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On 8-16 Steven Sakwa of Merrill Lynch reduced Equity Residential to "Neutral" from "Buy," citing its high valuation following its recent run-up. Sakwa wrote in a client note that the stock is trading near its all-time high, and "given that Equity Residential is at a 4% premium to our estimated net asset value versus a 3% premium for the peer group, we believe further intermediate-term price gains will not be sufficient to merit a buy rating." He added that the outperformance of apartment REITs may fall to an intermediate-term performance that is more in line with the overall REIT group. "We note that the downgrade is strictly a valuation call - Equity Residential continues to make strides in improving its portfolio quality and we see no untoward earnings-related events on the horizon," Sakwa said. "While second-quarter 2006 same-store apartment REIT net operating income performance was the best so far this decade, we have some concern that investors are pricing in all the favorable news, but factoring in insufficient weighting for the potential risks," Sakwa wrote. On 7-20 AG Edwards Downgraded LHO from Buy to Hold. A.G. Edwards & Sons analyst Jeffrey M. Randall in a client note, wrote that second-quarter results were mixed, with FFO coming in below his 95 cents per share estimate and Wall Street's 96 cents per share forecast. Margin pressures and soft leisure demand were taking a toll on LHO's earnings. Randall lowered his full-year FFO estimate to $2.82 from $2.85 per share based on management's lowered outlook. He also issued a 2008 FFO forecast of $4.05 per share. On 7-17 Banc of America Sec Downgraded CPT from Buy to Neutral. On 7-13 Morgan Stanley Upgraded MAA from Underweight to Equal-weight and Upgraded AIV from Underweight to Equal-weight. On 6-02 Wachovia Initiated coverage of SHO at Outperform. On 6-16 Goldman Sachs Initiated coverage of CPT at Outperform. On 6-02 Wachovia Starts Sunstone Hotel At Outperform. On 6-20 HIH increased its dividend payment to $.18/share - up 12.5% over Q1-06 payment of $.16/share and 28.6% greater than Q4-05 dividend payment of $.14/share. On 6-21 JMP Securities Initiated coverage of EHP at Market Perform. Morgan Stanley analyst Celeste Mellet Brown droped its rating of HST to "Underweight" from "Overweight." On 6-27 Robert Baird Initiated coverage of AHT at Outperform, Initiated coverage of ENN at Outperform, and Initiated coverage of WXH at Outperform. On 6-13 M Stanley Ups GMH Communities To Overweight From Equal. On 6-05 Merrill Lynch Starts Home Properties at Neutral. Hospitality Properties Trust Raises Dividend BusinessWire 7-05 Hospitality Properties Trust announced it has raised its regular quarterly common share dividend by $0.01 to $0.74 per common share ($2.96 per share per year). This regular quarterly dividend will be paid to common shareholders of record as of the close of business on July 14, 2006 and distributed on or about August 17, 2006. Apartment REITs upgraded at Deutsche Bank John Spence, MarketWatch 7-11 Four apartment REITs were upgraded Tuesday to buy from hold at Deutsche Bank Securities, which said the rent cycle is in its early phase and the stocks still have room to run even after they rallied this year. With national rents up only 5.6% since the market bottomed in 2003, the cycle "has a way to go" and "could last another four years," analyst Lou Taylor wrote in a research note. For comparison, during the economic expansion from 1992 and 2000 the rise was 37.5%. Examining more than 760 apartment submarkets, Taylor attempted to determine which REITs have the best and worst market exposure measured by rent growth. He upgraded shares of AIV, AvalonBay and Camden Property Trust to buy from hold. He also raised his price targets on the four upgraded stocks as well as on shares of Archstone-Smith, Equity Residential and Post Properties. Deutsche Bank said apartment rents grew at a 3.6% annual pace in Q1-06, up from a 2.2% pace in 2004. "This acceleration reflects the shrinking apartment supply, diminished starts, healthy job growth and slowing single-family-sale market," wrote Taylor. "This has contributed to the fastest vacancy-rate decline in 25 years and the beginning of the next rent cycle," he said. After analyzing rent growth in various markets, Deutsche Bank said the leaders were a trio of apartment REITs that focus on the coasts and other hot markets: Essex Property, BRE Properties and Archstone-Smith. Taylor said shares of Camden Property and Equity Residential have the most potential upside, not including dividends, while AIV is "for the adventuresome" because it "has the most earnings and valuation leverage to higher rent growth although its execution and market mix creates uncertainty about incremental upside beyond our current assumptions." Meanwhile, BRE Properties and AvalonBay are "well positioned and seem to have some room in their share prices" and Archstone-Smith is similarly "well positioned but more fairly priced." The analysts raised their target price on AIV to $52 a share from $42, Archstone-Smith went to $55 from $46, AvalonBay rose to $122 from $108, BRE Properties was lifted to $61 from $55, Camden Property went to $84 from $70, Equity Residential climbed to $53 a share from $48, and Post Properties was upped to $45 from $41. Deutsche Bank said risks for the apartment REITs include higher bond yields and developers starting more apartment construction as the housing markets slows, which could trigger oversupply in some markets. Additionally, capitalization rates could rise faster than expected which could offset earnings growth. GMH Communities Prepared to Solicit Acquisition Bids MarketWatch 7-13 GMH Communities Trust [GCT] after Thursday's closing bell said it is preparing to solicit acquisition bids as part of its evaluation of strategic alternatives. The committee, however, may determine that none of the indications of interest merits further pursuit, the Newton Square, Pa.