Public real estate investment trusts (REITs) delivered results in line with expectations in the fiscal third quarter, with many of the underlying drivers for the sector behaving as anticipated.
Wage growth across the economy as well as high employment levels among resident bases continue to be a tailwind for REITs, while many companies highlighted the ongoing benefits of limited homeownership and rental options in operating markets.
According to MAA, only 11.5% of its move-outs during the third quarter occurred due to residents buying a home. UDR noted that renting an apartment is “approximately 60% more affordable than owning a single-family home” in its markets of operation, the best level of relative affordability in two decades.
Several companies, including MAA, Equity Residential, and Essex Property Trust, reported resident turnover remains at record low levels while occupancy rates remain steady.
Eric Bolton, chairman and CEO of MAA, and Mark Parrell, president and CEO of Equity Residential, both reported lower levels of competitive new supply moving forward will be a positive force for their respective companies in 2025.
Public companies allocated time on their earnings calls to share updates on technology and artificial intelligence (AI) rollouts.
Veris Residential’s AI-based leasing assistant Quinn converted 31% of leads year to date and contributed a 2% savings in payroll expenses compared with 2023. The tool also engages with residents on a day-to-day basis, assisting with maintenance requests, inquiries, and renewals. In September alone, Quinn sent 21,000 messages to residents and prospects, saving an estimated 1,700 staff hours.
Elme Communities launched Elme Resident Services, a tool that centralizes resident account management and renewals.
Equity Residential’s AI resident inquiry application was able to handle almost 60% of inquiries in its test market. The REIT shared its goal of 75% to 80% coverage of resident inquiries for the tool.
At UDR, its customer experience project has helped gather data from existing and prospective residents to create “an enhanced UDR living experience, improving retention and lowering turnover costs.” The multiyear project has gathered more than 800 million data elements on resident experiences, which the REIT says has translated to 1,800 less move-outs on a year-over-year basis.
Quarterly Results
AvalonBay grew core funds from operations (FFO) per share by $0.08 to $2.74 in the fiscal third quarter. Same-store revenue increased 3.1% on a year-over-year basis, while same-store expenses increased 5.4%. AvalonBay’s same-store net operating income (NOI) increased 2% compared with the third quarter of 2023.
Equity Residential generated FFO per share of $0.99 in the fiscal third quarter, a 3.1% increase on a year-over-year basis. Same-store revenue for the company increased 2.7% in the third quarter compared with the prior-year period, driven by solid demand and modest supply across its markets. Same-store expenses increased 3.2%, while same-store NOI increased 2.5%.
At Camden Property Trust, core FFO declined by $0.02 per share to $1.71 in the fiscal third quarter. Same-property revenues and expenses increased 0.6% and 1.8% year over year, respectively, while same-property NOI was flat compared with the third quarter of 2023.
UDR’s FFO per share declined by $0.01 per share to $0.62 in the third quarter. Despite the decline, the FFO per share result was within UDR’s guidance for the quarter. Same-story revenue and expenses both increased in the period for UDR, growing 1.2% and 2% on a year-over-year basis, respectively. Same-story NOI improved by 0.8% in the period.
Essex Property Trust reported core FFO of $3.91 per share in the fiscal third quarter, a 3.4% improvement from its core FFO of $3.78 per share in the third quarter of 2023. The REIT delivered same-property revenue and NOI growth of 3.5% and 2.6% on a year-over-year basis, respectively. Same-property revenues improved 1.2% sequentially from the second quarter.
In the third quarter, MAA’s core FFO per share declined by $0.08 to $2.21. The company reported same-store operating expenses increased 3% on a year-over-year basis, while same-store NOI declined by 1.7% compared with the third quarter of 2023.
At Elme Communities, core FFO per share was $0.23 in the fiscal third quarter, flat compared with results in the third quarter of 2023. Same-store NOI increased by 2.3% on a year-over-year basis for the company.
