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Market Reporting that Matters

Apartment REITs Return to Moderation

The three-month streak of rent-growth increases among the publicly traded apartment REITs came to a halt in March, as decreases in seven of the nine individual REITs sent the overall REIT rate down to 1.1%.

March’s rate was 25 basis points (bps) lower than February’s 1.4% and 295 bps lower than the 4.1% of March 2016.

The REITs’ gap with the national rent-growth figure, which decreased 24 bps to 2.1%, was essentially steady at 92 bps.

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The positive news for the industry was that the average same-store rent increased for the third straight month, coming in at $1,925 per month per unit in March.

As with the national overall apartment market, the REIT decline can be attributed to decreased rent growth in 32 of Axiometrics’ Top 50 markets, based on number of units. Metros with heavy REIT concentrations such as New York; Washington, DC; Atlanta; and Dallas all recorded declines, offsetting increases in Los Angeles and Miami.

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

  • Sacramento, CA (8.8%)
  • Riverside, CA (6.0%)
  • Salt Lake City, UT (5.2%)
  • Seattle, WA (4.9%)
  • San Diego, CA (4.8%)
  • Fort Worth, TX (4.8%)
  • Orlando, FL (4.4%)
  • Phoenix, AZ (4.3%)
  • Las Vegas, NV (4.2%)
  • Long Island, NY (4.3%)

 MSAs underperforming the national average included:

  • Boston, MA (1.9%)
  • Portland, OR (1.8%)
  • Nashville, TN (1.7%)
  • Philadelphia, PA (1.6%)
  • Chicago, IL (1.2%)
  • San Francisco, CA (1.0%)
  • Austin, TX (0.1%)
  • San Jose, CA (-0.4%)
  • New York, NY (-0.8%)
  • Houston, TX (-3.4%)


Occupancy Down Slightly

The REIT occupancy rate was 95.7% in March, down 7 bps from February’s 95.8%. That rate marked the fifth time in six months that occupancy has declined. March’s rate was 16 bps lower than the 95.9% of March 2016. March’s decrease was an anomaly, in that REIT occupancy had increased from February to March in each post-recession year until now.

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REIT Year-to-Date (YTD) rent growth continued to outperform the post-recession average in March, completing a positive first quarter for this metric.

YTD growth increased 101 bps to 2.8%, the third highest post-recession March rate, behind only the 3.2% of March 2015 and, by 5 bps, the 2.8% of March 2010.

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March’s rate was 16 bps above the post-recession average of 2.6%.

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What Milestone Provides to Starwood

Starwood Capital Group’s announcement that the company would be purchasing Milestone Apartments REIT (MST.UN) made headlines in January, and the anticipated closing date of April 28 continues to get closer.

MST.UN has been one of the nation’s strongest performing REITs in regards to rent growth for more than a year. Of the nine REITs tracked by Axiometrics, MST.UN has had the highest annual rent growth in all but one of 14 months dating to January 2016. Tracking MST.UN’s annual rent growth against the average of all REITs (including MST.UN) helps show how well the REIT has performed in recent months.

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From a geographic perspective, MST.UN properties are primarily located in Sun Belt metros, although some of its metros, such as Salt Lake City, Colorado Springs, Denver and Kansas City are north of the standard Sun Belt definition.

Starwood Capital Group offers an equally diverse apartment portfolio, with assets in 16 states stretching from New England down the east coast and throughout the southern U.S., all the way to California and Washington on the west coast.

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The soon-to-be combined portfolios of Starwood Capital Group and MST.UN will offer an impressive level of geographic coverage, but what can be said about coverage within these states? Will the combined portfolio feature a heavy concentration of urban core properties? Are these properties typically Class A product with rents near the top of the market, or will the portfolio offer a diverse array of properties with some Class A product sprinkled in with primarily Class B properties?

MST.UN’s bread and butter, so to speak, is properties typically within the Class B classification, meaning rent levels are neither in the 20% highest nor 20% lowest in their markets. The portfolio’s balance of Class B properties helps explain the REIT’s relative strength compared to other REIT performance. Class A has been hit substantially in recent months by new supply. Though new supply affects market performance as a whole, Class B and Class C product is not as directly affected by new supply.

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This annual effective rent growth by asset class chart shows how supply can affect rent growth performance. Looking specifically at the early summer months of 2016, the entire market slowed in terms of rent growth, but Class A recorded the biggest slowdown, much of it resulting from new supply.

Interestingly enough, Class A seemed to show improvement in early 2017.

Starwood Capital Group is somewhat more diversified in terms of asset class, with some Class A product and a few Class C properties. In terms of the company’s overall portfolio though, the majority of the company’s assets are Class B.

When combined, approximately 80% of the companies’ portfolio is Class B product. Class A makes up roughly 8%, while Class C rounds out the remaining 12%.


Asset Class

Percent of Portfolio

Class A


Class B


Class C



With such a heavy weighting of Class B product, it probably is not surprising that the combined portfolio is located almost exclusively in suburban locations. In fact, only 1% of the combined portfolio is located in urban core areas. Urban core areas have been particularly impacted by new supply in recent months, so the lack of urban core product in the combined portfolio has helped each portfolio maintain strength relative to the rest of the market.

Now that some attention has been devoted to analyzing certain aspects of this soon-to-be combined portfolio, what might this mean moving forward?

Again, the combined portfolio is primarily Class B product, which means the wave of new supply will likely not affect the new Starwood to the same degree as a portfolio heavily weighted with Class A product – especially given the lack of urban core product in the combined portfolio.

The geographic diversity of the portfolio as well means that local ebbs and flows may not affect the overall performance as much as that of companies that primarily focus on one geographic area. While all markets are cyclical, the timeline of cyclicality for individual markets is different – i.e. what is happening in Washington D.C. might not be happening in Los Angeles for a few more years. In essence, the geographic diversity of the portfolio will help smooth ebbs and flows of local markets.


Most REITs' Rent Growth Declines


Milestone Apartments (MST.UN) may be in its last month as an individual REIT, but it looks like it will go out on top. Its 2.4% year-over-year (YoY) effective rent growth is the highest among the nine REITs tracked.

However, MST.UN’s March rent growth was 184 bps lower than its February rate of 4.3%, which conformed to the trend of most REITs in March. Seven of the nine recorded decreased rent growth in March, with four bunched together in a 20-bps range from 2.2%-2.4%. Three others were grouped in a 99-bps range from 0.2%-1.2%, while two were in negative territory.

MST.UN also had the highest rent growth as figured on an annual-trailing-12-month basis (ATTM) at 4.7%. Camden Property Trust (CPT) recorded the second highest YoY rent growth (2.4%), while Mid-America Apartments (MAA) was No. 2 in ATTM rent growth (2.7%).

Essex Property Trust had the highest occupancy rate among REITs in March (96.6%), followed very closely by UDR Inc. (96.5%).​  

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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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