DOC - EastGroup Physicians Realty upgraded at KeyBanc in 2023 REIT outlook

As part of its 2023 REIT outlook, KeyBanc upgraded EastGroup Properties ( NYSE: EGP ) and Physicians Realty Trust ( NYSE: DOC ) to Overweight, while downgrading Acadia Realty Trust ( NYSE: AKR ), NetSTREIT ( NYSE: NTST ), LTC Properties ( NYSE: LTC ), VICI Properties ( NYSE: VICI ), and Essex Property Trust ( NYSE: ESS ) to Sector Weight.

Overall, they expect 2023 to be another volatile year. "The broader economy appears poised to weaken throughout the year given a weakening consumer backdrop and lag in Fed policy, (and) the yield curve is more inverted than it's been in ~22 years," they said.

By sector, analysts Todd Thomas and Austin Wurschmidt recommend that investors add to their exposure in industrial, retail, and health care REITs and to maintain or reduce exposure in triple net, residential, self storage, and lodging REITs, three sectors that had outperformed in 2022.

Looking at the individual stocks, industrial REIT EastGroup ( EGP ) has steady fundamentals with occupancy remaining above 98% and portfolio leased rate standing at 99%, solid pricing power, and lower risk development and lease-up pipeline, Thomas said.

Physicians Realty Trust ( DOC ) has stable medical office building fundamentals in an uncertain economic environment, Wurschmidt wrote. Its internal growth is expected to be driven by in-place lease escalators in mid-2% range, re-leasing spreads in mid-single digits, and moderating occupancy headwinds into 2023.

Retail REIT Acadia Realty Trust ( AKR ) was downgraded due to higher interest expense from its 18% floating rate debt exposure and above-average leverage, volatility in income from its structured finance book, and potential uncertainty around the timing of rent commencements.

Net lease REIT NetSTREIT ( NTST ) was cut to Sector Weight from Overweight given a relatively more challenging investment environment, which has led to a decrease in investment activity in the near term.

Healthcare REIT LTC Properties' ( LTC ) downgrade is a result of the stock's outperformance against health care REITs and the overall REIT sector YTD. Wurschmidt sees near-term risk in the recovery of assets that transitioned from challenged operators and from fair market rent resets that may take longer than expected to rebound.

Gaming REIT VICI Properties ( VICI ) was cut to Sector Weight as the shares are fairly valued at current levels. AFFO growth is expected to stay elevated in the near term due to its attractive master lease structure and favorable cost of capital vs. investment yields, but Thomas sees the stock as in inline performer throughout 2023.

Residential REIT Essex Property Trust ( ESS ) was cut to SW from OW on increased uncertainty over apartment fundamentals on the West Coast. Demand outlook remains less certain, while supply growth across the REIT's markets is expected to improve next year.

Among real estate and REIT stocks with market cap over $2B, the SA Quant system rates Zillow Group ( ZG ) and Kite Realty Group ( KRG ) the highest.

SA contributor Avisol Capital Partners takes a deeper look at Physicians Realty ( DOC ).

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