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July 2017 REIT Report

Big City Declines Drop REIT Performance

Declining apartment performance in some REIT-heavy markets brought down annual effective rent growth among publicly traded apartment REITs in July to the lowest figure in more than seven years.

REIT rent growth was 0.8% in July, 64 basis points (bps) lower than June’s 1.4% and 131 bps lower than the 2.1% of July 2016. The latest figure was the lowest since the REITs were in negative territory in April 2010, according to Axiometrics apartment market surveys.

Though overall national effective rent growth fell slightly in July to 2.4%, the more severe REIT decline extended the gap between the two rates to 163 bps, largely because of the continuing moderation of larger markets with a heavier concentration of REIT portfolios. Strengthening performance in smaller markets with little, if any, apartment REIT presence cushioned the slight national decline.

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Average REIT effective rent, on the 13-month same-store basis used for calculating effective rent growth, fell by $4 to $2,016 in July, breaking a six-month streak of increases. The fact that rents decreased in July goes against the usual trend for this time of year: average rents had increased from June-July each year from 2010-2016.

Effective rent growth declined in six of the eight individual REITs tracked. Though only one was in negative territory, three others were within 35 bps of 0.0%.

Among REIT-heavy metros, rent growth fell by at least 50 bps in Atlanta, San Jose, San Francisco and Miami, while falling by lesser rates in Dallas and Houston. Some REIT portfolios were hard hit in Anaheim, Atlanta, Boston, Dallas, San Jose and Houston, the apartment market surveys found.

The Metropolitan Statistical Areas and Metropolitan Divisions among Axiometrics’ Top 50 apartment markets with the highest annual effective rent growth in May were:

  • Sacramento, CA (8.2%)
  • Riverside, CA (5.8%)
  • Las Vegas, NV (5.5%)
  • San Diego, CA (5.0%)
  • Richmond, VA (4.8%)
  • Orlando, FL (4.7%)
  • Phoenix, AZ (4.7%)
  • Fort Worth, TX (4.6%)
  • Seattle, WA (4.6%)
  • Nassau-Suffolk, NY (3.9%)

MSAs underperforming the national average included:

  • Dallas, TX (2.4%)
  • Portland, OR (2.2%)
  • Chicago, IL (1.7%)
  • Boston, MA (1.6%)
  • Philadelphia, PA (1.5%)
  • Washington, DC (1.3%)
  • San Jose, CA (1.2%)
  • Miami, FL (1.2%)
  • New York, NY (-0.1%)
  • Houston, TX (-1.9%)


Occupancy Inches Up

The REIT occupancy rate was on the upward side of steady in July, increasing 9 bps to 95.9%, just 3 bps less than the July 2016 rate. That occupancy was essentially the same as one year ago runs counter to the overall national trend, which has occupancy declining from the rates of summer 2016.

Four of the eight apartment REITs tracked experienced occupancy increases in July, and four REITs registered occupancy of 96% or higher, compared to two at that level in June, according to apartment surveys.

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Apartment REIT Year-to-Date (YTD) rent growth, on the other hand, offered a cautionary trend. The rate, 5.1% in July, was down from June’s 5.3%, marking the first time in the post-recession era that the YTD figure declined in July.

Whether this represents an early start to the usual late-year decline remains to be seen, but YTD rent growth started falling in August 2011, 2013 and 2016; in September 2012 and 2014; and in October 2010 and 2015.

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July’s YTD growth dropped it farther behind the post-recession average; it was 119 bps below the July average of 6.3%. 


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The July YTD rate was also the lowest of the post-recession period, though it was 106 bps higher than the overall national YTD rent growth of 4.1%.

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REITs Continue Revenue Growth Advantage

After peaking in September 2015, national rent growth performance underwent a period of moderation. For many in the multifamily industry, this period may have felt like a prolonged period prompting questions such as “How much longer will this last?” or “How much lower might rent growth fall?”

The good news from the rent growth perspective is that performance has appeared to stabilize, with the first seven months of 2017 averaging 2.3% annual rent growth. This may seem unsatisfactory given the hurrah of 2014 and 2015, but the fact that rent growth has stabilized near its long-term average of 2.3% is indicative of still-healthy market fundamentals.

Occupancy rates have also softened from the 95.4% peak in August 2015, with most major markets experiencing their peak occupancy around that same time.

Not to fret, however, as there is good news on the occupancy front as well. July’s occupancy rate of 94.9% is right around the 95.0% sweet spot that most industry professionals consider full occupancy.

Both rent growth and occupancy softening has been far more pronounced among the apartment REITs. The combined REIT rent growth as of July (0.8%) is a far cry from the enviable 7.1% peak in September 2015, apartment market research found. Perhaps more notable is the spread between the combined REIT rent growth and national rent growth – a considerable 148 bps spread between the two data points.

As an aggregate, however, the REITs have done a far better job maintaining higher occupancy levels with the July occupancy rate (95.9%) remaining comfortably above the national average by roughly 100 bps.

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Such a pronounced difference in rent growth and occupancy rates might prompt a few questions, but none more important than the one that impacts the bottom line – how has this impacted revenue growth?

In short, revenue growth among REIT properties has outpaced national revenue growth for some time now. The aggregated REIT-reported revenue growth in the second quarter of 2017 (2.9%) was 90 bps above the national average of 2.0%. The spread was 120 bps in the first quarter and 150 bps in the fourth quarter of 2016 – all considerably above the national average.

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With REIT rent growth lagging national performance, how has REIT-reported revenue growth steadily remained above the national level?

Maintaining a higher occupancy level has certainly helped. As revenue growth takes into account not only rent growth but occupancy-rate changes, the REITs’ ability to keep units filled has undoubtedly helped buoy their reported revenue growth.

REITS also have a tendency to have higher renewal rent growth than new-lease rent growth, which contributes to the reported revenue numbers.


AIV Takes Rent-Growth Lead

Aimco (AIV) was one of only two apartment REITs to record increased rent growth from June to July, and that increase was more than enough to position itself as the year-over-year effective rent growth leader.

AIV’s 2.7% rent growth in July was a full 156 bps ahead of No. 2 UDR (1.1%), with Equity Residential just 8 bps behind that (also rounded to 1.1%). The Nos 2-7 REITs for YoY rent growth were bunched between 0.0% and 1.1%.

AIV also took the honors for average trailing 12-month (ATTM) rent growth, at 1.6%, 6 bps behind second-place Mid-America Apartments, also rounded to 1.6%. EQR, Avalon Bay (AVB) and Camden Property Trust (CPT) each recorded 1.3% ATTM growth.

UDR remained the occupancy leader with 96.6% of its units filled, 29 bps higher than No. 2 EQR’s 96.3%. AIV was third at 96.2%.  

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Accessing the Data Files

The data files can be accessed by logging into the AXIOPortal®. Go to the Publications tab, select “Trend Report” under Category, then search for “REIT” in the “Search Publication Name” box. Select “REIT” in the Type dialogue box.

Student Housing REIT information can be accessed by clicking on the Publications tab, then, under Category, selecting “REIT Report” under the Student Housing section.

Please note that Aimco (AIV) does not allow its properties to disclose occupancy rates. Axiometrics readjusts AIV's occupancy data after each quarterly earnings release. Between releases, we apply the average REIT growth rate in each market to AIV's properties. We apply the submarket's average growth rate if there is no REIT presence in the market.

Remember that rent and occupancy levels in those files are not same-store throughout time, but the growth rates are same-store for each month. You may view how the unit counts change at the bottom of the Effective Rents tab. The file with "Rolling 13 Month" in the name represents annual changes by month.


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