Analyst: Demographics Favor Residential REITS

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Improving job growth, a higher rate of household formation and a shift away from home ownership benefitted residential real estate trusts in the recent quarter, an analyst said Monday. But Mizuho's Richard Anderson flipped his ratings on two companies in the sector, upgrading UDR Inc.
UDR
to Buy, from Neutral and downgrading Camden Property Trust
CPT
to Neutral, from Buy. Anderson cited Camden's worrisome exposure to the oil patch. The company's current earnings forecast is based on a forecast for job growth in the Houston market of 60,000 in the current year. "We see that as highly vulnerable to a correction," Anderson said of projected job growth in the Houston market, where about 12.4 percent of Camden's operating income is derived. Anderson cut his price target nearly 7 percent to $82 on Camden, which owns about 63,000 units nationwide. As for UDR, about 12.5 percent of its portfolio of about 42,250 apartments is in the Washington, D.C. area, which Anderson expects may "approach full recovery later this year." UDR recently agreed to invest $136 million for a 48 percent interest in about 1,500 apartments under construction in Seattle, Los Angeles and Orange County, California, in a joint venture with privately held Wolff Co. UDR has an option to acquire the remaining stake in the venture next year. Anderson called the deal "cleverly designed," and "not fully valued in UDR's share price. Anderson raised his target on Camden 15 percent to $37. Speaking broadly of the outlook for residential REITS, Anderson noted that the recently released first-quarter national home ownership rate of 63.7 percent has been on a steady decline since a 2004 peak of 69.2 percent. The national rental vacancy rate of 7.1 percent is down from a peak of 11.1 percent in 2009, Anderson said.
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