Two big apartment landlords raise rents but at slower pace

NEW YORK Wed Oct 24, 2012 8:06pm EDT

NEW YORK Oct 24 (Reuters) - Two large U.S. apartment landlords raised rents in the second quarter but less aggressively than earlier this year as the apartment rental market strengthened despite economic uncertainties affecting other real estate classes.

Equity Residential, whose chairman is Sam Zell, and AvalonBay Communities Inc on Wednesday both reported an increase in rents, but they were the smallest increases in at least three quarters.

The overall U.S. apartment sector has been the strongest of all commercial real estate for about two years as Americans who lost homes turned to rentals and others were discouraged from buying by the stringent mortgage requirements.

The rate at which landlords have been able to raise rents has slowed to 3.7 percent nationally in the third quarter compared with 4 percent in the second, according to Axiometrics Inc, which tracks the U.S. apartment sector.

For five consecutive quarters the annual rate of growth, while still positive, has lost steam since peaking at 5.1 percent in the second quarter last year. Axiometrics has forecast rent growth of 3.6 percent for 2012 but said that could quicken if job growth increases next year.

"Obviously a lot of the easy gains are behind," said Len Rittberg, vice president of Adelante Capital Management. "I don't think that the rate of growth has started to recede to the level that I think people may have been worrying about."

Chicago-based Equity Residential said average rent for apartments it has owned at least a year rose 5.2 percent, the smallest increase since the third quarter of 2011. The average rent was $1,670 per month.

Excluding one time items, the company said third-quarter funds from operations rose 20.4 percent to $232.5 million, or 73 cents a share. Analysts, on average, had forecast 76 cents, according to Thomson Reuters I/B/E/S. The results were in the range of the company's own forecast of 70 cents per share to 74 cents per share.

For the fourth quarter, the owner of 418 apartment complexes said it expects fourth-quarter FFO in the range of 72 cents to 76 cents per share. Analysts, on average, have forecast 78 cents a share.

At AvalonBay, average monthly rent for apartments the company has owned at least a year rose 5.1 percent to $2,125 in the second quarter for properties the Arlington, Virginia-based company has owned at least a year. It was the lowest increase over the past year.

The northern California markets of San Jose and San Francisco had the greatest rental increases, with 11.2 percent in San Francisco and 9.7 percent in San Jose.

The company reported third-quarter FFO of $140.2 million, or $1.44 per share, beating Wall Street's forecast of $1.40 due to an additional 4 cents a share for its bonus for the sale of building it bought from its partner.

The company, which has interests in 205 apartment communities, said it expects fourth-quarter FFO in the range of $1.40 to $1.45 a share. Analysts, on average, forecast $1.45 a share.

AvalonBay shares closed down 3 cents at $134.08 on the New York Stock Exchange. Equity Residential shares closed up 17 cents at $56.12.

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