Emerald

Increased Pressure on Rents Is Bad News for Apartment REITs

This article is old news. Rents have come down and will slowly filter through apartment REIT's. These companies have already reported this fact in their second quarter earnings calls and this is priced in. With inflation coming in one to two years, this is a great time to buy apartment REIT's cheap. Most have reasonable debt maturities and lowered dividends in the 5% range. Long: EQR. Looking at AVB.

IMN Real Estate Forum: Opportunities to Invest in Distressed Commercial Real Estate, Part 2

A few public apartment REIT's have refinanced debt and have extended maturities. As they are less leveraged than private companies, they have a much better chance of weathering the storm and producing decent returns overe the next five years. Both AvalonBay (AVB) and Equity Residential (EQR) are two that fit this scenario. I would stay away from office, retail and hotels for now. Note: Long EQR

Mack-Cali Late to the (Follow-On) Party

All REIT's are not created equal. First, many REIT's are using new stock issuance to pay down bank lines, thereby cutting debt exposure (good), but diluting current shareholders at these low prices (bad). Note that many of the underwriters are using the proceeds to pay down their own lines. Yes, it is disclosed in the Offering Memo, but this is incestuous.

Second, retail and office REIT's are facing a leasing storm that theatens to take them under given the high tenant improvement costs they face to replace tenants. Many well capitalized apartment REIT's are under pressure from declining employment, but are good buys at these depressed prices, assuming they have taken care of debt maturities for 2009 and 2010. Examples of these better apartment REIT's are AvalonBay and Equity Residential. This sector will also be the first to rebound and pays a dividend to wait. Be careful shorting REIT's via the SRS because it has large apartment REITs in it and is less likely to have big declines from here. Note : Long EQR.

REITs: Risk Perception and Prospects

Historically, apaprtment REIT's are safer investments due to the short term nature of their leases, i.e. one year, and that pension funds like multifamily as an investment. Equty Residential and AvalonBay (in the above chart) are currently oversold and have significant upside potential over a three year horizon. Both will continue to pay decent dividend yields even if forced to cut them by 25% and issue stock in exchange. AS to Mad Hedge's comments, I agree these are not for short term trading but are candidiates for a longer term hold.

Avalon Bay: A Look at Apartment REITs

Most apartment REIT's are so heavily discounted that they are trading as if their rents have been slashed already. Your analogy is sound, but only at higher REIT prices. REIT's may suffer some declining cashflow to met the market, but they are good buys at this level.


On Mar 03 05:45 PM Chris B wrote:

> I have one problem with REITs at this point:
>
> New investors are purchasing foreclosure properties all around these
> apartment complexes (and maybe purchasing entire competing apartment
> complexes too!) for 30-40% less than what the REIT paid a couple
> years ago. That means their payments will be lower, which allows
> them to undercut the local REIT on rents. Wouldn't purchasing an
> REIT at this point be the equivalent of assuming the mortgage for
> an underwater landlord?