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Silver Lining

Housing displaced residents after Hurricane Katrina could temporarily increase apartment occupancy in greater Houston. That, in turn, could give a short-term earnings boost to REITs such as Camden Property Trust, AIMCO, Equity Residential and United Dominion Realty Trust, which have significant holdings in the area. The disaster will also remove an undetermined amount of supply from the New Orleans regional market.

“Every apartment owner that I called in Houston [in mid-September] was operating at capacity,” says Banc of America Securities analyst Karin Ford. It's also possible that these new renters could end up staying in markets such as Houston for one to three years, which Ford defines as longer-term demand.

Houston's size and proximity — the nation's fourth largest city is only 350 miles from New Orleans — is clearly driving large portions of displaced residents into that city.

Houston's apartment occupancy was hovering near 93% at mid-year, according to Dallas-based apartment data firm M/PF Research. Reliable figures for mid-September weren't available, but anecdotal reports suggest that the market is filling up. Other cities that stand to benefit from displaced residents include Austin and Dallas, both less than 500 miles from the New Orleans area.

The occupancy jump led Banc of America to raise Camden's 2005 funds from operations (FFO) per share estimate from $3.46 to $3.51. The 2006 FFO estimate increased by 4%, Ford says. Funds from operations is a common measure of a REIT's performance. Almost 30% of Camden's 191 apartment properties are concentrated in Houston, and that local portfolio was near 90% full at mid-year, reports Reis Inc., a New York-based research firm.

What analysts cannot broadly predict, however, is the extent of the reverse migration back to New Orleans and other storm-ravaged areas.

At mid-year, New Orleans' apartment occupancy was 93.5%, slightly higher than first-quarter 2005. Analysts say it depends largely on the pace of rebuilding. If it lags, displaced residents could choose to remain in cities like Houston for much longer — but a speedy rebuilding program might easily lure them back en masse, too.

“You have to believe that people will come back to New Orleans and the region,” says Ford. “That's a counter force we're watching, but in the near term these markets are already benefiting from the influx.”

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