Apartment REITs Boost Liquidity

Apartment REITs Boost Liquidity NEW YORK, NY - While the apartment industry has suffered amid the recession and rising unemployment during the past several months, multifamily real estate investment trusts have boosted their liquidity and most continue to have stable outlooks, according to Moody's Investors Service.

Moody's Vice President Chris Wimmer said multifamily REITs have raised liquidity in various ways, including the use of Fannie Mae (FNM) and Freddie Mac (FRE) debt, the reduction of development activities and asset sales.

Some REITs also have lowered the cash portion of their regular common dividends. REITs are required to pay out most of their net income to shareholders in the form of dividends to qualify for government tax breaks.

"Most balance sheets are well-prepared for the next 12 to 18 months," Wimmer added.

Moody's rates nine multifamily REITs, and eight have stable outlooks, while one outlook is negative.

The rating agency noted the average bank line capacity available to rated REITs at the end of 2008 was close to 80%, with only one having capacity of less than 50%.

Moody's pointed out that occupancy averages are at the lowest levels in years for most rated multifamily REITs. While property cash flow growth was positive for 2008, it was at the lowest rates in at least four years.

Apartment owners originally benefited from the economic downturn as home owners became renters, but as the recession has deepened, vacancies have increased. For 2008, rents increased by just 2.2%, compared with a 4.6% jump the previous year, and the nation's apartment-vacancy rate rose nearly one percentage point to 6.6%, according to New York-based research firm Reis Inc.

Apartment landlords also are competing for renters with condos and single-family homes being rented at big discounts by homeowners and investors unable to sell.

Moody's plans to closely monitor REITs' liquidity, especially their management of near-term debt maturities and the effect of deteriorating property fundamentals on cash flows.
Source: WSJ.com

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