After a brutal 2013, equity REITs (VNQ) - trading at an 5% discount to NAV vs. 8% premium a year ago - are set up for a good year, writes Jack Hough in Barron's, but a pair of laboratory landlords look especially attractive.
Alexandria Real Estate Equities (ARE +0.1%) and BioMed Realty Trust (BMR +0.1%) are life-sciences REITs - renting specialized lab space to drug companies, schools, research hospitals, and such - and should benefit from benign trends like solid R&D spending, a red-hot biotech market, and the most drug approvals in 16 years last year.
"Unfairly lumped in with mortgage REITs and the like," says fund manager John Buckingham of BioMed, while Cowen's James Sullivan likes Alexandria for its reduced leverage and strong pipeline of new building projects. The stock trades at an 11% discount to NAV.
What about cuts in research spending at places like Merck and Pfizer? It's a good thing as the majors will look to partner with schools, hospitals, and research groups and do the work in research hubs owned by the REITs rather than on corporate campuses.