Flexibility from remote working, more favorable weather, and more affordable cost of living have made many markets across the sunnier southern states of the U.S., dubbed the Sun Belt, boom. This region and its newfound popularity hold a lot of opportunities for investors, particularly through housing. Rental properties are in short supply, and with today's red-hot rental market there's no better way to gain exposure to this industry than through real estate investment trusts (REITs) Mid-America Apartment Communities (MAA -1.64%) and Camden Property Trust (CPT -1.68%).

Specializing in the operation and leasing of high-quality class A apartments in some of the hottest real estate markets of the Sun Belt right now, both of these REITs are worthwhile long-term buys. But if your investment dollars can only take you so far, here's a deeper dive as to which stock is the better buy today.

People standing on porch in apartment community.

Image source: Getty Images.

Dominating multifamily housing in the Sun Belt

Camden Property Trust and Mid-America Apartment Communities have a lot of commonalities. Both focus on the ownership of newer Class A apartments across the South, sharing space in rental markets like Dallas, Houston, Los Angeles, Denver, Tampa, Orlando, Atlanta, Charlotte, Raleigh, Nashville, and Washington, D.C., among several others.

They are equally benefiting from the robust demand for housing in the Sun Belt, with Camden's new and renewing lease rates growing at a blended 14.6% in the first quarter of 2022 and Mid-America growing at 16.8%. Occupancy levels are in close range, with Camden Property Trust being slightly higher than Mid-America Apartment Communities at 97%, as compared to 96%. As of Q1 2022, both Mid-America and Camden Property are actively acquiring parcels of land for future development and have five properties in active development.

Each company pays just over a 2% dividend and both have strong balance sheets, with over $1 billion in liquidity, and debt ratios below the REIT average, less than 4 times its earnings before taxes, interest, depreciation, and amortization (EBITDA). 

Similar, but different

Mid-America Apartment Communities is almost double the size of Camden Property Trust, having ownership or interest in 102,000 rental units, while Camden has ownership and interest in just over 58,000. Both companies strategically develop and acquire new properties sometimes with joint ventures, however, Mid-America Apartment Communities has another way to drive revenue and net operating income (NOI) growth: through its redevelopment program.

This program targets its older, outdated apartments, making strategic improvements to add value. This minimal investment, which costs around $5,000 to $6,000 per unit, has yielded the company an average rental increase of over 10.5% over the past four years when compared to non-renovated units. It's completed renovations on over 20,000 units as of Q1 2022, with 13,000 additional units identified for future redevelopment.

Most residential REITs sell a property that's underperforming, reinvesting that money in a higher-yielding opportunity as needed. But this has a lot of repercussions for REITs, including the recapture of depreciation. Being able to avoid this by improving a property's performance through renovations adds value for shareholders over time.

Which is the better buy?

Recent market volatility has both companies trading at a notable discount as it relates to performance, just over 18 times funds from operations (FFO). Meaning both stocks are worthwhile buys today for long-term investors. I am invested in both companies and don't plan to sell my shares in either anytime soon.

However, if I had to choose between the two, I would say Mid-America Apartment Communities is the better buy. Its redevelopment program gives it a major plus in my book and historically, Mid-America has outperformed Camden for the past 10 years, providing a 14% total return while Camden produced a 12% return. I also like that it managed to grow its portfolio at a much faster rate than Camden, despite both companies being in operation for just over four decades and Mid-America Apartment Communities has raised its dividend consistently since 2005, four years longer than Camden Property Trust.