Many apartment REITs have performed quite well recently, and for good reason -- the pandemic didn't have nearly as devastating of an effect on multifamily housing as many experts had feared. Even so, there are some great apartment REITs that are still trading for nice discounts compared with their pre-COVID-19 highs. Here are three, in particular, that could be huge winners for long-term investors.
Americans want to live and work in cities
For most of 2020, there were significant fears that the remote work trend would become permanent and employers wouldn't require their employees to return to the office, even after the pandemic. And if employees could work from anywhere, it wouldn't be good news for apartment operators like AvalonBay Communities (NYSE: AVB), which primarily operates in high-cost urban and suburban markets.
However, in recent months, it's starting to look like these fears were a bit overblown. Goldman Sachs (NYSE: GS) CEO David Solomon recently said remote work is an "aberration" and that he wants workers back in offices. Even tech companies like Amazon (NASDAQ: AMZN) and Facebook (NASDAQ: FB) have recently signed leases on new urban office space.
The news certainly isn't all good. AvalonBay recently reported that rental revenue declined about 9% year over year in January and February due to generally lower rental rates. However, occupancy at its properties has increased from 93.4% to 95% over the past five months, including an impressive 340-basis-point increase in occupancy at AvalonBay's urban communities.
College campuses should be mostly normal in the Fall
Obviously, 2020 wasn't a great year to own and operate college-focused apartment communities like American Campus Communities (NYSE: ACC) does. When the pandemic first hit, virtually all colleges and universities were forced to close to in-person instruction. Even during the fall semester, most schools were either virtual or using a hybrid instruction model.
As a result, same-store NOI fell by more than 11% year over year, with $51.8 million of rent relief, waived fees, and other lost revenue weighing on results.
However, there is definitely light at the end of the tunnel. Recent news for fall semester campus reopening plans has been very encouraging. Even some of the university systems that have been notoriously cautious are planning to reopen. For example, the University of California system (where American Campus has a significant presence) recently announced it plans to return to primarily in-person instruction in fall 2021 at all 10 of its campuses.
With its stock still about 11% lower than its pre-pandemic peak, American Campus Communities could be worthy of a closer look before colleges largely get back to business as usual in the fall semester.
The Sun Belt migration could be huge for this REIT
Mid-America Apartment Communities, formerly known as MAA (NYSE: MAA), wasn't completely unaffected by COVID-19, but the impact wasn't nearly as bad as the other two on this list. Rent collection in the fourth quarter was 99.2% of billed rents (which is quite normal, even for a non-pandemic time), and the average effective rent per unit actually increased by 1.8% in 2020.
MAA operates in some of the fastest-growing real estate markets in the Sun Belt region, such as Atlanta; Charlotte, North Carolina; Tampa, Florida; and Dallas, just to name a few. These are markets with above-average job growth that are also generally seeing strong population growth. And they're far more affordable than most urban markets in the Northeast and along the West Coast.
Unlike the other two stocks discussed here, MAA is actually higher than where it was at the start of 2020. But for good reason -- the numbers have been very strong, and Sun Belt migration is a very real trend that could result in years of steady growth.
The Millionacres bottom line
While I think all three of these stocks are attractively valued right now, I'm suggesting them as potential long-term investments. I have absolutely no idea what their share prices will do over the next week, month, or even year. There are likely to be some bumps in the road to economic recovery, and it's impossible to predict short-term movements. But from a long-term perspective, you're getting in on three well-run companies with lots of growth potential. Invest accordingly.