Weekly Series: mREIT And BDC Recommendations (And Price Targets) As Of 08/03/2025

Summary

• No trades placed last week. 
• Wild swing in apartment REITs recently following the job report. Sharing our view on the apartment REITs. 
• I may initiate or increase positions in the sector. Our apartment REIT allocation was pretty small previously because there weren’t enough attractive options.
• Calling out upcoming dates / times for earnings announcements.

In the exclusive section for full members:

• All of the current ratings and price targets, as we do each time we publish this article.
• The REIT Forum’s Q2 2025 estimates by Scott Kennedy for earnings and book values or net asset values.
• Tables comparing results to projections.
• The dividend projections for each mREIT and BDC for Q3 2025.

We aim to retain the same layout from week to week. I hope that makes it easier to find the parts that are most relevant to you.

Weekly Notes From Colorado Wealth Management Fund

Positions: 0 trades this last week.

Commentary: There were two big items last week:

1. The jobs report that sent short-term rates falling.
2. An excellent earnings report from Sun Communities (SUI) that drove shares higher even as apartment REITs were getting hammered. Since we have a significant position in Sun Communities, that report was quite welcome. 

What’s happening with apartment REITs? 

I posted a note in Discord on Friday (as a response to a member question). I cleaned it up a bit and expanded it (along with formatting) to include it here.

Three factors hammering apartment REITs:

1. Recession fears, but it’s a bit ironic since the market overall doesn’t appear weak.
2. Earnings reports for apartment REITs haven’t been great so far.
3. It can sound pretty callous, but I’m called on to do math and logic. The third potential risk factor is deportations.

I want to dive into those a bit and then dig into our view and plans.

Recession fears: Given the weak jobs report and plunging short-term rates, I think this is a material factor. The last significant recession we had was the Great Recession. That one was particularly bad for housing REITs because housing was severely overbuilt and overvalued. If we go into another recession, apartments shouldn’t be hammered nearly as hard.

Earnings reports: I’m still digging into the reports for the apartment REIT sector. Equity Residential (EQR) reports tomorrow after the close. The other 5 apartment REITs we cover have already reported. I’ll be working on an update to cover all of the apartment REITs. Overall we’ve seen some maintaining guidance and some slight increases to guidance. Nothing really powerful. However, there is one I want to touch on briefly.

For UDR (UDR), the guidance is mixed as FFO guidance was decreased but FFOA guidance was increased. I did a quick look into the line items that changed in the reconciliation for guidance. The improved guidance on FFOA is more important than the reduction in guidance for FFO. Some non-recurring factors are hitting FFO. The FFOA figure is more relevant. The headlines saying UDR missed consensus estimates are simply wrong. They focused on $.61 of FFO rather than $.64 of FFOA. The consensus estimate was for FFOA.

None of the earnings reports were “bad” in my view. So far, they appear to have ranged from “okay” to “pretty good”. So I don’t love blaming earnings reports, but I’ve got more transcripts to go through looking for swings in sentiment.

Deportations: I strive to avoid sounding political. I accept that I will sound callous. I am called on to provide math and logic. If there are an abnormally large volume of deportations, it would reduce demand for housing. When demand for housing is reduced, it puts pressure on occupancy and rental rates. This would happen any time there is a material decrease in the adult population. I believe different people may have extremely different estimates for how many people might be deported. I don’t believe the number will be high enough to have a substantial impact on demand, but it is within the realm of possibility. 

I believe the potential deportations could materially reduce the number of workers available in apartment construction. Some people might disagree. If I’m right about that, then we could see more headwinds for new construction. 

Apartment REITs vs other apartments: The apartment REITs should be more insulated than landlords of cheaper apartments. On average, apartment REITs typically own higher-quality apartments. Therefore, they should see less pressure on occupancy and rental rates than many private apartment landlords would see due to the difference in apartment styles. Hopefully, I won't offend anyone by being so direct about projected economic impacts. If I do, it is regrettable but my priority is giving people good research. I'll be looking into the recent earnings announcements to see what else management may call out. I prioritized earnings updates for the stocks we already own (especially large positions). 

Outlook for apartment REITs: A bunch are sitting right around their 52-week lows (at least for closing values). The others are only a tiny bit higher. For perspective, that means they are at very similar levels to the very worst day after the tariffs were announced (in some cases even lower). So I could see nibbling a bit here. I don’t think apartment REITs have reached “panic level” pricing. 

I may go shopping for a small position in apartment REITs. If prices dropped another 10% to 20%, I would say the market was in a panic. If that happened without much movement in other assets, I would be pretty excited about building positions.

