Apartment REITS To Buy And Avoid – US-FOREX.US
As real estate companies deluge investors with earnings reports this week and next, RBC analyst Mike Salinsky says a few property owners that specialize in apartment buildings present good opportunities. But investors need to watch out for dividend cuts and stock sales as firms try to raise cash in the recession.While other property companies, especially in the office and retail sector, are seeing rents fall steeply, apartment owners are likely to report that rents are stabilizing, Salinksy wrote in a report earlier this week. One reason is that fewer people were buying homes this year and have chosen to continue renting. Also benefiting apartment companies is cheap financing, including from government-sponsored entities like Fannie Mae
.One area that presents opportunities for real estate investment trusts, or REITs, is to make acquisitions at depressed prices. So far there’s been little action, notes Salinsky, as banks and other would-be sellers stay out of the market in hopes of getting better prices down the line. If and when it comes, the buying spree will happen in the next two years.That’s not a reason to jump in with both feet, though. Salinksy warns that there are likely to be few surprises, pleasant or unpleasant, from the sector, so investors can assume prior forecasts are built into stock prices. There’s also the problem of dividend cuts and stocks sales. As credit markets have rebounded, REITs no longer find themselves faced with cash crises. But many still would like to reduce debt and build up a reserve with which to make purchases. “We recommend investors remain defensive,” says SalinksyWho might slash dividends to shareholders? Salinksy names BRE Properties
, Equity Residential
and Home Properties
. Another way to raise cash is to sell stock, something other types of REITs have been falling over each other to do this year. Apartment firms, however, haven’t yet taken advantage but may this quarter. Home Properties and UDR
are the most likely.
Salinsky recommends shares of Camden Property Trust
. Camden’s dividend is safe and its balance sheet solid enough to take advantage of buying opportunities. The firm reports after trading Thursday. Home Properties is another buy with buildings concentrated in regions facing lower unemployment. A dividend cut or stock sale could boost investor confidence in the company. Salinksy’s other recommendation is Mid-America Apartment Communities
, although the current price means investor shouldn’t risk too much on this stock. Home Properties and Mid-America announce results August 6.Investors might want to sell BRE Properties and Apartment Investment & Management Company
, notes Salinksy. BRE owns buildings in areas of high unemployment and could fall short of earnings expectations when it reports August 4. Aimco, which reports earnings on Friday, needs to sell buildings to pay its debts but may not have been able to unload them at attractive prices. Investors would do better elsewhere, says Salinksy.