After 5 years of above-average apartment REIT Same-Store Revenue (SSRev) growth, concerns of increasing supply in 2016 threatened the outlook for the sector. As a result, apartments (Bloomberg: FNAPTTR) underperformed the MSCI US REIT Index (Bloomberg: RMS G) by 570 basis points (or bps) in 2016. Yet, in spite of the negative sentiment, the sector posted SSRev growth of +4.8%, well above the 3% historical average, though a deceleration from +5.6% in 2015.
On 4Q 2016 earnings calls, REIT management teams guided to further deceleration in 2017, but expected growth to stabilize near the historical average as supply peaks in the back half of the year. Our proprietary research of the supply and demand landscape supports the REITs' views, indicating that revenue growth should stabilize in 2017 and could even reaccelerate through at least 2018.
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