ISI Initiates Coverage on Eastgroup Properties

In a report published Friday, ISI analyst George Auerbach initiated coverage on Eastgroup Properties (NYSE: EGP) with a Neutral rating and $57.00 price target.

“Our $57 PT is a weighted average blend of our $60 fwd NAV (with a targeted 5% premium, inline with other blue chip REITs), our $57 DCF, and a "targeted" 18x multiple on our 2015 AFFO estimate discounted back 1 year,” the report said. “We expect a 3% 12 month total return for EGP vs. a 11% return for the REIT sector, supporting our Neutral rating.”

According to the report, EGP's investment philosophy is to own and develop in-fill distribution facilities concentrated on local distribution in metropolitan areas with above average population and employment growth.

EGP has a core competency in development, especially phased business parks, which have proven quite successful over the past twenty four months, the report said. ISI analysts expect development volumes to continue growth, which given a balanced spread between construction yields and stabilized cap rates should create significant value over time.

Some investment positives from the report included:

-Industrial fundamentals continue to strengthen across the US with the recovery broadening out to secondary non-coastal markets while coastal markets see healthy rent growth. -Portfolio leveraged to Sun Belt markets with above average population growth

A potential risk was noted that valuation is not compelling with the stock trading on top of REITs and a relative multiple which has widened over the past 12 months.

EGP closed Thursday at $58.38 with shares trading up at 1.13%.