However, Rosivach says apartment REITs, with their short lease terms, will react rapidly to improving market fundamentals, leading to above-trend earnings growth in 2003.
"We believe operating fundamentals will improve for the apartment sector in 2003 as the US economy starts producing more jobs," Rosivach says. "As a result, we believe the apartment REIT sector can attain 2003 funds from operations growth of between 8%and 11% in 2003, nearly twice Wall Street consensus."
In his report on the industry, Rosivach says he thinks current multifamily rental pricing is reasonable for investors with a long-term view.
"Regardless of long-term valuation, no near-term catalyst for operating improvement is visible," Rosivach says. "In addition, another 2002 earnings revision could create reason for a sell-off. As a result, we believe the best 'trading buy' for the sector will come this summer."
Rosivach initiated coverage of Apartment & Investment Management Co., AvalonBay Communities, BRE Properties, Camden Property Trust and Equity Residential with outperform ratings. In addition, Rosivach initiated coverage of Essex Property Trust,Home Properties and United Dominion Realty with market perform ratings.
U.S. Bancorp Piper Jaffray is a subsidiary of Minneapolis-based U.S. Bancorp.
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