Time to Bail out of Apartments REITs?

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The apartments REITs invested in the west coast were negatively affected last week. Ten out of the fifteen apartments found themselves among the lowest performing REIT stocks. Essex Property Trust was the most affected with its stock falling by 6%. The episode was targeted towards a group of stocks as it happened in a week where most REIT boats have risen. Are investors going to bail out of apartments?

Investors have gotten worried about the Northern California real estate market as signs that the same growth rates will not remain. In a recent publication, Essex, which has heavily invested in the region, mentioned that Northern California’s growth rate has slowed down from Q1 figures. Revenue growth decreased from 9.1% (Q1) to 7.7 % (April/May), which was enough to set a brief selloff last Friday and yesterday.

Equity Residential, which has invested in both New York and San Francisco, announced last week that it had lowered its guidance for same property revenue growth. The company has noticed underperformance in its San Francisco portfolio. The company’s stocks fell by almost 6%, making it the second worst underperformer last week.

Multifamily have been darlings of the apartment markets especially on the west coast. San Francisco and Silicon Valley has caught investors’ attention for its higher average income and higher percentage of families earning six figures. High employment rate has also been a highlight, especially for millennials that are interested in paying off their school loans and delaying their plans to buy their first home right now.

Since both REITs (Essex and Equity Residential) have been in the chopping block, it is not shocking that they have had poor performance this year. What is stunning is that a stronger sentiment against multifamily has been forming. We believe that this is going to become more common as some subsectors (such as multifamily) have been overvalued.

Source: Equity Residential (NYSE: EQR), Essex Property Trust Inc. (NYSE:ESS)

Disclaimer: This newsletter is not engaged in rendering tax, accounting, or other professional advice through this publication. No statement in this issue is to be construed as a recommendation to buy or sell any security or other investment. Please do your own due diligence before making any investment decision. Some information presented in this publication has been obtained from third-party sources considered to be reliable. Sources are not required to make representations as to the accuracy of the information, however, and consequently the publisher cannot guarantee accuracy.

Disclosure: The author has no positions in any shares mentioned, and no plans to initiate any positions within the next 72 hours.

Apartments REITs Declined Despite Good Results

f99fb780-1e11-4b54-8c6c-e012f0fccafa.jpgIt was a bittersweet week for apartments REITs – at the same time they have posted strong fourth quarter 2015 results, they also suffered losses. On average, apartments stock prices fell by 4.1%, almost as much as timber, which fell by 4.3%. Increased supply and deceleration of the West Coast market growth are some of the reasons why the shares declined.

Together with Aimco, Mid-America Apartment and Post Properties, the following apartments REITs have released Q4-15 results:

  • AvalonBay Communities increased its quarterly dividend by 8% and released strong results. Core FFO grew 14.4% for the quarter and 11.4% for the full year. In 2016, Core FFO is expected to grow slightly below at 9%. However, this was not enough to excite the markets and its share price decreased by 3% last week. AvalonBay showed caution when referring to the West Coast. The company has seen slowing job growth and, although it still believes the West Coast will outperform the East Coast, the difference in growth will narrow.
  • Essex Property Trust, which is focused on the West Coast, fell by 5% last week. The company confirmed expectations of a less heated market on the West Coast due to a moderate job growth rate. Specifically, they believe market rents will increase by 7.5% in Northern California in 2016, down from the 2015 average of 10.9%. Nonetheless, Essex closed the year of 2015 with an impressive 15% Core FFO increase. Since its highest share price ever on December 29, 2015, the share price has declined.
  • UDR increased its dividend by 7%. Despite its strong results and not being as exposed to the West Coast as Essex, its share price fell by 5% last Friday.

Other highlights:

  • Armada Hoffler Properties increased quarterly dividend by 6%.
  • Hersha Hotels entered into a joint venture partnership with Cindat Capital to which they will sell a significant stake of seven hotels in Manhattan. The company intends to use the funds to invest in other locations and reduce its exposure to New York City. The stock went up by 7% last week.
  • After posting good Q4-15 results, DuPont Fabros went up by 4% this week. It appears that management has contained losses regarding the replacement of a bankrupt tenant.

Check the reports for Dividend Yield by Sector and Weekly Returns.

Source: AvalonBay Communities (NYSE:AVB), Essex Property Trust Inc.(NYSE:ESS), Armada Hoffler Properties, Inc(NYSE:AHH), UDR, Inc.(NYSE:UDR), Hersha Hospitality Trust(NYSE:HT), DuPont Fabros Technology, Inc.(NYSE:DFT), Apartment Investment and Manag(NYSE:AIV), Mid-America Apartment Communit(NYSE:MAA), Post Properties Inc.(NYSE:PPS)

Disclaimer: This is not a recommendation to buy or sell stocks. The highest-yield stocks are not necessarily the best portfolio investment choice. The purpose of this report — which is essentially a snapshot of information available on February 5, 2016 — is to reduce your stock analysis by enabling you to compare stock and sector performance. Please do your own due diligence before making any investment decision.

As of January 31, 2016, the equity REITs are constituent companies of the FTSE NAREIT All REITs Index. Companies whose equity market capitalization is lower than $100 million have been disregarded.

This report is not engaged in rendering tax, accounting, or other professional advice through this publication. No statement in this issue is to be construed as a recommendation to buy or sell any security or other investment. Some information presented in this publication has been obtained from third-party sources considered to be reliable. Sources are not required to make representations as to the accuracy of the information, however, and consequently the publisher cannot guarantee accuracy.

Disclosure: The author has no positions in any shares mentioned, and no plans to initiate any positions within the next 72 hours.