REITs offer a promising investment, benefiting from rising rents, limited new supply, and high-demand sectors like e-commerce, senior housing, and AI-driven data centers. With inflation boosting property values and rents, REITs ensure dividend growth and a steady income stream, acting as a natural hedge against rising costs.

Therefore, investors might want to consider strong REITs benefiting from rising rents, such as AvalonBay Communities, Inc. (AVB), Essex Property Trust, Inc. (ESS), and UMH Properties, Inc. (UMH).

High demand, low housing inventory, rising mortgage rates, and costly construction have led many to rent longer, driving up demand for rental properties. Since 2020, rents have surged, with current prices 33.5% higher than pre-pandemic levels. As of October 2024, asking rents were 3.3% higher than last year.

While housing inflation has slowed, rent prices and housing-related services continue to rise, making REITs an attractive investment option for those seeking reliable payouts, wealth growth, and protection against inflation. Additionally, REITs offer global diversification and sector-specific exposure. The market is projected to reach $4.20 trillion by 2027, growing at a CAGR of 2.8%.

Overall, REITs present a balanced investment opportunity, especially as broader market conditions support sector recovery. The expansion of AI and e-commerce drives sustained long-term demand, making REITs an attractive option for investors seeking growth and stability. With this in mind, let’s now explore the fundamentals of the three REITs mentioned above.

AvalonBay Communities, Inc. (AVB)

AVB is an equity REIT engaged in developing, redeveloping, acquiring, and managing apartment communities in major metropolitan areas across New England, the New York/New Jersey Metro area, the Mid-Atlantic, the Pacific Northwest, and Northern and Southern California.

AVB’s trailing-12-month EBITDA margin of 61.79% is 13.3% higher than the 54.56% industry average. The stock’s trailing-12-month Return on Common Equity of 8.79% is 145.8% higher than the industry average of 3.58%. Also, its trailing-12-month Return on Total Assets of 4.89% is 212% higher than the industry average of 1.57%.

During the fiscal third quarter that ended September 30, 2024, AVB’s total revenue increased 5.3% year-over-year to $734.31 million. Likewise, the company’s net income attributable to common stockholders and core FFO came in at $372.52 million and $2.74, up 116.5% and 3% over the prior-year quarter, respectively.

Street expects AVB’s FFO for the quarter ending December 31, 2024, to increase 3.6% year-over-year to $2.84. Its revenue for the same quarter is expected to rise 5.3% year-over-year to $739.66 million. It surpassed the Street EPS estimates in three of the trailing four quarters. Over the past nine months, the stock has gained 21.9% to close the last trading session at $219.17.

AVB’s POWR Ratings reflect its strong fundamentals. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.

It has a B grade for Stability and Sentiment. Within the REITs – Residential industry, AVB is ranked #5 out of 19 stocks. To see AVB’s ratings for Growth, Value, Momentum, and Quality, click here.

Essex Property Trust, Inc. (ESS)

ESS is an S&P 500 company and a fully integrated real estate investment trust (REIT) that acquires, develops, redevelops, and manages multifamily residential properties in select West Coast markets. ESS currently holds ownership interests in 254 apartment communities, comprising approximately 62,000 apartment homes.

In terms of the trailing-12-month EBIT margin, ESS’ 30.79% is 35.6% higher than the 22.70% industry average. Similarly, the stock’s 68.28% trailing-12-month gross profit margin is 3.3% higher than the 66.08% industry average. Moreover, its trailing-12-month net income margin of 31.35% is 191.7% higher than the 10.75% industry average.

ESS’s earnings from operations for the fiscal third quarter, which ended on September 30, 2024, were $128.79 million. Its core funds from operations attributable to common stockholders and unitholders were reported at $260 million, or $3.91 per share, each up 3.4% year-over-year.

For the quarter ending December 31, 2024, ESS’ revenue is expected to increase 7.8% year-over-year to $451.58 million. Its FFO for the same quarter is expected to grow 2% year-over-year to $3.91. It surpassed the consensus EPS estimates in each of the trailing four quarters. Over the past nine months, ESS’ stock has gained 20.7% to close the last trading session at $284.25.

ESS’ bright prospects are reflected in its POWR Ratings. It has a B grade for Growth, Stability, and Sentiment. It is ranked #2 in the REITs – Residential industry. To access the additional grades of ESS for Value, Momentum, and Quality, click here.

UMH Properties, Inc. (UMH)

UMH is a public equity REIT that owns and operates 135 manufactured home communities, comprising approximately 25,800 developed homesites. These communities are located in New Jersey, New York, Ohio, Pennsylvania, Tennessee, Indiana, Michigan, Maryland, Alabama, South Carolina, and Georgia.

On November 4, 2024, UMH announced the acquisition of a self-storage facility with 246 units in Anderson, Indiana, surpassing 1,000 self-storage units in its portfolio. All units are located near UMH communities, enhancing customer service for residents and local storage needs.

In terms of the trailing-12-month asset turnover ratio, UMH’s 0.16x is 22.9% higher than the 0.13x industry average. Similarly, its 1.86% trailing-12-month Return on Total Assets is 18.6% higher than the 1.57% industry average. Its 11.87% trailing-12-month net income margin is 10.4% higher than the 10.75% industry average.

UMH’s total income grew 8.3% year-over-year to $60.67 million in the third quarter, which ended on September 30, 2024. Additionally, the company’s normalized FFO was $18.46 million, or $0.24 per common share, representing increases of 28.2% and 9.1%, respectively, from the prior year.

Analysts expect UMH’s FFO and revenue for the quarter ending December 31, 2024, to increase 5.4% and 4.3% year-over-year to $0.24 and $59.44 million, respectively. Over the past year, the stock has gained 25.3% to close the last trading session at $19.00.

UMH’s robust outlook is reflected in its POWR Ratings. It has a B grade for Stability and Sentiment and is ranked #29 out of 43 stocks in the REITS – Diversified industry. In addition to what we have stated above, we have given UMH grades for Growth, Value, Momentum, and Quality. Get all the UMH ratings here.

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AVB shares closed at $219.17 on Friday, up $2.10 (+0.97%). Year-to-date, AVB has declined -0.36%, versus a 1.00% rise in the benchmark S&P 500 index during the same period.

About the Author: Abhishek Bhuyan

Abhishek embarked on his professional journey as a financial journalist due to his keen interest in discerning the fundamental factors that influence the future performance of financial instruments. More...

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