BMO sees valuation discount in Centerspace, upgrade stock to ‘outperform’

Investing.com -- BMO Capital Markets upgraded Centerspace, a Midwest and Mountain West-focused multifamily real estate investment trust (REIT), to Outperform, citing an attractive valuation discount relative to the Apartment REIT sector and defensive positioning.

The brokerage set a price target of $77, implying more than 20% upside from current levels.

Despite concentration risks and higher leverage, Centerspace trades at a 27% discount to the sector’s 2025 AFFO multiple, offering a relative bargain, BMO noted.

The firm highlighted potential benefits from easing supply pressures in the company’s key markets—Minneapolis and Denver—along with margin expansion initiatives.

Minneapolis, which accounts for nearly 32% of Centerspace’s net operating income (NOI), is expected to see above-average rent growth in 2025 and 2026, supported by lower supply growth.

Meanwhile, Denver, its second-largest market, is experiencing slowing rent growth but also moderating supply expansion, which could support pricing in the medium term.

BMO also pointed to cost-saving measures as a driver of future profitability.

Centerspace is implementing a centralization initiative expected to reduce costs by approximately $500,000 and recently secured a favorable insurance renewal, cutting premiums by $900,000 after years of significant increases.

While acknowledging risks from elevated leverage, which rose to 7.44x net debt/adjusted EBITDA in the fourth quarter of 2024, BMO believes the stock's current valuation—at a 6.9% implied cap rate—limits downside.

The firm also noted potential indirect benefits from broader M&A activity in the multifamily sector.

BMO’s $77 price target is based on discounted cash flow and net asset value estimates, implying Centerspace would trade at a 2025 AFFO multiple of 20.9x at that level.