Major Multifamily REIT Occupancy Took a Hit Last Quarter
There was a rent increase but the net result is a drop in average revenue.
A dozen major multifamily owning REITs found coal in the stocking at year’s end, according a data analysis from Trepp.
“The major apartment-owning REITs, 12 companies with 544,142 units, reported an average 0.63% decline in occupancy in the fourth quarter when compared with a year ago,” the analysis noted. “Meanwhile, average rents for the 12 companies increased by 0.04% from the third quarter, outperforming the 0.17% national average decline during the period.
The overall results mean that the REITs in question problem lost revenue between September and December 2022.
Overall revenue should be the number of units times occupancy times rent. Application of a little algebra, letting M (money) stand for revenue, U for units, O for occupancy, and R for rent, means:
M for Q3 = U x O x R
Between the third and fourth quarters, occupancy dropped by 0.63%. Average rents increased 0.04%. That would mean the income in Q4 was
M for Q4 = U x (1 – 0.63)O x (1 – .04)R = U x .937O x 1.04R =.974 (U x O x R)
And so, total rent revenue should have dropped by roughly 2.6 basis points.
“All but one REIT reported a decline in occupancy when compared with last year,” said the analysis. “The exception was Centerspace, a Minot, N.D., company that owns 15,065 units, primarily in the Midwest. Its portfolio occupancy increased to 94.9% in the fourth quarter from 94.5% in the third quarter and 93.4% a year ago. But average monthly rents at its properties were the lowest among the major REITs, at $1,438/unit. The Midwest has become the last affordable-housing market in the country, especially as rents in the Sunbelt skyrocketed last year.”
The average monthly rent at Centerspace was up 1.9% between the third and fourth quarters of 2022 and had increased 7.9% year over year, leaving it at $1,438 per month. That was the lowest increase of these major REITs and far below the national average of $1,701, according to Yardi Matrix.
The highest monthly rents were $3,482 per unit for Jersey City, NJ-based Veris Residential. The firm owns 6,931 units in that state. Veris was the target of a hostile takeover bid last year by Kushner Cos., which had initially wanted the business of managing the REIT’s properties.
“NexPoint Residential Trust Inc., a Dallas REIT, that owns 13,227 units throughout the Sunbelt had the largest yearly increase of the major REITs, with rents growing by 17.8%,” Trepp noted.