Best REITs to Buy in December 2022 • Benzinga

Looking for the best REITs to buy this month? Keep reading to see our top picks for December for the best REITs with the highest yield, the greatest growth potential and priced at the best value.

Real REITs: Weekly Newsletter

Benzinga’s research team has identified several undervalued REITs with major upside and strong dividends.

Get weekly updates on the REITs we’re watching and take advantage of this major opportunity in the market right now.

REITs are back! After suffering through major price slashing between April and mid-October, most quality real estate investment trust (REIT) stocks found their footing and performed well in November. Heading into December, investors should focus on the stocks that have outperformed since the REIT market bottomed, as well as those that had strong Q3 earnings.

On Nov. 30, 2022, Fed Chairman Jerome Powell gave the markets an early holiday present when he said the Fed would begin to reduce the amount of the next few rate hikes. Ironically, this means higher rates are still forthcoming, but Wall Street liked the speech enough to send the Dow up over 700 points, with the Nasdaq and S&P 500 also blistering higher. If you feel like you’ve missed the absolute bottom, don’t worry. Yields are still higher than the five-year average for many REITs.

The following list of REITs contains three distinct categories (Best High Yield, Best Growth and Best Value) while using a five-year performance time frame and provides what could be the best opportunities in the REIT sector as we move into December:


Best REITs for High Dividends

When it comes to choosing REIT stocks, investors cannot just chase high-yielding dividends without considering the safety and reliability of the dividend and the company.

EPR Properties (NYSE: EPR)

EPR Properties (NYSE: EPR) is a diversified experiential REIT that owns and operates 358 movie theater chains, amusement parks, resorts and other recreational venues. EPR Properties’ shares are down almost 10% over the past year.

In early September, Cineworld, the parent company of Regal Entertainment Group, which is EPR Properties’ third largest tenant and the producer of 13.5% of its rental revenue, filed for bankruptcy.

With 173 movie theaters in its portfolio, and despite Fitch Ratings noting that EPR Properties maintains ample cushion to withstand potential implications from Cineworld’s Chapter 11, Wall Street feared that a bad recession could prompt other theaters to follow Cineworld’s lead. But so far that hasn’t happened, and EPR Properties rallied 4.35% in November.

Q3 funds from operations (FFO) of $1.20 was higher than $0.90 in Q3 2021 and beat the analysts’ expectations. The dividend/FFO payout ratio is now down to 69%. EPR Properties pays a monthly dividend of $0.275. The current annual yield is 8.1%.  

EPR Properties’ recent performance continues to provide optimism that the stock may now have bottomed and will be able to shrug off lost revenue from Cineworld.

Global Net Lease Inc. (NYSE: GNL)

Global Net Lease Inc. (NYSE: GNL) is a New York-based diversified international commercial property REIT with 311 properties across 11 countries. Its 140 tenants are spread across 50 different industries.

Global Net Lease was one of the best-performing REITs in November, storming up 7.2% in the month. It continues to pay out an 11.8% dividend yield, making it a great potential stock for income investors. The shares have more than doubled now since their COVID-19-crash low of $6.65.

Q3 operating results were mixed. Revenue of $92.6 million was down 3.3% year-over-year and below the street’s view, but FFO of $0.47 beat analyst estimates and was above the $0.43 FFO of Q3 2021.

Its current lease rate is a stellar 98.6%, and its average lease term is 8.1 years.

The diversification of this REIT gives it a long-term advantage for income investors seeking a very high yield, and its high lease rate bodes well for it down the road. Investors may want to grab that high yield while it looks like its November performance could continue.

Simon Property Group Inc. (NYSE: SPG)

Simon Property Group Inc. (NYSE: SPG) is an Indianapolis-based retail REIT that owns and leases shopping malls, restaurants, outlet centers and entertainment venues. SPG was founded in 1960 and launched an IPO in 1993.

SPG has had its share of difficulties over the past three years, including shutdowns from COVID-19 in 2020 and recent threats from inflation and recession. But that seems to be behind the company now. Q3 revenue of $1.315 billion and $2.97 FFO were both higher than Q3 2021. Lease occupancy rose from 92.8% to 94.5% year-over-year.

