2 Residential REITs Positioned to Weather a Challenging Market

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 near-term pressure from supply overhangs and uneven demand, leading to inconsistent pricing power and elevated expenses that squeeze margins [1][4] Current Challenges - A significant supply overhang persists despite a slowdown in new construction, affecting pricing power and revenue growth, which is heavily dependent on portfolio mix and lease timing [4] - Cost pressures are limiting cash flow growth, as rent growth has softened while expenses remain high, necessitating a focus on execution and efficient investment in existing assets [5] Long-Term Support Factors - Renting remains the most accessible housing option due to high mortgage rates and limited home supply, supporting steady occupancy and renewals [2][6] - Healthy household formation and demand from AI- and knowledge-based workers contribute to stabilizing cash flows and reinforcing long-term resilience [2][7] Industry Performance - The industry has underperformed the broader Finance sector and the S&P 500, declining 8.4% over the past year compared to the S&P 500's increase of 19.5% [12] - The Zacks Industry Rank indicates dim near-term prospects, placing the industry in the bottom 31% of around 250 Zacks industries [9][10] Valuation Metrics - The industry is currently trading at a forward 12-month price-to-FFO ratio of 14.89, which is below the S&P 500's forward P/E of 23.36 and the Finance sector's forward P/E of 17.70 [15] - Over the last five years, the industry has traded between a high of 26.61 and a low of 13.75, with a median of 17.04 [18] Notable Companies - Equity LifeStyle Properties: Focuses on manufactured home communities and has a strong demand outlook due to affordable housing needs and favorable demographics. The Zacks Consensus Estimate for 2025 FFO per share is $3.06, indicating a 5.2% increase year over year [19][21] - Veris Residential: Operates Class A multifamily rental properties with high occupancy rates of approximately 94.7%. The Zacks Consensus Estimate for its 2025 FFO per share is 69 cents, reflecting a 3% upward revision [23][25]