Market Outlook: Multifamily Sector Remains Resilient

Continued demand strength, limited competition from both new apartment supply and single-family home ownership, and durable employment trends contributed to strong results in the first quarter for public real estate investment trusts (REITs).

Quarterly Results

Tailwinds contributed to a majority of REITs outperforming analyst expectations for funds from operations (FFO) and revenue in the first quarter.

AvalonBay reported first quarter 2023 core FFO per share of $2.57, beating analyst estimates and representing a 13.7% increase sequentially. The REIT reported same-store residential revenues increased 9.5% year over year to $622.4 million, and same-store residential net operating income (NOI) increased 10.7% to $430.4 million in the quarter.

Equity Residential reported a 10.4% increase in FFO per share to $0.85 in the first quarter, a 9.2% increase in same-store revenue, and a 10.2% increase in same-store NOI. The company attributed the positive growth in same-store results as “better than anticipated due to continued healthy demand.”

During the first quarter, Camden Property Trust reported FFO of $1.66 per share, an improvement from $1.50 per share a year ago. Same-property revenue growth exceeded expectations at 8%, and same-property NOI improved 8.1% compared with the prior-year period.

UDR reported first quarter FFO as adjusted per share of $0.60, a 9% increase on a year-over-year basis. Same-store revenues increased 9.6% year over year, and same-store NOI improved 11.7% compared with the first quarter of 2022.

Essex Property Trust reported core FFO improved 8.3% on a year-over-year basis to $3.65 per share in the first quarter. The REIT’s same-property revenue increased 7.6% from the prior-year period, and NOI increased 9.2% year over year.

MAA’s first quarter core FFO per share of $2.28 represented a 15.7% improvement from the first quarter of 2022 and beat analyst expectations. The REIT reported same-store revenues increased 11% year over year due to a rise of 12.6% in the average effective rent per unit. Same-store net operating income improved 12.5% compared with the first quarter of 2022.

Elme Communities reported core FFO per share in the quarter of $0.24, an improvement from $0.20 in the prior-year period. Same-store net operating income increased 10.7% compared with the prior year period and was positively impacted by rental rate growth.

During the first quarter, Veris Residential posted FFO per share of $0.15 and same-store net operating income improvement of 15.8%, due to the increase of in-place rents and stable controllable expenses, according to the company.

Industry Outlook

During the quarterly earnings calls, executives shared optimistic outlooks for the duration of 2023 and beyond for the multifamily sector. Here are some forward-looking thoughts shared during the latest round of earnings calls.

“We are certainly starting to see shifts in the development market in response to the Fed tightening over the past several quarters. Among our competitors, many planned projects are being postponed or abandoned as third-party financing becomes scarce and cut off. The slowdown in starts in turn is starting to impact the construction market, where we are finally starting to see some retraction in subcontractor trade pricing after three years of outsized increase. An environment where capital is scarce and certainty of execution becomes more critical, both to land sellers and subcontractors, plays well to our strengths as both the developer and the general contractor. And we have traditionally seen some of our most profitable investment opportunities when these more challenging cyclical conditions have prevailed.” —Matthew Birenbaum, chief investment officer, AvalonBay

“We continue to see substantial demand from our affluent renter demographic and moderate levels of supply in most of our major markets, with the new news in the quarter being the rapidly improving regulatory conditions in California. Despite headlines and layoffs, demand feels solid.” —Mark Parrell, CEO and president, Equity Residential