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2009 Dividend Cuts: AIV 5-01; CPT 5-06; UDR 5-26; EQR 7-29; BRE 7-30; EDR 10-08; CPT 12-11 Yield in spreadsheet are based on the Q4-09 div. HST and SHO has suspended the Q2-09 div Apartment-Vacancy Rate at 30-Year High, Landlords Cut Prices 3% in 2009 Nick Timiraos, WSJ 1-07-10 Apartment vacancies hit a 30-year high in the fourth quarter, and rents fell as landlords scrambled to retain existing tenants and attract new ones. The vacancy rate ended the year at 8%, the highest level since Reis, a research firm that tracks vacancies and rents in the top 79 U.S. markets, began its tally in 1980. Rents fell 3% last year, according to Reis, led by declines in San Jose, Calif., Seattle, San Francisco and other cities that had brisk growth until the recession. Data from Reuters article: In Q4-09 U.S. asking rents fell by an average of 0.7% to $1,026 per square foot [sic], the largest single-quarter decline since 1999. For 2009 asking rents fell 2.3%, also the largest decline in 30 years. Effective rent fell 0.7% in the quarter to $964 per square foot [sic]. The 3% drop for the year was more than three times the deterioration in 2002. In New York City, the vacancy rate improved by 0.1 percentage point for the second straight quarter, but around 60% of rental buildings dropped their rents in the fourth quarter from the previous quarter. Effective rents -- which include concessions such as one month of free rent -- fell 5.6% in New York last year, the worst since Reis began tracking the data in 1990. Landlords now must entice tenants to renew leases. "We'll shampoo their carpets. We'll paint accent walls. We'll add Starbucks cards," said Richard Campo, chief executive of Camden Property Trust, a Houston-based real-estate investment trust that owns 63,000 units. He said the first half of 2010 should be "pretty ugly," but was optimistic the sector would pick up later in the year. Few markets have been spared. During the fourth quarter, vacancies increased in 52 markets, while they improved in 17 and stayed flat in 10. Vacancies increased most sharply for the year in Tucson, Ariz.; Charlotte, N.C.; and Lexington, Ky. Landlords were also hit last year by competition from a wave of new supply that hit the market. The 120,000 units that came onto the market last year, including some busted condo projects that had to be converted to rentals, represented the most new construction since 2003, according to Reis. Many of those developments had secured financing before credit markets seized up. The credit crunch has frozen most new development, which means that new apartment completions should fall by half in 2011. That's one potential silver lining for apartment owners: The limited new supply should give them the ability to boost rents quickly whenever job growth returns. "If you are renting a place, now might be a good time to renegotiate that lease," said Victor Calanog, director of research for Reis, who added that the sector could see a recovery in the second half of the year, buoyed by either job growth or at least the perception that the economy was turning around. Such oversupplied markets as Florida, Phoenix and Las Vegas are hurting, even though housing sales have picked up. "Landlords aren't benefiting because jobs aren't recovering," said Hessam Nadji, managing director at Marcus & Millichap, a real-estate firm. Marcus & Millichap is to release a separate report on Friday that forecasts a further 2% to 3% drop in apartment rents over the next year, most of which will be concentrated over the next six months. The report forecasts Washington, D.C., will be the healthiest rental market in 2010 for the second straight year. Government efforts to prop up the housing market also threaten the apartment sector by making it easier for some renters to buy homes. Some landlords have reported a slight uptick in renters moving out to buy homes. Around 13% of Camden Property's move-outs last summer left to buy homes, up from 11% at the beginning of the year. But that is still roughly half of the rate seen during the housing boom, when mortgage standards were much looser. "During the housing boom days, you had people who weren't qualified to rent but could buy a half-million-dollar home," said Alexander Goldfarb, an analyst at Sandler O'Neill & Partners LP. Thanks to falling home prices and record low mortgage rates, it now costs less to own than it has in the past decade on a mortgage-payment-to-rent basis. But falling rents are expected to offset some of the recent improvement in affordability, making renting more attractive than owning in some markets. Dallas Apartment Update Steve Brown, Dallasnews.com 10-05-10 Apartment vacancies in Dallas-Fort Worth have grown to the highest level in