Top-3 Apartment REITs for Dividend Investors Protecting Against Recession

Real estate investment trusts, or REITs, are widely appealing for income investors due to their high-dividend yields.

There are many different industries within REITs. For example, there are REITs that own retail properties, and others that own healthcare properties.

Apartment REITs are attractive options because they may be more recession-resistant than other types of REITs, as people will always need places to live, even during an economic downturn.

This article will discuss three of our top-ranked apartment REITs for income investors right now.

1. Mid-America Apartment Communities (MAA)

Mid-America Apartment Communities MAA owns apartment communities in the Southeast, Southwest and mid-Atlantic regions of the U.S. Founded in 1977, it currently has ownership interest in 103,614 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.

In early February, MAA reported financial results for the fourth quarter of fiscal 2024. Same-store net operating income slipped -0.2% over the prior year’s quarter. Core funds from operations (FFO) per share dipped -4%, from $2.32 to $2.23, due to higher interest expense, and missed the analysts’ consensus by $0.01. MAA has missed the analysts’ FFO estimates only twice in the last 27 quarters.

MAA provided guidance for core FFO per share of $8.61 to $8.93, thus implying flat performance at the mid-point.

MAA has ample room to expand its asset portfolio while it will also grow its bottom line by enhancing the value to its customers via the rollout of smart home technology in its units.

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 6.4% average annual rate over the last decade.

MAA has also raised its dividend for 14 consecutive years and has a healthy payout ratio of 68.5%. MAA stock currently yields 3.7%.

2. Essex Property Trust (ESS)

Essex Property Trust ESS was founded in 1971. The trust invests in West Coast multi-family residential proprieties where it engages in development, redevelopment, management and acquisition of apartment communities and a few other select properties.

Essex has ownership interests in several hundred apartment communities consisting of over 60,000 apartment homes. The trust has about 1,800 employees and produces approximately $1.6 billion in annual revenue. Essex is concentrated on the West Coast of the U.S., including cities like Seattle and San Francisco.

In the 2024 fourth quarter, Essex grew core FFO per share by 2.3% year over year. Full-year core FFO-per-share grew 3.8%. Growth was due primarily to same-property revenue growth, including 2.6% growth in the fourth quarter. In 2024, Essex acquired or increased its ownership interest in 13 apartment communities for a total contract price of $1.4 billion.

Essex Property Trust has achieved impressive growth for several decades on the back of the strong West Coast property market, but growth has been slowing in the past few years. Like many REITs, the trust historically has issued new shares to fund rapid growth. We estimate mid-single-digit FFO-per-share growth over the next half decade.

Real estate has a natural moat and Essex’s exposure to high-value cities with strong technology cultures further widens that moat. The trust has a solid BBB+ credit rating and currently has a very healthy interest coverage ratio and Net debt to adjusted EBITDA ratio.

ESS has increased its dividend for 30 years, placing it on the list of Dividend Aristocrats. ESS shares currently yield 3.3%.

3. AvalonBay Communities (AVB)

AvalonBay Communities AVB is a multifamily REIT that owns a portfolio of several hundred apartment communities and is also an active developer of apartment communities.

The trust’s strategy consists of owning top-tier properties in the major metropolitan areas of New England, New York/New Jersey, Washington D.C., California and the Pacific Northwest. It was formed by the 1998 merger of Avalon Properties with Bay Apartment Communities.

AvalonBay Communities reported strong fourth-quarter 2024 results, with quarterly core FFO per share increasing 2.2% as same-store residential revenue increased 3.2% year over year. For the full year, core FFO per share increased 3.6% to $11.01.

During the fourth quarter, AVB completed the development of four wholly-owned communities which should boost future growth. At the end of 2024, AVB had 17 wholly-owned development communities under construction. The company maintains a healthy balance sheet, ending the year with an annualized net-debt-to-core EBITDAre of 4.2x.

Over the past decade, AvalonBay generated very impressive annualized core FFO/share growth thanks to its growing scale and strong rental rate growth. Overall, we are projecting a 5.5% annualized growth rate over the next five years.

AvalonBay’s investments are essentially a bet on the economic strength of its core markets. Furthermore, the fact that most of its assets are high-quality “A” apartment units makes it even more levered to the state of the economy, as these apartments are in high demand during strong economic conditions but are less affordable during a recession.

AVB does have considerable economies of scale, low cost of capital, operational and marketing expertise, and a brand name advantage, which enable it to compete effectively against competitors. 

The trust’s balance sheet is also very strong, as its sector-leading "A-" credit rating makes clear. AvalonBay has plenty of resources to invest in its development projects and sustain the dividend during a downturn.

AVB stock currently yields 3.2%.

At the time of publication, Ciura had no positions in any securities mentioned.