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AEC Earnings – Small Disappointment But No Problem

AEC reported earnings this evening. The rehash goes something like this:

Net occupancy of their buildings remains very high at 96.6%, down a little from the 97.3% of last quarter, but nothing to fret about.

FFO missed expectations by a penny. The company management also brought down FFO estimates for 2013. But I would have expected that. They had another secondary equal to ~10% of their market cap this quarter. Of course there’s some per share disruption.

Earnings have never been worth talking about with this particular company, because AEC’s strategy has been an asset rollover into younger, more desirable locations that generate lots of depreciation, masks the performance and writes off against the revenues.

Despite the small disappointment in earnings and funds from operation, there’s much to like here still. The market remains in a daze about what is going to come for Associated Estates Realty.

The management has positioned the company expertly. The cash they raised has partially been put to work, purchasing one more property this month, and beginning development at two others in California, not counting a separate joint venture. The remaining cash, together with some credit line deals, have improved the balance sheet at the perfect time; as interest rates have begun to normalize and the cost of borrowing for corporate purposes and mortgages have gotten more expensive.

This should give the company opportunity to put cheap cash to work on better prospects, while simultaneously securing their occupancy by making it more difficult for renters to vacate.

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Multifamily Still Doing Just Fine

I’m busy, and have been for a week. So I thought I’d leave you with some light reading:

The rental vacancy rates for the nation declined from 8.4 percent in 2009 to 7.4 percent in 2011, according to one of two American Community Survey briefs covering the housing market released today by the U.S. Census Bureau. Approximately four times as many metro areas experienced declines in rental vacancy rates as those that experienced increases. The share of U.S. households that rent rather than own increased from 34.1 percent in 2009 to 35.4 percent in 2011. Nearly a quarter of the nation’s metro areas saw a rise in renting households, while less than 3.0 percent of the nation’s metro areas saw a decline.

Rental Housing Market Condition Measures: A Comparison of US Metropolitan Areas examines four characteristics of the rental housing stock using American Community Survey data collected in 2009 and 2011. The characteristics are gross rent, gross rent as a percentage of household income, rental vacancy rates, and renter share of total households and describe changes comparing 2009 with 2011.

The brief found that more renters are spending a high percentage of their household income on rent. Policymakers use gross rent as a percentage of income as a measure of housing affordability, and it is often used to determine eligibility for housing programs. In this report, renters spending 35 percent or more of household income on rent and utilities are considered to have high rental costs.

The share of renters with high housing costs in the United States rose from 42.5 percent in 2009 to 44.3 percent in 2011. However, average rental rates in the United States declined from 2009 to 2011.

“While we saw a decrease in rental vacancy rates and pricing in some areas, the burden of rental costs on households increased across many parts of the nation,” said Arthur Cresce, assistant division chief for housing characteristics at the Census Bureau. “Factors such as supply and demand for rental housing and local economic conditions play an important role in helping to explain these relationships.”

Nationwide, only 11 metro areas reduced their shares of renters with high housing costs, while 62 metro areas increased their shares.

Among the 50 most populous metro areas, some of the heaviest rental costs were borne by renters in metro areas in Florida, California and Louisiana in 2011, despite rent declines between 2009 and 2011. These include Miami with 55.7 percent of renters experiencing heavy rental costs. Orlando, Fla. (52.9 percent); Riverside, Calif. (52.2 percent); and New Orleans (51.3 percent), whose shares did not differ significantly from one another, followed closely.

Among the 50 most populous metro areas, only two became affordable for more renters — Richmond, Va., with a decline of 3.2 percentage points in the share of renters with high rental costs from 42.7 percent to 39.5 percent between 2009 and 2011, and Buffalo, N.Y., with a decline of 3.0 percentage points from 45.6 percent to 42.6.

$AEC and $CLP and the renting class are still in effect.

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CLP’s End Of Year Materials Were Excellent

I just finished up looking over CLP’s end of year materials and voting my shares. They did a fabulous job – the multifamily theme continues to have powerful undercurrents carrying the REITs to success. Occupancy is so high right now; money is flowing freely and AEC and CLP are both pushing through massive expansions in the pipelines.

I continue to see good things coming from this sector. I will be maintaining my investment in both AEC and CLP.

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