net investment activity," the analyst said in a Sunday note.

The company's strategy of focusing on street and urban retail properties is the right move, Thomas said. In addition, management has done a good job of maintaining a healthy balance sheet, the analyst said.

Acadia's growth will likely be on the low side through at least mid-2018, and cash flow will likely be volatile in the meantime, according to KeyBanc.

With the stock currently trading below net asset value, Thomas said management may opt not to issue equity under its at-the-market equity program, which could prevent it from investing in its core portfolio. For now, KeyBanc projects a conservative and disciplined approach to investing.

KeyBanc’s $29 base-case scenario is based on 23x Acadia's projected 2018 adjusted funds from operations.