Brexit might have cast a pall over global economic health, but things are looking brighter here in the domestic economy. This is because, the latest job numbers revealed not only a decrease in the seasonally adjusted initial claims for the week ending Jul 2 but also more job additions than expected in June.

This perked up the residential real estate investment trust (REIT) industry as economic growth on the back of improved employment generally boosts household formation and forms the basis for stronger housing demand.

But with limited home supply in a reducing inventory of homes, both new and existing, home prices are registering growth. So people not qualifying for mortgage or rather preferring the flexibility of renting apartments are queuing up for rental units.

In fact, the early end-of-quarter apartment numbers from Axiometrics reveal that rent growth was substantially stronger in the second quarter. Quarterly effective rent growth came in at 2.3% in the second quarter against 0.5% in the first.

Delivery of new supply was behind the moderation of annual effective rent growth in recent quarters. But demand for apartment units stepped up as new graduates started entering the work force and looking for a place to live in as well as renter families sought settlement well ahead of the upcoming school year.
 
As a result, occupancy levels also scaled up, reaching 95.2% in the second quarter of 2016, which is the first time the figure has exceeded 95% since the second quarter of 2015. The tally also surpassed the 94.8% mark achieved in the first quarter.

Selecting Top Residential REITs

Against this backdrop, picking up some top residential REITs backed by a solid Zacks Rank seems wise. This is because, no matter whether market conditions are good or bad, stocks with a Zacks Rank #1 (Strong Buy) and 2 (Buy) have a proven history of outperformance.

Further, as Brexit and global growth concerns are likely to keep interest rates low for some time now, residential REITs that offer a decent dividend yield will remain investors’ favorites. No doubt, investors are mainly attracted to REITs because of their dividend payouts. Naturally, these are more lucrative than yields on fixed income and money market accounts in a low rate environment.

We handpick the following residential REITs based on the criteria:

Preferred Apartment Communities, Inc. (APTS - Snapshot Report) is an Atlanta-based REIT that acquires and operates multifamily properties primarily in the U.S. This Zacks Rank #1 company delivered an average positive earnings surprise of 3.5% over the trailing four quarters and has an attractive dividend yield of 5.45%.

Armada Hoffler Properties, Inc. (AHH - Snapshot Report) is engaged in developing, building, owning and managing office, retail and multifamily properties primarily in the United States. It is based in Virginia Beach, United States. Armada Hoffler has a Zacks Rank #2 and a solid history of positive surprises, with an average positive earnings surprise of 10.24% over the trailing four quarters. Its dividend yield also looks attractive at 5.15%.

Mid-America Apartment Communities Inc. (MAA - Snapshot Report) , based in Memphis, TN, focuses mainly on the acquisition, selective development, redevelopment and management of multifamily homes throughout the Southeast and Southwest regions of the United States. This Zacks Rank #2 company has a decent surprise history, delivering an average positive earnings surprise of 3.53% over the trailing four quarters. Its dividend yield is 3.04%.

Post Properties Inc. (PPS - Snapshot Report) is one of the largest developers and operators of upscale multifamily apartment communities, focusing on developing and managing branded high density urban and resort-style garden apartments. The company is headquartered in Atlanta, GA, and has operations in 10 markets across the country. Post Properties has a Zacks Rank #2 and a decent history of positive surprises in each of the trailing four quarters. The company also offers a solid dividend yield of 3.05%.

Silver Bay Realty Trust Corp. (SBY - Snapshot Report) is focused on the acquisition, renovation, leasing and management of single-family properties. Silver Bay Realty Trust Corp. is based in United States. It has a Zacks Rank #2 (Buy) and a dividend yield of 3.01%.