3 Residential REITs Worth Considering Amid Market Headwinds

Industry Overview - The Zacks REIT and Equity Trust - Residential industry includes companies that own, develop, and manage various residential properties, generating revenues by renting spaces to tenants [3] - The industry is currently facing economic uncertainty, slower job growth, federal job cuts, and new tariffs, which are affecting consumer confidence and household formation, potentially dampening residential real estate demand [1][4] Current Market Conditions - Elevated supply in certain regions, particularly in the Sun Belt metros, is placing downward pressure on rents despite strong national demand [6][7] - Rental demand remains historically strong, supported by favorable demographics and the growing affordability gap between renting and homeownership [2][8] - The transition from renting to homeownership is challenging due to high mortgage rates, making renting a more viable option [9] Financial Performance - The Zacks Industry Rank for the REIT and Equity Trust - Residential industry is 158, placing it in the bottom 36% of around 250 Zacks industries, indicating dim near-term prospects [10][11] - The industry's funds from operations (FFO) per share estimates for 2025 and 2026 have been revised down by 4.8% and 4.5%, respectively, reflecting a loss of confidence in growth potential [12] Stock Market Performance - The industry has underperformed the broader Zacks Finance sector and the S&P 500 over the past year, returning 8% compared to the S&P 500's increase of 8.1% and the Finance sector's rally of 15.8% [14] - The industry is currently trading at a forward 12-month price-to-FFO ratio of 16.35X, higher than the Finance sector's 15.30X but lower than the S&P 500's 19.88X [16] Notable Companies - Equity Residential: Positioned to benefit from favorable apartment market conditions, with a strong presence in urban areas and a healthy balance sheet with nearly $1.95 billion of liquidity [18][20] - Essex Property Trust: Benefits from healthy demand in the West Coast market, where median household income has grown faster than rents, indicating potential for future rent growth [22][25] - UMH Properties, Inc.: Operates 141 manufactured home communities and has seen occupancy increases, with a rental home occupancy rate of 94.7% [27][29]