Chicago, IL – April 17, 2025 – Today, Zacks Equity Research Equity are Equity Residential EQR, Camden Property Trust CPT and UMH Properties, Inc. UMH.
Industry: Residential REITs
Link: https://www.zacks.com/commentary/2449984/3-residential-reits-worth-considering-amid-market-headwinds
The Zacks REIT And Equity Trust - Residential Industry constituents are facing several headwinds. Economic uncertainty, including slower job growth, federal job cuts and new tariffs, is affecting consumer confidence, an essential factor for household formation, which could dampen residential real estate demand. Additionally, elevated supply in certain regions continues to place downward pressure on rents, limiting near to mid-term growth potential.
On the positive side, rental demand remains historically strong, supported by favorable demographics and the growing affordability gap between renting and homeownership. As new construction slows, these demand drivers are expected to support improved occupancy and rent growth over the long term. Industry players like Equity Residential, Camden Property Trust and UMH Properties, Inc. are well-positioned to benefit.
The Zacks REIT and Equity Trust - Residential category includes companies that own, develop and manage various residential properties such as apartment buildings, student housing, manufactured homes and single-family homes. These REITs generate revenues by renting spaces to tenants. While most residential REITs lease properties like apartments and single-family homes to a broad range of tenants, student housing is exclusively leased to students.
As a result, student housing properties are typically located near colleges and universities to serve their target demographic. Moreover, the demand for student housing is closely tied to enrollment growth at educational institutions, making it a key driver for this market segment. Some residential REITs may focus on specific regions or types of housing to better address local market dynamics or serve particular tenant demographics.
Economic Uncertainty and Labor Market Drag: The broader economic conditions continue to cast a shadow over the residential real estate market. Job growth slowed considerably in early 2025. The impact of federal job cuts and new tariffs is creating an additional drag on the labor market, directly affecting consumer confidence and financial stability. With consumer confidence playing an important role in household formation, this could weigh on residential real estate demand.
Though inflation is still being controlled, there are concerns about tariffs and their downstream effects on both consumers and the industry. These factors could challenge both investor sentiment and renter affordability in the upcoming period.
Elevated Supply of New Apartment Units: Despite solid national performance, regional disparities persist across the U.S. multifamily market. Several areas, particularly Sun Belt metros, continue to grapple with an oversupply of units, which is placing downward pressure on rental pricing, even in the face of healthy demand. In response, property operators are focusing on sustaining occupancy levels to preserve consistent cash flow, a trend likely to persist in the short term.
Although the pace of new development is slowing rapidly — signaling potential for stronger occupancy and rent growth in the longer term — many markets remain burdened by near to mid-term supply imbalances that are expected to limit rent growth during the transitional period.
Healthy Rental Demand: The U.S. residential real estate market is seeing strength in fundamentals, with record-setting demand providing a strong tailwind. This is offering a lift to occupancy and rent growth. Going forward, this trend is expected to continue with favorable demographic trends fueling household formation.
Moreover, due to the high cost of homeownership amid high mortgage rates, the transition from renter to homeowner is difficult, making renting apartment units a more flexible and viable option.
The REIT and Equity Trust - Residential industry is housed within the broader Finance sector. It carries a Zacks Industry Rank #158, which places it in the bottom 36% of around 250 Zacks industries.
The group’s Zacks Industry Rank, which is the average of the Zacks Rank of all the member stocks, indicates dim near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than two to one.
The industry’s positioning in the bottom 50% of the Zacks-ranked industries is a result of the downward funds from operations (FFO) per share outlook for the constituent companies in aggregate. Looking at the aggregate FFO per share estimate revisions, it appears that analysts are losing confidence in this group’s growth potential. Over the past year, the industry’s FFO per share estimates for 2025 and 2026 have moved down 4.8% and 4.5%, respectively.
However, before we present a few stocks that you may want to consider for your portfolio, let’s take a look at the industry’s recent stock market performance and valuation picture.
The Zacks REIT and Equity Trust - Residential industry has underperformed the broader Zacks Finance sector and the S&P 500 composite over the past year.
The industry has returned 8% during this period compared with the S&P 500’s increase of 8.1%. The broader Finance sector has rallied 15.8%.
On the basis of the forward 12-month price-to-FFO ratio, which is a commonly used multiple for valuing residential REITs, we see that the industry is currently trading at 16.35X compared with the S&P 500’s forward 12-month price-to-earnings (P/E) of 19.88X. However, the industry is trading above the Finance sector’s forward 12-month P/E of 15.30X.
