By Dawn Wotapka
Equity Residential (EQR) and AvalonBay Communities Inc. (AVB),
two of the U.S.'s largest publicly held apartment landlords,
reported strong quarters late Tuesday, reflecting the rental
market's continued strength.
But there are signs that the red-hot sector could be cooling as
rental growth slows and low mortgage rates continue luring buyers
into the ownership market. In a conference call with analysts and
investors early Tuesday, competitor Post Properties Inc. (PPS) said
turnover and moveouts to buy homes picked up in its latest quarter,
while it is offering concessions to lure buyers to some
communities.
The apartment market has done well since the housing and
financial markets crashed and buyers flocked to the rental
lifestyle. The Census Bureau reported Tuesday that homeownership in
the U.S. continued fell to its lowest rate in nearly 18 years
during the first quarter.
But developers are rushing to deliver new supply, leaving some
markets, including Washington, D.C., and Seattle, vulnerable to
oversupply. Meanwhile, more landlords report that more tenants are
pushing back against large rental increases, leading to slowing
rental growth. Mortgage rates near record lows have also made
owning a home cheaper than renting in many markets.
Equity Residential, whose chairman is investor Sam Zell,
reported its latest quarterly results after the market closed
Tuesday.
The company is a real-estate investment trust that is judged by
funds from operations. FFO came in at 22 cents, down from 60 cents
a year earlier.
Equity Residential, along with AvalonBay, recently acquired
Archstone Enterprise LP, a portfolio of apartment properties, from
Lehman Brothers Holdings Inc. in a roughly $6.5 billion deal. The
transaction made year-over-year comparisons difficult for both
companies.
The "normalized" FFO rate, which excludes items not comparable
from period to period or that tend to obscure actual operating
performance, was 64 cents per share in the first quarter, up from
61 cents a year earlier.
Equity Residential said its same-store first quarter revenue
increased 5.1%, expenses increased 2.9% and net operating income
increased 6.3%.
AvalonBay said Tuesday it saw its FFO decrease 39.1% to 78 cents
per share in the first quarter from $1.28 a year ago. Adjusting for
nonroutine items, FFO would have increased by 17.1% over the prior
year period, the company said.
The REIT has shifted its strategy, separating into three brands
that include upscale units, moderately priced suburban homes and a
segment geared to younger renters in urban areas, a move that
appears to be paying off.
For established communities, rental revenue increased 4.9%,
attributable to increases in average rental rates of 4.7%, the
company reported. The Pacific Northwest and Northern California
regions again showed large jumps in rental revenue for the latest
quarter. The Mid-Atlantic showed the weakest.
Shares of AvalonBay, which have slipped 2% so far this year,
were inactive at $133.04 after the market closed Tuesday. Shares of
Equity Residential, which have gained 2.5% since the start of 2013,
were down a hair in late trading at $57.11.
Write to Dawn Wotapka at dawn.wotapka@dowjones.com
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