New York–Moody’s Investors Service reports that against a backdrop of a generally healthy REIT industry in 2011, the future looks good for REITs that specialize in multifamily properties. Multifamily REITs are going to maintain a stable rating outlook this year, the ratings agency says, and the sector’s fundamentals are positive.
Part of the strength of multifamily REITs comes from the fact that U.S. investment-grade REITs, as a whole, are “in a better position to weather another recession than they were in 2008, just prior to the collapse of Lehman Brothers,” the Moody’s report notes. “The ability of investment grade-rated REITs to cover near-term debt maturities is better, they continue to have large unencumbered pools of assets … and measures of their balance sheet strength are strong.”
Also, REITs have fewer demands these days on their liquidity than during the Great Recession because of staggered debt maturities and an enhanced capacity to access lines of credit. Moody’s also posits that REITs are committed to maintaining low dividend payout ratios, which also helps their liquidity profiles.
As for multifamily REITs, “the economic environment will continue to favor apartment landlords,” the report asserts, echoing the widely held assessment of the market going into 2012. “Employment growth and household creation drive demand for apartments, and although the employment picture remains weak, it has improved relative to one year ago, helping create new households.”
Many of those new households are turned off by the prospect of wading into the weak and uncertain single-family housing market. Thus, demand for apartments is growing, says Moody’s, but “other than the relatively modest development pipelines of the multifamily REITs, there is little new construction of apartments, setting the stage for more rent increases.”