David Simon, Chairman, Chief Executive Officer and President noted, “Based upon our results to date and our expectations for the remainder of 2022, we are once again increasing full-year 2022 guidance and raising our quarterly dividend.”

SG continued to perform well during the month of November, rising 3.8% to a recent price near $119. The dividend is now $1.80 annually, yielding 6.0%, and that’s still above its five-year average. For investors looking for a stable long-term REIT with a high dividend yield in December, SPG could be a good one to purchase.

Simon Property Group has had its share of difficulties over the past three years, including shutdowns from COVID-19 in 2020 and recent threats from inflation and recession. During the first three months of COVID-19 in the U.S.  2020, Simon Property Group’s stock price collapsed from over $103 to $37. Although that drop stunned its shareholders, those who hung on saw the price recover nicely over the next year and a half, eventually touching $164.67 in November 2021.

Simon Property Group delivered a strong price recovery over the month of October, rising 21% to a recent price near $109. The dividend yield, which had been near 8%, has now declined to 6.5%, but that’s still 11% above its five-year average. For investors looking for a stable long-term REIT with a high dividend yield going into November, Simon Property Group could be the one to own.

BZ

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Best Growth REITs

When looking for the best growth REIT stocks to purchase, investors can feel confident about their selections by considering the long-term price history of the company, regardless of where that price is today. These three REITs have a terrific history of appreciation but have lower dividend yields than most of their peers.

Independence Realty Trust Inc. (NYSE: IRT) 

Independence Realty Trust Inc. (NYSE: IRT) is a Philadelphia-based residential REIT that invests in multifamily apartment buildings in large secondary cities throughout the U.S. such as Atlanta, Georgia; Raleigh, North Carolina; Memphis, Tennessee; and Louisville, Kentucky. Its portfolio focuses on high-quality retail and employment areas as well as good school districts. 

Q3 operating results were good. Net income available to common shares increased year-over-year from $11.5 million to $16.2 million. Core FFO was $64.3 million, or $0.28 per share, compared to $22.7 million, or $0.21 per share, for Q3 2021. Adjusted EBITDA was $89.3 million, well above the $31.4 million in Q3 2021. Combined same-store portfolio net operating income (NOI) was up 11.5% from Q3 of the previous year.  

Independence Realty Trust stock hit a 52-week low of $15.04 in mid-October but has bounced back nicely to a recent closing price of $18.12. Shares were up 3.48% in November.

Investors should see Independence Realty Trust as more of a growth stock than just for income. The dividend yields 3.1%. As a growth vehicle, Independence Realty Trust has clearly proven its merit over time. Since the lows of the 2020 COVID-19 crash, Independence Realty Trust is up a whopping 163%.

Third-quarter operating results were announced this past week. Net income available to common shares increased year-over-year from $11.5 million to $16.2 million. Core FFO was $64.3 million, or $0.28 per share, compared to $22.7 million, or $0.21 per share for third quarter of 2021. Adjusted earnings before interest, taxes, depreciation and amortizatoin (EBITDA) was $89.3 million, well above the $31.4 million in third quarter of 2021. Combined same-store portfolio net-operating income (NOI) was up 11.5% from the previous year’s third quarter. However, earnings per diluted share of $0.07 was down from $0.11 in third quarter of 2021.

Independence Realty Trust stock hit a low of $15.04 in mid-October but bounced back to a recent price of about $17 near the end of the month.

Although the dividend has risen to 3.4% recently, investors should see Independence Realty Trust as more of a growth stock than income. As a growth vehicle, Independence Realty Trust has clearly proven its merit over time. Since the lows of the 2020 COVID-19 crash, Independence Realty Trust is up over 128%.

Prologis Inc. (NYSE: PLD)

Prologis Inc. (NYSE: PLD) is a stalwart REIT in the ownership and management of over 5,000 industrial logistics properties throughout the U.S. and 18 other countries. Founded in 1983, the San Francisco, California-based company has been a leader in appreciation among REIT stocks. Although it pays an annual dividend of $3.16, it is more growth- than income-oriented, with an annual dividend yield of 2.8%.

