The realm of real estate investment trusts (REITs) has had it incredibly rough in 2023 in contrast to the S&P 500’s double-digit gains. Consequently, this environment makes selecting the best REITs a challenging task. REITs, which manage various real estate properties, have traditionally been excellent tools for portfolio diversification, especially during periods of low-interest rates. However, the landscape has shifted dramatically, with current mortgage interest rates soaring. Moreover, this rate spike is pushing the dream of home ownership and, consequently, the value of various real estate properties beyond the reach of many. Despite REITs’ usual allure of generous dividends, stemming from their obligation to distribute a whopping 90% of profits, today’s market requires a keen eye to identify the most resilient REITs in these evolving times.
Best REITs: Realty Income (O)
Realty Income (NYSE:O) emerged as a titan in the REIT sector with a massive market capitalization of $38 billion. It boasts an impressive portfolio of over 13,000 properties spread across the U.S., U.K., Spain, Italy, and other areas. This extensive reach, coupled with its specialization in single-tenant commercial properties such as grocery and convenience stores, positions Realty Income as a critical player in the commercial real estate market.
The company’s strategic focus is underscored by its recent acquisition of Spirit Realty Capital, further expanding its massive property portfolio. This move enhances Realty Income’s market footprint and diversifies its investment portfolio, solidifying its position as a leader in the commercial property industry. For income-focused investors, Realty Income appeals to its dividend yield of 5.6% and its status as a monthly dividend company. Moreover, Realty Income’s 25-year track record of consistent dividend growth makes it a reliable choice for stockholders seeking a combination of stable income and long-term growth potential in their investment portfolios.
Innovative Industrial Properties (IIPR)
Innovative Industrial Properties (NYSE:IIPR) stands out in traditional investment portfolios with its involvement in the burgeoning cannabis industry. IIPR has been instrumental in improving rental collection and securing long-term leases. Moreover, its expected debt restructuring could efficiently bolster financial agility, opening doors for strategic acquisitions and bringing down liabilities.
IIPR’s third quarter FFO of $2.09 surpassed expectations by four cents and a revenue bump of 9.8% year-over-year (YOY) to $77.82 million. These financials comfortably exceeded forecasts by $1.26 million, highlighting its robustness. The stock’s attractive forward dividend yield of more than 8% and a five-year dividend growth rate of 45.6% reflect a strong and growing income potential. Given the rapid expansion of the marijuana market, IIPR’s focus positions it as a compelling long-term investment choice, offering investors a strategic entry point into the cannabis space.
Best REITs: CareTrust REIT (CTRE)
CareTrust REIT (NYSE:CTRE) is a top REIT specializing in healthcare properties. It stands out with an 18% rental revenue CAGR over the past decade, showcasing its superb growth trajectory. The company’s strategic diversification across 28 different states taps into the growing demand driven by an aging U.S. population, providing a stable income stream.
Financially, CTRE has excelled, with an EBITDA margin of over 86% on a trailing twelve-month basis, 57% higher than the sector median. Moreover, its prudent dividend strategy, with an 80% free cash flow margin and a 5% yield, reflects a strong commitment to shareholder returns, balanced with a healthy financial structure. Geographically diverse and strategically positioned in the healthcare real estate market, CTRE is poised for future success, bolstered by forecasts of double-digit revenue growth. Despite recent stock gains, a potential upside remains with its stock trading at a sizable discount to historical metrics.
Extra Space Storage (EXR)
Extra Space Storage (NYSE:EXR) remains a prominent REIT in the storage operations sphere, significantly bolstering its market presence with over 3,500 locations across the U.S. The company’s strategic merger with Life Storage, adding nearly 1,200 locations, emphasizes its role in expanding despite the initial dilution in its adjusted FFO. Moreover, it recently released its third quarter results, where it revealed an impressive 49.9% YOY increase in quarterly sales to $748.03 million. This was fueled by its merger and acquisition activities, exceeding analyst expectations by $66.74 million indicative of the firm’s successful integration and market penetration strategies. Additionally, EXR’s FFO of $2.02 per share surpassed consensus estimates by 11 cents, reflecting its strong financial performance and operational efficiency.
With a forward dividend yield of 4.73% and a five-year dividend growth rate of 14.16%, the company presents itself as an attractive investment option. Its focus on expanding its portfolio and the potential for further operational synergies position it well for sustained growth and sustained shareholder returns.
Best REITs: Kite Realty Group (KRG)
Kite Realty Group (NYSE:KRG) Kite Realty Group is a distinguished REIT specializing in grocery-anchored facilities, especially in the dynamic Sun Belt markets, efficiently managing an expansive portfolio of over 180 open-air shopping centers and mixed-use assets. With nearly six decades of real estate experience, the REIT strengthened its portfolio further by adding Retail Properties of America for a whopping $7.5 billion. This strategic move aims to enhance KRG’s market presence and contributes to its robust returns on capital.
KRG’s resilience in the face of macroeconomic challenges is noteworthy, with its remarkable return on investment capital for new leases, effective inflation protection, and attractive 4.84% dividend yield. The company’s third quarter FFO of 51 cents surpassed estimates recently, with a 3.4% YOY increase on its top line to $207.2 million, highlighting its financial strength and operational efficiency. Also, it trades at 11.4 times forward FFO, roughly 12% lower than the sector median.
Prologis (PLD)
Prologis (NYSE:PLD) is another popular REIT specializing in logistics facilities, which stands as a paragon of industry leadership. Its extraordinary double-digit growth in core AFFO over the years highlights its operational prowess. The company’s A-rated balance sheet, enabling the issuance of $1.4 billion in debt at exceptionally low costs, is a testament to its solid financial foundation.
Moreover, the stock is up 5% for the year and almost 80% over 5 years, ahead of the S&P 500’s return of 69% during the same period. Also, its 2.9% dividend yield and nine consecutive years of payout expansion further solidify its case as a top-tier dividend stock. Hence, Prologis remains a contender for any investment portfolio, with its strategic location choices and effective rent growth strategies being key drivers of its exceptional performance.
American Tower (AMT)
American Tower (NYSE:AMT) is another leading real estate investment trust, excelling in data centers and cell phone towers. With a global portfolio spanning over 220,000 cell phone towers, the firm holds a powerful presence at this time. Over 40,000 of these towers are in the United States, contributing to more than 50% of its sales.
The company’s strategic operations in emerging markets, including Brazil and India, are noteworthy. While these regions currently generate significantly less revenue than U.S. revenue, their potential for growth remains massive due to increasing internet usage and rising spending power. Nonetheless, AMT’s superb financial positioning is underscored by its 3-year average-funds-from-operations growth of 8.6%, which dwarfs the sector median by 362%. Moreover, it boasts a forward dividend yield of 3.10% while showcasing a strong 5-year dividend growth rate of 16% over the last decade.
On the date of publication, Muslim Farooque did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.