Apartment and student housing REIT reporting season started with a bang this week as Cleveland-based Associated Estates REalty increased its NOI guidance by 125 basis points for 2010 and Memphis-based Educational Realty Trust announced that it was selling off nine communities and recycling the capital into newer properties.

But that’s just the start of what analysts expect over the next couple of weeks. Here are three themes analysts will be looking at.

1. Fundamentals
It’s no surprise that fundamentals are at the forefront of what analysts are looking at. They’ve been the story all year. As the weather turns colder and renters stop changing homes, analysts expect things to slow down.

“That will be issue No. 1 in all of the results and conference calls,” says William Acheson, a REIT analyst with New York-based Benchmark Capital. “Did the improvement in fundamentals continue through the third quarter? Or did it tail off in September? It will be very interesting in the conference calls to see if pricing tailed off and what kind of fourth quarter we’ll see.”

Others will be honed in on the same topic. “People will listen to see if the positive demand trends are continuing as well as for any kind of hint on the outlook for 2011,” says Paula Poskon, a senior research analyst with Robert W. Baird & Co., a Milwaukee-based wealth management, capital markets, asset management, and private equity firm.

But that doesn’t change what’s been accomplished so far this year. Haendel St. Juste, an analyst with Keefe, Bruyette & Woods (KBW), an investment banking and security brokerage firm based in New York, says he expects to see year-over-year FFO only decline 3 percent, which is a major improvement over the past couple of years. "And 3Q NOI will be flat on a weighted average year-over-year basis,” he adds.

Others expect good news, as well. “Across the apartment REIT world, results should be good,” said Alexander Goldfarb, associate director of equity research of REITs for New York-based Sandler O’Neill + Partners. “I think NOI will continue to be strong.”

2. External Growth
Despite what is widely regarded as a rocky 2011, apartment owners still have their eyes on 2012 and beyond. And in fact, a theory seems to be emerging among some analysts that even without massive job growth, better days lie ahead for the REITs. Dallas-based Witten Advisors head Ron Witten recently said that even in a double dip recession, rent growth will hit 5 percent. Without the difficult environment, rent growth should be at 6.7 percent.

Because of that belief, a number of REITs, including Memphis-based Mid-America Apartment Communities and Highlands Ranch, Colo.-based UDR, have gotten especially active in the past couple of months. But Acheson wonders if that can continue. Given that Marcus & Millichap say that cap rates are down 25 to 100 basis points for core Class A product in tertiary to primary markets, and flat to down nearly 75 basis points for Class B product.

“I wonder to what extent they’re backing off acquisitions and doing development?” Acheson asks. “Acquisitions have gotten so pricey. A lot of growth has been baked into the cap rates we’ve seen.”

Poskon will be curious to see if deal flow is picking up, who the bidders are, and what the cap rate gulf is between the high-barrier markets and the secondary and tertiary markets. But she thinks the bidding will continue. “They will continue to aggressively bid for core product in Class A infill markets,” she says.

Acheson expects companies like Alexandria, Va-based AvalonBay Communities and Houston-based Camden Property Trust to announce that they’re starting new developments. For instance, Newport Beach, Calif.-based Green Street Advisors said that Camden announced at a recent investor day meeting that development offered better risk-adjusted returns than acquisitions. Even Associated Estates, a company that hadn’t done a new development in a decade, announced a project in Memphis. But some analysts still see questions ahead.

“The real challenge for developers is that you’re breaking ground now but not delivering until 2012,” Goldfarb says. “You need a good economy in 2012 to make those deals work.”

3. Generating Cash, Paying Dividends
Though the apartment REITs are generally in good financial shape, Goldfarb doesn’t expect them to stop delevering. He expects more equity issuances and unsecured debt issuances.

“It’s making sure that a company is set up for success if there are issues in the market going forward,” Goldfarb says. “There is still more work to be done.”

But Poskon says the REITs have made a lot of progress in fixing their balance sheets (if they even had to in the first place). “The really sharp companies learned their lesson,” she said. “The super smart companies never had to learn their lesson.”

So far this year, Acheson says REIT stocks have gone up 25 percent (with a 20 percent increase in the second quarter). While he doesn’t expect anything to happen soon, he could see problem if interest rates rise. “If something happens with financing costs, the cap rates will be vulnerable,” he says. “And that could impact stock valuations.”

Though a number of REITs raised their guidance in the second quarter, Green Street Advisors doesn’t see that happening again en masse. Instead, it anticipates that “guidance midpoints will be inched up.”

Analysts do expect REITs like Denver-based AIMCO and Camden to raise their dividends. "“A number of companies decreased their dividends during the downturn to reserve capital,” St. Juste says. “These companies will have to pressured to raise their dividend payouts"