We are in the middle of the current reporting cycle, and the real estate investment trust (REIT) space is buzzing with activity, with a number of earnings releases lined up for this week.
Among the residential REITs, Essex Property Trust, Inc. ESS and UDR, Inc. UDR will release their quarterly numbers on Apr 30, while Mid-America Apartment Communities, Inc. MAA is slated for its earnings release on May 1.
Per RealPage data, although there was a significant recovery in apartment demand in the first quarter, it was not enough to keep up with the huge amounts of new supply, with the onslaught affecting occupancy and rent growth.
The United States absorbed 103,826 apartment units on net in the first quarter, pushing the annual demand figure to 317,241 units in the 12-month period. This is about 20% higher than a typical annual absorption rate from the 2010s decade, the report noted. A combination of elements like continuing wage increases, solid job growth and favorable demographic trends is driving this surge in demand. Moreover, move-outs from apartment units into single-family homes remain much lower.
However, there were massive amounts of new supply, with 135,652 apartment units being completed in the first quarter, bringing the total number of new multifamily units delivered to 479,367 in the year-ending first quarter of 2024.
With supply outpacing demand, apartment occupancy averaged 94.1% nationwide as of March, down 0.6% year over year, though lower than typical but not significantly down. Apart from the occupancy rate, operators’ pricing power was also affected, with the first-quarter annual effective rent change being up 0.2% and the monthly effective rent change being north 0.4%. The average effective rent was $1,813.
Let’s see what’s in the offing for the three abovementioned residential REITs.
Essex Property Trust is scheduled to report on Tuesday after market close. This residential REIT has a good property base in the West Coast market and banks on its technology, scale and organizational capabilities to drive innovation and margin expansion in the portfolio. However, the struggle to lure renters will persist as supply volumes are likely to have remained elevated in some of its markets, affecting rent growth and occupancy levels. Moreover, outmigration and job losses are expected to affect apartment demand. Also, a high interest rate is a concern for Essex Property.
The Zacks Consensus Estimate of $422.38 million for first-quarter revenues calls for a 2.41% increase year over year. The consensus estimate for same-property revenues is pegged at $400.53 million, slightly up from $400.33 million in the prior quarter and $388.90 million in the year-ago period. The Zacks Consensus Estimate for the quarterly core FFO per share has been revised a cent south in the past two months to $3.74. However, it suggests a year-over-year increase of 2.47%.
Essex Property Trust has the right combination of two key ingredients — a positive Earnings ESP and a Zacks Rank #3 (Hold) or higher — for increasing the odds of an FFO beat.
Particularly, the Earnings ESP for Essex Property Trust is +0.16%, and the stock currently carries a Zacks Rank #3. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
(Read more: What’s in Store for Essex Property in Q1 Earnings?)
The chart below shows the company’s earnings surprise over the trailing four quarters.
Essex Property Trust, Inc. Price and EPS Surprise
Essex Property Trust, Inc. price-eps-surprise | Essex Property Trust, Inc. Quote
Mid-America Apartment Communities is slated to announce results on Wednesday after market close. This residential REIT has a well-diversified Sunbelt portfolio, which is poised to benefit from healthy demand in its markets. The Sunbelt region is drawing attention for being business-friendly, lower-taxed and having low-density cities. Hence, this region is experiencing job growth and continued in-migration, which is driving demand for rental units.
Moreover, MAA continues to implement interior redevelopment, property repositioning projects and Smart Home installations. The programs are expected to help the company capture the upside potential in rent growth, generate accretive returns and boost earnings from its existing asset base. However, the rising deliveries of residential rental units in its markets are expected to affect the company’s power to raise the rent or increase occupancy.
The Zacks Consensus Estimate for quarterly revenues is pegged at $542.72 million. This suggests a 2.59% rise from the year-ago quarter’s reported figure. MAA projected first-quarter 2024 core FFO per share in the band of $2.12-$2.28, with $2.20 at the midpoint.
Before the first-quarter earnings release, the company’s activities were not adequate to gain analysts’ confidence. The Zacks Consensus Estimate for the quarterly FFO per share has been revised a cent downward to $2.23 in the past month. This also suggests a year-over-year decline of 2.19%.
Our proven model does not conclusively predict a positive surprise in terms of FFO per share for MAA this season as it currently carries a Zacks Rank of 4 (Sell) and has an Earnings ESP of -0.17%.
(Read more: What Awaits Mid-America Apartment This Earnings Season?)
The chart below shows the company’s earnings surprise over the last four quarters.
Mid-America Apartment Communities, Inc. Price and EPS Surprise
Mid-America Apartment Communities, Inc. price-eps-surprise | Mid-America Apartment Communities, Inc. Quote
UDR Inc. will report results on Tuesday after market close. Our proven model does not conclusively predict a positive surprise in terms of FFO per share for the REIT this season as it currently carries a Zacks Rank of 3 and has an Earnings ESP of -0.64%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
UDR is well-poised to have benefited from its diversified portfolio with a superior product mix of A/B quality properties in the coastal and Sunbelt markets. Healthy demand for rental units in its markets amid favorable demographic trends and rising costs of home ownership due to high interest rates are likely to have aided the company.
Efforts to leverage technological moves and process enhancements to drive margin expansion also augur well. However, the elevated supply of residential rental units in some of the company’s markets and competition from alternative housing options are likely to have limited its ability to increase rents and weigh on rent growth momentum in the near term. High interest rates add to its woes.
The Zacks Consensus Estimate for quarterly revenues is currently pegged at $409.01 million. This indicates a 2.69% year-over-year rise. For the first quarter, we estimate a weighted average same-store physical occupancy of 96.8%, down 10 basis points sequentially. Moreover, our estimate for same-store net operating income growth is currently pegged at 3.4%. We expect interest expenses to grow 6.2% year over year in the first quarter.
UDR projected first-quarter 2024 FFO as adjusted per share in the range of 60-62 cents. Before the first-quarter earnings release, the company’s activities were not adequate to gain analysts’ confidence. The Zacks Consensus Estimate for the quarterly FFO as adjusted per share has remained unchanged at 61 cents in the past month. However, this suggests year-over-year growth of 1.67%.
In the last four quarters, UDR’s FFO as adjusted per share met the Zacks Consensus Estimate on two occasions for as many misses, the average negative surprise being -0.81%.
(Read more: UDR Readies to Report Q1 Earnings: What’s in the Offing?)
The chart below depicts the company’s earnings surprise over the preceding four quarters.
United Dominion Realty Trust, Inc. Price and EPS Surprise
United Dominion Realty Trust, Inc. price-eps-surprise | United Dominion Realty Trust, Inc. Quote
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
