REITs (real estate investment trusts) are publicly traded entities that any individual investor—big or small—can use to purchase shares in portfolios that generate income from various real estate properties. Many investors use it to diversify their portfolios to include real estate without the ‘heaviness’ of actually owning and managing properties.
Buying REITs is an easy way to put money in the real estate sector, including companies that manage, develop, or own residential, industrial, and commercial properties. REITs are required by the law to pay out no less than 90% of their taxable incomes to investors by way of dividends, making them particularly attractive.
One of the essential REIT metrics is FFO (funds from operations), a measure of earnings unique to the industry. Crown Castle International Corp., American Tower Corp., and Prologis Inc. Are among the biggest names in this sector.
Is it okay to buy REITs during a pandemic?
The COVID-19 pandemic has undoubtedly hurt many commercial property companies that own retail and office buildings. After all, the economic downturn triggered by the health crisis has resulted in layoffs and work-from-home arrangements.
But it’s not all doom and gloom. A stimulus package to the tune of $1.9 trillion was recently passed by Congress and is expected to fuel an economic recovery that should help the commercial real estate sector get back on its feet.
Because of this, aggressive investors see potential opportunities in the market and are not afraid to take advantage of them. In this blog, we discuss three types of REITs that may be worth buying:
(2) best value, and
(3) high momentum REITs.
The companies in the list below are among the fastest-growing REITs based on the growth of their latest quarterly year-over-year earnings per share and a 50/50 weighting of their latest year-on-year quarterly percentage revenue growth.
S.L. Green Realty Corp.:
This REIT focuses primarily on purchasing in managing Manhattan-based commercial properties. It reported a 23.8% year-over-year decline in revenue in the fourth quarter of 2020, but its net income grew ten times from the year prior. The increase is attributable to net gains on the sale of certain property assets, on top of fair value adjustments.
This REIT focuses primarily on healthcare properties, senior housing, and other related assets located not just in the United States but also in the United Kingdom and Canada. Its revenue fell by 7.5%, but its fourth-quarter 2020 net income reached $110.5 million. The company continued to be profitable despite the pandemic because of gains from the sale of several properties.
VICI Properties Inc.:
This REIT owns entertainment, hospitality, and gaming properties, with a portfolio that includes four championship golf courses, dozens of gaming facilities, investments in New York City’s Chelsea Piers, and a large swath of undeveloped land next to the famous Las Vegas strip. It recently announced that it is buying the Venetian Resort in Las Vegas for four billion dollars, taking it off the hands of Las Vegas Sands Corporation. Apollo Global Management—which paid $2.3 billion to buy the resort-operating company—signed a 30-year lease that will pay $250 million in rent to VICI Properties annually.
Best Value REITs
The list below shows REITs that posted the lowest 12-month P/E ratios. A low P/E ratio is attractive to investors who want to pay less for every dollar of profit generated by the investment, as profits can be returned in the form of buybacks in dividends to shareholders.
Kimco Realty Corp.:
This REIT owns and operates a number of open-air shopping centers in the United States and Puerto Rico. Many of its properties are anchored by big box stores and supermarkets that sell necessities and consumer staples. Kimco Realty Corp. Reported a 9% year-over-year decline in revenue in the fourth quarter of 2020. However, it posted an 83.4% increase in net income because of significant net gains realized from marketable securities.
This REIT primarily owns office buildings and has divested 164 properties in the last several years, leaving four in its portfolio. In early March 2021, it announced that its chief financial officer has resigned and that a former Capital Markets SVP has been appointed to take over.
Brandywine Realty Trust:
This REIT is a prominent owner, developer, and office property manager located in the Washington, DC, Austin, and Philadelphia markets. The company also has an ownership interest in a commercial property management services firm. It reported a decline of 13.8% in year-over-year revenue in the fourth quarter of 2020, but its net income was boosted by 13.1%, thanks to net gains on the disposition of several real estate assets.
REITs with the Most Momentum
Lastly, we look at the REITs that posted the highest total returns over the last year (12 months).
Brookfield Property REIT Inc. – A subsidiary of Brookfield Property Partners L.P., this REIT owns the core retail portfolio of its parent company, with shares designed to generate the same economic returns as its parent.
Starwood Property Trust Inc. – This company is known for originating, financing, acquiring, and managing mortgage loans that are backed by a portfolio of residential and commercial properties in Europe and the United States. It is also involved in infrastructure lending businesses and other property investments.
Park Hotels & Resorts Inc. – This lodging REIT boasts a portfolio spanning 60 premium hotels located primarily in the United States. It was originally under its parent company, Hilton Worldwide Holdings Inc., which spun it off into a publicly traded independent company in 2017.
This blog is for informational purposes only. It is not meant to be individual investment advice. The information provided comes from reliable sources but may not be complete or accurate. Economic and real estate market conditions rapidly change. All opinions, analyses, and comments in this blog are rendered as of the posting date and may change without prior notice.
This material is not a complete analysis of all material facts regarding any market, region, country, industry, strategy, or investment. We are not recommending that you invest in any REIT or adopt any investment strategy. Also, the investment strategies and views described may not suit all types of investors.