Source: Fitch / #Apartments #Multifamily
NEW YORK, NY - At first glance, the rating affirmations and Positive Rating Outlooks assigned to four multifamily REITs over the past month may seem counterintuitive given Fitch's Stable Outlook for REITs generally and the multifamily sector, specifically. In short, sector outlooks are largely decoupled from issuer specific outlooks and speak broadly to fundamentals nationally and sector trends in capitalization and liquidity. Nonetheless, sector and issuer outlooks should generally be consistent thus the aforementioned issuer-specific positive outlooks are idiosyncratic (i.e. specific market exposures, transitioning to an unsecured borrowing model and, the development of an unencumbered asset pool).
Looking forward, Fitch expects multifamily fundamentals will continue to moderate, resulting in largely stable metrics. Further, the abundance of low cost debt and equity capital should remain for now given the stay of execution for Fannie Mae and Freddie Mac (the GSEs) granted by the new Director of the FHFA (i.e. the reversal of some of his predecessor's downsizing efforts, including the 10% reduction in multifamily loan originations).
The four Positive Rating Outlooks reflect the direction ratings are likely to move over the next 12-to-24 months which Fitch views as achievable despite the Stable Outlook for the sector. For Camden Property Trust (BBB+), Fitch expects operating performance in key markets (e.g. Texas markets benefiting from energy industry job growth) will remain strong on an absolute basis which should allow EBITDA growth sufficient to maintain a cushion to sustain metrics appropriate for a higher rating through-the-cycle. Similarly, Mid-America Apartment Communities' (BBB) Positive Outlook reflects Fitch's expectation that management has the capacity and willingness to sustain metrics appropriate for a higher rating and will continue to demonstrate access to the public unsecured bond market.
Home Properties, Inc. (BBB) has largely completed its transformation from a highly-levered GSE-dependent secured borrower to a moderately-levered unsecured borrower. Fitch expects Home's capitalization will be more consistent with its higher rated peers with a balanced mix of public unsecured senior obligations and secured debt should it complete its inaugural (and subsequent) public unsecured bond offerings. Lastly, AIMCO's (BB+) Positive Outlook reflects Fitch's expectation of further progress toward building an unencumbered asset pool to a size and quality that is consistent with that of an investment grade rating.
Additional information is available at www.fitchratings.com