Residential REITs thrive as rental demand outstrips supply

The resurgence of economic activities following the pandemic has provided a significant boost to residential real estate investment trusts (REITs), with companies such as Invitation Homes (NYSE:) Inc., American Homes (NYSE:) 4 Rent, and UMH Properties (NYSE:) Inc. experiencing a surge in demand for rental units. This trend has outstripped lingering supply concerns, leading to a robust rental market.

In particular, the student housing segment is witnessing increased demand driven by rising university and college enrollments. High absorption rates across the board signal a resilient market, even as the introduction of new apartments tempers potential rent increases outside of peak leasing seasons.

These REITs, which manage diverse property types, are leveraging advanced technologies, including artificial intelligence sales tools, to attract and retain tenants more effectively while also enhancing operational efficiencies. This strategic use of technology is helping to strengthen their market position.

Financial performance indicators for the sector are looking positive. According to Zacks Industry Rank, funds from operations (FFO) per share forecasts for residential REITs have risen by 4.2% since mid-2023, reflecting a sense of optimism. This is despite these stocks underperforming when compared to the and the broader Finance sector over the past year.

When it comes to valuation, residential REITs currently trade at a forward price-to-FFO ratio that is higher than that of the overall Finance sector but still below the broader market index. Given the high mortgage rates that are tipping the scales in favor of renting over buying a home, these REITs appear well-positioned to benefit from prevailing economic conditions.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.