UPDATE: UBS Downgrades Camden Property Trust (CPT) to Sell on 'Sunbelt Supply Risk'
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(Updated - September 13, 2016 9:42 AM EDT)
UBS downgraded Camden Property Trust (NYSE: CPT) from Neutral to Sell with a price target of $81. Analyst Nick Yulico doesn't think the stock is accurately pricing in supply risk from warmer areas in the U.S.
"After outperforming the Multifamily peer group ytd, we think Camden's valuation is not reflecting the risk of Sunbelt supply hurting revenue growth in coming years," Yulico explained. "While CPT is selling assets at attractive pricing this year and rewarding investors with a special dividend, we have concerns about CPT's Houston exposure (13% of NOI), along with other Sunbelt markets (e.g. Dallas, Atlanta, Charlotte) showing weaker rent growth in 2017, leading CPT to underperform peers next year (we est. 2.5% SSREV growth in 2017 for CPT vs. 3.5% Multifamily avg.) Given what we view to be a disconnect between fundamentals and valuation, we are downgrading CPT to Sell from Neutral."
The analyst added, "We continue to believe Multifamily REITs with a Sunbelt-focused geographic footprint run a high risk of supply pressures. Based on permitting data from the Census Bureau, our proprietary Inside the MSAs analysis shows CPT has one of the highest exposures to new supply in our coverage universe. Permits as a percentage of existing stock is above 4% in both Charlotte and Orlando and ranges from 2.8%-3.8% in Atlanta, Miami, and Dallas. Collectively, these five markets account for ~40% of CPT's NOI, with Sunbelt markets overall making up ~70% of NOI. CPT's revenue and NOI growth are already below the peer group average (in addition to above average expense growth) and we believe increased supply could lead to difficult occupancy and rate growth comps, likely resulting in decelerating growth through at least 2017."
Shares of Camden Property Trust closed at $86.80 yesterday.
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