Investors looking to get in on the recent rise in real estate stocks should focus on quality, according to Bank of America. The real estate sector of the S & P 500 has been moving higher over the past month or so and is now up 10% year to date, after being in the red earlier this year. The sector hit a 52-week high last week. Real estate investment trusts are also an income play, often paying out attractive dividends. “Stocks with healthy yields become increasingly attractive in a Fed cutting environment,” Jill Carey Hall, an equity and quant strategist at the bank, wrote in a Sept. 9 note that focused on small-cap and midcap REITs. Her work with small-cap and midcap stocks also suggests that dividend yield is the best factor to hedge cycle risk, she added. .SPLRCR YTD mountain S & P 500 Real Estate Sector The Federal Reserve started its rate-cutting cycle last week, slashing the federal funds rate by 50 basis points. The central bank also indicated another 50 basis points of cuts by the end of the year. In this environment, Bank of America likes health care, residential and retail REITs. Health-care real estate is a play on the aging of America , which will see more people seeking medical services and senior housing, Hall said. Residential REITs continue to see demand given housing affordability issues and a majority of retail REITs have beat and raised guidance, she added. When it comes to choosing specific stocks, analyst Jeffrey Spector, the bank’s head of U.S. REITs, suggests looking at names with quality growth, quality value and — with the anticipation of a soft-landing scenario — quality risk. “Higher quality REITs will offer the best earnings and distribution growth,” he wrote in the same note. Quality REITs have resilient pricing power, multiyear earnings visibility based on secular growth drivers, strong and flexible balance sheets and the highest prospect for global inflows. Here are some of the names that made Spector’s top picks list. Welltower is the only large-cap stock that made the cut. The rest are small-cap and midcap REITs. Welltower owns and develops senior housing, skilled nursing/post-acute care facilities and medical office buildings. Near term, Welltower will benefit the most from accelerating occupancy gains amid the post-Covid recovery, Bank of America believes. “In addition, we believe senior housing rate growth will remain robust in 2024 & beyond. WELL has the highest exposure to senior housing operating assets within our coverage universe and based on our demographic analysis has the best positioned portfolio,” the bank said. “Longer term, demographic trends are favorable as baby boomers continue to age.” Shares of Welltower are up 40% year to date. Mid-America Apartment Communities and American Homes 4 Rent are both residential housing plays. The former is a multifamily REIT that operates in communities across the Sunbelt region, where the bank sees robust job growth and a lower cost of living. The latter owns the second-largest single-family rental REIT portfolio in the U.S., Spector wrote. “We remain positive on AMH’s portfolio, limited new supply of single-family homes, structural demographic tailwinds with aging millennials, accretive consolidation/development opportunities, and a strong management,” he said. Mid-America Apartment Communities has gained nearly 18% year to date, while American Homes 4 Rent is up close to 7%. Lastly, Federal Realty Investment Trust owns, operates and develops retail-based properties in coastal markets. Spector said this “blue-chip retail REIT” has a diverse portfolio of shopping centers and should produce growth above its peers in the long term. The stock has moved more than 9% higher so far this year.
Tag: Mid-America Apartment Communities Inc
-
How RealPage influences rent prices across the U.S.
RealPage software is used to set rental prices on 4.5 million housing units in the U.S. A series of lawsuits allege that a group of landlords are sharing sensitive data with RealPage, which then artificially inflates rents. The complaints surface as housing supply in the U.S. lags demand. Some of the defendant landlords report high occupancy within their buildings, alongside strong jobs growth in their operating regions and slow home construction.
09:56
Sat, Feb 3 20248:27 AM EST
-
Why U.S. renters are taking corporate landlords to court
A group of renters in the U.S. say their landlords are using software to deliver inflated rent hikes.
“We’ve been told as tenants by employees of Equity that the software takes empathy out of the equation. So they can charge whatever the software tells them to charge,” said Kevin Weller, a tenant at Portside Towers since 2021.
Tenants say the management started to increase prices substantially after giving renters concessions during the Covid-19 pandemic.
The 527-unit building is located roughly 20 minutes away from the World Trade Center, on the shoreline of Jersey City, New Jersey. A group of tenants at the tower is involved in a sprawling class-action lawsuit against RealPage and 34 co-defendant landlords. The U.S. Department of Justice filed a statement of interest in the case in December 2023, arguing that the complaints adequately allege violations of the Sherman Antitrust Act.
In November 2023, the attorney general of Washington, D.C., filed a similar but more narrow complaint against RealPage and 14 landlords that collectively manage more than 50,000 apartment units in the District.
“Effectively, RealPage is facilitating a housing cartel,” said Attorney General of the District of Columbia Brian Schwalb in an interview with CNBC. His office filed the complaint on antitrust grounds. They allege that landlords share competitively sensitive data through RealPage, which then sets artificially high rents on a key slice of the local rental market.
Office of the Attorney General for the District of Columbia, November 2023
“Rather than making independent decisions on what the market here in D.C. calls for in terms of filling vacant units, landlords are compelled, under the terms of their agreement with RealPage, to charge what RealPage tells them,” said Schwalb.
RealPage says its revenue management products use anonymized, aggregated data to deliver pricing recommendations on roughly 4.5 million housing units in the U.S. The company says its tools can increase landlord revenues between 2% and 7%.
“Just turning the system on will outperform your manual analyst. There’s almost no way it can’t,” said Jeffrey Roper, a former RealPage employee and inventor of YieldStar.
YieldStar is one of three key revenue management tools offered by RealPage. The software balances prices, occupancy and lease lengths to help property managers optimize their portfolio’s yield. The company feeds data from its models into a newer tool dubbed “AIRM” that considers the effect of credit, marketing and leasing effectiveness.
RealPage told CNBC that its landlord customers are under no obligation to take their price suggestions. The company also said it charges a fixed fee on each apartment unit managed with its software.
RealPage was acquired by Miami-based private equity firm Thoma Bravo for $10.2 billion in 2021. In court filings, Thoma Bravo has claimed that it is not liable for the alleged acts of its subsidiary outlined by plaintiffs in the class-action complaints.
Renters told CNBC they discovered how revenue management software is used in real estate after reading a 2022 ProPublica investigation. Equity Residential investor materials show that the company started to experiment with Lease Rent Options between 2005 and 2008. RealPage acquired the product in 2017.
“How could we possibly know?” said Harry Gural, a tenant in an Equity Residential property located in the Van Ness neighborhood of Washington, D.C. Gural says he has been involved in legal matters against his landlord’s pricing practices for more than seven years.
Affiliates of Equity Residential are contesting a separate decision made by a local housing authority in Jersey City regarding prices set on the Portside Towers property. The company has filed a lawsuit in federal court challenging the decision, stating that the decision could result in millions of dollars in refunds for tenants.
Equity Residential and other defendant landlords declined to comment on ongoing RealPage litigation.
Redfin reports that asking rents in the U.S. ticked down to $1,964 a month in December 2023, a decline from recent highs. Prices are coming down in markets such as Atlanta and Austin, Texas, where home construction is high. But analysts believe low rates of homebuilding on the U.S. East Coast could give well-located landlords more pricing power.
“Guys like us that own 80,000 well-located apartments, we’re still in a pretty good spot,” said Equity Residential CEO Mark Parrell in a June 2023 interview with CNBC.
Watch the video above to learn about the rising tide of lawsuits against U.S. corporate landlords.CORRECTION: A previous version of this article misstated when Equity Residential purchased Portside Towers.