REIT Growth Slows, Remains Moderate

New York City —While growth in multifamily REITs remains healthy, it is moderating, as is share price appreciation. That’s the contention of Bank of America analysts in a recent report on the sector. Reiterating the 2007 multifamily outlook released in December, the analysts state that with a more moderate near-term growth outlook and valuations reflecting unrealistic expectations of continued fundamental strength, further share price appreciation of multifamily product would be limited.

Multifamily REITs have underperformed the RMX index since the sector peaked in January, with a ratio of -10.5% versus -4.4%. The group is now trading at a 7% discount to the locally based firm’s FW NAV estimates. Yet as visibility improves on 2007 earnings, the analysts believe the gap will narrow.

Same-store NOI growth for REITs peaked in the second quarter of 2006 at 8.5%, and the Q4 growth of 7.4% was disappointing. “Expectations were just a bit too high, in our view, and seasonality, tougher comps, condos returning to the rental pool, increased single-family inventory and lower job growth in several markets all played their part in the multifamily REITs recent underperformance,” researchers say.