AvalonBay Communities, Inc.'s (AVB) third-quarter 2016 funds from operations per share of $2.11 missed the Zacks Consensus Estimate of $2.12.
Our proven model does not conclusively show that Equity Residential (EQR) will beat estimates this quarter.
Backed by growth in revenues and occupancy gains, Prologis, Inc. (PLD) came up with a better-than-expected result in the third quarter.
The national apartment market is experiencing a moderation in recent quarters from the robust performances of 2014 and 2015, thanks to the new supply in the high-rent metros.
Recently, American Campus Communities, Inc. (ACC) and EdR (EDR), the reputed student housing REITs, have come up with their leasing updates for academic year 2016-2017.
Equity Residential (EQR) is on track to meet its full year same store revenue guidance. In fact, this residential real estate investment trust has reaffirmed its same store revenue projections.
Ushering in good news for its shareholders, Equity Residential (EQR) announced a special cash dividend of $3.00 per common share, primarily the outcome from the sale of its non-core assets.
Though the current reporting cycle is drawing to a close, results are still pouring in from the REIT industry, with Care Capital Properties, Inc. (CCP) and others slated to release their quarterly figures on Aug 11.
The residential REIT category of the real estate investment trust (REIT) space has been witnessing quite an eventful week of the Q2 Earnings season.
"This One Is Very Surprising" - US Luxury Rental Market Turmoiling As EQR Cuts Guidance For 3rd Time
Back on April 27, Chicago-based real estate investment trust Equity Residential (EQR) lowered its guidance during its Q1 earnings call, expecting a drop in revenue growth to 5% due to a luxury apartment slowdown in Manhattan. The Landlord said at the time that "New York City just turned very quickly and more deeply than we expected; There's some crazy stuff going on in New York" COO David Santee during the call. Then, in early June, for the second time in less than two months, the landlord unexpectedly cut its earnings growth estimates once again, saying that the low end of the previously revised guidance of 4.5% to 5% has now become the high end of the range, as EQR forecast revenue growth of 4% to 4.5%. "The revision is being driven by continued weakness in its New York portfolio and recent under performance in the company's San Francisco portfolio. New lease rates are not meeting original projections due to new rental apartment supply" the company said in a statement. "The revision is being driven by continued weakness in its New York portfolio and recent under performance in the company's San Francisco portfolio. New lease rates are not meeting original projections due to new rental apartment supply" the company said in a statement. As we commented two months ago, "what's notable in the new guidance from EQR is that San Francisco has now joined the party - a development that clearly caught COO David Santee off guard." To be sure, the "unexpected weakness in San Francisco was not a surprise to regular readers, as we have been pointing out for a long time that the second tech bubble has burst, and had started to impact the local rental market. Today, shares of Equity Residential tumbled the most since March after the company cut its revenue forecast for the third time this year, citing the same factors it blamed two months ago, namely greater weakness "than it anticipated in the Manhattan and San Francisco rental markets." The REIT now expects same store revenue growth to be 3.5% to 4% in 2016. The surprising deterioration in what until recently have been the two most stable rental markets in the US shocked analysts: “This one is very surprising to us, from what we view to be a top-tier organization with the sophisticated infrastructure that usually communicates future performance within a relatively visible band,” Mizuho Securities USA Inc. analysts Haendel St. Juste and Richard Anderson wrote in a note to investors late Tuesday, after Equity Residential’s announcement. The implication is that the future performance is not that visible after all. The analysts cut their recommendation on Equity Residential shares to underperform from neutral. The shares were also downgraded by analysts at BMO Capital Markets Corp. who lowered their rating to market perform from outperform. The stock price drop It was the biggest intraday decline since March 1 and the most in the 15-company Bloomberg apartment REIT index, which fell 3% in sympathy. AvalonBay Communities Inc. and UDR Inc., which both reported earnings this week, were down more than 3% . “We were already surprised by the lack of visibility into the outlook after two reductions in 2016,” St. Juste and Anderson wrote. The third is “too much for the market to handle.” As Bloomberg adds, Equity Residential is among landlords having to work harder to lure tenants in the high-cost markets of Manhattan and San Francisco as an apartment-construction surge gives residents more bargaining power and limits how much owners can raise rates. Quantifying how weak the rental market has suddenly become, AvalonBay gave renters lease-signing concessions worth $300,000 in the second quarter, four times more than in the same period a year earlier, Chief Operating Officer Sean Breslin said on the company’s earnings call Tuesday. The sweeteners, in the form of free months of rent, were greatest in New York, Northern California and New England. “Markets do reset from time to time, either due to new supply or changes on the demand side of the equation,” Equity Residential Chief Executive Officer David J. Neithercut said Wednesday on a conference call to discuss earnings. “Unfortunately at the present time, we’re experiencing both factors in two of our most important markets.” Other REITs did not fare better: AvalonBay cut the midpoint of its full-year forecast for same-store revenue growth by 0.4 percentage points. Job growth in the markets where the company owns apartments was also weaker than it expected in the second quarter, damping demand for rentals in what is usually the busiest leasing period, Breslin said. “We did not see the same seasonal lift we’ve seen in prior years,” AvalonBay Chief Executive Officer Timothy Naughton said on the company’s call. In San Francisco, about 5,100 new units, the most in 26 years, are expected to be listed for rent in 2016, data from research firm Reis Inc. show. In Manhattan, 5,675 apartments will be added to the rental inventory, most of it high-end, according to brokerage Citi Habitats. Making matters worse, pent up supply will only pressure prices more in the coming months. Many of this year’s new apartment buildings in New York will still be seeking tenants in 2017, and Equity Residential is concerned that competing landlords will start offering more concessions to would-be renters in the final quarter of the year, Santee said. Equity Residential is projecting that New York will get 14,000 new units in 2017, and another 14,000 the following year, Santee said on the call. About 7,000 units will be added in San Francisco next year, he said. For those who still assume that US high-paying jobs are doing just fine, the following disclosure from EQR will be disturbing: San Francisco and New York, which account for half of Equity Residential’s projected revenue growth, are seeing a slowdown in hiring for jobs that pay enough to enable renters to afford the new luxury-apartment supply coming in those cities, Chief Operating Officer David Santee said on the call. High-salary technology jobs in San Francisco peaked in the first quarter, while in New York, the biggest employment gains this year were in hospitality, leisure and health care, which are “mid-level compensation” industries, he said. This means that the "minimum wage recovery" has now spread to the cities which traditionally are the highest paying ones. It also means that any hopes for substantial wage growth, aside from mandatory minimum wage increases can be thrown out of the window. That this will have a substantial impact on Fed policy goes without saying.
