After a slight uptick in annual effective rent growth in May and June, the growth moderated in July. For the month, annual effective rent growth measured 3.41%; occupancy remained steady. Although there was no change in occupancy from May to July of this year, occupancy has increased 37 basis points (bps) since a year ago in July 2012.
With annual effective rent growth slowing at the national level for July, all three asset classes (A, B and C) also showed signs of moderation for the month. Still, even though all asset classes reported slower annual effective rent growth from June to July, when comparing July 2012 to July 2013, only Class A has decreased in annual effective rent growth, from 4.12% to 3.20%.
With the end of the second quarter and the release of earnings supplements from the apartment REITs, the end of this newsletter includes some analysis detailing reported revenue for a few companies, as well as Axiometrics' surveyed results for their portfolios. While this analysis specifically focuses on the revenue growth of the apartment REITs, it shows how Axiometrics' surveyed results are a leading indicator for revenue growth and can be applied to any portfolio.
Effective Rent Growth
Nationally, annual effective rent growth moderated from 3.51% in June to 3.41% in July. The annual growth rate was 3.75% a year ago, and has slowed in nine of the last 12 months with an increase beginning in May as many MSAs were moderating from very strong rent growth the previous three years. The peak annual growth rate at the national level was 5.32% in June 2011.
Seventeen of the top 88 MSAs had an annual growth rate greater than 5.0%. Fort Myers ranked first with an annual growth rate of 11.03% followed by Oakland at 10.9%. A few other MSAs with an annual growth rate greater than 5.0% included: Boulder (9.01%), San Francisco (8.05%), Corpus Christi (8.03%), Denver (7.58%), and Seattle (6.88%). Washington, DC continues to rank as one of the lowest MSAs with an annual growth rate of -0.20%. This month, it shows negative annual growth along with eight other MSAs, including: Albuquerque (-0.22%), Chattanooga (-0.30%), Montgomery (-1.31%), and Augusta at the bottom (-1.34%).
Asking Rents and Concessions
Nationally, annual asking rent growth increased from 2.56% in June to 2.61% in July. The annual growth rate was 2.49% a year ago. While Axiometrics tracks asking rent growth, more emphasis is placed on annual effective rent growth due to its direct effect on rental revenue.
Concession values lowered the asking rent 1.14% at the national level in July, which is the equivalent of 4 days of free rent on a 12-month lease. For comparison, the concession value lowered asking rents 1.98% last year and 3.10% two years ago. The peak for concession value was in December 2009 when asking rents were lowered 7.46%.
Nationally, the occupancy rate has been steady at 94.8% for the past three months, outperforming the previously forecasted rate for second quarter 2013 of 94.7%. While there was no sequential occupancy growth between June and July, the rate was up 37 bps from July 2012 and 71 bps from July 2011.
Currently, 48 of the top 88 MSAs have an average occupancy rate greater than 95.0%.
Asset Class Performance
At the national level in July, Class C properties continued to generate the strongest annual effective rent growth as well as the best occupancy growth. Annual effective rent growth for Class C properties maintained an annual growth rate of 4.3% during July 2013 compared to 3.7% in July 2012. Class A properties had the lowest annual effective rent growth rate at 3.2%. For the first time in several months, not one particular asset class showed improved growth. All three asset classes are continuing to moderate.
Axio Surveyed Revenue Growth Compared to REIT Reported Revenue Growth
In mid-July, the Apartment REITs announced their 2Q 2013 reported revenue. This is a good time to take a look at Axiometrics' surveyed results for revenue growth in comparison to what each REIT has reported for revenue growth.
The Axio revenue number is the combined change in effective rent and occupancy growth for each company's portfolio (same store properties only). Because the REITs typically maintain a stable occupancy rate close to 95%, the revenue number is mostly dictated by changes in effective rent.
Remember that the point-in-time surveyed numbers typically lead reported revenues by 12 to 24 months. The primary reason for the lag in reported revenues occurs because of the time it takes to move the existing rent roll to the new lease prices collected by Axio. The trailing 12-month average (TTM) figure takes the average annual rate for every month over the past year rather than just using the latest annual growth rate. This method produces a number that is more in line with the current reported revenue results rather than a leading indicator. The following company charts display the reported revenue for each REIT along with the trailing 12-month average (TTM) surveyed growth from Axio.
While most REITs' reported revenue is strongly correlated with the Axio survey results, Axiometrics' surveys cannot report on all forms of revenue. For example, the renewal pricing strategy at some companies can affect their turnover rates thus causing a shorter or longer lag between our data and their reported revenue. It is important to note that Axio surveys are calculating revenue solely based on effective rent and occupancy. Total revenues for each company include revenues from renewals and other income, which can cause a discrepancy in the results.
Included below are a few examples of REIT-reported revenue versus Axiometrics' surveyed results. Specifically we are highlighting AVB and BRE. The third graph below shows the all-REIT average. This graph includes all REITs but MST.UN. As seen below, the majority of the REIT companies' revenue growth is moderating, which is in line with the national trend of the last few years.
Top and Bottom Performing MSAs
The following table lists some of the top and bottom performing MSAs across the country. Several Florida markets rank in the top tier for revenue growth this month. California and the Pacific Northwest also continue to perform well. Washington, DC continues to rank among the bottom for both annual effective rent growth and revenue growth and showed negative rent growth for the second consecutive month.