DEI: Is This Time Actually Different?
DEI hit a rare relative valuation level on Wednesday versus its CBD Office peers. The stock’s P/NAV spread to the CBD Office sub-sector breached the +2 standard deviation threshold. This is the first time DEI’s valuation spread relative to its peers has been this high since early 2012 and is only the fourth time it has breached this level in its nine year history as a public company (previous breaches occurred in 2009, 2010 and 2012). Historically, DEI has underperformed peers on 1-, 3-, 6- and 12-month bases after reaching these levels.
DEI Avg. Relative Performance vs. CBD Office
DEI has outperformed both the broader REIT sector and the CBD Office sub-sector by a healthy margin year-to-date as the company’s fundamentals have shown continual improvement as the year has progressed. Historically, DEI has not stayed long when at these relative valuation levels but there does appear to be support for the stock just below the +2 standard deviation threshold. Additionally, DEI’s relative valuation ascent has been much more gradual this time versus previous times. However in the end, REIT stocks tend to be mean reverting so unless there are strong cyclical or secular forces at play here DEI isn’t likely to remain at these levels.
DEI P/NAV Spread vs. CBD Office Sub-Sector