November was a great month for Prologis, surging 0.35%. This was the first month since the acquisition of Duke Realty, which brought some 480 new properties to Prologis’ portfolio. Also this month, analyst Blaine Heck of Wells Fargo maintained his Overweight rating on Prologis and set a new price target of $127.   

Prologis’ Q3 earnings report was positive. FFO of $1.73 per share was up over 66% from the same quarter a year ago. Revenue of $1.75 billion was up 48% year-over-year. Q3 occupancy rate of its properties came in at an impressive 97.7%.

For growth investors, Prologis is still one of the best REITs, still looks attractive at a recent price near $118 and could be a great stock to pick up in December for the long term.

Mid-America Apartment Communities Inc. (NYSE: MAA) 

Mid-America Apartment Communities Inc. (NYSE: MAA) is another REIT that specializes in purchasing and leasing apartment complexes. It owns over 101,000 units in 296 communities across 16 states and Washington, D.C. Most of Mid-America Apartment Communities’ properties are located in the Southeast, Southwest and Mid-Atlantic states.

Q3 operating results were good, as earnings per share was $1.05, up from $0.73 a year ago, and the FFO of $2.19 was up from $1.85 year-over-year.

Several new analysts weighed in on Mid-America Apartment Communities in November. Wolfe Research initiated coverage with a “Peer Perform” rating but without a price target. Goldman Sachs maintained a “Neutral” rating and raised its price target from $160 to $178. Mizuho also maintained a “Neutral rating” but lowered its price target from $177 to $160. Barclays maintained an “Overweight” rating, but also lowered its price target from $215 to $185. Mid-America Apartment Communities’ most recent closing price was $166.45.

Fears of a recession continue to weigh on apartment REITs. Nonetheless, after hitting a low of $146.56 in mid-October, Mid-America Apartment Communities stock is up about $20 over the last six weeks. It was up 0.43% in November.

The stock has been a big winner over the past five years, and the dividend yield of $5.00 per share yielding just above 3% enhances its appreciation. Still well off its high of $227 a year ago, Mid-America Apartment Communities could continue to perform well this coming month.

Best Value REITs

Long-term investors looking for undervalued REITs should consider solid companies with good track records over the years who for one reason or another have fallen out of favor with Wall Street. These REITs now provide strong dividend yields for income investors and over time may provide solid appreciation as well, once economic conditions improve.

S.L. Green Realty Corp. (NYSE: SLG)

SL Green Realty Corp. (NYSE:SLG) is the largest owner and landlord of New York City office buildings, holding an interest in 62 buildings totaling 33.6 million square feet. 

Higher interest rates and recession fears drove SL Green down to a 52-week low of $35.77 a few months ago, but it has bounced back nicely since then. In November, shares were up 5.63% and its most recent closing price was $41.95. Those who have predicted the end of offices as workplaces have been proven wrong, as many of the office REITS, including SL Green, have done well recently.

SL Green pays a monthly dividend of $0.3108, which equates to an annual dividend of $3.73 that still yields a healthy 8.8%. The five-year average yield is only 4.95%, showing that SL Green is undervalued by historical measures. The annual dividend is still well-protected by the FFO, with a payout ratio of only 55%.   

There have been no updates on the proposal by SL Green and Caesars Entertainment to redevelop a large 54-floor building in the busy Times Square area of New York City to house a new casino and theater.  

SL Green reported Q3 earnings per share of $0.11 and FFO of $1.66 per share, down from $1.83 per share one year ago but a penny above expectations. Revenue of $212.5 million was above $205.2 million from Q3 2021 and well above analysts’ expectations of $157.2 million.  

This month there were two new analyst mentions of SL Green. Ronald Kamden of Morgan Stanley maintained an “Equal-Weight” rating while lowering the price target from $44 to $38, but Blaine Heck of Wells Fargo maintained an “Equal-Weight” rating while raising his price target from $38 to $40.

