Target Updates: Apartments and Manufactured Home Parks
Summary
Apartment REIT valuations have declined, now trading below historical NAV averages, making select names more attractive after the RealPage-related sector headwinds.
AFFO multiples are within the reasonable range. Not extremely cheap or extremely expensive. Weak new supply should support apartment REIT valuations going forward, despite temporary rent growth pressure from increased competition post-RealPage settlement.
Sun Communities (SUI) outperformed peers due to reduced leverage and a simplified business model after the marina sale, validating our calls that they were the bargain in the sector.
We favor CPT, MAA, and UDR among apartment REITs, see ELS as finally attractive again (prices were too high) in manufactured housing REITs, and remain cautious on single-family rental REITs.
Subscribers can view our foreshadowing (for potential trades), price target modifications, and current ratings at the bottom of the article. The ratings and valuation are also updated in real time inside our REIT Forum Google Sheets.
Need the shortest version? Jump to the heading for Actionable Ideas / Foreshadowing.
Core FFO Guidance
Core FFO guidance changes by REIT:
- AVB: Core FFO guidance flat since Q4 2024. NAREIT FFO guidance down due to non-core factors.
- EQR: Core FFO guidance increased.
- ESS: Core FFO guidance increased.
- UDR: Core FFO guidance increased. NAREIT FFO guidance down.
- CPT: Core FFO guidance increased. NAREIT FFO guidance also increased. Guidance for both metrics was also increased in Q1 2025 earnings.
- MAA: Core FFO guidance flat since Q4 2024.
- ELS: Core FFO guidance flat since Q4 2024
- SUI: Core FFO guidance increased.
None of the increases were massive. The biggest increase in percentage terms came from Equity Residential raising guidance by 1.27%.
AFFO Multiples
The AFFO multiples for apartment REITs are within the range I would consider reasonable. They aren’t absurdly cheap, but they aren’t painfully expensive either. These multiples use the consensus forward estimate for Analyst AFFO:
As a reminder, Analyst AFFO deducts the costs necessary for maintenance capital expenditures, such as replacing roofs and repaving parking lots. The multiples would be lower if we calculated them using FFO, since FFO does not deduct those expenditures.
