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Continued demand strength, limited competition from both new apartment supply and single-family home ownership, and durable employment trends contributed to strong results in the first quarter for public real estate investment trusts (REITs).

Quarterly Results

Tailwinds contributed to a majority of REITs outperforming analyst expectations for funds from operations (FFO) and revenue in the first quarter.

AvalonBay reported first quarter 2023 core FFO per share of $2.57, beating analyst estimates and representing a 13.7% increase sequentially. The REIT reported same-store residential revenues increased 9.5% year over year to $622.4 million, and same-store residential net operating income (NOI) increased 10.7% to $430.4 million in the quarter.

Equity Residential reported a 10.4% increase in FFO per share to $0.85 in the first quarter, a 9.2% increase in same-store revenue, and a 10.2% increase in same-store NOI. The company attributed the positive growth in same-store results as “better than anticipated due to continued healthy demand.”

During the first quarter, Camden Property Trust reported FFO of $1.66 per share, an improvement from $1.50 per share a year ago. Same-property revenue growth exceeded expectations at 8%, and same-property NOI improved 8.1% compared with the prior-year period.

UDR reported first quarter FFO as adjusted per share of $0.60, a 9% increase on a year-over-year basis. Same-store revenues increased 9.6% year over year, and same-store NOI improved 11.7% compared with the first quarter of 2022.

Essex Property Trust reported core FFO improved 8.3% on a year-over-year basis to $3.65 per share in the first quarter. The REIT’s same-property revenue increased 7.6% from the prior-year period, and NOI increased 9.2% year over year.

MAA’s first quarter core FFO per share of $2.28 represented a 15.7% improvement from the first quarter of 2022 and beat analyst expectations. The REIT reported same-store revenues increased 11% year over year due to a rise of 12.6% in the average effective rent per unit. Same-store net operating income improved 12.5% compared with the first quarter of 2022.

Elme Communities reported core FFO per share in the quarter of $0.24, an improvement from $0.20 in the prior-year period. Same-store net operating income increased 10.7% compared with the prior year period and was positively impacted by rental rate growth.

During the first quarter, Veris Residential posted FFO per share of $0.15 and same-store net operating income improvement of 15.8%, due to the increase of in-place rents and stable controllable expenses, according to the company.

Industry Outlook

During the quarterly earnings calls, executives shared optimistic outlooks for the duration of 2023 and beyond for the multifamily sector. Here are some forward-looking thoughts shared during the latest round of earnings calls.

“We are certainly starting to see shifts in the development market in response to the Fed tightening over the past several quarters. Among our competitors, many planned projects are being postponed or abandoned as third-party financing becomes scarce and cut off. The slowdown in starts in turn is starting to impact the construction market, where we are finally starting to see some retraction in subcontractor trade pricing after three years of outsized increase. An environment where capital is scarce and certainty of execution becomes more critical, both to land sellers and subcontractors, plays well to our strengths as both the developer and the general contractor. And we have traditionally seen some of our most profitable investment opportunities when these more challenging cyclical conditions have prevailed.” —Matthew Birenbaum, chief investment officer, AvalonBay

“We continue to see substantial demand from our affluent renter demographic and moderate levels of supply in most of our major markets, with the new news in the quarter being the rapidly improving regulatory conditions in California. Despite headlines and layoffs, demand feels solid.” —Mark Parrell, CEO and president, Equity Residential

“While there may be some uncertainty about the economy, including increasing layoff announcements, we are not seeing this impact our day-to-day operations. While we acknowledge that we are generally a lagging indicator, so far so good as we head to our primary leasing season.” —Michael Manelis, executive vice president of operations, Equity Residential

“Multifamily transactions have slowed dramatically. Activity for the first quarter was down 74% from last year as buyers and sellers try to recalibrate the increase in their cost of capital and what the future market dynamics may look like. New starts continue to be elevated with only legacy projects with committed capital starting. We expect the lag in the Federal Reserve policy will start to have its desired effect with a significant reduction in new starts beginning in the second quarter throughout the next year or two.” —Ric Campo, chairman and CEO, Camden Property Trust

“Looking ahead, there remains a wide variety of economic scenarios that could play out, but UDR has excelled across a variety of environments over our 50-year history. Our strategy is built around diversification, prudent capital allocation decisions, and focusing on what we control to drive relative outperformance within the industry. … Additionally, we benefit from favorable relative setups for the U.S. multifamily industry. Job and income growth have defied expectations and remain positive. Total housing supply is stable, and the level of future development starts has started to decline. And relative affordability versus single-family housing is as favorable as it’s been in nearly my 22-year tenure at UDR. Taken together, I remain very optimistic on the relative strength of the multifamily industry and UDR’s advantages within the industry.” —Thomas Toomey, chairman and CEO, UDR

“We expect that continued housing production challenges such as diminished labor force and high construction costs should lead to relatively light apartment deliveries for the next several years in our market. Thus, we do not need meaningful job growth to generate modest rent growth in 2023. … Relative to our peers, Essex has the highest controllable operating margin and one of the lowest average controllable expense per unit. [Our] advancements will enable incremental revenue growth to flow more efficiently to the bottom line, ultimately generating additional FFO per share and dividend growth throughout all economic cycles.” —Angela Kleiman, president and CEO, Essex Property Trust

“We expect very strong NOI growth from our multifamily portfolio, and we are well-positioned with a geographic mix that provides relative insulation from job losses and mid-market price points that provide meaningful differentiation from new supply. Beyond 2023, we expect to generate operational upside enabled by our infrastructure transformation and technology investments.” —Paul McDermott, president and CEO, Elme Communities

“While new supply deliveries are expected to run higher over the next few quarters, we continue to see net positive absorption across our portfolio. We believe that MAA’s more affordable price point coupled with the unique diversification strategy, including both large and secondary markets further supported by an active redevelopment program, will help mitigate some of the pressure from higher new supply in several of our markets.” —Eric Bolton, chairman and CEO, MAA

“We expect our portfolio to continue to benefit from population growth, new household formations, and steady job growth. In addition, we expect resident turnover to remain low as single-family affordability challenges support fewer move-outs. MAA’s unique market diversification of portfolio strategy coupled with a more affordable price point as compared to the new product being delivered also helps lessen some of the pressures surrounding higher new supply deliveries.” —Tim Argo, executive vice president, chief strategy and analysis officer, MAA