High disposition activity in 2016 has led to a decline in Equity Residential's (EQR) normalized funds from operations (FFO) per share for second-quarter 2016.
Our proven model does not conclusively show that Equity Residential (EQR) will beat estimates this quarter.
Our proven model does not conclusively show that AvalonBay Communities Inc. (AVB) will beat on earnings this season.
Backed by growth in same store net operating income and occupancy gains, Prologis, Inc. (PLD) came up with better-than-expected results in the second quarter.
By Wolf Richter, WOLF STREET: The San Francisco housing bubble – locally called “Housing Crisis” – needs a few things to be sustained forever, and that has been the plan, according to industry soothsayers: an endless influx of money from around the world via the startup boom that recycles that money into the local economy; endless and rapid growth of highly-paid jobs; and an endless influx of people to fill those jobs. That’s how the booms in the past have worked. And the subsequent busts have become legendary. The current boom has worked that way too. And what a boom it was. Was – past tense because it’s over. And now jobs and the labor force itself are in decline. Until recently, jobs and the labor force (the employed plus the unemployed who’re deemed by the quirks of statistics to be looking for a job) in San Francisco have been on a mind-bending surge. According to the California Employment Development Department (EDD): The labor force soared 15% in six years, from 482,000 in January 2010 to its peak of 553,700 in March 2016. Employment skyrocketed 23%, from 436,700 in January 2010 to its peak of 536,400 in December 2015. That’s nearly 100,000 additional jobs. This increase in employment put a lot of demand on housing. Low mortgage rates enabled the scheme. Investors from around the world piled into the market. And vacation rentals have taken off. As money was sloshing knee-deep through the streets, and many of the new jobs paid high salaries, the housing market went, to put it mildly, insane. But the employment boom has peaked. Stories abound of startups that are laying off people or shutting down entirely. Some are going bankrupt. Others are redoing their business model to survive a little longer, and they’re not hiring. Old tech in the area has been laying off for months or years, such as HP or Yahoo in Silicon Valley, where many folks who live in San Francisco commute to. So civilian employment in May in SF, at 533,900, was below where it had been in December. The labor force in May, at 549,800, was below where it had been in July 2015. Some people are already leaving! The chart shows how the Civilian Labor Force (black line) and Civilian Employment (red line) soared from January 2010. As employment soared faster than the labor force, the gap between them – a measure of unemployment – narrowed sharply. But now both have run out of juice: During the dotcom bust, the labor force and employment both peaked in December 2000 at 481,700 and 467,100 respectively. Employment bottomed out at 390,900 in May 2004, a decline of over 16%! The workforce continued falling long past the bottom of employment. SF is too expensive for people without jobs to hang on for long. Eventually, they bailed out and went home or joined the Peace Corp or did something else. And this crushed the SF housing market. But by the time the labor force bottomed out in May 2006 at 411,000, down 15% from its peak, the new housing boom was already well underway, powered by the pan-US housing bubble. In SF, this housing bubble peaked in November 2007 and then imploded spectacularly. So now, even if employment in San Francisco doesn’t drop off as sharply as it did during the dotcom bust, in fact, even if employment and the labor force just languish in place, they will take down the insane housing bubble for a simple reason: with impeccable timing, a historic surge in new housing units is coming on the market. According to the SF Planning Department, at the end of Q1, there were 63,444 housing units at various stages in the development pipeline, from “building permit filed” to “under construction.” Practically all of them are apartments or condos. This chart shows that the development boom is not exhibiting any signs of tapering off. Planned units are entering the pipeline at a faster rate than completed units are leaving it; and the total number of units in the pipeline is still growing: Many units will come on the market this year, on top of the thousands of units that have hit the market over the last two years. Once these 63,444 units are completed – if they ever get completed – they’ll increase the city’s existing housing stock of 382,000 units by over 16%. If each unit is occupied by an average of 2.3 people, these new units would amount to housing for 145,000 people. This is in addition to the thousands of units that have recently been completed as a result of the current construction boom, many of which are now on the market, either as rentals or for sale. This surge in new, mostly high-end units has created an epic condo glut that is pressuring the condo market, and rents too, to where mega-landlord Equity Residential issued an earnings warning in June, specifically blaming the pressures on rents in San Francisco (and in Manhattan). Manhattan’s condo glut also has taken on epic proportions. Sales of apartments in the second quarter dropped 10% year-over-year, to the lowest since 2009. And condo prices plummeted 14.5% in 3 months. Ugly! Read… It Gets Real: Manhattan Apartment Sales Plunge
Persistent weakness in the New York portfolio, coupled with the recent downtrend in the San Francisco portfolio compelled Equity Residential (EQR) to cut its 2016 guidance.