As real estate investment trusts (REITs) were underperforming in 2022, analysts in the major brokerages and banks were busy slashing target prices and downgrading many of the REITs, citing threats from inflation, higher interest rates, increasing risk of defaults, increasing occupancy and higher costs.
But 2023 seems to be ushering in a new, more friendly stance by analysts, and there have been many more upgrades in ratings and price targets since the beginning of the month. Analysts are starting to see better times ahead, assuming the Federal Reserve eases up on the severity and duration of interest rate hikes.
Take a look at three residential apartment-focused REITs that have recently received analyst upgrades:
AvalonBay Communities Inc. (NYSE: AVB) is a residential REIT that acquires, develops and manages multifamily communities. As of Sept. 30, AvalonBay Communities owned directly or indirectly 88,405 apartments in 293 communities in 12 states and Washington, D.C. The 52-week range is $157.69 to $259.05, and the most recent closing price was $170.35.
Since its inception in June 1998, AvalonBay Communities has had a successful performance record, averaging 8.52% total returns annually. Its annual dividend of $6.36 per share yields 3.73%.
On Jan. 17, analyst Michael Lewis of Truist Securities upgraded AvalonBay Communities from Hold to Buy, while raising the price target from $186 to $190. At its most recent closing price, this represents an upside potential of 11.54%.
This latest upgrade is eye-catching, considering that AvalonBay Communities was the recipient of six downgrades by well-known firms, including J.P. Morgan and Goldman Sachs, between November and the beginning of January.
Equity Residential (NYSE: EQR) is a Chicago-based REIT that owns or is invested in 308 apartment buildings with 79,594 units located in large urban areas, such as Boston, New York, Washington D.C, Seattle, San Francisco and Denver. It’s a member of the S&P 500.
Equity Residential pays an annual dividend of $2.50, which currently yields 4%. The dividend has grown 24% over the past five years with no cuts or eliminations over that time.
On Jan. 17, Lewis of Truist Securities also upgraded Equity Residential from Hold to Buy, and he announced a new price target of $68. From its most recent closing price of $61.60, he sees potential for an increase of 10.38%.
Like AvalonBay Communities, Equity Residential has also received three different downgrades over the last five weeks.
Camden Property Trust (NYSE: CPT) is a Houston-based residential REIT that owns and manages over 240,000 square feet of apartment complexes in major cities across the U.S. Its strategy is to focus on high-growth markets. Some of its apartment complexes also contain ground-floor retail space, offices or mixed-use space. Camden Property Trust is a member of the S&P 500.
During the third quarter of 2022, Camden Property Trust expanded its share repurchase plan from $269 million to $500 million. Its most recent same-property occupancy rate was 96.6%.
Camden Property Trust pays a dividend of $3.76, which has grown 25% over the past five years with no cuts or eliminations. It presently yields about 3.1%.
On Jan. 10, Mizuho Securities USA analyst Haendel St. Juste upgraded Camden Property Trust from Neutral to Buy, with an increase in price target from $119 to $125. At the current price of $114.68, this represents a potential upside increase of 9%. Unlike the two previous REITs, analysts have been much kinder to Camden Property Trust in recent months, maintaining previous positive ratings even while lowering price targets.
Investors should keep in mind that analysts are not always correct, and even the better ones are only right about 50% of the time. Investors should not only rely on analysts but always do their own research before purchasing any stock.
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