When the subprime crisis caused a complete meltdown in the housing market, many homeowners in properties they simply could not afford were forced to move into apartments. This provided a financial tailwind for the multifamily apartment REIT stocks that propelled them to outstanding gains. After underperforming the overall REIT market for the past year and a half, it may be their time to shine again. In short, this is the perfect climate for the so-called apartment REIT segment and investors have a lot of dividend income to clip from these.
In a research report released today UBS A.G. (NYSE: UBS) upgraded the multifamily “coastal” or more expensive REITS to buy. Their bias within the multifamily group over the past two years had been on the value side, the “Sunbelt” and Class B REITs, with growth rates that were similar to their pricier coastal peers. However, they now feel that the underperformance of the coastal apartment REITs has become too difficult to ignore and are predicting 10% to 15% upside over the next year.
UBS raised Equity Residential (NYSE: EQR) and these other REITS to Buy today:
- Avalonbay Communities Inc. (NYSE: AVB) with its 3.3% yield
- BRE Properties Inc. (NYSE: BRE) with its 3.2% yield
- UDR Inc. (NYSE: UDR) with its 3.7% yield
With the multifamily REITs recently providing 2013 guidance, UBS feels that the feared slowdown now has been officially confirmed and is in the rear-view mirror. If the multifamily REITs deliver on the still healthy growth outlook over the next few quarters, they also are confident that discounted valuations will evaporate as market confidence improves.
One additional nice component for investors is that all of the names that UBS upgraded pay at least a 3% dividend. This could be a nice total return play if the 10% to 15% upside targets for the next year are hit.