Jefferies Says Winter Is Coming For Apartment REITS

In a note Wednesday, Jefferies seemed to be cooling off on the Apartment REIT sector. The title, called 'Winter is Coming', highlighted why they would be downgrading the outlook on the sector. As for reasons for the downgrade, Jefferies sees many cracks appearing. The initial leasing season results have been disappointing, especially on the key coastal markets such as San Francisco and New York. The largest negative impact in new supply has been the dampened ability to control rents on new tenants once leases expire the second half of the year. Jefferies believes this will lead to higher turnover. Companies that will feel the brunt of the impact, due to their exposure to these coastal markets, include:

Seeing risk as fundamentals continue to slow, Jefferies downgrades these stocks from Buy to Hold. Jefferies prefers the sunbelt region in areas like Nashville, Raleigh, and Atlanta where Mid-America Apartment Communities Inc

has the most exposure. Despite MAA being a top pick for Jefferies, they still have a hold rating due to their relatively high multiple.