American Realty Capital Properties Inc. (NASDAQ: ARCP) was started with a Buy rating and a $15.50 price target, versus a $12.41 close. The firm likes the valuation here, with shares trading at a 31% discount to its closest peer. American Realty Capital has been addressing investor concerns by deleveraging, selling its multi-tenant retail assets and internalizing management. One concern includes Red Lobster as being 12% of its rents, as well as volatility in its PCM business, growth off a large asset base and integration risk. This comes with an 8% dividend yield as well.
Ashford Hospitality Prime Inc. (NYSE: AHP) is considered by Merrill Lynch to be a prime case of undervalued assets. The firm started coverage at Buy, and it assigned a $19 price target (versus a $16.30 close). Ashford is an externally managed hotel REIT that has a market cap of $555 million and an enterprise value of $1.1 billion. What was liked here is Ashford’s portfolio quality, its favorable operating metrics, as well as an experienced management team. The $19 target implies approximately 12.5 times the firm’s 2015 expected EBITDA, and it is a multiple at a 10% discount to peers. One thing worth noting is that the dividend yield is only 1.2% so far.
Physicians Realty Trust (NYSE: DOC) was also started as Buy with a $14.25 price target. Interestingly enough, this one closed at $13.81, so that seems to not leave much upside. Still, it has a 6.5% yield and only a $291 million market cap. Merrill Lynch is forecasting above-average growth against its peers, as well as the REIT’s focus. Its small size makes growth via acquisitions a meaningfully driver of AFFO growth versus peers. We forecast a 2014 AFFO payout ratio of 103%, below peers. We remain underweight health care within REITs.
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