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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 8-29 Robert W. Baird Upgraded AVB from Neutral to Outperform. On 8-31 Stifel Nicolaus Downgradee UDR from Buy to Hold. On 8-16 Wachovia Initiated coverage of HT at Outperform. On 14 Stifel Nicolaus Initiated coverage on SHO at Hold. On 8-29 Merrill Lynch cut Equity Inns (ENN) and FelCor Lodging Trust (FCH) to neutral from buy, citing valuation. The broker told clients it believes Felcor's greater exposure to suburban markets, as opposed to urban markets, may make the company more susceptible to increases in supply growth. Merrill cited greater exposure to the consumer leisure market for its downgrade of Equity Inns. 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. College-Town Real Estate: The Next Big Niche? Vivian Marino, NY Times 8-20 From now through Labor Day, thousands of college students will be settling into off-campus apartments across the country as they haul in their PC’s and stereos, their boxes of DVD’s, clothing and sports paraphernalia, for the fall semester. For some unhappy neighbors, this may conjure up images of ceaseless parties and beer cans galore. But some investors see something more propitious: a steady stream of revenue, for starters, and growth potential for years to come. “The student housing market is a good niche opportunity today,” said Kenneth Rosen, chairman of the Rosen Consulting Group, a real estate and economics research company in Berkeley, Calif. “The demographics are excellent, and the demand is great.” College enrollments have been on the rise as the baby boomers’ children — sometimes known as the “echo boom” generation — come of age. This group, born from 1982 to 1995, is about 80 million strong. Yet the supply of on-campus housing is becoming increasingly limited. At some state universities, like the University of New Mexico in Albuquerque and the University of Nevada in Las Vegas, fewer than 10 percent of the students live on campus, according to Michael H. Zaransky, author of the new book “Profit by Investing in Student Housing” (Kaplan Publishing). At Boise State University in Idaho, the ratio of beds to enrolled students was just 4.6 percent, according to data he collected two years ago. “Most resident dorms are aged, but universities, particularly the public universities, are under severe financial pressure and simply do not have the money to meet the demand by building more dorms,” Mr. Zaransky said. Seeing an opportunity to meet widening demand, Mr. Zaransky’s own real estate firm, Prime Property Investors in Northbrook, Ill., has been shifting its focus to off-campus student housing in the last couple of years, with the purchase or development of apartments and town houses near the University of Illinois, Purdue University, Loyola University of Chicago and Florida State University. The firm rents out 700 beds in all, he says. “We try to buy as close as possible to the schools — within walking distance,” he said. “Those are the apartments that tend to get rented first and get higher rental increases.” Right now, with the school year about to commence, all of its units are spoken for. “I’m not aware of any other sector in the residential housing business where you can count on 100 percent occupancy,” he said. Of course, there are few other segments where the turnover can approach 100 percent. While roughly a third of the student tenants typically renew their leases before they expire by early to mid-August, property owners must work hard earlier in the year to rent the remaining units. They also have only a narrow window of time to replace furnishings and to do all the repair work, cleaning and painting that is often required after everyone moves out. “It is much more management intensive” than traditional housing, said Ralph L. Block, a real estate portfolio manager at the Phocas Financial Corporation, who is looking into investing in student housing for his company. He called the sector “risky in one sense and not as risky in another.” “The risk comes with the fact that the turnover period is very short; if you make some bad estimates and you don’t get your apartments filled at the right time, you’ll have a vacancy rate lasting the entire year, because it’s hard to convert them to alternative uses,” Mr. Block explained. “But the steadiness of demand and still fairly limited supply argues for less risk.” (Unlike traditional apartments, which are leased by the unit, student housing projects are often leased by the bed, and, increasingly, the leases are guaranteed by a parent.) Student housing has already proved profitable for many investors. The capitalization rates — meaning the initial yields — can often exceed those on conventional multifamily homes, industry experts say. “We averaged, on the projects sold in the last year, around 6.4%, compared with a 5.1% cap rate for traditional multifamily,” said Ryan S. Reid, first vice president and national director of student housing at CB Richard Ellis, a commercial real estate brokerage firm. But as student housing becomes more widely accepted by investors — and more expensive to buy — the gap is expected to narrow. Markets where land is in short supply — like New York, Boston, Chicago and parts of Florida and California — are already considered hot markets, according to Mr. Reid. Austin, Tex., is another favored spot. The bulk of the estimated $160 billion student housing market remains controlled by independent companies and investment groups that operate mostly regionally. Institutional and individual investors can participate in some deals, usually for a minimum investment of $50,000 to $150,000. Some tenants-in-common programs, or T.I.C.’s, nascent products that offer fractional ownership of properties, also invest in student housing. Wall Street has been slower to catch on. “The capital markets weren’t quite sure how to look at this product type,” Mr. Reid said. “They still had what we could call more of the ‘Animal House’ view of what student housing was.” But in the last couple of years, three real estate investment trusts specializing in student housing have emerged — GMH Communities Trust, American Campus Communities and Education Realty Trust — making the sector more accessible to passive investors with less money to invest. (Equity Residential also has some student housing properties in its portfolio.) Although the three student-housing REIT’s are still finding their bearings, at least two of them, American Campus Communities and Education Realty Trust, have managed healthy returns. This year through July, American Campus Communities had a total return (price appreciation and dividend) of 10.07% while Education Realty returned 28.76%, according to the National Association of Real Estate Investment Trusts. By comparison, the total return for all equity