The 4 Best-Performing Residential REITs Over The Past Year

When deciding to invest in a particular market sector, investors face the dilemma of deciding which stock is the best of the group. With dozens of fundamental metrics and a dizzying array of technical indicators to weigh, it can be a daunting task. But one measure that outweighs everything else is total return.

Total return is the bottom line of the market speaking to you. An investor may love a certain stock, but the market has the last word as to whether that stock will generate a profit. With dividend-paying real estate investment trusts (REITs), the total return includes the appreciation plus the dividend, and with higher dividend yields, that return can be quite different than just appreciation alone.

The residential REIT subsector includes 23 stocks. These REITs invest in single-family homes, apartment communities or mobile home communities. But only eight of the 23 have had profitable total returns over the past year. One in particular stood out above the rest of the subsector, and three others have had total returns that are similar but well above the remaining REITs.

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Essex Property Trust Inc. ESS is a San Mateo, California-based residential REIT that acquires, develops and manages multifamily apartment communities on the West Coast of the U.S. Its portfolio includes 252 apartment communities, with approximately 62,000 apartment units in eight California and Washington state markets.

Essex was founded in 1971 and launched its initial public offering (IPO) in 1994. It's been a member of the S&P 500 since 2014 and is an S&P Dividend Aristocrat with 30 years of increasing cash dividends.

On Oct. 26, Essex Property Trust reported funds from operations (FFO) of $3.78 per share, a penny above analysts' expectations and a solid improvement from $3.69 in the third quarter of 2022. Revenue of $416.40 million missed the estimate of $ 419.57 million but was an improvement from revenue of $406.86 million in the third quarter of 2022.

Analysts have recently reacted favorably. On Jan. 2, Jefferies analyst Linda Tsai upgraded Essex Property Trust from Hold To Buy and raised the price target from $215 to $281. On Jan. 10, Mizuho analyst Vikram Malhotra maintained a Neutral rating on Essex and raised the target price from $232 to $256.

Essex has been the premier residential REIT to own over the past 12 months with a 17.38% return. Essex has a quarterly dividend of $2.31  that yields 3.7% annually. 

American Homes 4 Rent AMH is a Calabasas, California-based residential REIT that purchases, develops, renovates and leases both existing and new single-family homes as rental properties. American Homes 4 Rent was created in 2012 and in less than 12 years has built a portfolio of more than 59,000 single-family units across 21 states. Its largest concentration of homes is in the Southeastern U.S., where population growth has been explosive. Its IPO was in July 2013.

American Homes has recently been creating subdivisions of rental units only. Recent rent increases have been averaging about 7% for renewals and new leases.

On Jan. 2, Jefferies analyst Tsai upgraded American Homes from Hold to Buy and raised the price target from $34 to $41.

Over the past 12 months, American Homes 4 Rent has had a return of 12.26%, making it the second-best REIT in the residential subsector.

AvalonBay Communities Inc AVB is a residential REIT that acquires, develops and manages multifamily communities. As of the third quarter, AvalonBay Communities owned approximately 89,240 apartments directly or indirectly in 296 communities across 12 states and Washington, D.C. 

On Dec. 4, AvalonBay announced a public offering of $400 million senior unsecured notes at a 5.3% rate, due Dec. 7, 2033. 

Analysts have been tough on AvalonBay this month. On Jan. 5, KeyBanc Capital Markets Inc. analyst Austin Wurschmidt downgraded AvalonBay Communities from Overweight to Sector Weight. Three days earlier, Wolfe Research analyst Andrew Rosivach downgraded AvalonBay from Outperform to Peer Perform.

Short interest on Avalon Bay has also been increasing in recent weeks and it now has 2.34 million shares sold short. But the short interest is still only 1.51%. 

Despite these negatives, AvalonBay's total return over the past year is 11.25%, good for third place among all residential REITs.

Invitation Homes Inc. INVH is a Dallas-based residential REIT that purchases large numbers of higher-quality single-family homes and then leases or lease-purchases them to higher-income tenants. It's a member of the S&P 500.

Invitation Homes has over 80,000 homes for lease in desirable neighborhoods across the U.S. and is now the largest owner/landlord of single-family homes in the U.S. It focuses on communities with strong rental demand where purchasing homes is difficult because of high prices and a lack of inventory. Its recent occupancy rate was 97.8%.

On Dec. 8, Invitation Homes announced a 7.7% increase in its quarterly dividend, from $0.26 to $0.28 per share, payable on Jan. 19 to shareholders of record on Dec. 27.   

Congressional Democrats introduced a bill last week called the End Hedge Fund Control of American Homes Act of 2023. If the bill passes, it would not only restrict hedge funds, REITs and other pooled funds from investing in future single-family homes but would also mandate that such investors sell at least 10% of the total number of homes they own to families each year over 10 years. Within 10 years, REITs would no longer own any single-family homes.

Although this bill could have a difficult time passing, its publicity will at least temporarily put pressure on shares of Invitation Homes and similar REITs. 

Over the past 12 months, Invitation Homes has had a total return of 11.03%, the fourth highest return among the residential REIT subsector.

Weekly REIT Report: REITs are one of the most misunderstood investment options, making it difficult for investors to spot incredible opportunities until it's too late. Benzinga's in-house real estate research team has been working hard to identify the greatest opportunities in today's market, which you can gain access to for free by signing up for the Weekly REIT Report.

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