Multifamily REIT Dividends vs EquityMultiple Investments

Investors often ask us how EquityMultiple’s portfolio performance compares to publicly traded real estate investment trusts (REITs). It is difficult to make an apples-to-apples comparison because the target return profiles of EquityMultiple offerings are very diverse, and to an extent so are the return objectives of publicly traded REITs.

That said, we can draw some conclusions based on investments of a similar type in similar markets. If you’ve ever wondered why it may be beneficial to invest in private real estate, rather than just public REITs, this article is for you.

An Overview of Public & Private Real Estate

As noted in the chart above, there is some overlap between the benefits of public and private real estate. Both types of investments should provide investors with cash flow, and upside potential. However, private real estate can also serve as a hedge against inflation. It may be a welcome addition to investors’ portfolios, particularly if their current strategy skews heavily toward public equities (more on that later).

Top Public Multifamily REITs

For this article, we focused on the recent performance of three of the top publicly traded multifamily REITs. All three REITs made NMHC’s list of the top 50 largest apartment owners of 2021. They are also among the holdings of several well-known real estate ETFs, including Vanguard Real Estate ETF (VNQ), J.P. Morgan BetaBuilders MSCI US REIT ETF (BBRE), Fidelity MSCI Real Estate Index ETF (FREL), and Schwab US REIT ETF(SCHH).

Equity Residential (EQR)

Equity Residential is the fifth largest apartment owner in the U.S., with over 78,000 units as of June 2021. Their properties are in prime markets like Manhattan, Boston, Washington D.C., San Francisco, Los Angeles, and Seattle. 

AvalonBay Communities (AVB)

AvalonBay Communities is the fourth largest apartment owner in the United States, with over 80,000 units as of June 2021. They primarily focus on properties in New England, the New York/New Jersey metro area, the Mid-Atlantic, the Pacific Northwest, and Northern and Southern California. 

Mid-America Apartment Communities (MAA)

MAA is the largest apartment owner on NHMC’s list, with over 100,000 units as of June 2021. Their investment portfolio is diversified primarily across the high-growth Sunbelt region of the U.S.

So, how do these REITs’ dividends stack up against comparable EquityMultiple investments? Let’s look at the numbers.

Comparing the Investments

Our Finance & Operations Team analyzed the annualized weighted average cash-on-cash returns for EquityMultiple investments that most closely matched the investment profiles of each of the three selected REITs*. Specifically, we focused on multifamily offerings in the aforementioned regions**.

Note that EquityMultiple’s offerings outperformed all three public multifamily REITs. The current dividend yield for AVB was 2.74% as of October 21, 2021. EQR’s dividend yield was 2.83%, and MAA’s dividend yield was 2.05%.

In contrast, the EquityMultiple investments we reviewed generated weighted average cash-on-cash returns just above 6%. See below for a few examples of recent multifamily investments.

Why Use Cash-on-cash Returns?

We opted to focus on cash-on-cash return here, because it is most comparable to the dividend yield figures as a return metric. That said, all equity investments have the potential to offer some upside appreciation, as well.

The Bottom Line

Publicly traded REITs can be a great way for investors to dip their toes into the world of real estate. They are easily accessible, and can be purchased via an exchange, the same way you add stocks to your brokerage account. While some investors view this as a bonus, it also means they are fairly liquid investments, and their value may increase or decrease as investor sentiment changes.

Private commercial real estate sits on the opposite side of the spectrum. It is an illiquid asset, meaning investors’ money tends to be tied up longer. However, there is also less correlation to the stock market — a benefit for anyone looking to diversify their portfolio.

Learn more about the difference between public REITs and private real estate in this article. If you have any further questions, please feel free to schedule time with Investor Relations. We would be happy to discuss our Track Record, as well as your individual investment goals.

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*Cash-on-cash return is the ratio of annual before-tax cash flow to the total amount of cash invested, expressed as a percentage.

**About the methodology: We reviewed the annualized weighted average cash-on-cash returns for EquityMultiple multifamily investments located in Los Angeles, Denver, New York City, East Orange, Stamford, Groton, Trumbull, Philadelphia, Richmond, Dallas, San Antonio, Houston, Texarkana, Jacksonville, Albuquerque, Phoenix, Raleigh, and Greenville. Data is accurate as of October 6, 2021.

All opinions expressed herein constitute the author’s judgement as of the date of this article and are subject to change without notice. Statements made are not facts, including statements regarding trends, market conditions and the experience or expertise of author are based on current expectations, estimates, opinions and/or beliefs. Such statements are not facts and involve known and unknown risks, uncertainties and other factors. Past events and trends do not predict or guarantee or indicate future events or results.

Past performance is no guarantee of future results. The investments discussed herein may be unsuitable for investors depending on their specific investment objectives and financial position. Investors should independently evaluate each investment discussed in the context of their own objectives, risk profile and circumstances.

Certain information contained in this presentation has been obtained from third parties. While such information is believed to be reliable for purposes used herein, no representations are made as to the accuracy or completeness thereof and none of EquityMultiple or its affiliates take any responsibility for such information. Certain information contained in this presentation discusses general market activity, industry or sector trends, or other broad-based economic, market or political conditions and should not be construed as research or investment advice.

Any model, graph or chart used has inherent limitations on its use and should not be relied upon for making any investment decisions. Nothing herein should be construed as an offer, or a solicitation of an offer, to invest in or buy an interest in any investment vehicle managed by EquityMultiple.