Residential REITs invest in a variety of properties unlike some REITs, which are constrained within one segment or one type of property. Some residential REITs also invest according to geographical market and offer wider diversification to investors and yield high returns.
Therefore, with the industry’s tailwinds, it could be wise to watch fundamentally sound residential REITs AvalonBay Communities, Inc. (AVB), Equity Residential (EQR), and Invitation Homes Inc. (INVH) amid rising housing demand.
Real estate investment trusts (REITs) are often seen as a profitable investment alternate in times of market uncertainty and during inflationary periods due to their distinct resistance ability, and they offer stable income to the investors. Further, REITs also provide other benefits to investors in the long term.
Residential REITs are among the popular REITs. They own and manage various forms of residences and rent space in those properties to tenants, and such REITs specialize in apartment buildings, student housing, manufactured homes and single-family homes.
Nearly 170 million Americans who live in households invest in REITs reflecting bright prospects of residential REITs. This is further backed by REITs’ highly competitive total returns and comparatively low correlation with other assets making it suitable for diversification of portfolio.
Also, REITs reliable income returns in the form of dividend makes it a key attraction for investors looking for savings or funding retirement. Dividend payouts in REITs is high and regular due to the mandatory requirement to distribute at least 90% of their taxable income to shareholders as dividends.
In light of these encouraging trends, let’s look at the fundamentals of the three best REITs - Residential, beginning with number 3.
Stock #3: AvalonBay Communities, Inc. (AVB)
AVB develops, redevelops, acquires, owns and operates multifamily communities in New England, the New York/New Jersey metro area, the Mid-Atlantic, the Pacific Northwest, and Northern and Southern California, and in the Company's expansion regions of Raleigh-Durham and Charlotte, North Carolina, Southeast Florida, Dallas and Austin, Texas, and Denver, Colorado.
On May 17, AVB’s Board of Directors declared a cash dividend on its Common Stock for the second quarter 2024 of $1.70 per share and was paid July 15, 2024, to all common stockholders of record as of June 28, 2024.
AVB pays an annual dividend of $6.80, which translates to a yield of 3.35% at the current share price. Its four-year average dividend yield is 3.42%. Also, the company’s dividend payouts have increased at a CAGR of 2.3% over the past five years.
AVB’s trailing-12-month EBIT margin of 32.56% is 51.2% higher than the respective industry average of 21.54%. Also, its net income margin of 33.81% is significantly higher than the industry average of 9.39%.
AVB’s revenue and EBITDA have grown at respective CAGRs of 7.9% and 8.8% over the past three years. The company’s EBIT has increased 12.7% over the same timeframe, while its net income and EPS have improved at CAGRs of 6% and 5.5%, respectively.
During the first quarter ended March 31, 2024, AVB’s total revenue increased 5.7% year-over-year to $712.86 million. Its net income grew 18.2% from the year-ago value to $173.56 million. Its FFO attributable to common stockholders was $387.80 million and $2.73 per common share, up 9.2% and 7.5% from the prior year’s quarter.
According to the company’s financial outlook, AVB expects its EPS between $1.60 and $1.70 and FFO per share between $2.59 and $2.69 for the second quarter. Also, for the full year, the company expects EPS of $6.98 - $7.38 and it expects FFO per share of $10.63 to $11.03.
Street expects AVB’s revenue for the second quarter (ended June 2024) to increase 4.5% year-over-year to $718.95 million and its FFO is expected to grow 2.1% year-over-year to $2.72 for the same quarter. Further, the company has surpassed the consensus revenue estimates in all of the trailing four quarters.
AVB’s shares have gained 12.8% over the past six months and 4.7% over the past year to close the last trading session at $203.21.
AVB’s solid outlook is reflected in its POWR Ratings. The POWR Ratings are calculated by considering 118 different factors, each weighted to an optimal degree.
The stock has a B grade for Stability. Within the REITs - Residential industry, AVB is ranked #12 out of 20 stocks.
In addition to the POWR Ratings highlighted above, you can check AVB’s ratings for Growth, Value, Sentiment, Quality, and Momentum here.
Stock #2: Equity Residential (EQR)
EQR focusses on the acquisition, development and management of residential properties located in and around dynamic cities that attract affluent long-term renters. Equity Residential owns or has investments in 305 properties consisting of 80,683 apartment units.
On June 21, EQR’s Board of Trustees declared regular common share dividend for the second quarter of $0.675 per share paid on July 12, 2024 to shareholders of record on July 1, 2024. Also, a quarterly dividend of $1.03625 per share was paid on July 1, 2024 to shareholders of record on June 20, 2024 of the company’s series K preferred shares.
