Market Overview

RBC Capital Markets: Updates Multifamily REITs & 3 Regional Picks

RBC Capital Markets: Updates Multifamily REITs & 3 Regional Picks

On May 14, RBC Capital Markets issued a research report, "Apartment REITs: Strong Start Should Yield Upside," updating the sector after Q1 earnings and FY 2015 guidance.

RBC remains bullish on the multifamily REIT sector, and is now forecasting 7.2 percent Y/Y core earnings growth in FY 2015, and 7.9 percent earnings growth for FY 2016.

RBC breaks down its current coverage universe into three categories by portfolio composition, Bi-Coastal, Sunbelt and Regional, with a top pick for each:

  • AvalonBay Communities (NYSE: AVB) - Bi-Coastal, Outperform
  • Essex Property Trust (NYSE: ESS) - Regional (West Coast), Outperform
  • Camden Property Trust (NYSE: CPT) - Sunbelt, Outperform

Tale Of The Tape - Past Year


This RBC report was primarily focused upon sector metrics and guidance, therefore there were no price target or ratings changes which were discussed.

RBC - Key Sector Takeaways

  • Outlook: RBC expects strong growth and NAV (net asset value) creation to lead to outperformance FY 2015.
  • Operations: Same Store trends were also strong, driven by rent increases and lower turnover.
  • Investment: Capital recycling and new development were both up "with cap rates at record lows;" and M&A activity has been gaining momentum in the sector as well.
  • Related Link: Multifamily REIT Equity Residential: A Closer Look After Strong Q!

  • Financing: RBC reported that "REIT leverage and coverage metrics continue to improve," noting net-debit and preferred equity to annualized EBITDA ratio of 6.2x and fixed charge coverage "a healthy 3.9x."
  • Valuation: RBC noted favorable REIT valuations, "even with assumed cap rate reversion.

RBC - Same Store Growth Timeline/Projections


The comprehensive table above, makes it easy for investors to compare key same store metrics between REITs and examine each REIT sequentially.

Notably, Home Properties, Inc. (NYSE: HME) lags its sector peers across the board, and is rated as Underweight by RBC.

M&A Rumors Driving Shares Higher?

However, $3.5 billion cap Home Properties has spiked up on high volume during the past few weeks reflecting M&A expectations that are being baked into the share price.


RBC cited a REIT Newshound rumor that Lone Star and HME are having M&A discussions.

Back in mid-March, as reported by Benzinga, Citi Research suggested that AvalonBay and Essex were potential suitors.

Related Link: Citi Weighs In ON REIT Sector M&A Trends: Is Simon/Macerich Just The Start?

"Citi noted that HME's East Coast assets have an overlap with core AvalonBay markets, while Essex would have to change its strategy from its laser West Coast focus."

RBC - Bottom Line

RBC anticipates both revenue growth and portfolio NAV (net asset value) growth for this REIT sector.

Multifamily REITs should benefit from "…healthy employment gains/rental preference, improving wage growth and moderate total housing stock additions should continue to aid rent growth while abundant capital market liquidity and TTM cost of capital enhancement should allow for higher investment accretion," according to RBC.

Latest Ratings for AVB

Nov 2019MaintainsEqual-Weight
Nov 2019MaintainsBuy
Nov 2019UpgradesIn-LineOutperform

View More Analyst Ratings for AVB
View the Latest Analyst Ratings

Posted-In: Analyst Color News REIT Short Ideas Rumors Analyst Ratings Trading Ideas Real Estate Best of Benzinga


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