Zinger Key Points
- Analyst upgrades Veris Residential to "Buy," citing strong internal growth, capital allocation, and lower expense growth potential.
- Sun Communities downgraded to "Underperform" due to governance concerns and unmet rental growth projections for 2025.
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BofA Securities analyst Joshua Dennerlein revised ratings on residential REITs, Veris Residential, Inc. VRE and Sun Communities, Inc. SUI.
VRE: The analyst upgraded the company to Buy from Neutral and raised the price target to $23 from $20.
The analyst notes that the market is undervaluing VRE’s internal growth potential and its ability to successfully execute optimization initiatives.
The analyst says that VRE is excelling in its key initiatives: capital allocation, portfolio optimization, and balance sheet management.
The analyst sees the greatest upside from capital recycling to reduce leverage, a strategy that distinguishes VRE in the Residential REIT sector.
The analyst raised the 2025 FFO estimate to $0.65 (from $0.59) and 2026 FFO estimate to $0.71 (from $0.63). Dennerlein forecasts SS NOI growth of 5.9% in 2025, significantly higher than the Street’s 2.36%.
Given VRE’s apartment portfolio, the analyst projects SS revenue growth to outperform the peer average, projecting 4.7% compared to the apartment sector average of 3.0%.
Additionally, the analyst anticipates below-average SS expense growth of 1.8%, well below the apartment sector average of 4.0%, as VRE continues to optimize its operating platform.
SUI: Dennerlein downgraded the company to Underperform from Neutral and lowered the price target to $114 from $147.
The analyst expects SUI to underperform until management changes are finalized, governance concerns are addressed, and a clear strategy is set by the new CEO.
During the earnings call, SUI’s CEO responded to a recent short report highlighting concerns over accounting and governance, notes the analyst.
The analyst says that, however, in the discussions with investors, the focus was primarily on governance, and they were ‘disappointed’ by management’s avoidance of the issue.
Dennerlein believes that company culture plays a crucial role in long-term success and notes that management did not adequately address these concerns.
SUI provided preliminary rental rate growth projections for 2025 alongside its third-quarter results. Unfortunately, the initial guidance fell short of the expectations, adds the analyst.
The analyst reduced the 2025 FFO estimates to $6.93 (from $7.36) and 2026 FFO estimates to $7.19 (from $7.85), while raising the cap rate to 5.5% (from 5.2%).
Price Action: SUI shares are down 2.59% at $123.83, while VRE shares are up 1.02% at $18.28 at the last check Tuesday.
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