Apartment Earnings Point to Continued Momentum

The positive momentum that began in the first quarter for the apartment sector has largely carried forward into peak leasing season across most markets, according to a RealPage review of Q2 earnings reported by larger multifamily REITs.

Apartment demand continued to be strong during the three months through June, despite ongoing macroeconomic uncertainty, the report found. This demand was driven by employment growth, wage growth, in-migration and housing affordability across regions and product classes.

AvalonBay Communities and Camden Property Trust both noted positive demand, with AVB characterizing it as better than expected for the first half, which it attributed to full employment with stable job and income prospects in its markets. Sun Belt-focused Camden said the main driver of apartment demand in its markets is household formation, which is attributed to population and employment growth, apartment affordability and positive demographic trends.

Essex Property Trust said it is seeing a gradual improvement in domestic migration patterns on the West Coast, particularly Northern California, for the first time since the pandemic. The company noted that home ownership in its West Coast markets is significantly less affordable than renting, with interest rates making it 2.8 times more expensive to own than to rent in its markets.

Operational performance remained solid during the first half despite a historically high number of units delivered. Equity Residential reported 96.4% occupancy during the second quarter owing to good demand and a strong renewal process that resulted in low resident turnover.

Mid-America Apartment Communities reported occupancy of 95.5% across its portfolio in the Southeast and Southwest, which is 20 basis points higher than occupancy in the prior quarter. Occupancy varied in coastal markets, the report said. New York, Boston, Washington, D.C., and Seattle turned in particularly strong average occupancy rates – greater than 97% – for the quarter. Essex said its East Coast markets were its best performers with occupancies around 97%.

Going into the second half of the year, REITs are focused on streamlining operations and lowering borrowing costs, said the report.

“Disciplined balance sheets are enabling REITs to enjoy greater operational flexibility and face less stress than their counterparts with higher debt loads and costs,” noted Nareit, which tracks REIT leverage and interest expense ratios.

In their Q2 reports, many REITs touched on internal initiatives to reduce operating expenses by optimizing technology systems, processes and staffing.