more than 20 years because of a combination of overbuilding and the recession. At the end of 2009, more than 11% of local rental units were empty. Occupancy fell a full percentage point in Q4-09 as several large apartment complexes opened their doors, adding to inventory. "While those numbers are bad, they actually look better than we'd anticipated a few months ago," Greg Willett, vice president of research for MPF Research, said in the report released Monday. The apartment vacancy numbers are nowhere near where they were in the late 1980s, when about 18% of North Texas units were empty. D-FW renters leased an additional 1,520 apartments in the final three months of 2009. But at the same time, developers opened the doors for 7,895 units. "That's the biggest quarterly block of new supply seen since savings and loan associations fueled a frenzy of overbuilding during the early and mid-1980s," Willett said. More new apartments - 18,029 units - were added in North Texas in 2009 than in any market in the country. "Several of the properties that were finished right at the end of 2009 report initial lease-up moving along pretty well, so North Texas sidestepped the seasonal net move-outs that are routine during the last few months of the year," Willett said. The sagging economy last year reduced overall demand for apartments in the D-FW area. "Job loss weakened the apartment figures seen early in the year," Willett said. For 2009, net apartment leasing was down by 890 units from 2008, MPF reports. Overall rents in the area dropped by 2.6% last year to an average of $748 a month. With the credit crunch and recession, apartment development in D-FW and across the country has slammed to a halt. Willett said developers began only a handful of projects here in the second half of 2009. More than 11,000 units are still under construction in North Texas. "Of the product under construction, the biggest block that's left comes in the first half of 2010, when about 7,000 units should finish," Willett said. "Texas will be one of the last markets across the country to wrap up its construction cycle. "Thus, despite the comparatively positive outlook foreseen for the local economy, Dallas-Fort Worth seems apt to trail the apartment market recovery anticipated elsewhere." But Willett said that D-FW apartment vacancy rates are not likely to get much worse. Apartment Glut Expands WSJ 10-06-09 Apartment vacancies hit their highest point since 1986, surging in cities from Raleigh, N.C., to Tacoma, Wash., as rising unemployment continued to chip away at demand during the traditionally strong summer rental months. The U.S. vacancy rate reached 7.8%, a 23-year high, according to Reis Inc., a New York real-estate research firm that tracks vacancies and rents in the top 79 U.S. markets. The rate is expected to climb further in the fall and winter, when rental demand is weaker, pushing vacancies to the highest levels since Reis began its count in 1980. Meanwhile, the air leaving the market is driving rents down, most sharply in markets that had been chugging along until a year ago, when unemployment accelerated. Driving the change is the troubled employment market, which is closely tied to rentals. With unemployment at 9.8% -- a 26-year high -- more would-be renters are doubling up or moving in with family and friends during periods of job loss. Landlords have been particularly battered because unemployment has been higher among workers under 35 years old, who are more likely to rent. Nationally, effective rents have fallen by 2.7% over the past year, to around $972. "When job losses stop, rents will firm and occupancies will firm," said Richard Campo, chief executive of Camden Property Trust, a Houston-based real-estate company. The second and third quarters typically are the strongest periods for rental landlords because they are popular times for people to move. But this year, "vacancies just continued rising," said Victor Calanog, director of research for Reis. During the third quarter, vacancies increased in 42 markets, improved in 26 markets and remained unchanged in 11 markets. Omaha, Neb., saw the largest rise in vacancies, with the rate rising 1.1 percentage points to 7.4%. Other big rises were seen in Memphis, Tenn., Indianapolis, Raleigh and Tacoma. The deteriorating rental market comes amid some signs of stabilization in the housing sales market. An $8,000 tax credit for first-time home buyers and investor demand helped to boost sales of low- and moderately priced homes this summer. But some analysts warn demand could fall with the expiration of the tax credit and supply could increase with more foreclosed homes hitting the market. While a housing recovery could lead the best quality renters to move out and purchase homes, the move-out