Veris Residential’s core FFO per share increased by $0.05 on a year-over-year basis to $0.17 in the fiscal third quarter. Additionally, same-store NOI improved 8.4% on a year-over-year basis and 8% year to date.
Management Commentary and Outlook
“We continue to optimize our portfolio’s future growth through proactive portfolio management and our strategy to increase our allocation to the suburbs and our expansion regions. Our portfolio is now 73% suburban, up from 70% last year, and well positioned in the near term to benefit from steady demand and low levels of new supply, and in the long term from shifting demographics, including aging millennials. We also continue to make steady progress toward our expansion region target of 25%, having now reached a 10% allocation.” —Benjamin Schall, president and CEO, AvalonBay
“We continue to see a stable environment and a healthy consumer. Unemployment is low and wage growth is steady, both of which do well for our customers. While there remains a considerable amount of economic and geopolitical uncertainty that could impact our business and the economy generally, we like our setup. … The volatility and negative rental growth we see in expansion markets and the strong results we are seeing in our Northeastern markets, many of which were recently left for dead by investors, reinforces our commitment to our strategy of better balancing our portfolio between coastal markets and select Sun Belt markets as well as urban and suburban locations. We expect the benefits of this balanced strategy to play out in 2025.” —Parrell
“We had a good third quarter, with earnings ahead of expectations, and the rest of the year is playing out as we anticipated. Apartment absorption in our markets has been the best in 20 years, excluding 2021. Strong multifamily demand continues to be driven by strong job growth. Camden markets are growing faster than the United States, with in-migration to Camden markets, and fewer consumers choosing homeownership and instead renting well-managed apartments from Camden.” —Richard Campo, chairman and CEO, Camden Property Trust
“Macro volatility, election uncertainty, the path of the Fed and their collective efforts on interest rates, the economy, and the employment market are all out of our control. However, I remain optimistic about the long-term growth prospects for our country and the multifamily industry. We will continue to focus on what we can control, enhance our dynamic and innovative culture, and empower our associates to deliver attractive results that create value for UDR’s residents and stakeholders.” —Tom Toomey, chairman and CEO, UDR
“The blended rate growth of 2.5% for the quarter was tempered by the combination of seasonal moderation in rents, which started in September, and difficult year-over-year comparison. Especially since last year, our rents did not moderate until late October. As we enter the fourth quarter, our markets remain stable. We shifted our operation strategy to focus on occupancy as we’ve done in prior years in anticipation of slower demand characteristics of normal seasonality.” —Angela Kleiman, president and CEO, Essex Property Trust
“We are now poised to see moderating trends in the amount of new supply deliveries that are impacting our portfolio as we head into 2025. We expect to see normal seasonal leasing patterns for the next couple of quarters and remain convinced that the spring leasing season will usher the start of a recovery cycle with more favorable leasing conditions as demand and absorption trends across our markets remain strong and the volume of new supply deliveries steadily declines. With strengthening leasing conditions, significant redevelopment opportunities in our existing portfolio, and meaningful efficiency gains from various new technology initiatives, we are excited about the upside outlook from our asset base.” —Bolton
“Resident retention also plays a significant role in demand dynamics, and our retention rate remains very strong. Even if home purchasers return to a more normalized pattern, our value-oriented resident base tends to be stickier with an average tenure of about 2.7 years. Overall, we believe that the demand outlook for our value-oriented price points is positive both in the near and long term.” —Paul McDermott, president and CEO, Elme Communities
"Our portfolio continues to exhibit strong revenue growth, underpinned by robust demand for our premium properties and limited new supply in our key markets. I am extremely proud of the work our teams have done to mitigate controllable expense growth during a period of elevated inflation. These efforts, combined with a better than expected resolution of our non-controllable expenses last quarter, drove a substantial 17% year-over-year increase in core FFO per share during the first nine months of the year, further improving our operating margin to 66.8% and allowing us to once again raise guidance." —Mahbod Nia, CEO, Veris Residential
