Market Overview

DA Davidson Initiates Multifamily REIT Group, Prefers Operations In The Sun Belt

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• DA Davidson believes that the fundamentals of multifamily REITs now make them worth buying.
• Home ownership penetration rate has finally returned to pre-crisis levels.
• The Sun Belt offers the best properties and growth potential at this time.

DA Davidson believes that now is the time to invest in multifamily REITs. In a new report, analyst Steve Shaw discusses the improving fundamentals of multifamily REITs, which area of the U.S. is the hottest region right now and which names are DA Davidson’s top picks.

Supply And Demand

According to Shaw, the current supply/demand balance looks very favorable for multifamily REITs. Rebounding job growth continues to drive demand for apartments. Another key component of the short supply of residencies is the lack of construction. The imbalance between job growth and construction has driven occupancy rates higher, which benefits REITs.

DA Davidson monitors a statistic called home ownership penetration rate. This rate peaked at over 69 percent during the height of the U.S. housing bubble, but has finally returned to its historical average of 63-64 percent.

Shaw notes that a one percent drop in ownership penetration rate equated to 1 million additional renters.

The 'Smile Of The U.S'

DA Davidson prefers to invest in Sun Belt properties, and sees better growth potential from REITs that own assets in this region.

“Job growth exceeding the national average is occurring primarily in the Southeast and on the West Coast, leading us to expect occupancy rates in those markets to increase and the corresponding ability to push up rental rates,” Shaw explains.

Top Picks

In the report, DA Davidson initiated positive coverage on several multifamily REITs. Top picks include Bluerock Residential Growth REIT Inc (NYSE: BRG), Camden Property Trust (NYSE: CPT), Investors Real Estate Trust (NYSE: IRET), Mid-American Apartment Communities Inc (NYSE: MAA) and Preferred Apartment Communities Inc (NYSE: APTS).

Disclosure: the author holds no position in the stocks mentioned.

Latest Ratings for BRG

DateFirmActionFromTo
Jul 2018Initiates Coverage OnOutperform
Jun 2018Initiates Coverage OnOutperform
Feb 2018MaintainsBuy

View More Analyst Ratings for BRG
View the Latest Analyst Ratings

Posted-In: Analyst Color REIT Initiation Analyst Ratings General

 

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