What's Biomed Realty Worth In A Buyout?

• Biomed Realty Trust Inc (NYSE: BMR) shares are down 12 percent year-to-date, after reaching a high of $24.97 on January 26.
• Cowen & Co’s James Sullivan maintained an Outperform rating on the company, with a price target of $24.
• A potential sale of Biomed Realty could value the company at $7.5B-$7.8B, Sullivan noted.

According to a Bloomberg report, Biomed Realty had retained Morgan Stanley to explore a potential sale and that Blackstone Group LP was one of the potential suitors. The report follows a recent increase in public-to-private REIT M&A transactions, analyst James Sullivan noted.

Recent transactions like the acquisition of Excel Trust Inc by Blackstone Group for $2 billion and the purchase of Home Properties, Inc (Rated: Market Perform) by Lone Star Funds for $7.6 billion highlight the “substantial amount of private capital interested in real estate and the divide between private and public market valuations,” Sullivan said.

The analyst expects privatization trend to continue as the recent weakness in REIT shares does not reflect the strong underlying fundamentals in several sectors. Biomed Realty owns or controls 18.7 million square foot of real estate targeted towards life science tenants. Sullivan mentioned that although the life science industry has registered robust growth, the company’s shares have not performed well.

Investor sentiment has been impacted by Biomed Realty’s lumpy earnings, resulting from the company’s complex deals and the reshuffling of its management earlier this year.

In the report Cowen & Co noted that a potential sale could value Biomed Realty at $7.5B-$7.8B. Such a deal is also expected to benefit Alexandria Real Estate Equities Inc, a primary competitor of Biomed Realty, whose shares are also trading at a discount to its NAV.