Apartment REITs Bouncing Up From Bottom

NEW YORK CITY-The bottom appears to have passed for the multifamily REIT sector. After evaluating the results of their latest apartment managers quarterly survey, analysts on the research team at Bank of America-Merrill Lynch have concluded that the if the market didn’t hit the trough in the fourth quarter of 2009, then it did during the first three months of 2010. And a continued improvement in conditions in most markets in the country have also led the research team to assign an overweight rating to the apartment REIT sector.

To derive its report, the research team studied the results of a Axiometrics’ survey of some 13,700 property managers nationally. Apartment managers in the top 20 national markets reported better rental revenues in the first quarter, as compared with the four preceding quarters. Yet because the results are forward looking by about three months and may not show up in earnings reports until the second quarter, REIT management teams are not expected to increase their guidance until then. Once all the numbers are out, first-quarter apartment REIT earnings should be in line with Wall Street expectations.

While same-store revenues may be performing better than initially expected, it won’t be surprising to see management teams remain conservative since the first quarter tends to be a low demand indicator. Management teams, says BofA-ML research analyst Michelle Ko, “will feel more comfortable raising their expectations for same-store net operating income after the high turnover quarters,” the second and third quarters.