4 Residential REITs to Buy as U.S. Apartment Occupancy Shoots Up

The REIT sector has emerged as one of the brilliant performers this year, with total returns of the FTSE Nareit All REITs Index rallying 24.43% since the beginning of the year through Sep 10, outpacing the S&P 500 which gained 20.54% during the same period.

REITs, which own and operate income-producing real estate, have comparatively lower exposure to trade tensions. These companies also benefit from resilient consumer sentiment, low unemployment level and rising wages.

Moreover, amid more Fed rate-cut anticipations, REITs are likely to gain as income-focused investors find these companies attractive, owing to their high dividend-paying nature. However, stable cash flows are more definite when fundamentals of the underlying real estate asset category of REITs display strength.

Why Residential REITs are Prudent Choice Now?

This is where residential REITs excel, as the latest figures from real estate technology and analytics firm RealPage, Inc. RP suggest that during the current year’s prime leasing period, the U.S. apartment rental market successfully banked on the stellar demand for rental units.

The apartment rental market’s fundamentals have been buoyed by a healthy job market, resilient consumer sentiment, household formation and high home-ownership costs in several markets, hindering transition from renter to homeowner.

In fact, with an impressive leasing activity in 2019’s peak season, occupancy rate in August reached 96.3%. The figure is not only up 10 basis points (bps) sequentially and 40 bps year on year, but also marks the seventh straight month of the current occupancy uptrend and the highest rate since 2000.

Occupancy strengthened across all four regions of the United States, both on a monthly as well as annual basis, with the level reaching as high as 97.1% in the Northeast, 96.6% in the West, 96.5% in the Midwest and 95.7% in the South. This upswing in occupancy level amid steady delivery of new units looks encouraging.

With uptick in occupancy, rent growth also seems to be steady. In fact, August denoted the 12th successive month of annual rent growth holding steady at or above 3%, with monthly rents averaging $1,418. Per the report, rent growth has never remained above that level for such a longer period of time since 2016. This comes after a solid performance in July as well as in the April-June quarter.

Furthermore, the Zacks REIT And Equity Trust - Residential industry, which is housed within the broader Zacks Finance sector, currently carries a Zacks Industry Rank #39, which places it at the top 15% of 255 Zacks industries. The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates bright near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperforms the bottom 50% by a factor of more than 2 to 1.

Our Choices

Here we have handpicked four REITs that carry a favorable Zacks Rank. These stocks have been witnessing positive estimate revisions, indicating analysts’ bullish view.

Headquartered at San Mateo, CA, Essex Property Trust ESS is engaged in the acquisition, development, redevelopment and management of multi-family residential properties. Specifically, the company enjoys concentration of assets in select markets along the West Coast, which is home to several innovation and technology companies and the region is witnessing solid job growth, higher wages, increased percentage of renters than owners, and favorable migration trends.

Essex Property Trust currently carries a Zacks Rank #2 (Buy). The residential REIT’s projected growth rate for the current year is nearly 6%. The Zacks Consensus Estimate for this year’s funds from operations (FFO) per share moved up 1.4% over the past 60 days. The dividend yield is 2.43%.  

Chicago, IL-based residential REIT Equity Residential EQR is focused on the acquisition, development and management of high-quality apartment properties in top U.S. growth markets. It also carries a Zacks Rank of 2, at present.

The company’s estimated growth rate for 2019 is 6.15%. The Zacks Consensus Estimate for 2019 FFO per share moved 1.8% north over the past 60 days. It has a dividend yield of 2.69%.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Headquartered in Germantown, TN, Mid-America Apartment Communities MAA, commonly known as MAA, is engaged in owning, acquiring, operating and selective development of apartment communities, located primarily in the Southeast, Southwest and Mid-Atlantic regions of the United States.

At present, MAA holds a Zacks Rank of 2. The residential REIT’s expected growth rate for the ongoing year is nearly 4%. The Zacks Consensus Estimate for 2019 FFO per share moved 1% upward in 90 days’ time. The dividend yield is 3%.  

Camden Property Trust CPT, based in Houston, TX, is engaged in the ownership, management, development, redevelopment, acquisition, and construction of multi-family apartment communities.

Camden Property Trust is another Zacks #2 Ranked stock, currently. The residential REIT’s anticipated growth rate for 2019 is 6.71%. The Zacks Consensus Estimate for the current-year FFO per share moved marginally north to $5.09, over the past 30 days. It has a dividend yield of 2.91%.  

Here’s how the above stocks have performed so far in the year.

Note: Anything related to earnings presented in this write-up represent funds from operations (FFO) — a widely used metric to gauge the performance of REITs.

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RealPage, Inc. (RP): Free Stock Analysis Report

Essex Property Trust, Inc. (ESS): Free Stock Analysis Report

Equity Residential (EQR): Free Stock Analysis Report

Mid-America Apartment Communities, Inc. (MAA): Free Stock Analysis Report

Camden Property Trust (CPT): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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