Rising inflation has led to the U.S. Federal Reserve raising interest rates accordingly an in attempt to bring inflation back down to more normal levels. As a result, the economy has slowed down lately and the risk of an upcoming recession has risen.

Apartment REITs have proved resilient to recessions thanks to the essential nature of their business. As a result, they are interesting candidates for the portfolios of income investors.

The following 3 apartment REITs have quality property portfolios and long-term growth potential. They also pay dividends above the S&P 500 average.

Mid-America Apartment Communities (MAA)

MAA is a REIT that owns, operates and acquires apartment communities in the Southeast, Southwest and mid-Atlantic regions of the U.S. Founded in 1977, it currently has ownership interest in 101,986 apartment units across 16 states and the District of Columbia. MAA aims to offer superior returns to its shareholders by focusing on the Sunbelt Region of the U.S., which has exhibited superior population growth and economic growth in the long run.

MAA has generated strong growth to start 2023. In the most recent quarter, MAA has shown it continues to recover from the pandemic. Its same-store net operating income grew 12.5% over the prior year’s quarter, partly thanks to 8.6% growth in average rent per unit in new leases. Core funds from operations (FFO) per share grew 16%, from $1.97 to $2.28, thus exceeding the analysts’ consensus by $0.03. MAA has missed the analysts’ FFO estimates only once in the last 20 quarters.

Thanks to strong business momentum, management slightly improved its guidance for 2023. It raised its guidance for core FFO per share from $8.88-$9.08 to $8.93-$9.29, implying 7% growth at the mid-point.

MAA has benefited from its focus on the Sunbelt Region of the U.S., which has enjoyed higher economic growth than the rest of the country. About 60% of all the domestic moves occurred in the markets of MAA in the last nine years. MAA has grown its FFO per share at a 7.7% average annual rate over the last decade.

MAA has also raised its dividend for 12 consecutive years and has a healthy payout ratio of 61%. MAA stock yields 3.7%.

UMH Properties (UMH)

UMH Properties is one of the largest manufactured housing landlords in the United States. It was founded in 1968 and currently owns tens of thousands of developed sites and over one hundred communities located across the midwestern and northeastern United States.

In the 2023 first quarter, FFO attributable to common shareholders was $10.6 million ($0.18 per diluted share), a 13% per share increase from $8.5 million ($0.16 per share) in the same quarter in 2022. Normalized FFO for the same period was $11.7 million ($0.20 per share), a 5% per share increase from $10.4 million ($0.19 per share) in the quarter ending March 31, 2022.

Given that manufactured homes tend to be lower priced housing, REITs like UMH are quite resilient in the face of economic downturns. As a result, we view UMH Properties as a recession resilient business. This played out in 2020 when FFO and NAV per share both grew year-over-year, and the dividend payout level was maintained despite the COVID-19 disruption to the economy.

UMH recently raised the dividend, and it remains sufficiently covered by FFO-per-share with significant growth on the way, we believe the dividend is quite safe for the foreseeable future and is in fact likely to see additional growth in the years to come. UMH stock currently yields 5.1%.

UDR, Inc. (UDR)

UDR, Inc., also known as United Dominion Realty Trust, is a luxury apartment REIT. The trust owns, operates, acquires, renovates, and develops multifamily apartment communities in high barrier-to-entry markets in the US. The majority of UDR’s real estate property value is established in Washington D.C., New York City, Orange County, California, and San Francisco. As of March 31-st, 2023, UDR owned or had an ownership interest in 58,411 apartment homes, 415 of which are homes under development.

UDR reported first quarter 2023 results on April 26th, 2023. The company announced adjusted funds from operations of $0.57 in the first quarter, up 12% year-over-year compared to $0.51. Physical occupancy of the real estate portfolio was down by 0.5% compared to the prior year period, to 96.6%. The trust reaffirmed guidance for 2023 and is estimating AFFO of $2.22 to $2.30, for a midpoint of $2.26. The company also anticipates 6.75% growth in same-store revenue, 4.75% growth in same-store expenses, and 7.5% growth in same-store net operating income over 2022.

UDR has an impressive dividend growth history. On February 6th, 2023, UDR announced its intention to declare a $0.42 quarterly dividend, which represents a 10.5% increase and marks the company’s 12th consecutive annual dividend increase. The AFFO payout ratio for the quarter of 74% is quite safe for an REIT which must pay out the majority of its earnings to shareholders. UDR stock yields 4.0%.
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Bob Ciura has worked at Sure Dividend since October 2016. He oversees all content for Sure Dividend and its partner sites. Bob received a Bachelor’s degree in Finance from DePaul University, and an MBA with a concentration in Investments from the University of Notre Dame.