The Best Stocks to Play the Housing Trend: AvalonBay Communities, Essex Property Trust, and Equity Residential


Source: Flickr / archer10.

The U.S. Census Bureau's recent housing construction report for April showed a 43% month over month surge in the number of multi-family housing starts, while single-family homes barely moved, showing a paltry 0.8% increase. Since last April, authorizations for buildings with five or more units rose by 29%, compared to a 12% increase in single-family houses.

Apartment REITs: The new housing play?
The upturn in the multifamily space looks like the new normal, with single-family home ownership below the 50-year average of 65.4% -- and some analysts predicting that it will fall even further.

With 93% of the multifamily units breaking ground in the first quarter slated for rental, apartment REITs like AvalonBay Communities (NYSE: AVB  ) , Essex Property Trust Inc. (NYSE: ESS  ) and Equity Residential (NYSE: EQR  ) are looking like a great way to invest in the new "renter nation".

Stocking up on rentals
The apartment REIT sector has been buying up a storm, investing in $1.5 billion apartments in just the first quarter – not counting Essex Property's purchase of BRE Properties, which closed on April 1. That deal, the terms of which included $6.2 billion in cash and stock, created the biggest REIT on the west coast. The combined value of the company is now a little over $1 billion.

In late 2012, AvalonBay and Equity Residential banded together to purchase Archstone, the huge, high-end multifamily landlord whose acquisition in 2007 helped bankrupt Lehman Brothers. In addition to acquiring Archstone's nearly $10 billion in debt, the two REITs put up $6.5 billion in cash and stock to close the deal. AvalonBay acquired 22,000 apartments, while Equity took on 23,000.

As for 2014, AvalonBay management notes that it is on track to deliver over 5,000 new apartments by the end of the year, and Equity bought a five-year-old apartment project in Los Angeles in the first quarter, after selling one of their older San Diego assets in late 2013. Equity is planning to continue in this vein, selling its older, more suburban properties in order to buy apartments in well-populated urban locations.

Source: Flickr / Kevin Dooley.

Apartment REITs are having a great year
All in all, this sector is having a wonderful year. Vacancies are the lowest in the sector since 2001, and rents are rising nicely, averaging $1,089 per month last quarter, compared to $1,055 one year earlier. In its first-quarter earnings call, AvalonBay management noted that, as the job market has begun to recover, the stronger economy will be able to support not only higher rents, but more apartment deliveries, as well .

So far, all three REITs have gained at least 19% since the beginning of the year, and yields are sweet, at around 3%. According to NAREIT, the apartment REIT sector was up 16.4% from January to April of this year.

With the economy healing and the employment market improving, rising rents will likely fuel higher dividends, too. For investors looking for a place to put their real-estate investment dollars, the multifamily sector looks hard to beat.

More great dividend stocks for the next decade
The smartest investors know that dividend stocks simply crush their non-dividend paying counterparts over the long term. That's beyond dispute. They also know that a well-constructed dividend portfolio creates wealth steadily, while still allowing you to sleep like a baby. Knowing how valuable such a portfolio might be, our top analysts put together a report on a group of high-yielding stocks that should be in any income investor's portfolio. To see our free report on these stocks, just click here now.


Read/Post Comments (1) | Recommend This Article (0)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Add your comment.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2966510, ~/Articles/ArticleHandler.aspx, 11/21/2014 7:36:37 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement