A message from our Al Frank division:
Besides the fact that we like the industry BMR operates in and that it is one of the few major players in the specialized life science REIT space, we believe that the current valuation is attractive relative to its own historical valuation measures as well as those of its competitors (no surprise to our long-time followers, because as value investors, valuation is the initial starting/stopping point for all of our investment considerations).
BioMed is currently trading at a Price to Funds from Operations (FFO) multiple of 12.5 (FFO is a figure used by REITs to define the cash flow from their operations. It is calculated by adding depreciation and amortization expenses to earnings). BMR is also trading at 12.4 times consensus forward estimates for FFO per share, and is trading at 11.8 times the midpoint of management’s forecast for full-year 2015 FFO per share. All of these figures are below the company’s historical three- and five-year P/FFO multiples (15.2 and 12.8, respectively) and less than the mean of its closest competitors.
According to Bloomberg, BMR’s peer group is currently trading at a mean P/FFO multiple of 16.7, and is trading at 14.2 times consensus forward estimates. Additionally, BioMed’s peer group’s three- and five-year P/FFO multiple averages are 15.7 and 16.4, respectively.
Furthermore, we like that BioMed has been realizing new leasing success in 2015, driven by both new and deepening relationships with life science companies and research institutions (with a sampling of these agreements in the image below).
In addition to the lease agreement with Illumina for a new state-of-the-art 155,000 square foot facility, BioMed has a well-leased development pipeline, which should help drive future top and bottom line growth.
While BMR could face operating headwinds, including competition, potential consolidation within the life science space, potential increases in construction/redevelopment costs and weakening in capital formation by its clients, we believe that the stock is an attractive investment for those looking to add REIT exposure to their financial holdings as well as those looking for a unique way to access the healthcare space, especially the often more volatile and pricey biotech segment.
Our positive outlook is supported by the belief that BMR will benefit from rent growth in key markets, realize value creation from new and redeveloped space, and will benefit from continued ease of capital access for its prospective and current clients. We also like the firm’s continued efforts to increase its all-important academic research space as well as the internal realignment that included shifts within management personnel to help sharpen its core business focus.
Finally, we believe the leasing side of the business will continue to benefit from favorable demographic trends as well as innovation and growth in precision medicine and digital health initiatives within the life sciences industry. We are quite comfortable with BioMed’s financial footing and like the company’s attractive 5.3% dividend yield.
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