8 best apartment REITs to buy now

Multifamily housing adds diversification to an investment portfolio.

  • By Rebecca Lake,
  • U.S. News & World Report
  • – 08/09/2019
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Apartment REITs, or real estate investment trusts, offer opportunities to capitalize on strong housing demand while potentially offsetting stock market volatility. “I like multifamily REITs for the diversification of cash flows,” says Roger L. Gainer, owner of Gainer Financial & Insurance Services in San Rafael, California. “Most programs include hundreds and sometimes thousands of rent-paying units, so even in a recession, there are many folks paying rent, which makes the cash flows tend to be more stable.” If shrinking housing affordability gives rental rates a push, investors stand to gain. These eight apartment REITs are the best to buy now.

Equity Residential Properties Trust

Equity Residential concentrates on property holdings in urban and high-density suburban markets in a handful of states, including California, New York and the Washington metro area. EQR currently has a "buy" recommendation, though it’s been suggested that the REIT may be overvalued. The current dividend yield is 2.8%, and the company recorded a 3% growth in average rental rates in its second-quarter earnings report. Equity Residential may represent a defensive move as trade war talk heats up. However, publicly traded REITs like EQR are still subject to volatility from interest rate fluctuations, says Elie Rieder, founder and CEO of Castle Lanterra Properties.

Mid-America Apartment Communities

Mid-America Apartment Communities invests in multifamily housing primarily in the southeast, southwest and mid-Atlantic regions. It’s one of the largest publicly-traded REITs on the market and current holdings include more than 100,000 apartment units. MAA pays out a slightly higher dividend yield to investors, currently coming in at 3.1%. Except for a few minor dips, the apartment REIT’s share value has risen steadily over the last fast years, nearly doubling in price since September 2014. Like EQR, Mid-America Apartment Communities also carries a "buy" recommendation, positioned as bullish for the long term but bearish for short- and mid-term investors.

Essex Property Trust

Essex Property Trust owns apartment communities in Los Angeles, San Diego, the San Francisco Bay area and Seattle. This REIT is another "buy" move, with a bullish long-term outlook and a dividend yield of 2.5%. The exposure ESS offers to high-end markets fuels its profitability but there is a risk if economic growth slows. “I would be cautious in evaluating multifamily investments, especially in the pricier markets like here in the Bay Area or New York, as many of these markets have seen huge price appreciation in recent years,” Gainer says. As rent becomes less affordable, vulnerability to vacancies in a recession rises.

Avalonbay Communities

Avalonbay Communities takes a coast-to-coast approach to apartment investing with properties in the metro areas of New York, Washington and Seattle. In terms of performance, the current dividend yield is 2.9%. The company reported a slight decline in earnings per share to $1.21 through the second quarter of 2019 from $1.84 for the prior-year period. But Avalonbay's revenue beat initial estimates. At just over $200 per share, AVB is one of the more expensive apartment REITs on the market. In evaluating whether to buy this or any major housing market REIT, Rieder says to look for the fundamentals – strong economic outlooks, diversified economies, favorable business climates and strong infrastructure.

Camden Property Trust

Camden Property Trust is one of the largest multifamily REITs in the country, owning luxury apartments nationwide. That may be appealing to those interested in capitalizing on rising demand for upscale properties, which can command higher rental rates. “Of the multifamily housing that has been built in recent years, a large portion of it has been luxury apartments in urban locales, leaving a particularly stark supply-demand imbalance in workforce housing apartments targeted at average Americans,” Rieder says. CPT has a "hold" recommendation at the moment. though it is expected to take a bullish turn. As yield goes, the REIT holds its own, paying out a 3.1% dividend to investors.

UDR

UDR is another luxury-focused apartment REIT, with holdings in virtually every major housing market, including Austin, Boston, Dallas, New York and San Diego. The economic strength of those cities is central to the REIT’s performance outlook. “Rising employment and rising wages generally boost household formation, driving both rental income and property value,” says Mark Hamilton, CEO and co-founder of San Francisco-based Hamilton Zanze. UDR has a strong "hold" recommendation, with a current dividend yield of 3%. The company recently announced a plan to reduce its total indebtedness, which could help curb the pricing volatility that’s characterized the past several months.

Apartment Investment and Management Company

Apartment Investment and Management Company offers property investors diversification through 12 primary real estate markets in varying states, including California, Washington, New York, Pennsylvania and Tennessee. The REIT manages risk on behalf of its investors by owning properties across a variety of price ranges and emphasizing redevelopment projects as a core business activity. AIV’s 3.1% dividend yield puts it ahead of some of the other multifamily REITs included here and at about $50 per share, it could be considered a bargain buy. Investors should note that the forecast for Apartment and Investment Management Company is trending bearish but a five-year uptick in earnings per share may be a silver lining.

Bluerock Residential Growth REIT

The Bluerock Residential Growth REIT owns apartment properties stretching across the South from Houston to Charlotte. The REIT is off to a relatively strong start through the first half of 2019, reporting a 16.6% increase in revenue to $52.4 million through the second quarter from $45 million in the prior-year period. BRG has the most impressive dividend yield by far of the apartment REITs included here, at 5.4% but the past two years have seen some major swings in pricing, which may be concerning to some property investors. Volatility aside, this multifamily REIT has the potential to be a good buy for those seeking a long-term hold position.

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