As the first quarter of the 2023 earnings release comes to a close, investors are keenly observing the performance of residential Real Estate Investment Trusts (REITs). After enduring three consecutive quarters of negative absorption, the U.S. apartment market is witnessing a rebound in demand, signaling promising growth opportunities for residential REITs.
Top players like AvalonBay Communities AVB, Equity Residential EQR, UDR Inc. UDR and Mid-America Apartment Communities MAA are poised to benefit from this resurgence. In this article, we delve deeper into the financials of these residential REITs, examining how these are likely to have performed in the first quarter of 2023 and providing a conclusive recommendation for investors. However, prior to that, let us dive into the industry fundamentals.
US Apartment Market Rebounds in Q1 2023
According to first-quarter data from RealPage Market Analytics, the U.S. apartment market witnessed a recovery in net apartment demand, ending a streak of three consecutive quarters of negative absorption. The market added 19,243 net new renters in the quarter, signaling a return to positive territory. Occupancy rates continued to slide but at a much lesser degree than before, coming in at 94.7% in March, matching the pre-pandemic decade average.
Similarly, in March, same-store effective asking rents for new lease signers increased 0.3%, with effective asking rents up 3.9% year over year, marking the first time below 4% since April 2021. These trends suggest that somewhat normal seasonality is returning to the market after a three-year absence due to the pandemic.
AvalonBay Communities: With the market witnessing a rebound, AVB is poised to seize this opportunity and capitalize on the growing demand. Its diverse property portfolio in high-growth markets is anticipated to enjoy a rise in renter interest. Furthermore, the company's emphasis on development and redevelopment initiatives could have paved the way for additional growth.
AvalonBay is banking on technology, scale and organizational capabilities to drive innovation and margin expansion in its portfolio. Investors can expect strong revenue and funds from operations (FFO) growth for AVB in the first quarter of 2023 propelled by these favorable market dynamics.
AvalonBay Communities is set to announce its first-quarter 2023 earnings on Apr 26 after market close. For the first quarter of 2023, AvalonBay expected core FFO per share in the range of $2.47-$2.57.
The Zacks Consensus Estimate of $665.6 million for first-quarter revenues suggests an 8.4% year-over-year increase. Before the first-quarter earnings release, the company’s activities were adequate to gain analysts’ confidence. The Zacks Consensus Estimate for the quarterly core FFO per share has been revised four cents north in the past month to $2.54. This implies year-over-year growth of 12.4%.
(Read more: Can Rebounding Demand Drive AvalonBay's Q1 Growth?)
AvalonBay Communities, Inc. Price and EPS Surprise
AvalonBay Communities, Inc. price-eps-surprise | AvalonBay Communities, Inc. Quote
Equity Residential: EQR, boasting a robust presence in urban and high-density suburban regions, is set to benefit from the apartment market's rebound. The company has maintained solid occupancy rates and rent growth while benefiting from a recovering urban core. It has a healthy balance sheet and banks on technology, scale and organizational capabilities to drive growth.
Equity Residential’s target resident is more affluent, with lower unemployment and favorable prospects ahead. EQR is likely to report solid financial results for the first quarter of 2023.
Equity Residential is slated to report first-quarter 2023 results on Apr 25 after the closing bell. For the first quarter of 2023, the company projects a normalized FFO per share in the band of 84-88 cents.
Currently, the Zacks Consensus Estimate for EQR’s quarterly revenues stands at $699.54 million, indicating a 7.1% increase year over year. Before the first-quarter earnings release, the company’s activities were adequate to gain analysts’ confidence. The Zacks Consensus Estimate for the quarterly normalized FFO per share has been revised north in the past month to 88 cents. This suggests year-over-year growth of 14.3%.
(Read more: Is a Beat in Store for Equity Residential in Q1 Earnings?)
Equity Residential Price and EPS Surprise
Equity Residential price-eps-surprise | Equity Residential Quote
UDR Inc.: Its strategically located, high-quality properties are on track to thrive in the wake of the apartment market's revival. With the market returning to a semblance of normalcy following a pandemic-induced three-year hiatus, UDR's attractive portfolio is expected to attract new renters. Consequently, investors can anticipate healthy revenue and earnings growth for UDR in the first quarter of 2023 as the company leverages favorable market conditions to fortify its financial standing.
This residential REIT banks on technological moves and process enhancements to fuel growth. UDR focuses on enhancing cost control through its Next Generation Operating Platform. However, an increase in borrowing costs and the oversupply of rental units remain concerns.
UDR is set to announce its first-quarter 2023 earnings results on Apr 26 after market close. The company projected first-quarter 2023 FFO as adjusted per share in the range of 59-61 cents.
The Zacks Consensus Estimate for quarterly revenues is currently pegged at $404.5 million. This indicates a 13.2% year-over-year rise.
Before the first-quarter earnings release, the company’s activities were not adequate to gain analysts’ confidence. The Zacks Consensus Estimate for the quarterly FFO as adjusted per share has remained unchanged at 61 cents in the past month. However, this suggests year-over-year growth of 10.9%.
(Read more: Can UDR Capitalize on the Rebound in the U.S. Apartment Market?)
United Dominion Realty Trust, Inc. Price and EPS Surprise
United Dominion Realty Trust, Inc. price-eps-surprise | United Dominion Realty Trust, Inc. Quote
Mid-America Apartment Communities: MAA's Sunbelt-centric portfolio, characterized by robust job growth and favorable demographic trends, is well-suited to capitalize on the rebound in apartment demand. The company's properties are likely to register healthy occupancy rates and renter interest in the first quarter of 2023. As a result, MAA is projected to deliver a strong financial performance in the first quarter of 2023, driven by the positive momentum in the apartment market.
Moreover, MAA continues to implement its three internal investment programs — interior redevelopment, property repositioning projects and Smart Home installations. The programs are expected to have helped the company capture the upside potential in rent growth, generate accretive returns and boost earnings from its existing asset base.
MAA is slated to report first-quarter 2023 results on Apr 26 after market close. MAA projected first-quarter 2023 core FFO per share in the band of $2.14-$2.30, with $2.22 at the midpoint.
The Zacks Consensus Estimate for quarterly revenues is pegged at $525.1 million, suggesting a 10.3% rise from the year-ago quarter’s reported figure. Before the first-quarter earnings release, the company’s activities were not adequate to gain analysts’ confidence. The Zacks Consensus Estimate for the quarterly FFO per share has been revised a cent downward to $2.25 in the past month. However, this implies year-over-year growth of 14.2%.
(Read more: What Awaits Mid-America Apartment This Earnings Season?)
Mid-America Apartment Communities, Inc. Price and EPS Surprise
Mid-America Apartment Communities, Inc. price-eps-surprise | Mid-America Apartment Communities, Inc. Quote
Currently, AVB, EQR, UDR and MAA each carry a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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The upturn in apartment demand, coupled with encouraging trends in occupancy rates and effective asking rents, has created a conducive environment for residential REITs in the first quarter of 2023. AVB, EQR, UDR and MAA are well-equipped to harness these growth opportunities, rendering them attractive investment choices for those seeking exposure to the residential real estate sector.
As with any investment, investors must carefully weigh their individual risk tolerance and investment objectives before making any decisions. In light of the current market conditions and the prospects of these residential REITs, investors may find AVB, EQR, UDR and MAA well-suited for their portfolios.
By carefully considering each company's unique strengths and positioning within the market, investors can potentially capitalize on the growth opportunities presented by the rebound in demand for apartments in the first quarter of 2023.
Note: Anything related to earnings presented in this write-up represents funds from operations (FFO) — a widely used metric to gauge the performance of REITs.
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