With SL Green down about 58% from its 52-week high of $85.18, much of the risk of recession office vacancies is already out of the stock. If the casino deal goes through, SL Green stock could have a huge upside.

Modiv Inc. (NYSE: MDV)

Modiv Inc. (NYSE: MDV) replaced Apple Hospitality REIT Inc on the Best Buys list this month. Modiv is a diversified commercial REIT, with 38 triple-net-leased industrial and retail single-tenant properties across 14 states. Its tenants include Dollar General and 3M.

Q3 operating results were mixed. Revenue of $10.2 million was up 17% from Q3 2021, but AFFO of $3.1 million, or $0.31 per diluted share, was below the $3.8 million or $0.44 per diluted share number from Q3 2021.

Nonetheless, the earnings beat the analysts’ expectations, and, as a result, Modiv shares were on fire, blasting up 28.77% in November. Modiv pays a monthly dividend of $0.096 or $1.15 annually. Even with its big November move, the annual dividend is still generating 7.2%. But that yield may not last much longer.

CubeSmart (NYSE: CUBE)

CubeSmart (NYSE: CUBE) replaced STAG Industrial on this month’s list. CubeSmart is a self-storage REIT with over 1,300 storage facilities in 39 different states across the U.S.

CubeSmart shares were up 4.76% in November. It’s now 11.8% above its mid-October low of $36.82 but still well off its 52-week high of $57.34.

In Q3 operating results this month, CubeSmart reported FFO of $0.66 per share, up from $0.56 in Q3 2021. Net operating income showed a 15.4% increase year-over-year. Revenue was up 12.2% over the previous year’s Q3. Same-store occupancy averaged 94.4%.

The current dividend yield for CubeSmart is 4.35. Its annual forward FFO is $2.51, and the annual dividend is $1.72. Therefore, the dividend payout ratio to the FFO is 68%. While this is a little bit high, it certainly leaves plenty of room for future dividend coverage.

Best Non-Traded and Private REITs

Not all REITs are publicly traded on a major stock exchange. The benefit to this type of REIT is that their prices aren’t affected by market sentiment. Instead, share prices are directly tied to the REIT’s net asset value (NAV), meaning less volatility and more predictable growth.

Fundrise Growth eREIT III

(Buy Shares)

While many publicly traded REITs are trading near their 52-week lows, the Growth eREIT III is up 17.2% YTD with a 2.53% dividend yield. The REIT invests in value-add multifamily properties in Texas and California.

The value-add strategy allows for greater long-term growth in terms of both property appreciation and income, making an investment in the Growth eREIT III a solid play for investors comfortable with riding out their investment for 5+ years.

The REIT’s most recent NAV update puts it share price at $17.77

Fundrise Growth eREIT VII

(Buy Shares)

Another REIT offering from Fundrise is the Growth eREIT VII, which presents a rare opportunity to invest at a discount after its share price dipped to $11.60.

The REIT’s portfolio is 100% allocated to single-family rentals in the Sunbelt Region of the United States, where long-term rent growth is expected to remain strong. The majority of the single-family rentals are in rental communities, allowing for greater price protection from changes in the housing market.

Despite the recent dip in share price, the REIT is still up 4.2% YTD.

See also: Fundrise Review 2022

Recent REIT Analyst Ratings

Ticker Company Analyst Rating Price Target
WELL Welltower OP Raymond James Maintains 72.0000
RHP Ryman Hospitality Props Raymond James Maintains 100.0000
NHI National Health Investors Credit Suisse Upgrades 58.0000
SHO Sunstone Hotel Invts Raymond James Downgrades
PEB Pebblebrook Hotel Raymond James Downgrades

Best Performing REIT Sectors

These were the best performing REIT sectors based on total returns for the full year 2021.

What to Look for When Choosing The Best REITs

While publicly-traded REITs are bought and sold on the stock market like any other publicly-traded company, REITs are a unique asset class that needs to be analyzed differently than other stocks. 

Funds From Operations (FFO)

If you’re familiar with stocks, you’re most likely familiar with terms like earnings per share (EPS) and price-to-earnings ratio (p/e ratio). However, these metrics don’t offer much help when looking at an equity REIT.

