Just when the 2022 inflation scare was starting to ebb, Mr. Market is now fretting about a bad recession for 2023. Despite that, many REITs that struggled in 2022 are showing overall strength and have shown improved Q3 operating results. But with so many real estate investment trusts (REITs) to choose from, how do investors know which REITs are the best buys?
Here are two of the leading residential REITs, both similarly priced, compared by eight different measures to help determine which is the better one to buy.
Mid-America Apartment Communities Inc. MAA is a Germantown, Tennessee-based residential REIT that specializes in purchasing and leasing apartment complexes. It owns over 101,000 units in 296 communities across 16 states and Washington, D.C. Most of Mid-America Apartment Communities’ properties are located in the Southeast, Southwest and Mid-Atlantic states. The 52-week range is $141.13 to $231.63, and the most recent closing share price was $163.31.
AvalonBay Communities Inc. AVB is also an equity (residential) REIT that acquires, develops and manages multifamily communities. As of Sept. 30, 2022, AvalonBay Communities owns or has indirect ownership of 88,405 apartments in 293 communities across 12 states and the District of Columbia. The 52-week range is $158.35 to $259.05, and the most recent closing price was $167.97.
Size and Diversity
Mid-America has about 13,000 more units in a similar number of communities to AvalonBay. Mid-America is in 16 states and Washington, D.C., while AvalonBay is in 12 states plus Washington, D.C. Give the edge to Mid-America Apartment Communities.
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Performance Over Time
Going back to 1998, Mid-America Apartment Communities has a total return, including non-reinvested dividends of 753%, or 9.13% annually, while AvalonBay has a total return of 639% or 8.50% annually. Looking at a shorter time frame, over the past 90 days, Mid-America is down 5.4%, while AvalonBay is down 19.5%. Mid-America Apartment Communities has shown superior performance over time.
Mid-America Apartment Communities has an annual dividend of $5.00, yielding 3.1%. AvalonBay Communities has an annual dividend of $6.36 per share, yielding 3.7%. The edge goes to AvalonBay Communities in this category.
Dividend Growth and Stability
Over the past five years, Mid-America has grown its quarterly dividend from $0.923 to $1.25, an increase of 35.4%. During that same time frame, AvalonBay has grown its quarterly dividend from $1.42 to $1.59, an increase of 11.9%. Mid-America has increased its dividend three times since 2020, while AvalonBay’s dividend is flat since 2020. Clear edge to Mid-America Apartment Communities.
Dividend Coverage by FFO
Mid-America Apartment Communities has forward funds from operations (FFO) of $8.40 and pays a $5.00 annual dividend, for a payout ratio of 59.5%. AvalonBay has forward FFO of $9.80 and an annual dividend of $6.36, for a payout ratio of 64.8%. The edge goes to Mid-America Apartment Communities.
FFO Multiple (Price/FFO)
Mid-America Apartment Communities has an FFO Multiple (P/FFO) of 18.97, while the P/FFO for AvalonBay Communities is 17.13. Slight edge to AvalonBay Communities.
Mid-America Apartment Communities has total debt of $5.55 billion, and its ratio of debt to equity is 73.93. AvalonBay’s total debt is $8.18 billion, and its ratio of debt to equity is 72.97. Let’s call this category a draw; however, Mid-America Apartment Communities has 13,000 more units under ownership with far less total debt.
Most Recent Operating Results
Both companies achieved solid Q3 operating results.
Mid-America Apartment Communities’ third quarter FFO of $2.19 was up 18.3% from Q3 2021. Its revenue was $520.78 million, up 15.07% from Q3 2021.
AvalonBay Communities’ FFO was $2.50 per share, up 27.5% from Q3 2021, and revenue of $665.3 million was up 13% from Q3 2021. Slight edge to AvalonBay Communities.
Summing it up, Mid-America Apartment Communities wins the categories of size/diversity, performance over time, dividend growth/safety and dividend coverage by FFO.
AvalonBay has the edge on dividend yield, FFO multiple and most recent operating results. Debt ratio was basically a draw.
Score it 4-3, with one draw, in favor of Mid-America Apartment Communities.
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