Chicago, IL – January 17, 2025 – Today, we’re looking at three residential real estate investment trusts (REITs): Equity LifeStyle Properties (ELS), Veris Residential (VRE), and UMH Properties (UMH).
This industry is facing challenges due to a rising number of rental units, which could limit rent growth and occupancy rates. Many landlords are having to offer concessions to attract renters, leading to an increase in move-outs.
Still, there’s a strong demand for rentals, driven by a good job market and high homeownership costs. Renting offers flexibility that many people prefer in today’s economy. Companies like Equity LifeStyle, Veris Residential, and UMH Properties are positioned to meet this demand effectively.
The residential REITs primarily deal with properties like apartment buildings, student housing, and manufactured homes. They earn revenue by renting these spaces to tenants.
Student housing, specifically, is leased to students and is often located near universities. This segment thrives on enrollment growth at schools, making it important for these REITs. Some firms even focus on specific types of residences or local markets to serve their target tenants better.
More Apartments Available: The market is seeing a surge in new apartment units, placing pressure on rental prices. Operators are focusing on keeping occupancy rates high to maintain cash flow, a trend that is likely to continue.
Although the influx of new units may peak soon, the construction pace is slowing. This change suggests better prospects for occupancy and rent growth in the next few years. However, many markets might still feel pressure on rent growth in the short term.
Increased Discounts for Renters: More rental units are being marketed with concessions, especially among new properties. This trend indicates that renters are looking for deals, which could lead to increased turnover rates.
Strong Demand for Rentals: Despite the high supply in many regions, rental units are still sought after. The job market and growing families are key factors driving this demand. High mortgage rates make home buying less appealing, keeping many in the rental market.
Technological Advances: Residential REITs are implementing technologies like virtual tours and smart home systems to enhance tenant experiences and streamline operations. These innovations can help them stand out and boost profits over time.
The residential REIT industry falls under the broader finance sector and currently ranks low among its peers, suggesting some struggles ahead. Recent estimates show a decline in growth expectations, with downward revisions for funds from operations (FFO) anticipated in the near future.
The residential REIT sector’s performance has lagged compared to the overall finance sector and the S&P 500 over the last year. The industry returned 6.1%, whereas the S&P gained 24.4%, and the finance sector rose 23.4%. When looking at valuation, this industry’s forward price-to-FFO ratio sits at 16.52, slightly below the broader finance sector’s ratio of 16.59.
Equity Lifestyle Properties: This REIT specializes in manufactured home communities and RV resorts across North America. It targets high-demand areas with limited new developments, giving it an edge with the growing population of retirees and vacationers.
Equity Lifestyle has a positive outlook, with recent FFO estimates showing a solid increase in the coming years. However, its stock has seen a slight decline lately.
Veris Residential: This REIT focuses on multifamily rental properties, primarily in the Northeast. It boasts a modern portfolio in prominent markets, positioning itself for strong growth through tech-driven revenue strategies.
Like Equity Lifestyle, Veris Residential has also seen upward revisions for its FFO estimates, predicting significant year-over-year growth.
UMH Properties, Inc.: UMH owns and manages numerous manufactured home communities primarily in the Eastern U.S. It benefits from the affordable housing market, as renting remains a better option for many due to high mortgage rates.
UMH is also involved in a joint venture that enables it to pursue new development opportunities without significant capital investment. This strategy, along with its positive FFO growth outlook, supports its position in the market.
The performance of these REITs reflects the ongoing shifts in the housing market and rental demands. Keeping an eye on these trends can help you understand the future of residential investments better.
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