EARNINGS PREVIEW: Multifamily REITs Expect To Stay Strong In 1Q
04/19/2012| 01:31pm US/Eastern
By Ben Fox Rubin
TAKING THE PULSE: Multifamily real-estate investment trusts are expected to continue posting stronger results in the first quarter, as renting remains attractive in the economic uncertainty and tight mortgage lending, leading to fewer vacancies and higher rents. Meanwhile, few new apartment units are expected to hit the market anytime this year, a trend likely to continue supporting higher profits for the next few quarters.
Raymond James this week said recent data show that rent growth and occupancy remained very strong early this year, which it said could lead to increases in full-year guidance and upside surprises. It warned, though, that a dramatic acceleration of new building in the economic recovery could cut down on higher rents and increase vacancy rates, weakening results.
COMPANIES TO WATCH:
Equity Residential (>> Equity Residential) - reports April 25
Wall Street Expectations: Analysts polled by Thomson Reuters expect funds from operations, a key profitability metric for real-estate investment trusts, of 62 cents a share on a normalized basis and rental revenue of $527.5 million. A year earlier, the company reported normalized FFO of 56 cents a share on rental revenue of $518.8 million.
Key Issues: The country's largest apartment developer and manager has continued to report improving fundamentals coming out of the recession and the company has said it remains confident increasing apartment demand will help produce strong results. Equity, whose chairman is investor Sam Zell, has worked to reduce its exposure to softer markets, such as Michigan, and continues to benefit from its holdings in markets like New York and Seattle, which haven't suffered the same high unemployment rates seen in other cities.
AvalonBay Communities Inc. (>> AvalonBay Communities, Inc.) - April 25
Wall Street Expectations: Wall Street predicts FFO of $1.24 a share with revenue of $253 million. A year ago, AvalonBay posted FFO of $1.08 a share on revenue of $235.8 million.
Key Issues: AvalonBay, known for developing upscale apartment complexes, is shifting its strategy, separating into three distinct brands that will include upscale units, moderately priced units aimed at suburbanites and a segment geared to younger renters in urban areas. The company, one of the biggest apartment operators in the U.S., has grown more upbeat about future business, saying recent demographic trends for renting were stoking better-than-expected portfolio trends. Higher rents and a recent asset sales gain have helped AvalonBay post two recent quarters of strong profit growth.
UDR Inc. (UDR) - April 30
Wall Street Expectations: Analysts predict FFO of 34 cents and rental income of $192.6 million. Last year, FFO was 30 cents and rental income was $164.5 million.
Key Issues: The apartment-focused REIT--which has major holdings in California, Florida, Virginia and Texas--has been working to expand into major markets to take advantage of growing demand for multifamily housing and rising rents. It's been focused on increasing its presence in the Northeast, particularly in Boston and New York. Last year, the REIT spent more than $1 billion for prominent addresses in New York City, including 95 Wall St., once the corporate headquarters of J.P. Morgan. It continued that buying spree in January, when it formed a joint venture with MetLife Inc. (MET) that paid $630 million for Columbus Square, five high-rise apartment buildings on Manhattan's Upper West Side. UDR executives say they plan on buying even more in the Big Apple, which boasts the nation's highest average monthly rents.
Home Properties Inc. (>> Home Properties, Inc.) - May 3
Wall Street Expectations: Consensus estimates call for FFO of 93 cents a share and total revenue of $155.6 million. Last year, the company reported FFO of 86 cents a share on total revenue of $141.4 million.
Key Issues: Home Properties, which focuses on working-class communities in the Northeast and Mid-Atlantic, has posted a recent streak of improved FFO, largely driven by higher rents and occupancy rates. The company's total 2011 investment in acquiring new properties rose above half a billion dollars, as the REIT sought to gain exposure to raised demand for rental housing. Earnings growth has been reaching at least 55% in the past year, thanks in part to the higher rents.
(The Thomson Reuters estimates and year-earlier results may not be comparable because of one-time items and other adjustments.)
-By Ben Fox Rubin, Dow Jones Newswires; 212-416-3108; firstname.lastname@example.org