REIT’s during that period was 16.12 percent, the association said. But GMH Communities, which also builds and operates military housing, had a negative yield of 16.04 percent for the first seven months of this year, according to the association. The company recently disclosed that it has had to borrow heavily in order to pay dividends. Mr. Block of Phocas Financial said he likes Education Realty, in which he invests himself. The company has focused mostly on smaller schools in less-urban areas but plans to expand into bigger cities. Its portfolio includes 36,637 beds at 59 college communities in 21 states. The company was developing private off-campus housing long before it was public. “Our first project was in 1964 in Chapel Hill, N.C.,” the home of the University of North Carolina, “and we are still there,” said Paul O. Bower, the chief executive. “We’ve served the children of the original tenants, and soon the grandchildren.” Some of Education Realty’s units include luxury amenities like swimming pools, while others are more like dormitories, Mr. Bower said. At this time of year, the occupancy level for all of them starts at 100 percent. “We lose a percentage point or two throughout the year,” he said, adding that the most labor-intensive part of the operation is managing the units. “Eighty percent of the overhead expenses is for management,” he said. Mr. Zaransky of Prime Property Investors suggests that intrepid investors who want to go it alone — by buying condominiums or town houses and renting them out — hire professional managers to oversee the properties. Management fees are typically 5 to 8 percent of the rent collected, he said. Monthly rents vary by region. In the Southeast, for instance, they can range from $450 to nearly $800 a bed, according to Tom E. Lewis Jr., a managing partner at Flagstone Holdings in Miami, which specializes in acquiring and developing student housing in that region. And with demand for private student housing expected to remain strong for the next several years, industry experts say, investors can almost bank on steady rent increases regardless of economic conditions or the interest rate climate. The same can’t be said about conventional apartments. “The success of these investments is tied to college enrollment, not to external economic factors like job creation,” Mr. Zaransky said. “In fact, one can argue that in bad economic times, people will want to pur- sue better credentials and go back to school.” UBS Raises Ratings for CPT and EQR Reuters 8-21 UBS on Monday said it raised its ratings on real estate investment trusts Camden Property Trust (CPT) and Equity Residential (EQR) on improving apartment fundamentals. The brokerage said in a research note it upgraded Camden Property to "buy" from "neutral," as the earnings outlook had improved since July and the stock had become more attractively priced. UBS upgraded Equity Residential to "neutral" from "reduce" on improving earnings outlook. It added the company's multi-year portfolio repositioning was beginning to bear fruit. UBS increased its price targets on 16 REITs. RBC Capital Markets Adjust Apartment REIT Ratings Tuhin Kar, Reuters 8-23 RBC Capital Markets on Wednesday downgraded Camden Property Trust and three other REITs [EDR, ACC, PP], while it upgraded AvalonBay Communities ANS and BRE. The brokerage said it expects Camden to grow its recurring earnings at about 10 percent per year in 2007 and 2008, but the market has priced in the growth. It cut Camden to "sector perform" from "outperform" and the price target to $77 from $79. RBC also lowered its ratings on Education Realty Trust, American Campus Communities and Post Properties, while it upgraded Archstone-Smith Trust and BRE Properties. RBC lowered Education Realty to "sector perform" from "outperform" and cut its price target to $17 from $19. The company faced challenges due to higher growth in apartment REITs nationally and greater investment opportunities elsewhere within student housing, it said. RBC cut American Campus Communities to "outperform" from "top pick" and said despite attractive growth opportunities and stable performance, the company faced slower relative growth than apartment REITs. The brokerage cut its price target on the stock to $27 from $29. Post Properties was downgraded to "outperform" from "top pick" and the price target was cut to $50 from $51. RBC said the downgrade was due to the narrowing gap between the company's share price and the brokerage's price target. On AvalonBay, RBC said the company has the highest core growth outlook over the next several years coupled with substantial growth prospects. It upgraded the stock to "top pick" from "outperform" and the price target to $129 from $127. RBC upgraded Archstone-Smith Trust to "outperform" from "sector perform," saying the company has nearly completed exiting from its non-core markets and has a healthy pipeline for new development. RBC has a price target of $57 on the stock. RBC raised BRE Properties to "outperform" from "underperform" and increased its price target to $62 from $53. The brokerage said BRE would benefit from further recoveries in the Bay Area and Pacific Northwest over the next three to five years, and simultaneously expand across the West Coast region. RBC raised its price target on Equity Residential to $50 from $45 but kept its "underperform" rating on the stock. The company's earnings growth could struggle to keep pace with the peer group over the next several years, it said. The brokerage raised its price target on Apartment Investment and Management to $54 from $44 but kept its "sector perform" rating on the stock. RBC said the company's above-average dividend yield could support modestly better performance than its national peers, but the market has priced in the upside the brokerage expects. Education Realty Trust Drops 2006 Outlook AP 8-25 Real estate investment trust Education Realty Trust Inc. lowered its full-year outlook, blaming higher interest rates and overhead costs. Late Thursday the company, which manages collegiate student housing, dropped its 2006 funds from operations guidance to a range of 87 cents to 92 cents per share/unit for 2006. Its prior outlook was for a range between 97 cents and $1.02 per share/unit. Innkeepers Increases Dividend 33% PRNewswire 8-30 Innkeepers USA Trust [KPA], a hotel real estate investment trust (REIT) and a leading owner of upscale properties throughout the United States, today announced that its board of trustees has declared a common share dividend of $0.20 per share for the 2006 third quarter, a 33 percent increase from the previous quarterly dividend of $0.15. Based on the closing price of the common shares at the close of business on August 28, the annualized dividend represents a yield of approximately 4.8 percent. 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 |