Apartment REIT stocks like UDR (UDR), Home Properties (HME) and Aimco (AIV) stand in the intersection of a shift toward renting by tenants looking not to be tied down to mortgages or who can’t afford them, and the slowing down of new housing, says Tom Mitchell, Senior Analyst at Miller Tabak + Co., LLC.
“The whole apartment sector has seen 95%-plus occupancies now for several years, and 95% is close enough to full occupancy in the apartment market that there has been considerable pricing power, really starting from the first quarter of 2010, depending, of course, on location and the specific geographic market,” Mitchell said.
Mitchell says UDR has upgraded its portfolio aggressively and managed it conservatively, leading him to rate the stock a “buy.” “UDR, we think, is interesting from another point of view, which is that they took a somewhat unusual approach to moving into the New York City market about a year ago, and they have done, we think, a very good job of maximizing the opportunity while minimizing the cost,” he said.
Mitchell’s top pick is Home Properties, which he says is in a relatively narrow footprint. “We think that they are an excellent operator and that they have done a very good job of being aggressive about adding to their property base at the right time and at the right cost, so we have a strong ‘buy’ on them,” Mitchell said.
Aimco is a bit of a mixed story, he says, but still a “buy”-rated stock. “[AIV has] been aggressively rebalancing their balance sheet, and they’ve essentially been removing some very expensive preferred stock from in front of where the common shareholder stands, and as a result of that, they’ve been getting some nice positive traction in addition to what’s already going on in the apartment space,” Mitchell said.
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