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Will Rising Tides Likely Lift all Multifamily Boats?

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A recent US Equity Research report from analyst Mizuho Securities took a look at the REITs it covered and showed that on the multifamily side, investors should buy the sector now before the narrative starts to take over and the 10% NAV discount evaporates. “While the fundamental shift may move slowly, we think a slight downtick in supply on top of an improving economy could produce a buying opportunity—focused primarily on the second derivative of same store growth.”

The company also said that while rising tides will likely lift all boards, it particularly likes the urban-oriented names—EQR, AVN, UBR, and in that order. “While we expect overall supply to moderate at the margin, we also see it moving away from cities and toward interior/Sunbelt states.”

On the investment front, the company says that there is potentially a shorter-term trading opportunity, as it expects numbers to creep up again during 2Q18. “However, industrial continues to be an outperformer and expensive, which may create a pause during the dog days of summer. We like DRE as it catches up for lost ground, now as an industrial pure-play, and FR which may have a DCT-like M&A backdrop to it (to the benefit of the stock, whether it happens or not).”

Diving in to the healthcare sector, the firm says that “inbound investor calls suggest the quarter will hinge primarily on the prospects for senior housing, and in particular, how management paint the longer-term picture on when RIDEA growth will bottom.” The firm continues that 2019 will be equal or worse than 2018, so any suggestion to the contrary could add onto the sector’s recovery (which has been underway since late April). “The suddenly higher approval rating for SNFs may also provide stock-moving substance, but we think RIDEA will be the main focal point. We continue to like HCP as it completes its BKD process (and cheaper than VTR and WELL), and SBRA as it methodically completes its own exit of GEN (while trading <10x AFFO).”

Lastly, the report states that it sees no shared theme in office, which makes investing more of an exercise in company-specific considerations. “We like the dual FFO/NAV growth profile of ARE (which appears to have at least a few more years to go), the valuation of BDN (and we still have some HQ2 hope for Philly), and the latest entrant to our Buy-rated group, DEI, as we expect a return to mid-single digit same store growth will come sooner (i.e., 2019) than most expect.”


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