Real estate investment trusts (REITs) invest in all types of properties, from commercial offices to malls and hospitals. One potentially lucrative category for REITs is rental apartment complexes. The glut of apartment buildings that have burdened the nationwide market throughout the 2010s is finally being absorbed, and rents have increased steadily by at least 3% each year since 2013 (tenants generally have to accept rising rents because they have no choice; bigger rents make homeownership more attractive but also make it harder to save for down payments). So REITs that invest in residential rental real estate may be poised for significant growth. If economic conditions sour or if more Americans choose to rent rather than buy, apartment REITs may outperform other equity investments.
Here are five REITs specializing in apartment buildings that might make good bets for investors as all have seen their prices strengthen significantly of late—though still not as high as analysts feel they could go. All statistics are current as of Oct. 2018.
Equity Residential (EQR) is a Chicago-based REIT founded in 1966 by real estate legend Sam Zell. One of the largest apartment-oriented REIT in the U.S.—it’s one of the S&P 500—as of 2020, Equity Residential owns or has investments in 304 high-quality properties consisting of 78,410 apartment units located primarily in Boston, New York, Washington DC, Seattle, San Francisco, and Southern California. The REIT has a price-to-earnings (P/E) ratio of 17.22 based on estimated earnings for 2018, and a market capitalization of $19.31 billion. It currently pays an annualized dividend of $2.41 per share, which yields 4.61% as of October 2020.
AvalonBay Communities Inc.
The other giant in the apartment REIT universe, AvalonBay Communities Inc. (AVB), has been based in Arlington since 1978. It operates in several regions throughout the U.S., including New England, the tri-state New York area (including Connecticut and New Jersey), California and Texas. AvalonBay Communities owns or had investments in 295 properties consisting of 86,380 apartment units as of October 2020. It has a market cap of $21.16 billion and a P/E ratio of 26.83. It’s paying a hefty annualized dividend of $6.36, which yields 4.15% in 2020.
Formerly known as United Dominion Realty Trust, UDR Inc. (UDR) specializes in luxury multifamily housing units across the United States. UDR, founded in 1972, owns exclusively or maintains an ownership position in 51,320 apartment buildings, including 819 projects under development as of June 2020. An S&P 500 company, it has a market capitalization of $9.8 billion in late 2020 and a P/E ratio of 53.2. The REIT pays a $1.44 dividend for a yield of 4.3%.
Apartment Investment and Management Company
Apartment Investment and Management Company (AIV), known as Aimco, was founded in 1994 and has its headquarters in Denver. The REIT has 32,893 units as of the end of 2019—both conventional and “affordable” properties—which are owned through low-income housing tax credit partnerships. Apartment Investment and Management Company has a market cap of $5.12 billion and a P/E ratio of 28.26 as of October 2020. The REIT pays a dividend of $1.64, which equates to a 4.65% yield.
Essex Property Trust, Inc.
Headquartered in Palo Alto, Calif. Essex Property Trust Inc. (ESS) focuses primarily on the West Coast, including Southern California, Northern California and the Seattle metropolitan area. It owns 248 complexes, consisting of 60,000 apartments. Founded in 1971, Essex Property Trust Inc. has a market cap of $13.18 billion and a P/E ratio of 21.23. The REIT pays a $8.31 dividend for a yield of 4.1% in October 2020.