rate isn't expected to surpass levels seen during the housing boom earlier this decade. Mortgage credit standards have tightened considerably since then, which should keep more renters in place. Apartment owners ultimately could gain from the housing bust because the U.S. home-ownership rate has fallen as foreclosures rise. But the housing bust has also flooded some of the most overbuilt housing markets with new apartment inventory as developers have converted unsold condominium developments into rentals. Reis projects that the vacancy rate will peak at well above 8% in mid-2010. Apartment Updated Stats Loans on apartment buildings have led the real estate industry in defaults with hotels a close second. These types of properties have short leases and downturns show up quickly. But the tough times for both sectors do not bode well for the rest of the commercial real estate industry, where longer leases can mask falling market rents. "It makes me wonder whether the avalanche is on its way for office and retail (real estate) unless things change really quickly and really drastically," Victor Calanog, Reis director of research, said. Reis still expects the U.S. apartment vacancy rate to pass the 8% mark by perhaps next quarter but certainly by next year, Calanog said. That would make it the highest vacancy rate since Reis began tracking the market in 1980. In the third quarter, the U.S. apartment asking rental rate fell 0.5% to $1,035 per month, the fourth consecutive declining quarter. Factoring in months of free rent and other perks landlords have been using to lure or keep tenants, effective rent fell 0.3% to $972, also the fourth consecutive quarter of declining rent. "We have not seen that before," Calanog said. Vacancy could be worse if landlords didn't realize fairly early on that this end game was not going to end well and lowered rents really quickly," he said. Reis does not foresee a turnaround in the apartment market until at least the second quarter of 2010 at the earliest. "That turnaround may be very tepid," he said. "It might just be that vacancies are flat." Complicating the problem is the ongoing supply of new buildings. Reis expects more than 100,000 units to come to the rental market through 2009. Of that, 73,000 units have already come online in the first three quarters of the year and were on average 42 percent vacant. In New York, the vacancy rate fell 0.10 percentage points to 2.9%. Effective rent fell 0.9% to $2,657 per month. "With job markets still being lost at the national level and with New York being relatively more dependent on the still-embattled financial services sector, it may take a few more quarters before we see rents bottoming out in the Big Apple," Calanog cautioned. Some of the worst markets, such as those in South Florida and California, saw significant rent declines but they did not register effective rent declines of over 2% as they did in the second quarter. Fannie, Freddie Woes Hurt Apartments WSJ 11-18-09 The deteriorating commercial real-estate market is hitting Fannie Mae and Freddie Mac, the housing-finance giants that were taken over by the government last year after billions of dollars in losses on residential real estate. The firms, which together have taken more than $110 billion in capital infusions from the Treasury, stepped up their lending for apartment buildings as the commercial real-estate market peaked, and they are now facing rapidly rising loan losses. Fannie, which has been more active than Freddie, faces the biggest problems. Its serious delinquency rate, or loans that were 60 days or more past due, stood at 0.62% at the end of September, up from 0.16% a year ago. One troubling sign: one-quarter of the $180 billion of apartment-building loans on Fannie’s books were originated near the top of the market in 2007 and those loans account for nearly half of all its commercial-loan delinquencies. Fannie increased to $1.2 billion its reserves for losses on multifamily loans at the end of September, up from $104 million at the end of 2008. In a statement, Fannie Mae said market fundamentals “will remain under pressure in the near term” and that the company is taking steps “to mitigate risks associated with weak rental demand.” The losses from Fannie’s and Freddie’s $300 billion in apartment-building loans will be a fraction of their losses on single-family homes, where the two firms back $5 trillion of loans. But the bigger impact could be on the market for apartment buildings. The firms were responsible for 84% of all multifamily lending last year, up from 34% of the market in 2006, according to the Federal Housing Finance Agency. A report published earlier this year by Harvard University’s Joint Center for Housing Studies warned that without Fannie’s and Freddie’s