BMO Capital Markets upgraded the U.S. real estate investment trust industry to “outperform” from “market perform” today, and said it believes REITs are at or nearing a turning point.

“We are raising our sector rating … based on early signs of economic recovery, the competitively advantaged position of the REITs vis-a-vis the broader real estate industry, and valuation, which we think is much closer to the bottom than the top,” BMO analysts wrote in a note.

BMO, which also changed its rating on a number of REIT stocks, said public REITs were much better capitalized than their private peers, and their balance sheets were getting stronger.

“Between equity issuances, debt repurchases and secured and unsecured debt refinancings, balance sheets are improving or stabilized,” the analysts said.

The analysts, however, still expect real estate fundamentals to decline over the next 12 months.

BMO upgraded four multi-family REITs, including Camden Property Trust (CPT) and said it remained positive on health care REITs.

At the same time, BMO said it remains cautious on office and self-storage REITs.

Specific ratings changes were as follows:

Upgrades:

* Apartment Investment (AIV) to market perform from underperform
* Camden Property Trust (CPT) to outperform from market perform
* Colonial Properties Trust (CLP) to market perform from underperform
* Home Properties (HME) to outperform from market perform
* Kite Realty Group Trust (KRG) to market perform from underperform

Downgrades:

* BRE Properties (BRE) to underperform from market perform
* Essex Property Trust (ESS) to underperform from market perform

Disclosures: None at the time of this writing. BMO is acting as co-lead for an Inland Realty (IRC) secondary (Merrill is the lead).

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