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Apartment REITs Release a Flurry of Positive Updates, Says Analyst

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According to a recent report from BMO Capital Markets’ John Kim, heading into June NAREIT, Apartment REITs have released a flurry of mostly positive updates with the general trend of improving lease growth QTD vs. 1Q17 for both coastal and Sunbelt focused REITs.

According to the firm, this is important given the peak leasing (and supply delivery) season, and will likely continue to drive outperformance.

However, the company notes that “Aimco unsurprisingly lowered 2017 same-store revenue and NOI growth, the latter implied through a change in its same-store pool.”

The views expressed below are BMO Capital Markets’ own. Key Points from the firm’s report include:

Aimco Downgrades SS Rev & NOI. To the surprise of few, AIV lowered its 2017 SS revenue guidance by 45 bps to 3.3%, although this is still 60 bps above its peers (2.7%). AIV maintained SS NOI guidance of 4.25% at the midpoint, due to a reduction in expenses; however, AIV also increased dispositions by $180m at the midpoint to $355m, and removed these lower growth assets from the same-store pool. AIV stated its SSNOI would have been lower by 20 bps if they were retained. We also believe AIV spends the most on revenue-enhancing capex ($80m in 2017 guidance) to maintain its growth; reiterate Underperform.

Camden – Blended Up: As of 5/28/17, new leases turned positive to greater than +1% (vs. -0.4% in 1Q7); while blended lease growth was approximately +2.5% (vs. +1.9% in 1Q17). CPT’s 1Q17 update was through graphical presentation. CPT maintained 2017 same-store revenue and NOI (+2.8%/+1.8%) and FFO guidance.

EQR – Renewals Higher: Renewal rate growth has trended to +4.85% QTD and EQR expects it to end up approximately +4.7% for 2Q17, vs. +4.3% in 1Q17. This is showing a positive trend for the first time since late 2015. New leases QTD of +1.5%. EQR maintained 2017 same-store revenue and NOI (+1.6%/+1.0%) and FFO guidance.

Essex – Trending Higher Than Midpoint: ESS released SS revenue of +4.2% as of April/May (vs. +5.0% in 1Q17). ESS maintained 2017 same-store revenue and NOI (+3.5%/+3.7%) and FFO guidance, but noted its YTD revenue growth of +4.6% is trending higher than FY guidance midpoint.

UDR – Strong: QTD Renewals +5.1% as of 05.17.17 (vs. +4.9% in 1Q17); new leases +2.2% (vs. +0.3% in 1Q17); blended +3.8% (vs. +2.5%). UDR maintained 2017 same-store revenue and NOI (+3.5%/+3.8%) and FFO guidance.