Evercore sees challenges for office REIT, reaffirms Extra Space price target

Evercore ISI analyst Steve Sakwa reaffirmed an Underperform rating and $155 price target on Extra Space Storage. Based on Evercore’s discussions with investors over the past few weeks, the number one question remains the health of the banking system and the availability of debt. REITs continue to have access to the unsecured bond market, but these institutions are not equipped to take back a significant amount of property, so "pretend and extend" may be "the name of the game," the firm says, adding that most lenders benefited from this method during the Great Financial Crisis. However, the office sector may be an area where this is not the case, as owners may not be willing to throw "good money" after bad as many face higher vacancy rates and cap ex requirements to re-tenant vacant space, Evercore ISI argues. Following the firm’s NYC office tour conducted last week, Evercore has reduced its price targets across its office REIT stocks to reflect a more challenging leasing and lending environments.