S&P 500 slips, but losses kept in check as Nvidia climbs ahead of results
On Thursday, UBS analysts initiated coverage on Peakstone Realty Trust (NYSE:PKST) with a Buy rating and a price target of $15.00, representing a potential 38% upside from the current price of $10.88. The new coverage highlights the real estate investment trust's potential for valuation re-rating and growth, particularly within its industrial asset portfolio. According to InvestingPro data, analyst consensus remains bullish with price targets ranging from $12 to $15.
The UBS analysts pointed out that Peakstone's adjusted funds from operations (AFFO) multiple of 7 times is currently only reflective of the company's industrial assets, which constitute 35% of its annual base rent (ABR). They noted that this valuation does not account for the office segment, which represents 55% of ABR and boasts high asset quality. The company currently trades at a price-to-book ratio of just 0.38x and offers an attractive dividend yield of 8.27%, as reported by InvestingPro.
A sum-of-parts analysis, according to UBS, indicates that Peakstone is trading at a significant discount—approximately four times less than what a portfolio of its caliber should command in the market. The analysts see a potential catalyst in the sale of Peakstone's vacant and non-core 'Other' assets, which make up around 10% of ABR, as well as the continued sale of office assets at cap rates between 7-8%, considerably below the implied cap rate of 14.1% estimated by UBS.
Moreover, the analysts highlight Peakstone's strategic move into the Industrial Outdoor Storage (IOS) market, with the acquisition of a 51-property portfolio in November 2024. These properties come with built-in rent escalators averaging 2.6%, surpassing Peakstone's portfolio average of 1.9%. Despite a high cost of capital, which UBS estimates at 10.5%, Peakstone is self-funding its acquisitions through dispositions to improve its financial position.
The UBS analysts concluded that these strategic moves should help drive Peakstone's valuation higher, overcoming its current discount to Triple Net lease companies, which stands at -39%, in line with the long-term average. The anticipated re-rating could result in at least a 1x valuation increase for Peakstone Realty Trust.
With a strong current ratio of 7.3 and revenue growth of 11.21%, InvestingPro analysis suggests the company has additional metrics and insights that could help investors make more informed decisions about its valuation potential.
In other recent news, Peakstone Realty Trust has made significant strides in its financial activities and executive changes. The real estate investment trust secured a new senior unsecured term loan of $175 million and announced the appointment of a new Chief Accounting Officer, Cindy (Qiyan) Mai. The term loan, part of a Ninth Amendment to the company's existing credit agreement, has a maturity date of October 31, 2027.
On top of this, Peakstone's subsidiary secured three separate mortgage loans totaling over $110 million. These loans are secured by properties in Jacksonville, Florida; Port Wentworth, Georgia; and Arlington Heights, Illinois.
In the realm of executive movements, Cindy Mai, with her extensive experience from roles at Veris Residential, Inc., and CBRE Group (NYSE:CBRE), Inc., has taken over as Chief Accounting Officer. The company's previous Chief Accounting Officer, Bryan Yamasawa, will remain to assist with the transition until November 15, 2024.
Analyst firm Truist Securities has revised its price target for Peakstone following the company's second-quarter financial results for 2024. The firm has adjusted the price target to $13.00 from the previous $16.00, maintaining a hold rating. Truist Securities also anticipates Peakstone investing approximately $300 million towards the acquisition of industrial assets in 2024.
Lastly, during Peakstone's 2024 annual shareholders meeting, key proposals were approved, including the election of five trustees to the board and the ratification of Ernst & Young LLP as the company's independent registered public accounting firm for the fiscal year ending December 31, 2024.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.