Analyst upgrades apartment REIT sector

A Keefe, Bruyette & Woods Inc. analyst upgraded his stance on the apartment real estate investment trust sector to "Neutral" from "Underweight" based on its strong first quarter and improving fundamentals in the marketplace.

REITs specializing in owning and investing in apartment buildings have returned 20.2 percent to shareholders through May 15, KBW analyst Stephen Swett wrote in a research note. The broader MSCI U.S. REIT index has gained 12.3 percent, while the Standard & Poor's 500 index has lost 2.3 percent during the time, Swett wrote in the note.

Apartment market values are "likely to hold up better than for commercial real estate," Swett wrote in the note. Swett noted that outside of a few markets, apartment revenue growth continues in the mid- to upper-single digits.

"With less downside risk, we now believe apartments REITs can hold their relative valuations," Swett wrote in the note.

In addition to the sector upgrade, Swett upgraded Apartment Investment & Management Co. to "Market Perform" from "Underperform" as well. The upgrade was made based on potential for improving earnings at the company through the rest of the year, Swett wrote.

Shares of Apartment Investment & Management slipped 2 cents to $40.42 in morning trading.

Swett reiterated his "Outperform" rating on both Bre Properties Inc. and Home Properties Inc.

Shares of Bre fell 27 cents to $50.91. Home Properties shares rose 16 cents to $51.66.