To understand a REIT’s true cash flow, you have to look at their funds from operation (FFO). Since real estate is a depreciable asset, a REIT’s reported net income includes a significant depreciation expense. It also includes capital gains and losses from the sale of properties, which don’t represent what investors can expect the company to earn on a consistent basis.

FFO adds depreciation back into the REIT’s net income and takes out any gains or losses on the sale of property, providing a more accurate picture of a REIT’s true earnings.

To use FFO as a way to value REITs, we divide the REIT’s current share price by its FFO per share to get a price to FFO ratio. We then compare the price to FFO of the different REITs in each real estate sector to find value opportunities.

Balance Sheet

REITs have to carry a lot of debt in order to finance the properties they purchase. This is especially true because REITs are required to pay out 90% of their taxable income to shareholders in the form of dividends. This doesn’t leave REITs with the ability to stockpile a lot of cash.

It’s important to make sure that the REIT you’re investing in isn’t carrying too much debt, though. The easiest way to do this is by looking at their total debt compared to their earnings before interest, tax, depreciation and amortization (EBITDA). This is called a debt to EBITDA ratio.

For instance, if a REIT has a total of $1 billion in debt and their annual EBITDA is $250 million, you would divide $1 billion by $250 million to get a debt to EBITDA ratio of 4.

Ideally, you want to look for REITs with a debt to EBITDA ratio somewhere between 4 and 6. Anything above 6 and their balance sheet starts to look risky. You also want to make sure that they’re not too conservative with their debt. A debt to EBITDA ratio below 4 can indicate that they’re using too much cash that could be going to investors instead of utilizing debt.

A solid REIT management team will use a reasonable amount of debt to maximize their overall returns. This means more growth and higher dividends being paid to investors.

Dividends

One of the greatest advantages to REITs is their dividends. On average, REITs pay out significantly higher dividends than most other dividend stocks. 

You want to be careful not to get caught in a yield trap, though. Some REITs may increase their dividend payments to an amount they can’t sustain in order to attract or keep shareholders. They also may put off cutting dividends when their FFO has dropped. In either case, buying a REIT with a dividend it can’t sustain is a quick way to lose money. 

To get an idea as to whether a REIT’s dividend is safe, you’ll want to look at the FFO payout ratio. This compares the company’s FFO per share to its dividend rate. 

For instance, if a REIT has an FFO per share of $2 and a dividend payment of $1.50 per share, you’ll simply divide the dividend rate by the FFO per share to get 75%. 

Ideally, the REIT’s FFO payout ratio will be somewhere between 70% – 80%. However, a lower payout ratio is fine if you’re happy with the yield. A slightly higher payout ratio isn’t necessarily a red flag as long as they’ve consistently maintained that payout ratio while either keeping or increasing their dividend payments over time. 

The Real Estate

You can’t forget that investing in a REIT is essentially investing in a real estate portfolio. If you were buying properties directly instead of investing in a REIT, you would want to invest in assets that would provide you the greatest potential return with the least amount of risk possible. You want to look at REITs the same way. 

If you’re looking for a dependable REIT, you’ll want to look at ones that invest in a property type with a strong outlook. For instance, if you think shopping malls are doomed you won’t want to invest in a REIT that owns a lot of shopping malls. 

REIT ETFs

A REIT ETF is an exchange-traded fund that invests in REITs and other real estate stocks. These funds typically follow a REIT index and have a diversified portfolio with investments spread out across multiple companies.

Investing in The Best REITs

A REIT’s recent financials provide a great basis for choosing the best ones to buy, but major changes can happen between quarterly filings. Before investing in a real estate stock, be sure to look for recent news about any acquisitions, dispositions, offerings, or any other relevant news that can affect their future performance. You can learn more about how to use REITs to invest in the real estate market with our guide on How to Invest in REITs.

Real REITs: Weekly Newsletter

Benzinga’s research team has identified several undervalued REITs with major upside and strong dividends.

Get weekly updates on the REITs we’re watching and take advantage of this major opportunity in the market right now.

Related content: BEST HIGH-YIELD REITS

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