On Monday, R.W. Baird analyst Drew Babin took a look back at REITWeek 2015, and published key takeaways by sector, including: Apartments, Manufactured Housing and Student Housing.
Baird: Apartment Themes
Job Growth: Millennial workers are seeing a 3 percent uptick in job growth versus an overall positive trend of 2.25 percent. This demographic is "naturally inclined" to rent as opposed to buy, so this bodes well for apartment demand.
New Supply: Delivery of new multifamily complexes is heavily skewed to high-end apartments located in urban CBDs, with Seattle having the largest new development pipeline on the West Coast.
Property Tax Cloud: A potential headwind for same store NOI growth, especially in Texas and Florida markets, is a sharp increase in real estate taxes.
Acquisition Slowdown: Due to cap rate compression, "core acquisition opportunities are rapidly becoming near-impossible," which makes redevelopment, value add and new development more attractive.
Tale Of The Tape: Apartments' Past Year
While this group has been under pressure during the first half of 2015, here are the three top performers so far:
- UDR, Inc. (NYSE: UDR): up 5.7 percent YTD
- Essex Property Trust Inc (NYSE: ESS): up 3.5 percent YTD
- Camden Property Trust (NYSE: CPT): up 1.3 percent YTD
Related Link: Northstar Realty Finance Presentation Highlights From REITWeek 2015
Baird: Manufactured Housing Themes
Rent Bumps: A lower CPI isn't going to be much of a factor, given how the leases are structured with rent floors and other contract provisions.
Acquisitions: Cap rates are in the low to mid 5s, with Baird seeing Equity Lifestyle Properties, Inc. (NYSE: ELS) "on the sidelines," while Sun Communities Inc (NYSE: SUI) may be more focused on growth.
Strong Demand: Baird Consumer Research sees a 10 to 15 percent uptick in RV sales Y/Y "and similar growth in manufactured home sales according to the Manufactured Housing Institute can only serve as positive indicators for product demand as 2015 progresses."
Tale Of The Tape: Manufactured Housing's Past Year
Baird still views this sector as Neutral, and "believe[s] that Manufactured Housing will continue to provide less near-term sensitivity to U.S. economic improvement than alternatives in the Apartment REIT space."
- Equity Lifestyle: Outperform; up 3 percent YTD
- Sun Communities: Neutral; up 2.5 percent YTD
Related Link: REITWeek Data Centers: Stifel Reports On Rumored Digital Realty M&A Deal
Baird: Student Housing Themes
New Development: While noting that development is expected to pick up in 2017, Babin cautioned that current share price discounts to NAV "leave some degree of uncertainty regarding the REITs' plans to fund additional development activity."
Leasing Uptick: Baird noted, "Pre-leasing trends continue to remain ahead of last year's pace for the 2015/2016 school year."
Development Trends: On-campus development pipelines are currently being viewed as a higher priority.
Tale Of The Tape: Student Housing's Past Year
Baird remains "Neutral on the sector until more clarity emerges on when Core FFO growth and growth-adjusted FFO multiples might stack up more favorably relative to Apartment REITs."
- American Campus Communities, Inc. (NYSE: ACC): Neutral; down 6.5 percent YTD
- Education Realty Trust, Inc. (NYSE: EDR): Neutral; down 13 percent YTD
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Latest Ratings for ESS
|Nov 2016||Evercore ISI Group||Upgrades||Hold||Buy |
|Nov 2016||Bank of America||Downgrades||Buy||Neutral |
|Aug 2016||BTIG Research||Initiates Coverage on||Buy |
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