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Public real estate investment trusts (REITs) continued to benefit from limited supply of competitive housing types and relative affordability in the fourth quarter. Companies ended the fiscal year with strong positive results in line with company guidance and expectations.

During quarterly earnings calls, executives expressed largely optimistic outlooks for 2024, though many noted the year likely will have more uncertainty in both capital markets and the overall economy. However, strong underlying fundamentals, such as favorable rent versus own cost dynamics and fewer move-outs from residents to purchase homes, provide optimism in the multifamily sector. Elevated supply also is expected to put downward pressure on pricing power in 2024.

In addition to operational goals, innovation and technology was a theme across REIT earnings calls. Veris Residential highlighted the introduction of an AI-based leasing assistant that communicates directly with residents, saving approximately 1,200 staff hours per month. At Equity Residential, the company is “almost complete” with the rollout of smart-home technology across its portfolio, which will enable the ability to share teams across properties and enable additional self-service options for residents. Several other REITs also highlighted technology and innovation investments in the pipeline that will materialize in the coming year.

Quarterly Results
AvalonBay reported core funds from operations (FFO) per share of $2.74 in the fiscal fourth quarter, a 5.8% improvement from the same period in 2022. For the full fiscal year, the company reported FFO per share of $10.63 compared with $9.79 in 2022. Same-store total revenue in the quarter increased 4.5% to $643.6 million, while full-year same-store total revenue increased 6.2% to $2.5 billion.

At Equity Residential, FFO per share increased 3.1% year over year to $1 in the fiscal fourth quarter. For the full 2023 fiscal year, FFO per share grew 6.2% to $3.75. Same-store revenue increased 3.9% in the fourth quarter, driven by strong demand across its portfolio.

Camden Property Trust reported FFO per share of $1.72 in the fourth quarter, down slightly from $1.74 in the fourth quarter of 2022. For the full year, the REIT reported FFO per share of $6.78, compared with $6.59 per share in 2022. Same-store revenue grew 2.6% year over year in the quarter, while same-store net operating income (NOI) was flat.

UDR reported a 9% increase in FFO per share in the fourth quarter to $0.63 and 11% growth for the full fiscal year to $2.45. Same-store revenue increased 2.5% in the fourth quarter, while same-store NOI improved by 2.3% in the fourth quarter; for the 2023 fiscal year, same-store revenue was 6.2% higher, while same-store NOI grew by 6.8%.

Essex Property Trust reported 1.6% year-over-year growth in core FFO in the fiscal fourth quarter. For the full 2023 fiscal year, core FFO increased by 3.6% to $15.03. The REIT achieved same-store revenue and NOI growth of 2.9% and 2.3%, respectively, in the fourth quarter. For the full year, same-store revenues and NOI grew 4.4% and 4.3%, respectively.

MAA reported core FFO per share was flat at $2.32 in the fiscal fourth quarter. For the full fiscal year, core FFO per share improved to $9.17 from $8.50. In the fiscal fourth quarter, same-store revenue and NOI improved by 2.1% and 0.1%, respectively. For the full year, same-store revenue and NOI grew by 6.2% and 6.0%, respectively. The REIT reported an average effective rent growth per unit of 7% for the full fiscal year.

Elme Communities experienced 10.2% year-over-year growth in core FFO per share in the 2023 fiscal year, with the metric increasing to $0.97. Full-year NOI improved by 9.4% to $148.1 million compared with 2022. In the fourth quarter, core FFO per share remained unchanged at $0.24 per share, while NOI increased by 4.6% to $38.6 million in the quarter.

At Veris Residential, core FFO in the fourth quarter improved to $0.12 from $0.05. For the full fiscal year, core FFO grew to $0.53 from $0.44. Same-store revenue and NOI grew significantly in the fourth quarter by 11% and 17.6%, respectively.

