As part of his sector view on apartment REITs assessing the 2023 revenue set-up, BMO Capital Markets analyst John P. Kim downgraded Apartment Income REIT ( NYSE: AIRC ) to Underperform and UDR ( NYSE: UDR ) to Market Perform in notes issued on Friday.
For both stocks the analyst sees the revenue set-up for 2023 as favorable, "but with increased uncertainty, and dwindling new jobs-to-supply."
Apartment Income ( AIRC ) screened expensive at 28.3x BMO's 2023 AFFO estimate. "By improving its balance sheet and simplifying its structure, AIRC has lower 2023 FFO growth than peers — we are estimating 0.8% FFO growth in 2023, and limited upside potential from developments," Kim wrote. He also pointed to negative leverage from the company's recent acquisition of $640.1M of assets.
For UDR ( UDR ), the analyst points to its highly diversified portfolio and strong development pipeline. Among his concerns: The REIT "has a below average loss-to-lease of 10% (vs. peer average of 11.5%) albeit reported the highest blended lease growth rate in July in the mid- to high teens."
In addition, its leverage is higher with net debt-to-EBITDA of 6.2x vs. peer average of 5.2x and 3.5x new jobs-to-supply ratio is relatively low at 3.5x, he said.
Take a look at AIRC and UDR's year-to-date stock performance against the S&P 500 and peers Equity Residential ( EQR ) and Essex Property Trust ( ESS ) in this graph. And compare key metrics of the four apartment REITs here.
On Apartment Income ( AIRC ), Kim's Underperform rating leans more bearish than the Quant rating of Hold , while his Neutral rating on UDR ( UDR ) aligns with the Quant ratin g.
Meanwhile, SA contributor Ben Alaimo likes Apartment Income REIT ( AIRC ) for its 4% dividend and inflation hedge capability
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Apartment Income REIT, UDR cut at BMO on increased uncertainty