UPDATE: Bank of America Downgrades American Residential Properties to Underperform, Lowers PT on Updated Valuation Methodology

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In a report published Thursday, Bank of America analyst Jana Galan downgraded the rating on
American Residential Properties
ARPI
from Neutral to Underperform, and lowered the price target from $20.00 to $18.50. In the report, Bank of America noted, “Based on our updated valuation methodology, we are downgrading ARPI to Underperform from Neutral and lowering our PO to $18.50 from $20. We apply a 5.8% cap rate to our NOI estimate based on ARPI's portfolio geographic mix. We note ARPI's cap rate is impacted by its large Texas exposure, and we will continue to monitor cap rates in its markets. Our PO is in line with our forward NAV estimate. We have updated our 2014 FFO/sh estimate to $0.40 from $0.57 because of greater interest expense from increased debt, as we forecast the company to purchase 2,848 homes in 2014. We think highly of ARPI's management team and note they are strong operators and underwriters of homes. However, we were disappointed with the setback of POP lease terminations in 4Q and the impact on occupancy, margins and one-time charges. While this is a one-time event and ARPI's long term strategy was to eventually operate the homes, we remain cautious as the preferred operators had difficulty in profitably operating the portfolios.” American Residential Properties closed on Wednesday at $17.65.
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Posted In: Analyst ColorDowngradesAnalyst RatingsBank of AmericaJana Galan
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