Rental outlook: Pressure on revenue, opportunities in cost, recovery in 2011

I spent some time this morning looking through the transcripts of the Equity, AIMCO and Avalon Bay earnings calls and excerpted some sections that neatly summarize the current market conditions and outlook.

While revenue is down, declines in the rental rates of new leases are being offset by a widening spread between new lease and renewal lease pricing.

Equity is renewing leases at 1% below the expiring rental rate, while the net effective new lease rate (a new metric Equity is tracking) is down 9% from the rates vacating tenants are paying.

AIMCO has experienced an overall decline of 1.3% in average rents, with new leases down 2.3% in price and renewal rent up 0.1%.

At Avalon Bay the spread is even wider, with new rents down 12% and renewal rents down 0.6%.

All three companies reported that rental rates have stabilized in the early part of the summer, and that generally traffic is up from significant dips in April.

The impact of the lower rents and lower occupancies drove down same-store revenue 2.4% at Equity and 2.3% at AIMCO. Equity reported occupancy at 93.7%, while AIMCO reported occupancy at 92.8%.

In other comments, Equity spoke in detail to the impact that increased exposure of listing information online has had on their cost structure.

Part of a bigger picture workflow transition that utilizes our web tools, engages the resident, transfers a lot of the work to the resident. When you put prices on line and you have that transparency kind of cut down your call traffic about 50% because, people know what your prices are. They don’t have to call. So, I think what you are seeing is really just the beginning stages of a longer-term focus that we have a fairly detailed plan that will take us probably the next three years to fully implement.

In addition, investment in their Equity web site has allowed them to significantly reduce their investment in paid advertising.

[Our] website is really a Ferrari, so to speak as far as the infrastructure. We’ve been able to move from page nine on a Google search as far as organic, all the way to page one. We’ve also taken more central control of a lot of the ILS spend, the Rent.com, the Apartments.com and you see significant optimization year-to-date on that expense.