Apartment REITs are still cheap.

Some investors are going to yell: “I won’t buy anything related to apartments until all of the issues impacting apartments are gone.”

Wonderful. That’s how investors can pay a much higher price. It is the fear over the current issues that drove apartment REIT prices lower.

Don’t worry, I won’t just say the REITs are cheap without math. We’re not your typical analyst:

Source: Knowyourmeme.com

Rather than just saying it is cheap, we want to show you. This is a sector we’ve been emphasizing lately for subscribers of The REIT Forum. We want to share part of our latest housing REIT Update.

Let’s run through the apartment REITs:

Company Name Ticker Div Yield AFFO or Core Yield
NexPoint Residential Trust Inc NXRT 2.85% 5.10%
Mid-America Apartment Communities Inc MAA 3.26% 4.55%
Camden Property Trust CPT 3.45% 4.31%
Essex Property Trust Inc ESS 3.98% 5.53%
Independence Realty Trust Inc IRT 4.06% 5.89%
AvalonBay Communities Inc AVB 4.06% 5.12%
UDR, Inc. UDR 4.14% 5.30%
Equity Residential EQR 4.41% 5.32%
AIMCO AIV 4.50% 5.34%
Clipper Realty CLPR 5.79% 8.28%
Bluerock Residential Growth REIT BRG 7.87% 6.83%
Preferred Apartment Communities Inc. APTS 12.50% 7.10%

We need to highlight that APTS is not like the other apartment REITs. It invests a material amount of the portfolio in properties which are clearly not apartments. We intend to have a longer article coming up on that in the future, but it isn’t ready yet. We want to focus on things that impact the entire sector. The yields are much higher than normal for the sector:

Source: The REIT Forum

Market-Implied Cap Rates

One way to evaluate equity REITs is to use the market-implied cap rate. This can be a useful tool for evaluating if prices might be reaching absurd levels. For reference,

CLEVELAND, Ohio – A developer plan to add 30 new apartments in two buildings on both sides of an inclined industrial road on the southern end of the Duck Island section of Cleveland’s Tremont neighborhood.

The “Cooper Flats” buildings will include 18 apartments in one building on one side of Willey Avenue, with 12 additional units in a building across the road. The winding industrial roadway, which also includes the Fairmount Creamery building and Cleveland Animal Protective League to the northeast, is one of several ways residents can travel between Duck Island and what many consider the main section of Tremont.

Developer Matt Berges, who has built housing throughout Duck Island, sees the cluster of apartments as an opportunity to better connect the area to the rest of Tremont .

“It’s helping to link our efforts in Duck Island down to the connection point in Tremont,” he said.

He hopes to break ground next year and have the units available for leasing by 2022. Berges owns one of the parcels, while the Cleveland Land Bank owns the other. Some of the units will be affordable housing, while others will be market rate, and Berges said he envisions the 536-square-foot units to rent for between $850 and $1,100 a month.

The ground floor units are set to have small patios, while the larger building is designed to have an opening so residents and guests can walk under it toward the back.

Architect Westleigh Harper presented the plans Friday to the Cleveland City Planning Commission. Commission members unanimously approved the designs for the plans. The project stills need final approval before construction can begin.

Commission members seemed to embrace the idea, though. Chairman David Bowen called the project “very exciting,” while commission member Charles Slife, the councilman for Ward 17, praised the

How long will you wait to add some apartment REITs to your portfolio? Don’t blame it on high valuations, because these REITs are cheap. This is a sector we’ve been emphasizing lately for subscribers of The REIT Forum. We want to share part of our latest housing REIT Update.

We like this sector because it offers investors a surprisingly high implied cap rate, solid dividend yields, and solid dividend coverage.

Company Name Ticker Div Yield AFFO or Core Yield
NexPoint Residential Trust Inc. NXRT 2.85% 5.02%
Mid-America Apartment Communities Inc. MAA 3.47% 4.82%
Camden Property Trust CPT 3.71% 4.62%
Essex Property Trust Inc. ESS 4.16% 5.79%
Independence Realty Trust Inc. IRT 4.17% 5.98%
AvalonBay Communities Inc. AVB 4.31% 5.44%
UDR, Inc. UDR 4.46% 5.73%
Equity Residential EQR 4.72% 5.74%
Apartment Investment and Management AIV 4.92% 6.16%
Clipper Realty CLPR 6.21% 8.88%
Bluerock Residential Growth REIT BRG 8.74% 7.50%
Preferred Apartment Communities Inc. APTS 12.89% 9.01%

Now if you’re like me, you’re probably thinking: “You should’ve used a chart.”

That’s true, but a chart won’t link the tickers and that would make it more work for me. So, you get the table and the chart:

Source: The REIT Forum 9/29/2020, calculations use data from TIKR.com

That’s an AFFO yield, not an FFO yield. What’s the difference? Material.

Lame Pun Coon | Know Your Meme

Source: memegenerator.net

We’re using AFFO to subtract an estimated amount for recurring capital expenditures. It’s like what most REIT analysts would do, if they would do things the right way. Pretend you own a property and need to spend $8,000 on major roof repairs. Do you pocket that $8,000 or do you spend it on roof repairs? Well, roof repairs aren’t dividends, right? Right! So you need to subtract this value.

Now, if you only have one property, that gets pretty messy since

Sales

ClearWorth Capital has purchased the Renaissance Parc apartments at the Dallas North Tollway and Verde Valley in Far North Dallas. The 294-unit apartment community is adjacent to the Village on the Parkway shopping center. Jay Gunn with Berkadia brokered the sale with the help of Chris Mendenhall at ClearWorth Capital. Nathan Stone and Brad Mason with Berkadia provided financing. ClearWorth Capital is an independent real estate investment firm that owns more than a dozen properties in Texas.

I-20 Industrial LP purchased 14.6 acres from HCH Farms Ltd. of Dallas at 34980 LBJ Freeway in Dallas. HSM Equity Partners will build a 15,540-square-foot facility for OTR Fleet Service, a provider of maintenance services for commercial vehicles. OTR is relocating from Forney. Huntley Luna and Nick Robinson at Henry S. Miller Brokerage brokered the sale with Tom Clarke with Transwestern. Mark Smith Sr. of HSM Equity Partners will develop the facility.

Khop Management has purchased 1426 N Riverfront Blvd., a 4,265 square foot building in the Dallas Design District. The building will be the home of Kirk Hopper Fine Art and was sold by Quadrant Investment Properties. Matthew Otte of Whitebox Real Estate brokered the sale. The lease was arranged by Christy Thelen, Trey Smith, Ward Eastman and Lauren Napper of Cushman & Wakefield.

An investor has purchased the Bocks Board Packaging building, a 69,750-square-foot industrial property at 1520 East Wintergreen Road in Hutchins. Adam Abushagur and Sam Martin of Marcus & Millichap brokered the sale.

An investor has acquired a freestanding 2,866-square-foot Burger King on a 29,980-square-foot site located at 2215 W. University Drive in Denton. Matthew Rosenfeld with Weitzman handled negotiations.

A Dallas investor purchased the Bonita Gardens Apartments, a two-story 138-unit rental community located at 3410 Fordham Road in Dallas. Mark Allen and Courtland Charles of Colliers International