Buy the REIT with a Spectacular Portfolio

Shah Gilani|August 1, 2022

If you’re like me, you’ve probably watched the U.S. housing market over the last two years, wondering when it would finally cool off.

And if you were trying to buy a home over the last two years, you’ve probably wondered when the price inflation would ever end.

When the FED started raising rates earlier this year, one of the measures of inflation it was trying to slow down was the increases in the prices of homes.

Initially, it started to look like their higher rate policies were working. Home price increases slowed, and home sales slowed.

That was then.

This is now.

Since the Fed’s June 15 meeting, the yield on the 10-year U.S. Treasury has fallen by over 0.70%, to just below 2.70% as of Thursday afternoon.

More importantly, for home prices, the average 30-year fixed rate mortgage rate has dropped 0.5% over the last five weeks, standing at 5.3% as of Thursday.

If mortgage rates continue to decline, or at least remain steady, we could see buyers rushing back into the housing market in hopes of buying before rates go higher again.

That demand could push home prices higher, once again. And that will price a lot of buyers out of the market.

It will also drive-up demand for residential rental properties.

That’s where I want to focus our attention today.

Mid-America Apartment Communities, Inc. (MAA) is a residential real estate trust (REIT) with ownership interest in 101,229 apartment homes, including those in communities under development across 16 states and the District of Columbia.

In case you’re not familiar with REITs, they are companies that own, operate, or finance income-producing properties. By law, at least 90% of a REIT’s profits must be distributed as dividends to shareholders.

That allows investors to deploy capital into various real estate projects that would otherwise be beyond their means.

What separates MAA from many other residential REITs is the geography and quality of its portfolio.

Its top ten markets include Atlanta, Dallas, Tampa, Austin, Charlotte, Orlando, Raleigh/Durham, Washington DC, Nashville, and Houston – all of which are not only popular sun-belt cities, but more importantly, have all experienced huge increases in the prices of residential real estate.

In every one of those cities, potential buyers are being forced into rentals because they simply can’t keep up with runaway home prices.

And in every one of those cities, the median income is above the country’s median income, which means the people who live in MAA markets have the money to pay for higher rent.

Those higher rents are showing up as increasing revenue. Over the trailing 12 months, the company has generated $1.83 billion in revenue.

And because it’s a REIT, it has passed the majority of the profits along to shareholders in the form of dividends.

Speaking of dividends, since 1994, the company has never suspended or reduced its dividend. At the current price, the company pays a 2.84% yield.

Make sure to check back in next Monday, and the following Monday’s as well, as I take some time to draw your attention to series on inflation-beating investment ideas.

Until then, have a great week.

Cheers,

Shah Gilani