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2011 Fitch Outlook for Multifamily REITs

|Includes: ACC, AEC, AIV, AVB, BRE, CCG, CPT, EDR, ELS, Equity Residential (EQR), ESS, HME, MAA, PPS, SUI, UDR, UMH

In its 2011 Outlook for U.S. equity REITs, Fitch Ratings maintains a "stable" outlook for multifamily REITs, although with (in my own opinion) a perceptible lean toward "positive."

The stable outlook is driven by property fundamentals that have begun showing signs of improvement, as well as solid liquidity and capital markets access.  These credit strengths are offset by elevated leverage in the multifamily sector relative to other property types, but appropriate for current ratings.

The outlook for property market fundamentals for multifamily REITs in 2011 is positive.  According to Property and Portfolio Research (NYSE:PPR), vacancy rates decreased in all of the 54 largest U.S. markets...(while) rent growth in the third quarter was positive for the second consecutive quarter.  The recovery has been weighted toward higher quality properties, as many class B and C renters have traded up in quality due to lower rents and higher concessions during the downturn.

Fitch expects multifamily fundamentals to continue to improve despite weaker overall economic growth, driven primarily by limited new supply, continued hurdles for new homebuyers, and demographics enlarging the renter base.

Overall, NOI growth in 2011 is expected to be positive, although it will lag other positive fundamental trends such as asking rents and vacancies.
In terms of access to capital,
Multifamily REITs have had access to a variety of capital sources following improvement in the debt and equity markets.  Additionally, the multifamily sector continues to have the added advantage of access to mortgage capital from the GSEs, despite their financial woes.
The publicly traded multifamily REITs (from largest to smallest) include apartment REITs Equity Residential (NYSE:EQR), AvalonBay Communities (NYSE:AVB), UDR (NYSE:UDR), Camden Property Trust (NYSE:CPT), Essex Property Trust (NYSE:ESS), Apartment Investment & Management (NYSE:AIV), BRE Properties (NYSE:BRE), American Campus Communities (NYSE:ACC), Mid-America Apartment Communities (NYSE:MAA), Home Properties (NYSE:HME), Post Properties (NYSE:PPS), Colonial Properties Trust (CPT), Associated Estates Realty (NYSE:AEC), Education Realty Trust (NYSE:EDR), and Campus Crest Communities (NYSE:CCG), along with manufactured home REITs Equity Lifestyle Properties (NYSE:ELS), Sun Communities (NYSE:SUI), and UMH Properties (NYSEMKT:UMH).

Five multifamily REITs are in Fitch's coverage universe: EQR, CPT, BRE, HME, and CPT.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Additional disclosure: Author is long Vanguard REIT Index Fund and ING Real Estate Fund.