"Vornado (VNO) has underperformed the REIT index by 15% over the past three years on investments in J.C. Penney and Toys R Us, combined with deterioration in VNO’s Washington DC office portfolio (23% of EBITDA)," says analyst Brad Burke, resuming the name at Conviction Buy with $115 price target. "Our positive view is based in part on improvement against easy comps; J.C. Penney is sold, Toys is being ascribed little to no market value, and DC appears to be at a bottom."
"We expect CB Richard Ellis (CBG) to generate strong cash flows on cyclical growth, and to deploy cash by acquiring smaller competitors within a fragmented industry," says Burke, resuming the stock at a Buy with $36 PT. "CBG is also a leader in property & facilities management, which is experiencing strong structural market growth."
"We expect Jones Lang LaSalle (JLL) to benefit from growth in U.S. commercial property sales and to continue to gain share in this higher margin business," he says, resuming with a Buy and $149 PT. "More sizable acquisitions could again come into focus, as deferred acquisition payments are declining and three years have passed since the last large acquisition."
Another Buy is Boston Properties (BXP): "Underperformance appears overdone (4% under the RMZ over the past two years) as market conditions continue to improve around large development projects like Transbay, and investors have greater visibility on the long-term composition of company management."
Just getting Neutral ratings are SL Green Realty (SLG) and Empire State Realty (ESRT). Both were among the top performers in the space in 2013, thus making valuation a part of the call. In Empire State's case, there's also the opening of One WTC observatory this year which will significantly increase "observatory supply." Best to stay defensive until the market shows demand is sufficient for both buildings.