We’re amidst a cultural shift in housing in the U.S.
It starts with the fact that many young people are opting to rent instead of buy. This is a key catalyst for certain real estate players – namely, those owning and operating apartment real estate investment trusts (REITs).
Apartment REITs are companies that own apartment buildings, rent them out and then return 90% of their taxable income to shareholders via dividends. REITs are attractive in the current low-yield environment. But there are a few reasons that make apartment REITs especially attractive.
Millennials will continue to be the key tailwind here, opting to not only rent (versus buy), but also to live in heavily populated cities and urban areas where apartment living is ideal. And with the rising employment rate, millennials finally have the ability to move out of their parents’ homes.
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With all this in mind, here are the top three apartment REITs:
Apartment Investment and Management Company (NYSE: AIV)
Apartment Investment and Management Company pays a 3% dividend yield and is one of the biggest REITs in the U.S. It has increased its annual dividend for four consecutive years and has paid a dividend for 20 years.
With its scale, this apartment manager has been able to continue to boost its rental rates. The REIT offers residential properties as well as affordable rentals. Affordable housing qualifies for subsidies from the government, but it also tends to have stable occupancy rates.
Apartment Investment owns upwards of 10,000 units, but plans to revamp its portfolio over the next half decade. This includes selling off underperforming assets and reinvesting in higher growth properties, such as those in coastal communities.
Home Properties (NYSE: HME)
Home Properties pays the highest dividend yield on our list, at 4.5%. It has upped its dividend for four consecutive years and has paid a dividend for 20 years.
However, shares are up just 12% on the year, underperforming the major apartment REITs. Home Properties focuses on the Northeast and Mid-Atlantic regions, with a concentration on the supply constrained coastal markets where turnover is minimal.
It owns and operates some 120 apartment communities and is the smallest of our apartment REITs, with a $3.9 billion market cap. But there again, you have to like the fact that Home Properties is concentrated in the very competitive suburban markets.
UDR Inc. (NYSE: UDR)
UDR is the largest of our three apartment REITs, boasting an $8.4 billion market cap. It owns more than 50,000 apartment homes throughout the U.S. UDR has been focusing on developing its property base, and has a current development pipeline of upwards of $875 million.
It’s also encouraging that UDR’s 50,000 apartments are located in urban areas where young professionals are the primary renters. These affluent regions help ensure that there’s plenty of income generation to support impressive rental rates and solid occupancy numbers.
UDR pays a 3.4% dividend yield and has upped its dividend for five straight years. It has paid a dividend for 25 years.
Apartment REITs are great ways to collect income. They will continue to be great income investments as the demand for apartments continues to rise. All three of the above-referenced REITs are solid choices if you’re looking for a way to play the rental trend.
At Wyatt Investment Research, we’ve been recommending REITs for years. Apartment REITs are just one small portion of the real estate market. There are many other types of REITs renting office space, retail space, hotel rooms and even storage units.
In fact, my colleagues at High Yield Wealth put together an in-depth special report that highlights top REIT investment ideas. If you’re serious about earning income from real estate, click here to claim your copy of the special report.