INVH - AvalonBay upgraded Camden Property cut at BofA as recession fears rise

2023-05-15 10:29:32 ET

BofA Securities analyst Joshua Dennerlein on Monday upgraded AvalonBay Communities ( NYSE: AVB ) to Buy and downgraded Camden Property Trust ( CPT ) to Neutral as fears of recession heighten, reducing expectations for rent increases.

Camden Property ( CPT ) stock slipped 1.3% in Monday morning trading and AvalonBay ( AVB ) stock edged down 0.2% .

So far weakening demand wasn't signaled in apartment REITs' Q1 earnings. However, should demand weaken, Dennerlein expects that suburban markets will outperform urban and coastal ones will fair better than Sunbelt markets. Key to his rationale is how supply stacks up in those markets.

With urban apartments at or past peak demand, AvalonBay's ( AVB ) portfolio skews more suburban positioning the REIT well to benefit from the rotation, Dennerlein said in a note dated Monday. "We also believe that AVB will benefit from falling construction pricing and better opportunities to acquire land," he said.

While he's bullish on the Sunbelt for the long term, "we believe we are about to enter a soft spot for Sunbelt apartments," the analyst wrote. Q1 earnings calls also indicated that supply in the region "resulted in higher concession and led to a pause in the ability to push new lease rate growth."

Demographics and supply support Dennerlein's view that manufactured housing and single-family rentals will outperform apartment REITs during a recession. Such stocks include Equity LifeStyle Properties ( ELS ), American Homes 4 Rent ( AMH ) and Invitation Homes ( INVH ).

His Buy rating on AvalonBay ( AVB ) contrasts with the SA Quant rating and average SA Analyst rating , both at Hold.

Meanwhile, his Neutral rating on Camden Property ( CPT ) aligns with the SA Quant rating of Hold; the average SA Analyst rating sits at Buy.

Earlier, Wolfe Research also downgraded Camden Property ( CPT ), as well as three other apartment REITs.

More on AvalonBay and Camden Property:

• Likely No Alpha for AvalonBay Communities
• Camden Property Trust: Still Too Early to Buy
• Camden Property Offers Both Income and Value
• AvalonBay boosts 2023 core FFO guide range; Q1 earnings beat
• Changing Market Trends Present Headwinds and Tailwinds for Mid-America Apartment and AvalonBay

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