EQR pays an annual dividend of $2.70, which translates to a yield of 3.97% at the current share price. Its four-year average dividend yield is 3.71%. Moreover, the company’s dividend payouts have increased at a CAGR of 3.8% over the past five years.
EQR’s trailing-12-month net income margin and EBIT margin of 31.70% and 30.73% are 237.5% and 42.7% higher than the respective industry averages of 9.39% and 21.54%. Likewise, the stock’s trailing-12-month levered FCF margin of 44.38% is 32.2% higher than the industry average of 33.57%.
EQR’s revenue and EBITDA have grown at respective CAGRs of 5.2% and 5.7% over the past three years. The company’s EBIT has increased 8% over the same timeframe, and its net income and EPS have improved at CAGRs of 11.5% and 10.7%, respectively.
For the first quarter that ended March 31, 2024, EQR’s rental income increased 3.6% year-over-year to $730.82 million. Its net income grew 38.6% from the year-ago value to $305.03 million. The company’s FFO available to common shares and units came in at $338.42 million and $0.87, up 1.7% and 2.4% year-over-year, respectively.
Furthermore, the company’s cash and cash equivalents and total assets stood at $44.53 million and $19.89 billion as of March 31, 2024.
Analysts expect EQR’s revenue for the second quarter (ended June 2024) to increase 2.4% year-over-year to $734.61 million, while its FFO for the same quarter is expected to grow 1.9% year-over-year to $0.96. Furthermore, the company topped the consensus revenue estimates in three of the trailing four quarters.
Over the past month, the stock has surged 2.9% and 10.6% over the past six months to close the last trading session at $68.12.
EQR’s strong prospects are reflected in its POWR Ratings. EQR has an A grade for Sentiment and a B for Stability. The stock is ranked #5 among 20 stocks within the REITs - Residential industry.
To see the other ratings of EQT for Growth, Momentum, Quality, and Value, click here.
Stock #1: Invitation Homes Inc. (INVH)
INVH operates as a home leasing and management company, catering to changing lifestyle demands by providing access to high-quality, updated homes with valued features like close proximity to jobs and access to good schools.
On June 14, INVH declared a quarterly cash dividend of $0.28 per share payable on shares of its common stock. The dividend will be paid on or before July 19, 2024, to stockholders of record of the company’s common stock as of the close of business on June 27, 2024.
INVH pays an annual dividend of $1.12, which translates to a yield of 3.17% at the current share price. Its four-year average dividend yield is 2.44%. Moreover, the company’s dividend payouts have increased at a CAGR of 28.6% over the past three years. INVH has raised its dividend for 6 consecutive years.
INVH’s trailing-12-month EBIT margin and net income margin of 28% and 21.93% are 30% and 133.5% higher than the respective industry averages of 21.54% and 9.39%. Further, the stock’s trailing-12-month levered FCF margin of 38.06% is favorable compared to the industry average of 33.57%.
INVH’s revenue and EBITDA have grown at respective CAGRs of 10.1% and 9.7% over the past three years. The company’s EBIT has increased 13% over the same timeframe, and its net income and EPS have improved at CAGRs of 38.5% and 34.7%, respectively.
For the first quarter that ended on March 31, 2024, INVH’s total revenues increased 9.5% year-over-year to $646.04 million. The company’s net income rose 18.4% from the year-ago value to $142.79 million. Its fund from operations came in at $266.78 million, up 4.5% from the prior year’s quarter. Its AFFO per share was $0.41, indicating growth of 7.9% year-over-year.
Street expect INVH’s revenue and FFO for the second quarter (ended June 2024) to increase 7.8% and 6.4% year-over-year to $647.19 million and $0.47, respectively. Furthermore, the company surpassed the consensus revenue estimates in each of the trailing four quarters, which is impressive.
INVH’s stock has gained marginally over the past month and 5.2% over the past six months to close the last trading session at $35.32.
INVH’s sound fundamentals are reflected in its POWR Ratings. The stock has an A grade for Sentiment and a B grade for Stability. Within the same industry, INVH is ranked #4 among the 20 stocks.
Click here to access additional ratings of INVH (Growth, Momentum, Quality, and Value).
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AVB shares were trading at $205.26 per share on Tuesday afternoon, up $2.05 (+1.01%). Year-to-date, AVB has gained 11.60%, versus a 19.24% rise in the benchmark S&P 500 index during the same period.
About the Author: Rjkumari Saxena
Rajkumari started her career as a writer but gradually shifted her focus to financial journalism, leveraging her educational background in Commerce. Fascinated by the interplay of business and economic shifts in equities, she aspires to evolve as an analyst. With a knack for simplifying complex financial concepts, her mission is to empower investors with insights that lead to profitable decisions.
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