Real estate investment trusts (REITs) invest in all types of properties, from commercial offices to malls to 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 in 2019 and beyond. 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—Equity Residential owns or has investments in 306 high-quality properties consisting of 79,412 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 56.33 based on estimated earnings for 2018, and a market capitalization of $23 billion. It currently pays an annualized dividend of $2.16 per share, for a yield of just under 3%.
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 287 properties consisting of 84,043 apartment units. It has a market cap of $23.94 billion and a P/E ratio of 27.45. It's paying a hefty annualized dividend of $5.88, which yields 3.29%.
Formerly known as United Dominion Realty Trust, UDR Inc. (UDR) specializes in luxury multifamily housing units across the United States. The Highlands Ranch, Colorado-based REIT, founded in 1972, owns exclusively or maintains an ownership position in 49,464 apartment buildings, including 1,334 projects under development. An S&P 500 company, it has a market capitalization of $10.3 billion and a P/E ratio of 142.18. The REIT pays a $1.92 dividend for a yield of 2.9%.
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 properties in 23 states and the District of Columbia and provides apartment homes to 250,000 residents—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 $6.61 billion and a P/E ratio of 446.29. The REIT pays a dividend of $1.52, which equates to a 2.5% 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 $15.84 billion and a P/E ratio of 42.20. The REIT pays a $7.44 dividend for a yield of 3.1%.