continued purchases, “apartment transactions could come to a near standstill” and that could spur a further unraveling where even “cash-flow-positive projects may not be able to get refinanced and will be pushed towards default.” Fannie and Freddie say they were conservative in underwriting of apartment-building loans. For example, 97% of Freddie’s loans are still worth more than the value of the underlying properties. “We were careful about our credit, but with the markets deteriorating, everybody will be impacted negatively in some form or another,” said Freddie spokeswoman Patti Boerger. On 12-15 JMP initiated coverage on AIV at x and Stifel Nicolaus initiated UDR at x. On 12-08 FBR Capital Markets analyst Wilkes Graham cut his rating on two apartment-REITs, AvalonBay (AVB) and Equity Residential (EQR), to "market perform," citing declining rentals and negative net operating income that could stretch to 2010. "Rents should continue to fall on both new and renewal leases until at least the second-half of 2010 and potentially first-half of 2011," analyst Wilkes Graham said in a note to clients. The U.S. apartment sector has seen valuations and rentals nosedive for more than a year, as landlords, up against rising unemployment, slash rents and offer concessions to retain existing tenants along with enticing new entrants. Graham said the apartment REITs' 2010 net operating income was likely to be slightly better than their corresponding numbers in 2009, although they would still remain in the negative. On 12-03 Goldman Sachs analyst Jonathan Habermann upgraded his view of REITs, predicting a bottom in industry fundamentals in the next year to 18 months. Habermann lifted his rating on the industry to "Neutral" from "Cautious." He said there will be more opportunities for REIT acquisitions over time, and he expects interest rates to remain low through 2011 and debt costs have come down. Commercial real estate has historically bottomed 12 to 18 months after the end of U.S. recessions, Habermann said. Lower costs for issuing debt should make it easier for the stronger REITs to raise money in order to buy up assets, he said. He cautioned that REITs still need to substantially reduce their current debt loads -- he says by about $40 to $60 billion -- over the next several years. Moreover a weak broader recovery, with the economy growing between 2 to 3 percent in 2010, may mute the rebound for commercial real estate. Habermann upgraded senior housing operator Brookdale Senior Living to "Buy" from "Neutral," apartment REIT AvalonBay Communities to "Neutral" from "Sell" and mall operator General Growth Properties, which is under bankruptcy protection, to "Neutral" from "Sell." He downgraded shopping center REIT Kimco Realty to "Neutral" from "Buy," however, saying its strategy for future growth was murky. On 12-02 MAA declared a dividend of $0.615/share payable on January 29, 2010 to shareholders of record on January 15, 2010. On 12-07 CPT declared a cash dividend of $0.45/share to holders of record as of December 21, 2009 and to be paid on January 18, 2010. On 12-10 PPS declared a dividend of $0.20/share payable on January 15, 2010 to all common stock shareholders of record as of January 4, 2010. On 12-11 ESS declared a dividend of $1.03/share, payable January 15, 2010 to shareholders of record as of January 4, 2010. On 12-14 AVB declared a dividend of $0.8925/share and is payable January 15, 2010 to all holders of Record as of December 31, 2009. On 12-16 UDR declared a dividend of $0.18/share payable on February 1, 2010 to UDR common stock shareholders of record as of January 15, 2010. On 12-18 AIV declared a dividend of $0.10/share payable on or before February 1, 2010 to stockholders of record on December 31, 2009. On 12-07 HPT announced that it will begin paying a quarterly distribution of $0.45/share ($1.80/share per year) in 2010. HPT expects that a distribution to common shareholders may be declared in January 2010 and be paid in February 2010. On 11-05 ACC declared a dividend of $0.3375/share payable on November 30, 2009, to shareholders of record at the close of business on November 16, 2009. On 11-30 EQR declared a dividend of $0.3375/share payable on January 8, 2010 to shareholders of record on December 21, 2009. On 11-02 UBS Upgraded BRE and EQR from Sell to Neutral. On 11-24 Keefe Bruyette Initiated coverage on AIV at Underperform, initiated CPT, ESS and UDR at market perform, and initiated EQR and HME at Outperform. On 10-08 EDR announced a reduction in the quarterly dividend to $0.05/share payable November 16, 2009 to shareholders of record as of October 30, 2009. On 10-29 BRE declared a dividend of $0.375/share payable on Thursday, December 31, 2009 to shareholders of record on Tuesday, December 15, 2009. |