Buy Kilroy (KRC) and Boston Properties (BXP) stocks: Morningstar

on May 15, 2024
  • Morningstar analysts believe that some REITs are cheap.
  • In a report, they identified companies like Boston Properties and Kilroy Realty.
  • The other notable names in the list are Macerich, Ventas, and Pebblebrook Hotel.

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Real Estate Investment Trusts (REITs) jumped sharply on Wednesday after the encouraging US inflation report. The closely-watched Vanguard Real Estate ETF (VNQ) jumped by 1.32% and reached its highest level since April 9th. It has surged by over 22% from its lowest point in 2023.

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REITs are doing well because of the rising probability that the Federal Reserve will start cutting interest rates in the third quarter. Rate cuts will likely ease the pressures facing many REITs as a wall of maturity nears.

In a recent note, analysts at Morningstar highlighted some of the best REITs to buy this year. Some of the top names in the report were Boston Properties (NYSE: BXP), which I praised in this report, and Kilroy Realty (NYSE: KRC).

Kilroy Realty stock price has done well in the past 12 months. After bottoming at $24.30 in May last year, it has jumped by over 45% to trade at $35.60. However, it has dropped by 15% from its highest level this year. 

Morningstar analysts believe that the stock’s fair value stands at $59, which is about 66% from the current level. They note that the management has positioned its business well, with the average age of its office properties being 11 years. 

Also, the analyst notes that demand for physical offices will remain even as more companies embrace remote and hybrid work. The report added:

“We are seeing an increasing number of companies requiring their employees to return to the office. In the long run, we believe that remote work and hybrid remote work solutions will gain increasing acceptance, but offices will continue to be the centerpiece of workplace.”

Meanwhile, Morningstar analysts believe that Boston Properties has more upside and that it will rise to $91, which is about 40% above the current price. The case for BXP is that the office market has room to recover in the next few years as companies ask their staff to go back to office.

Also, Boston Properties has a high occupancy rate and its positioning in the life sciences segment of the market. The report said:

“Management has also outlined its policies on capital recycling to ensure continuous portfolio refreshment and value creation while maintaining a strong balance sheet and having adequate access to capital to take advantage of opportunistic situations.”

The other REITs that Morningstar believes has substantial upside are Park Hotels & Resorts (PK), Macerich (MAC), Ventas (VTR), and Healthpeak Properties.


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