Over the last five years, the industry has traded as high as 26.19X and as low as 13.61X, with a median of 17.69X.
Equity Residential: Equity Residential, with a strong presence in urban and high-density suburban areas, stands to gain from favorable apartment market conditions. High homeownership costs are expected to sustain renter demand in its markets.
The company’s diversification efforts into the suburban markets to capture rising demand are encouraging. Its focus on technology and enhancing organizational capabilities supports margin growth and operational efficiency, positioning the company for continued success.
Equity Residential has a healthy balance sheet position with nearly $1.95 billion of liquidity as of Dec. 31, 2024. Unencumbered NOI as a percentage of the total NOI was 89.7% in the fourth quarter of 2024. Further, an A-rated balance sheet renders the company access to the debt market at favorable rates. With financial flexibility and significant unencumbered assets, Equity Residential seems well-positioned to meet its future obligations as well as ride the growth curve.
Equity Residential currently carries a Zacks Rank #3 (Hold). The Zacks Consensus Estimate for its 2025 and 2026 FFO per share is pegged at $3.97 and $4.18, suggesting 2.06% and 5.28% year-over-year growth, respectively. The company’s shares have risen 10.9% in the past year. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Essex Property Trust: This residential REIT, which has a robust property base in the West Coast market, is poised to benefit from the healthy demand for its residential units. The West Coast is home to several innovation and technology companies that drive job creation and income growth. Since 2019, median household income in Essex markets has grown at a faster pace than rents, leading to favorable affordability conditions. This income-rent gap highlights the potential for future rent growth, as current affordability levels suggest room for upward pricing adjustments over time.
Higher job growth in the top-paying sectors and muted supply growth are expected to drive the fundamentals of the West Coast market. Moreover, the relative affordability of renting compared to homeownership continues to serve as a supportive tailwind for the rental market. Essex Property is also banking on its technology, scale and organizational capabilities to drive margin expansion across its portfolio and improve operational efficiency by lowering costs. Essex Property maintains a healthy balance sheet and enjoys financial flexibility.
ESS currently carries a Zacks Rank #3. The Zacks Consensus Estimate for the company’s 2025 and 2026 FFO per share of $15.99 and $16.48 suggests 2.50% and 3.05% growth year over year, respectively. ESS shares have rallied 17.5% in the past year.
UMH Properties, Inc.: The company is an owner and operator of manufactured home communities. UMH owns and operates 141 manufactured home communities containing around 26,500 developed homesites. These communities are located in New Jersey, New York, Ohio, Pennsylvania, Tennessee, Indiana, Maryland, Michigan, Alabama, South Carolina and Georgia.
The company’s ability to provide competitively priced, quality homes is likely to help it witness healthy rental demand in the upcoming period, especially in a market where the gap between buying and renting is expected to continue in the following quarters, and mortgage rates remain high.
Early in April, UMH came up with its operating update for the first quarter that reflected an occupancy increase. UMH’s same-property occupancy rose by 113 units in the quarter and 227 units year over year, reaching 88%. It converted 115 new homes from inventory to revenue-generating rental homes in the first quarter of 2025, bringing its total rental portfolio to approximately 10,400 homes. The rental home occupancy rate increased to 94.7%, reflecting continued demand for the company’s properties. Management anticipates continued occupancy and sales growth heading into the spring and summer months, driven by seasonally higher demand.
UMH Properties announced a 4.7% increase in the company’s quarterly common stock dividend, raising it to 22.5 cents per share from 21.5 cents paid earlier. The increased dividend will be paid out on June 16 to shareholders on record as of May 15, 2025. Backed by solid and growing operating results, UMH increased its dividend for the fifth consecutive year to an annual distribution of 90 cents per share, reflecting a 25% increase over the past five years.
UMH Properties currently carries a Zacks Rank #3. The Zacks Consensus Estimate for its 2025 and 2026 FFO per share has been revised upward to $1.00 and $1.08, suggesting a year-over-year increase of 7.53% and 8.66%, respectively. The company’s shares have rallied 12.3% in the past year.
Note: Anything related to earnings presented in this write-up represents funds from operations (FFO) — a widely used metric to gauge the performance of REITs.
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Equity Residential (EQR) : Free Stock Analysis Report
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