Valuations: We could use AFFO multiples or price-to-NAV. The downside with price-to-NAV is that I’ve found analysts tend to be a bit slow in updating their NAV estimates. In short, we should be conscious of putting too great an emphasis on price-to-NAV within this type of REIT. It is still useful to consider though. For the apartment REITs, using NAV estimates from a few weeks ago (they usually don’t swing rapidly), the price-to-NAV ratios range from 0.79 to .86. I find it’s pretty common for them to be somewhere around the .90 range.

The AFFO multiples are in the 17.26 to 18.51 range. This isn’t a “panic” level either, but it’s pretty good.

Current position: For apartment REITs, currently our only open position is in Camden Property Trust (CPT). We have invested in the sector several times, but we’ve unloaded those positions (often for attractive returns). We have much more allocated to the manufactured housing park REITs. I was looking at raising our position in Equity Lifestyle (ELS), one of the manufactured housing REITs. However, we suddenly have quite a few options because the apartment REITs got slapped last week. This makes it a bit more complicated as ELS has a slightly larger discount to our targets, but their performance relative to the apartment REITs over the last several days was remarkably strong.

That’s probably because Sun Communities (SUI) delivered an exceptionally strong report last week. SUI’s results drove SUI and ELS higher even as apartment REITs were falling.

Big equity REIT earnings announcements coming up this week:

• Monday: SBA Communications (SBAC) reports after the close. We have a large allocation to SBAC, so this will be viewed as a top priority report.
• Monday: Equity Residential (EQR) reports after the close. This is the last of the apartment REITs we cover, but it’s going to be pushed down on priority because of SBAC. They also have apartment REIT peers that we find moderately more attractively valued.
• Wednesday: Realty Income (O) reports after the close. We only have a small position in Realty Income, but this will probably be prioritized because of reader interest.
• Wednesday: Terreno Realty (TRNO) will probably file their 10-Q. This isn’t a really big deal because they usually provide their “portfolio statistics” within 2 weeks of the quarter ending. Consequently, we’ll just get confirmation on some numbers. We have a material position here.

Disclosures: Among the REITs I just mentioned, we are long SUI, ELS, CPT, SBAC, TRNO, and O. We may open a position in additional apartment REITs and / or increase our position in ELS.

Scott’s Ultra-Brief Summary

“Another fairly quiet week for both mREIT BVs + BDC NAVs (outside applicable earnings-related adjustments). If anything, a very slight - slight decrease in BDC NAVs but the opposite in a majority of mREIT BVs (even with the volatility on Friday). Even though most short-term rates/yields notably decreased on Friday (at least regarding 1-day movement), longer-term rates/yields were less impacted. I updated my typical upcoming weekly earnings report dates for both sectors near the top of the text. It will be another very busy upcoming week on my end with earnings.”

Weekly Notes From Scott Kennedy

Positions: 0 trades over the past week.    

In general, I am being patient regarding selectively deploying capital in attractively-valued mREIT common stocks with a less attractive risk/performance rating.  My sector allocation to mREIT common stocks remains high (thus aligning with continuing to hold existing positions and selectively adding for future appreciation over the long-term).  Patience remains key as catalysts/events will take time to play out (especially within commercial/multifamily mREITs).  I will continue to remain disciplined regarding “picking and choosing” investments and lot sizes.

Next Week Earnings Report Dates for All Covered mREIT and BDC Stocks:

• Monday Post-Market Close: GBDC
• Tuesday Pre-Market Open: OCSL
• Tuesday Post-Market Close: SLRC, GPMT
• Wednesday Pre-Market Open: BXSL, MFA, CIM
• Wednesday Post-Market Close: OBDC, FSK, TPVG, CSWC
• Thursday Post-Market Open: RC, EFC, CHMI, MAIN

As a reminder, since CSWC and MAIN already provided preliminary earnings results (and we provided an earnings assessment article), we will not be providing additional commentary on those BDCs on Wednesday and Thursday, respectively.  Out of the stocks listed above, GBDC will likely have an earnings assessment article provided Monday night.  SLRC and GPMT will likely have an earnings assessment article provided late Tuesday night.  CIM will likely have an earnings assessment article provided Wednesday night.  RC will likely have an earnings assessment article provided late Thursday night.  Regarding all remaining stocks listed above (which are deemed “lower priority” stocks), I will quickly review top-line metrics and make any necessary “true-up (down)” CURRENT BV/NAV adjustments the night of earnings which will be shown in the subscriber spreadsheets (prior to an earnings assessment article).

As is typical, out of all lower priority stocks, we are currently letting subscribers vote in chat regarding the order I provide an earnings assessment article. The stock with the highest vote total equates to the first lower priority assessment article possibly as early as Friday night and so on. I will likely get to 1-2 stocks per day (likely excludes weekends due to my/our typical weekly modeling work).  Please be patient as I work through the upcoming backlog of company earnings (simply way too many stocks are reporting in such a short period of time).