The multifamily REIT sector is now in a period of sustained improvement in terms of its fundamentals, said Moody's Investors Service in a new report released today.

Although the improving fundamentals will strengthen credit quality, a number of uncertainties and pressures are probably going to keep ratings at current levels, the agency said.

The rating firm said that both supply and demand conditions and ample capital availability have created a good environment for the REITs to pursue growth.

Additionally, Moody's stated that many macroeconomic, financial market, and regulatory uncertainties are still existing that are preventing a positive bias to the agency's stable rating outlook.

"Overall we view events as strengthening multifamily REIT credit quality, although significant risks remain," says Chris Wimmer, vice president and senior analyst at the rating agency.

Some of these risks, however, have receded over the year. The occurence of a double-dip recession, a strong surge in home buying, and a loss of access to GSE capital is less probable now compared with a year ago, Moody's said.

The rating agency added that multifamily REITs' 2010 results will considerably outperform expectations as projected by REIT managers earlier in the year.

The diminishing homeownership and more stable employment in some parts of the U.S. have pushed up occupancies and rents close to their previous peak levels in 2007 and 2008, which has lead to improved cash flows.

Moody's also reported that the average occupancy for the multifamily REITS that it rates improved to 95.7% in 3Q10, from 94.7% in 4Q09 and 1Q10.  The year-over-year net operating income lost only -0.3% in 3Q10 and fell -7.7% in 4Q09.

Subscribe Now

Access to a full range of industry content, analysis and expert commentary.

30-Day Free Trial

No credit card required. Access coverage of the securitization marketplace, including breaking news updated throughout the day.