The apartment market is showing signs of improvement, setting the stage for better financial results on the part of apartment real estate investment trusts this year, a Raymond James analyst said Friday.
Joblessness, competition from rental homes and lagging consumer confidence continue to pose obstacles for a recovery in the rental market. But some signs have begun to emerge that demand for apartments has stabilized, said analyst Buck Horne.
He cited recent market data from real estate data tracker Reis Inc. that shows the absorption rate, or the pace at which apartment properties on the market are being rented, surged by 44,200 units in the second quarter after rising by 21,400 units in the first quarter.
The back-to-back increase in absorption is the largest in the past 10 years and is a very encouraging sign that the apartment market recovery is under way, Horne said.
Also encouraging is Reis data showing effective rents rose slightly between the first and second quarter, Horne said.
Horne said the improving trends put the apartment market on pace to mount a healthy recovery over the next two years.
The analyst said some apartment REITs could begin to report annual increases in revenue in the second half of this year, which should help restore net operating income growth in 2011 and 2012.
Furthermore, Horne believes several apartment owners are poised to raise their full-year guidance.
Stronger job growth could be the key to drive earnings and share prices of apartment building owners higher, he said.
Horne's outlook for the second half of 2010 assumes the economy creates about 600,000 new jobs by the end of the year.
The analyst upgraded Apartment Investment & Management Co. and Associated Estates Realty Corp. to "Strong Buy" from "Outperform" and Essex Property Trust Inc. to "Outperform" from "Market Perform."
Shares of Associated Estates fell 12 cents to $13.02 on Friday amid a broad market slump, while Essex Property shares fell $3.19, or 3.1 percent, to $100.96. Apartment Investment & Management shares fell 77 cents, or 3.7 percent, to $20.11.
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