Moody's Investors Service expects lower supply and higher demand to stoke growth in rental apartments and subsequently help the credit of multifamily real estate investment trusts. But analysts said the rosy outlook is tempered somewhat by numerous macroeconomic, financial market and regulatory uncertainties. Moody's said the sector touched bottom in 2010 and "is experiencing what is increasingly pointing to being a sustained period of strong improvement." Analysts said cash flow generated by multifamily properties is up due to higher occupancy rates and rent levels resulting from strengthening employment trends in certain markets and decreasing homeownership levels. Moody's said occupancies and rents are near their peaks of a few years ago. "We now expect 2010 operational and financial results to come in meaningfully higher than those originally forecasted by the companies' management teams" earlier in the year, Moody's said. The analysts still anticipate some downside risk from a double-dip recession, a possible surge in home buying and the potential loss of access to capital of government-sponsored enterprises. The financial crisis also continues to batter banks and sovereigns, but "these threats are less imminent than they were at the end of the first quarter," according to Moody's. The ratings agency also maintains a positive outlook on the real estate fundamentals for lodging REITs, although it has a negative outlook for two of the three rated REITs in the sector: FelCor Lodging Trust Inc. and Hospitality Properties Trust. The outlook for Host Hotels & Resorts is stable. Analysts said the rapid improvement in hotel occupancy, average daily rates and revenue per available room prompted the positive outlook. And everything points to stabilization in the sector in 2011, assuming the REITs can translate improving fundamentals into stronger credit profiles, according to Moody's. Write to Jason Philyaw.