UBS Launches Apartment REIT Coverage

UBShas initiated coverage of the apartment real estate investment trust sector, citing a cooling housing market, job growth and limited new rental supply. This has allowed landlords to gain more traction in dealing with tenants, saidAlexander Goldfarb, an analyst. "The power has now moved to the landlords. Rents are rising in almost all markets, including Houston and Atlanta," he said.

With the recent decline in housing affordability as a result of rising interest rates and the prospect that housing prices may fall, more potential buyers are renting. "The sector has reached an inflection point that rarely happens in this market. We have seen about four years of buying and building residential properties, but as this activity begins to slow due to high construction costs and high levels of rental and condo conversions, we are seeing a reduction in supply," Goldfarb said.

UBS has initiated coverage of five REITs--Essex Property Trust,AvalonBay Communities,Camden Property Trust,BRE PropertiesandEquity Residential Properties. These REITs have development plans, are in transition or are well-regarded, says UBS. "AvalonBay is a very well known firm. Investors, however, tend to shy away from the company because its FFO multiple is among the highest in the REIT group," Goldfarb said, adding that UBS believes that its FFO multiple does not reflect its true value.

UBS assigned Essex and AvalonBay buy ratings and assigned Camden and BRE neutral ratings. Equity Residential was assigned a reduced rating.