UDR, Essex Property cut to Neutral at Mizuho on rent deceleration

Sep. 19, 2022 9:19 AM ETUDR, Inc. (UDR), ESSBy: Max Gottlich, SA News Editor2 Comments

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UDR (NYSE:UDR) -0.7% and Essex Property (NYSE:ESS) -0.3% shares slipped in Monday premarket trading as Mizuho analyst Haendel St. Juste downgraded the residential REITs to Neutral from Buy, citing decelerating rent growth given tougher Y/Y comparisons.

Juste pointed to more fundamentally-driven reasons for his downbeat coverage in Essex (ESS), namely "the implications of its more rapid sequential blended rent deceleration in 3Q22 thus far, along with its well-known NoCal headwinds and the slowing within its SoCal portfolio," he wrote in a note to clients. That rent slowdown comes as rising interest rates hamper consumer spending.

In agreement with Juste's call, SA's Quant rating screens ESS as a Hold, with the poorest marks in valuation and momentum. By contrast, the average Wall Street Analyst rating is at a Buy (9 Strong Buy, 5 Buy, 8 Hold, 3 Sell).

For UDR (UDR), Juste's downgrade was more valuation driven. "UDR's portfolio has seen above-average deceleration in 3Q22 thus far and sports the highest leverage in the subsector," he noted.

SA contributor Gen Alpha views UDR (UDR) as a Buy amid strong tenant health and expectations for lower leverage by the end of 2022. "Market does not seem to fully appreciate UDR's strong fundamentals," it said.

Take a look at the Quant's list of the best-rated residential REITs.

Previously, (Sep. 11) BofA sees opportunity in small-cap real estate with high distribution yields.

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