Rent Collectability Risk High, New Lease Rates Decelerate As Apartment REITs Grapple With Coronavirus Fallout

Rent collections and new lease pricing decelerated in April and will likely continue to do so, according to a new research report on four of the seven apartment REIT’s early year earnings reports.

Rent collection has ranged from about 93%-98% in the first quarter of 2020, with delinquencies increasing in April, while new lease rates decelerated in April compared to Q1, according to a report by Mizuho Securities. Both issues are top of mind for the seven apartment REITS, which are bracing themselves for continued delinquency and new-lease risk into May, June and beyond as the U.S. economy faces historic unemployment.

“Rent collectability risk remains top of mind and a key risk into May and possibly June and beyond,” the survey said. “1Q20 earnings [were] generally in line … but uncertainty remains the storyline.”

Mizuho’s report researched earnings reports from four of the seven apartment REITs: AvalonBay Communities (AVB); Essex Property Trust (ESS); Mid-America Apartment Communities (MAA); and UDR. The four, along with Equity Residential (EQR), reported their Q1 earnings Wednesday with an April and coronavirus-related update.

“All seven Multifamily REITs have withdrawn guidance, and hinted at more conservative capital deployment (acquisitions/re/development) amidst the bleak and uncertain near-term economic outlook,” the survey said.

AvalonBay

AvanlonBay was Mizuho’s top apartment pick of the year prior to the coronavirus outbreak, but as the REITs development pipeline has been affected in recent months due to the pandemic, Mizuho downgraded it as six current projects have been suspended. Still, Mizuho found AVB’s balance sheet and liquidity to be strong. The REIT’s April rent collection was 200bps below historical average, bringing total deferred and uncollected rent to 6.1% of billed rent, or 93.9% of total rent. Market-rate apartments have seen fewer deferrals than affordable-rate apartments.

Essex Property Trust

Essex Property Trust forecasted its rental rates to decline 2.8% in FY2020 compared to last year, with 900,000 projected job losses across its markets. The REIT had 62,000 units, representing 7.4% of its total residents, requesting lease assistance in April – of those, 36% paid the full month’s rent; 36% paid partial rent; and 28% paid no rent. ESS’s new lease rate was up in April compared to 1Q2020, an exception to other REITs, who saw new leases decrease last month. 

Mid-America Apartment Communities

New leases were down in April compared to 1Q2020, which was partially due to MAA’s enacted payment flexibilities, late fees and interest charges, and not pursuing nonpayment remedies, Mizuho found. Occupancy declined slightly in April compared to the first quarter, while rent collection declined slightly, to 92.6%, although it began to rebound in May.

UDR

UDR’s rent collection data for May was among the best of the sector, according to Mizuho, which attributed the REIT’s success to a geographically diversified portfolio. 98% of tenants paid at least a portion of their rent in April, compared to 99.8% a year ago. Additionally, 95.3% of rent-payers paid in full, 2.7% paid a portion of their rent, and only 2% did not make an April payment. Leasing traffic decreased, with 19% fewer average leads and 15% fewer applications compared to a year ago.