With the market teetering toward correction territory, it may not seem like an ideal time to buy, but market dips are actually a great time to swoop up hot stocks at discounted prices. Real estate investment trusts (REITs) -- a special type of dividend stock that invests in real estate and real estate securities -- are down notably year-to-date, even though the real estate market remains strong.
American Homes 4 Rent (AMH 0.69%) and Sun Communities (SUI -0.23%) are two perfect examples of REITs with deflated share prices, despite both companies being on track for major growth. Here's a closer look at each company and why they are so hot in today's market.
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American Homes 4 Rent
American Homes 4 Rent owns and leases more than 57,000 single-family rental homes in 22 states, primarily in the Sun Belt. Unlike other single-family rental investment companies, American Homes 4 Rent largely focuses on developing built-to-rent communities, having strategic partnerships with several developers and homebuilders to create resort-like communities for its tenants. This approach helps the company offer highly attractive rental homes to middle- and higher-income earners in suburban communities surrounding major metro markets.
The single-family rental market has long been considered a stable investment, but record demand fueled by the desire for more space and privacy in the wake of the pandemic is solidifying its position as a red-hot asset class. Over the past year, rental revenues increased 11.2% for the full year, net operating income grew 13.5%, and funds from operations (FFO), an important metric used for assessing the profitability of a REIT, rose by 17%. Occupancy for the portfolio is 95.2%, and rental collections have risen as its tenants recover from the initial pandemic slump.
The company has 2,054 homes in active development and expects to add about 3,000 to 3,900 properties to its portfolio in 2022, which will certainly help fuel another strong year. But coupled with today's demand and growing rental rates, it's on a solid growth path.
Image source: Getty Images.
Sun Communities
Sun Communities is a residential REIT specializing in the ownership, development, sale, and leasing of marina slips, RV resorts, and manufactured housing in resort communities. RV resorts and marina-slip revenues have increased notably over the past few years as the pandemic continues to keep people closer to home.
In 2021, revenues for the full year rose 62.5% year over year, while net operating income (NOI) grew 188%, and funds from operations (FFO) increased 27%. The company also benefits from offering more affordable housing for tenants and prospective homebuyers within its resorts. As the housing market continues to run rampant, a growing number of prospective homebuyers and tenants are being squeezed out of the market, making housing like mobile homes an attractive housing option.
The company is in the process of completing the acquisition of Park Holidays U.K., which will expand its portfolio overseas and add over 15,000 new mobile home and RV slips, something that will further fuel its growth in the coming years. I, personally, am invested in Sun Communities and plan to pick up more of these shares as prices continue to get battered.
Discounted buys in today's volatile market
Both companies have deflated share prices, though not as a result of their recent performances or growth prospects. While there is always the possibility of unforeseen events, I believe they are well positioned to face and overcome many of the uncertainties facing the economy today. Using short-term leases that allow operators to raise rents to combat inflation is one of the biggest strengths of residential REITs -- plus, people will always need a place to live. Beyond that, taking a long-term approach to investing in either of these hot stocks will lead to maximum growth.
