UPDATE: D.A. Davidson Initiates Coverage On City Office REIT

D.A. Davidson initiated coverage on City Office REIT Inc (NYSE: CIO) Thursday with a Buy rating and $14 price target.

Analysts Barry Oxford and Paula Poskon noted that “City Office’s buildings are located in the South and West regions where much of the U.S. job growth is being generated. This should translate into above average growth for the company.”

“Since going public in April, the company has acquired three properties in Denver, Dallas and Orlando for a total purchase price of $80 million with an average cap rate of 8 percent. We anticipate $150 million in acquisitions in 2015 with cap rates of 7-9 percent that would be accretive to earnings,” according to Oxford.

The analyst note cited a “few concerns as it relates to the structure of the company and the lease rollover schedule. The company is externally managed, which we view negatively but, given the small size, we are comfortable with the structure for now. Also, two large leases are expiring over the next two years – one in 2015, the other in 2016.”

Oxford concluded, “Given the small size of CIO, we expect earnings growth over the next two years to average ~15 percent as it executes on its acquisition plans. The recent equity offering of 3.75 million shares gives it some dry powder and reduces debt. Given the assets and the growth rate, we do not feel that this company deserves to trade at the lowest multiple in the group at 10.6x on 2015 FFOPS.”

City Office REIT recently traded at $13.05, up 3.33 percent.