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Financial Assessment of Global Residential REIT Industry

  • December 2013
  • 63 pages
  • Frost & Sullivan
Report ID: 1930991

Summary

Table of Contents

A Shift Towards Rental Housing is Driving the Industry

This financial assessment study analyzes the financial ratios of public companies across the globe in the residential real estate investment trust (REIT) industry. To assess financial performance, public companies in the residential REIT industry are first identified. Then, their financials are gathered and ratios such as return on equity and EBIT margin are computed. After this, the ratios are divided into four categories: profitability, liquidity, activity, and solvency. Weights are assigned to different ratios based on industry averages, and an overall rank is determined. Market-based numbers and the number of properties managed are also considered. The study presents key drivers, restraints, top performers by region, and market outlook.

CEO’s Perspective

1. Demand for rental housing is gaining momentum in cities across the globe, more so in the North American region.
2. Higher interest rates, rising house prices, higher job creation, and aversion towards owning houses due to prior experience with foreclosures are pushing up the demand for rental housing.
3. Increasing rent growth and decreasing vacancy rates are expected to boost the profitability of apartment operators and REITs.
4. Currently, the US home ownership rate is at a X-year low. As of August 2013, home prices in the United States have increased X% year-on-year.
5. Currently, the vacancy rate is less than the X-year average rate and the effective rent is higher than the X-year average rent.
6. Signs of recovery in the global economic scenario—more so in the North American region compared to the Eurozone—is expected to improve job creation rates and thereby, employment rates as well.
7. Total returns on residential REIT stocks have shown two-year cycles of peaks and troughs from 1996 to 2006 and after that, the cycles have occurred over longer periods of time.
8. The supply of new apartments has plateaued in the past three years and is expected to gain momentum with overX units under construction in the United States.
9. Key profitability ratios such as return on equity and EBITDA margins have shown an increase in 2012 compared to 2011 and this trend is expected to continue.
10. In the residential REIT industry, student housing has emerged as a separate asset class generating double-digit returns thanks to strong rental growth.

Research Objective and Scope

Research Objective
• To analyze the financials of companies in the global residential real estate investment trust (REIT) industry
• To rank companies based on their financial and risk management
• To identify key trends and challenges that can impact the performance of industry participants over the next X months

Geographic Scope
Global Study

Ratios Analyzed
• Profitability
• Activity (Turnover)
• Liquidity
• Solvency

Study period
Financial Year 2012

Companies Analyzed
108 companies across the globe

Who will benefit?
• Companies operating in the global residential REIT industry
• Apartment operators
• Real estate operating companies (REOCs)
• Private equity
• Venture capital investors
• Fund managers
• Retail investors
• Hedge funds
• Insurance funds and other members of the investing community

Sources
• Frost & Sullivan in-house research expertise
• Established business and financial databases, such as Capital IQ
• Company annual reports
• Published news
• Industry associations, such as NAREIT
• Press releases

Note: For company-level analysis, data used is from the company’s latest annual performance (FY 2012). For industry-level analysis, data is as of Q3 2013.

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