In their fourth-quarter conference calls, REIT executives had one common refrain—2011 will be better than the surprisingly strong 2010. But when it came to stepping out on a ledge with their 2011 predictions, most management teams were subdued.
“They’re setting modest, manageable expectations for the year,” says Haendel St. Juste, an analyst with Keefe, Bruyette & Woods (KBW), an investment banking and security brokerage firm based in New York. “They’re basing their outlook on a job or economic outlook that doesn’t assume much acceleration from the current pace.”
Some companies pushed the envelope more than others. Alexandria, Va.-based AvalonBay Communities established 2011 mid-year Funds From Operations (FFO) guidance of $4.63 compared to analyst predictions of $4.45 (though aggression is obviously in the eye of the beholder, as the company came in lower than KBW's estimates).
Andrew J. McCulloch, an analyst for Newport Beach, Calif.-based Green Street Advisors thinks many companies have pulled back on rent growth estimates. “The forecasted change in market rents for 2011 feels a little conservative,” McCulloch says.
Other companies, such as Palo Alto, Calif.-based Essex Property Trust took some questions from analysts about why their guidance wasn’t more aggressive, according to Paula Poskon. She says these companies have an argument for being conservative though. "If job growth happens but happens later in the year or closer to end the year, it won’t be early enough to impact the full-year [guidance],” she says. “In that case, they will be spot on.”
Here are three other analyst predictions post-fourth-quarter calls:
Acquisitions are getting harder. REITs were big buyers in 2010, but some analysts detected a feeling that acquisitions are harder. “There's a desire to pursue external growth on the acquisition side, but its challenging,” St. Juste says. “There’s a lot of money out there. Companies want to do deals but there’s skepticism about the ability to do deals at a price they’re willing to pay.”
Dispositions could be coming. REITs see the capital amassing to buy multifamily and will continue to take advantage of that. “I think we’ll see more REITs culling the bottoms of their portfolios,” Poskon says. “Given cap rate compression, the spread between the best and worst assets is narrow. Some of the REITs will take advantage of that and cull the bottom of their portfolio, given that NOIs are recovering in 2011.”
Dividends shake loose. Denver-based AIMCO recently raised its dividends and Highlands Ranch, Colo.-based UDR has continued to raise its dividends. After cutting dividends during the downturn, REITs have turned the corner in the recovery. “Dividend increases will continue to roll throughout the year,” St. Juste says.