rgaydos
Raymond James analyst Buck Horne downgraded the Essex Property Trust (NYSE:ESS) and Centerspace Homes (NYSE:CSR) on Wednesday, largely due to the expected increase in operating costs at those two multifamily REITs, “which is dampening projected FFO growth below the level consistent with the previous investment rating.”
Central space (CSR) share down 2.5%, and Essex Asset Trust slip 1.0% in midday trading on Wednesday.
Overall, analysts are more bearish than most in this area. “We are increasingly concerned that current multifamily valuations are not being priced at an appropriate level of safety relative to 1) the current interest rate environment, 2) the likelihood of a severe recession, and job losses starting in 2023, and 3) a 50-level multi-family rental unit supply expected to be delivered next year,” he wrote in a note to clients.
Essex Asset Trust (EQR) was downgraded to Market Performance from Outperform due to concerns about the accelerated pace of rent growth decline and tech job losses in the REIT’s key West Coast markets. “Secondly, we are also wary of a re-acceleration of accumulated bad debt and potential operating challenges in some California jurisdictions that have become extremely tenant-friendly regarding the processing evictions for non-payment,” Horne said.
Market Performance ratings match SA Quant Rating of Hold and break with the average Wall Street’s rating is Buy.
Central space (CSR) was cut to Underperforming compared to Market Performance, due to concerns about cost growth, especially repair and maintenance (R&M) and recurring capital expenditures, sub-minimum funding favors a recent $95 million acquisition that resulted in immediate FFO dilution, a weaker-than-expected net operating income contribution last year’s acquisition community, and a drop in prices in Denver.
Note that on November 10, SA Quant Rating central space is flagged (CSR) high risk of poor performance. Horne’s Underperform Rating tends to decrease more than the rating average rating of Wall Street of Hold.
Over the past year, both CSR and ESS have lagged the performance of the S&P 1500 Composite Residential REITs Index (SP1500-60101060) and the S&P 500 as seen in this chart.
In contrast to Raymond James’ Horne, SA contributor Philip Eric Jones sees three “hot bargains” in apartment REITs