-based real estate investment trust noted. Additionally, GMH Communities said Chairman and Chief Executive Gary Holloway doesn't plan to make an independent offer to acquire the company. Holloway will continue to assist the committee in its evaluation of alternatives, the company said. Holloway also said he would consider participating in a potential acquisition by a third party as part of the committee's evaluation process. Tougher Tests Lie Ahead for Apartment REITs Kemba Dunham, WSJ 7-24 Are the multifamily REITs already priced to perfection or are they reflecting an optimism that is going to be justified? David Harris, a bearish REIT analyst at Lehman Brothers who publishes recommendations on six apartment-REIT stocks, seems to be leaning toward the former point. "Some criteria suggest investors are pricing in a more bullish scenario than may actually happen," he says. Mr. Harris doesn't own any shares of multifamily REITs, although Lehman does business with some of the companies. By all accounts, the apartment market will continue to hum along, at least through year's end. But analysts point out several troubling factors that could eventually hurt multifamily fundamentals, issues to which some believe investors aren't giving enough credence. First, a slowing economy and lower rates of job growth could weaken the demand for apartments. In addition, a number of apartment REITs have announced plans to ramp up development, so oversupply could be a factor, too. Another concern is the cooling condominium market. The apartment REITs have benefited hugely from the hot condo market, either through executing condo conversions or selling assets at an extremely low capitalization rate, which is the return on investment during the first year of ownership. So analysts say it is to be expected that these REITS will be affected somewhat by any reversal in the condo market. Signs of trouble are appearing in certain markets. Apartment demand in Dallas is waning as more home builders are luring buyers through an increasing number of sales incentives. And in Tampa, Orlando and southeast Florida, a large amount of apartment supply that had been taken out of the market for condo conversion is already returning to the rental pool. Green Street Advisors said in a recent note to clients that the apartment REITs with the greatest exposure to Texas and Florida include Post Properties (31% of net operating income), Camden Property Trust (30%), Mid-America Apartment (28%) and United Dominion Realty Trust (27%). Green Street analyst Craig Leupold says these companies aren't being hurt by the trends at this point. But the abnormally high revenue-growth rates in Florida could moderate to a rate more in line with those experienced in other apartment markets, he adds. Investors there, for instance, might be disappointed to see a reduction in the rental-growth rate from the current 9% level to something closer to 5%, which is still considered strong. Green Street has a "sell" recommendation on United Dominion and "hold" ratings on Camden Property and Post. It doesn't rate Mid-America. So in some cases, the sky-high valuations of these apartment stocks seem incongruent with their exposure to certain risks. Post Properties, for instance, trades at one of the richest multiples in the REIT group, at a 14.4% premium based on Citigroup's net-asset value estimate. Yet the Atlanta apartment company operates in low-barrier markets with signs of overbuilding, such as Texas, Florida and Atlanta. Post is also making plans to ramp up condominium development despite signs that sales are slowing in the markets in which they are developing condos. "We struggle to understand the business strategy and the valuation relative to the fundamentals," says Citigroup analyst Jonathan Litt, who has a "sell" rating on Post's stock. He doesn't personally own any shares of Post, although Citigroup has a relationship with the company. Home Properties also might be benefiting from apartment-REIT exuberance. Its total return, year to date, is 37.2%. But the Rochester, N.Y., company's recent business activities -- including the announced sale of its Detroit portfolio and a shifting of utility costs from the landlord to the tenant -- "were executed later than we would have liked," says Richard Anderson, a senior REIT analyst at BMO Capital Markets, who has an "underperform," which means he believes the stock's total return will fall short of the Standard & Poor's 500-stock index's return. Another possibly overpriced REIT? Apartment Investment & Management's total return this year is 26.9%. But it is also in the process of getting over a difficult past few years, which included some operational missteps and management changes. Therefore, "the stock has performed well, but that's partially a function of weak results to compare to," says Mr. Anderson, who has an "underperform" on Aimco. In the end, even in the face of slowing job growth, for instance, multifamily valuations could very well remain elevated for an extended period, given the sea of capital being thrown at commercial real estate, concludes Ross Nussbaum, head of REIT equity research at Banc of America Securities. "However, this would only serve to make the assets and multifamily REITs look even richer, setting the stage for an ugly end to the story if or when the capital flows subside." Mr. Nussbaum doesn't personally own any multifamily REIT stocks, although Banc of America does investment-banking business with a number of them. NOTE: Although the tables above are checked and double-checked for accuracy, and may at times be 100% accurate - do NOT count on that. Please confirm through your own research any numbers on which you are to make a buy, sell or hold decision. Most sites giving this kind of data would say that it's information is for entertainment purposes only. I will not presume that you are that masochistic. And even accurately replicated and freshly retrieved FFO numbers are often stale. Home Page Previous REIT Update Top Sites |