With occupancies at their “effective maximums,”multifamily REITs are enjoying improved cash flow and are well positioned in the current environment, according to “Moody's Real Estate Finance—Multifamily REITs,” a report released July 2007 by New York-based ratings agency Moody's Investors Service.

In the first quarter of 2007, some REITs experienced occupancy softness, which Moody's attributes to landlords either holding firm or driving rents higher in their markets. “[The softness comes] particularly as REITs have implemented technology platforms that allow them to fine tune their asking rents relative to their occupancies,” says study co-author and Moody's vice president and senior analyst Chris Wimmer. “If the model tells you to drive rents harder, you may lose a few points, but most of those occupancies have come back from the first quarter numbers and settled around 95 percent.”

The surveyed REITs (Associated E states Realty Corp., AIMCO, Archstone-Smith Trust, AvalonBay Communities, BRE Properties, Colonial Properties Trust, Camden Property Trust, Equity Residential, Post Properties, and UDR) each have strong balance sheets and portfolios.

In terms of future merger and acquisition activity, the study notes that a continued “weaker tone” in the REIT public equity markets could put additional downward pressure on REIT stock prices in relation to net asset value. That should continue to perk acquisition interest, especially when it comes to REIT to REIT mergers. “Well funded private equity, low interest rates, and easy borrowing terms are all dissipating,” Wimmer says. “We anticipate that any further transactions will be initiated by firms with long-term value orientations and strategic views such as the REITs themselves.”