Morgan Stanley Directs Multifamily Apartment REITs To Center Stage

On Monday, Morgan Stanley released a report previewing what investors should expect from upcoming Q1 2015 earnings reports from the multifamily apartment REIT sector, which included specifics on:

• Essex Property Trust Inc ESS: $14.5 billion cap, 2.6 percent yield
• Home Properties, Inc. HME: $3.9 billion cap, 3 percent yield
• Mid-America Apartment Communities Inc MAA: $5.7 billion cap, 4.1 percent yield

Tale Of The Tape – Past Year

West Coast focused Essex has outperformed during the past twelve months, and Morgan Stanley projects it to be a top performer for the next two years as well.

MS – Apartment REITs: Key Metrics

MS – Apartments REITS: Big Picture

Essex appears to be "playing with a full deck," in the sense that it is active on the Pacific Coast where supply constrained multifamily markets continue to be strong, notably in the San Francisco Bay Area, Seattle, Silicon Valley and SoCal.

Specifically, Essex "doubled down" on those markets with its BRE Properties merger, which closed back in April 2014.

Boston, metro-Washington, Bethesda, Nassau and Suffolk, New York continue to be among the weakest markets.

MS – Essex: Overweight

Morgan Stanley expects FFO at $2.25 versus a consensus of $2.24 for Essex.

MS Call Questions:

1. When do you think SF Bay Area growth will slow?

2. How strong can SoCal's recovery become, and how fast?

3. How much progress has been realized, and are there more synergies to be obtained from BRE merger?

4. Clarify the redevelopment potential in the existing portfolio. When will it start to be realized?

ESS is scheduled to report Q1 results AMC on May 6.

MS – Home Properties: Underweight

For Home Properties, MS has expectations of FFO at $1.11 versus a consensus of $1.10.

MS Call Questions:

1. "Are you more or less confident that D.C. has bottomed," and what is the near term outlook for rents?

2. Is the HME exposure to the D.C. market "at the right level," or is this the time to take advantage of "full private market valuations?"

3. How do D.C.-suburban and D.C.-metro market trends compare?

4. Now that development is no longer an option, are there portfolio redevelopment opportunities?

Home Properties is scheduled to report Q1 results AMC on April 30.

MS – Mid-America Apartment: Overweight

The expectations publicized by MS for Mid-American Apartment include FFO at $1.29 versus consensus of $1.29.

MS Call Questions:

1. Is the slowdown in Sunbelt markets supply-driven; and if so, when will it peak?

2. How much of an impact will lower priced oil have on rents and absorption in Houston; and, will it affect B and A properties equally?

3. Will slower development lease-ups in the Sunbelt result in acquisition opportunities?

4. What are MAA's views on Colonial Properties integration risks versus potential returns at this point?

5. Do attractive Sunbelt cap rates make dispositions more likely for MAA in areas with slower growth potential moving forward?

Mid-American Apartment is scheduled to report Q1 results AMC on April 29.

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