UPDATE: UBS Downgrades Douglas Emmett Inc. (DEI) to Sell

(Updated - December 13, 2016 9:36 AM EST)

UBS downgraded Douglas Emmett Inc. (NYSE: DEI) from Neutral to Sell with a price target of $35. Analsyt Nick Yulico said the LA safety trading is ending.

Yulico explained, "With investor sentiment now more positive on the broader Office sector since the US election, we view the 'LA safety trade' to be ending, which should create multiple contraction at DEI. While rent growth has been stronger in LA than other CBD markets in recent years, we expect LA to be a later cycle market by 2018. We forecast DEI will have slightly below avg FFO growth within CBD Office in FY17-19 and expect its valuation to move in-line w/ discounted peers BXP, VNO and SLG. DEI today trades at a premium 4.6% implied cap rate/5% NAV premium vs. the Office sector at 5% implied cap rate/10% NAV discount. We prefer HPP/KRC among pure-play West Coast office, as we think SF Bay Area occupancy upside can still drive outsized FFO/NAV growth."

The analyst added, "Jones Lang LaSalle's "Office property clock" points to LA now being a peaking market (rental growth is slowing); in 3Q15 it was cited as still having capacity to accelerate. CBRE forecasts LA rent growth of 6% in 2017, vs. +1% in Midtown NYC/Boston, -1% in Seattle/Washington DC, and -11% in San Francisco. LA rent growth will slow to 2% in 2018 and -1% in 2019, CBRE ests. DEI's office occupancy had been flat since 2012, so SSREV growth has largely been dependent on rent growth, which should now slow and create decelerating SSNOI and FFO growth, in our view."

For an analyst ratings summary and ratings history on Douglas Emmett Inc. click here. For more ratings news on Douglas Emmett Inc. click here.

Shares of Douglas Emmett Inc. closed at $38.70 yesterday.

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