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Jefferies Says 'Winter Is Coming' For Apartment REITS

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Jefferies Says 'Winter Is Coming' For Apartment REITS

In a note Wednesday, Jefferies seemed to be cooling off on the Apartment REIT sector. The note titled "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:

  • AvalonBay Communities Inc (NYSE: AVB)
  • Essex Property Trust Inc (NYSE: ESS)
  • Equity Residential (NYSE: EQR)

Seeing risk as fundamentals continue to slow, Jefferies downgrades these stocks from Buy to Hold. The firm prefers the sunbelt region in areas like Nashville, Raleigh, and Atlanta where Mid-America Apartment Communities Inc (NYSE: MAA) has the most exposure. Despite MAA being a top pick for Jefferies, they still have a Hold rating due to their relatively high multiple.

Latest Ratings for AVB

DateFirmActionFromTo
Nov 2019Initiates Coverage OnBuy
Nov 2019MaintainsNeutral
Oct 2019DowngradesOverweightSector Weight

View More Analyst Ratings for AVB
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Posted-In: JefferiesAnalyst Color REIT Downgrades Analyst Ratings Real Estate

 

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