Management Commentary and Outlook
“The near-term focus is on execution of our projects underway, ensuring they deliver outsized value for shareholders, and while new start economics are challenging in certain of our markets, this is the type of environment in which we’ve typically found some of our most attractive development opportunities. … As a continued multi-year approach, we have set a target of shifting 80% of the portfolio to the suburbs from 70% today, and set a target of having 25% of our portfolio in our expansion regions, up meaningfully from 8% today, and given the cooling fundamentals in the Sun Belt, we believe we can make this transition at a more attractive basis than we were able to a couple of years ago.” —Benjamin Schall, president and CEO, AvalonBay

“We will benefit in 2024 from having low exposure to new supply in the vast majority of our markets, particularly when compared to the Sun Belt markets, as well as the customer comfortably able to pay our rents with current rent income levels at about 20%. Overall, with low unemployment and rising real wages, our target renter demographic remains in good shape. … Over the next decade, the significant net deficit of housing across our country sets us up for good long-term demand. We continue to believe a recovery in rental rates in the downtown submarkets of [Seattle and San Francisco] is coming and expect our shareholders will benefit from catch up rental growth in these places.” —Mark Parrell, president and CEO, Equity Residential

“2024 should be a transition year from peak new apartment deliveries to a more constructive market after supply is absorbed. 2025 starts are projected to plummet to a low in the 200,000 range due to difficult market conditions. 2024 apartment absorption is projected to be a little over 400,000 units nationwide with over 200,000 units absorbed in Camden’s markets. 2024 apartment demand will be driven more by demographics and migration dynamics than traditional job growth.” —Richard Campo, chairman and CEO, Camden Property Trust

“If we step back and consider the near- to immediate-term outlook for the industry, we remain encouraged by a variety of key supply and demand metrics. First, our consumer remains resilient with rent-to-income ratios at the long-term average. Second, relative affordability remains decidedly in our favor at roughly 50% less expensive to rent than own, a 20% improvement from pre-COVID. Third, the latest Census data indicates that the largest U.S. cohorts remain in their prime renter years. This should provide continued support for future long-term demand. And fourth, while multifamily deliveries are expected to remain elevated through at least 2024, starts activity is significantly retreated and is down 80% from recent highs. This should benefit outer-year growth absent a near-term change in financing costs.” —Joe Fisher, president and chief financial officer, UDR

“Despite uncertainties in the overall economy, we are confident in our market’s ability to navigate near-term volatility and to outperform in the long term. Our conviction is based on two fundamental factors: low housing supply and favorable affordability. Over the next two years, we expect less than 1% of total supply growth per annum, which enables us to generate positive rent growth in most environments. Also, renting in the Essex markets is considerably more affordable than owning a home, and favorable rent-to-income ratios support a long runway for rent growth, especially in our Northern regions.” —Angela Kleiman, president and CEO, Essex Property Trust

“Stable employment conditions, continued positive migration trends, and historically low resident move-outs continue to drive solid demand. As expected, the delivery of new apartment supply is currently impacting rent growth performance and will likely persist through the summer leasing season. We expect the volume of new apartment deliveries will start to decline in late 2024, setting the stage for improved rent growth. Compared to a year ago, we start 2024 with more certainty about the direction of interest rates, clear evidence that new supply trends are set to moderate, and a healthy demand for apartment housing across our markets. We are well positioned to continue working through the current supply pipeline, as well as pursue new growth opportunities that are emerging.” —Eric Bolton, chairman and CEO, MAA

“Looking forward, our primary emphasis will be on implementing operational enhancements and utilizing our new technology to enhance profitability. Our Washington metro portfolio, which represents over 80% of our multifamily NOI, is poised for strong performance this year, and we anticipate an improving capital markets environment throughout 2024 as interest rates stabilize. With a favorable outlook for our largest market and price points that offer relative insulation from new supply, we are confident in our ability to advance our initiatives while achieving NOI growth in 2024.” —Paul McDermott, president and CEO, Elme Communities

“Our focus now turns to the significant opportunities available to us for continued value creation that I’d broadly categorize into three areas. First, continued operational outperformance through a number of platform and portfolio optimization strategies; second, capital allocation initiatives focused on generating earnings and value accretion to further boost the positive baseline performance from our multifamily portfolio; and third, further strengthening of our balance sheet. While a degree of earnings volatility is inevitable until we reach a mature state as a company, through a combination of these initiatives, we believe we have the potential to deliver continued relative outperformance as we seek to further enhance entity value for our shareholders over time.” —Mahbod Nia, CEO, Veris Residential

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