S&P TRENDS & IDEAS
Sectors: S&P Turns Neutral on Residential REIT Subindustry
02/11/2013-10:03 AM ET
• We recently lowered our fundamental outlook for the Residential REIT subindustry to neutral, from positive. All of the REITs in our coverage universe have now reported year-end 2012 results. During analyst conference calls with REIT management teams, there was one recurring theme: in 2013, rental revenue growth will slow from the strong levels achieved in 2012. On average, we still estimate 2013 rental hikes will average about 4%-5% for owners of apartment communities, but below an average estimated gain in 2012 of close to 6%.
• We think there are a number of factors behind lowered growth expectations for 2013. First, the for-sale housing market is finally showing signs of life. The latest data for the S&P/Case- Shiller Home Price Indices shows U.S. home prices rising 5.5% during the 12 months ended
November 2012. Potential homebuyers, including some renters, are beginning to take advantage of attractive values in many local housing markets. As a result, we think the U.S. homeownership rate, which hit a 15-year low in the fourth quarter of 2012, could begin to creep up in coming quarters.
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