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Real estate investment trusts (REITs) such as Avalonbay Communities (NYSE: AVB), Equity Residential (NYSE: EQR), Mid-America Apartment Communities (NYSE: MAA), UDR, Inc. (NYSE: UDR), and others in the apartment sector could be the best way for income investors to profit from the “Share Economy.”
REITs are publicly traded companies that invest, manage and transact in properties or mortgages. To receive special tax considerations, REITs must pay out the bulk of income in the form of dividends to shareholders, making these securities very attractive to income investors. A low-interest-rate environment is also bullish for REITs.
REITs that operate apartment communities could be the best way for income investors to profit from the Share Economy.
The Share Economy is one of the names, along with the “Collaborative Economy” and others, for ways in which assets are monetized by renting, using again, selling to others, etc. Obvious examples are Netflix (NASDAQ: NFLX) or eBay (NASDAQ: EBAY).
Netflix allows users to rent a movie and then return it. A movie or many other assets can be bought on eBay and then rented, or sold again. For income investors, the problem is that Netflix, eBay, and others do not pay dividends.
Enter, stage right, apartment REITs such as Avalon Bay, Equity Residential, Mid America Apartment Communities, and UDR, Inc. – among others.
Apartment REITs are doing very well in the Share Economy as owning real estate has lost its appeal to many. Several factors have contributed to this development. The most obvious is the carnage inflicted upon the housing sector during The Great Recession.
The post-recession recovery for housing has been extremely uneven. Prime areas like Manhattan and San Francisco have done well, but that is hardly the case for much of the United States.
There are other reasons people do not want to buy a home.
Unemployment is still high, despite what the official numbers report. For the younger generation, there is a record level of student debt. So it makes more financial sense to rent than to buy a home and be tied to a loan for the next 30 years.
The table below shows how well apartments REITs are doing in the Share Economy:
| Company | Last Month | Last Six Months | Last 52-weeks | Beta | Short Float* | Institutional Ownership | Dividend Yield |
| Avalon Bay | 5.16% | 19.75% | 43.79% | 0.73 | 4.48% | 99.20% | 2.74% |
| Equity Residential | 5.18% | 19.02% | 45.50% | 0.68 | 1.82% | 96% | 2.69% |
| Mid America Apartment Communities | 6.26% | 7.97% | 30.35% | 0.56 | 1.95% | 99.20% | 3.99% |
| UDR, Inc | 3.61% | 13.09% | 38.97% | 0.76 | 2.08% | 97.10% | 3.26% |
Source: Finviz; *5% short float is considered to be troubling for a security.
As the table reveals, all five of these apartment REITs are all up for the last week, month, quarter, six months, and year of market action. Part of that rise is due to a high level of institutional ownership from entities such as mutual funds, pension groups, etc.
It is a very positive indicator for a publicly traded company to be owned by sophisticated investors such as those. Also beneficial is that institutional investors generally own for the long term. That results in a low beta, which studies have shown to be very positive for the long-term performance of a stock.
Despite these apartment REITs’ outperformance for the past year, the short floats are low.
That shows investors still think the shares are fairly priced despite the double-digit gains. The high dividend yield and levels of institutional ownership also help to keep short positions down.
Nothing goes up forever, but the Share Economy has certainly done wonders for shares of apartment REITs – and should continue to do so for the foreseeable future.
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