Despite Slowing Growth, MF Story is Solid

An Equity Residential apartment property in New York City. The REIt is expected to address converns about potential overbuilding in this market. (Photo courtesy of Equity Residential)

NEW YORK CITY—The heavy hitters among multifamily REITs began reporting their first-quarter earnings this week, starting with UDR after the markets closed on Monday, citing an 8% increase in funds from operations. In advance of the reports from UDR and its peers—Equity Residential, Apartment Investment & Management Co., AvalonBay Communities and Essex Property Trust, among others—analysts with Barclays Equity Research and RBC Capital Markets weighed in on the sector’s near-term outlook, giving it solid marks despite deceleration in rental growth nationally.

Although the Barclays analysts cite “slowing organic growth driven by peaking new supply and decelerating tech job growth” as an underlying theme for apartment REITs in Q1, the analysts also think investors may have overestimated the impact of new supply. Furthermore, while citing data from Reis Inc. showing that the national vacancy rate has risen for three consecutive quarters, a trend not seen since the sector’s recovery began in 2010, the Barclays team predicts that apartment REITs “will continue to achieve above-inflation rental rate growth across most of the nation in 2016-2017.”