- Rising interest rates and recession fears have put pressure on the real estate space, creating an opportunity in these REITs to Buy.
- Crown Castle International (CCI): Cell tower REIT with a 3.63% forward yield and appreciation potential.
- City Office REIT (CIO): This office building REIT, which yields 6.76% today, may be oversold, based on its current valuation.
- Farmland Partners (FPI): It’s not too late to stake a claim, and add exposure to rising farmland prices.
- Gaming and Leisure Properties (GLPI): This casino REIT (forward yield of 6.04%) could be more resilient than it seems at first glance.
- Postal Realty Trust (PSTL): With a 6.41% forward dividend yield, PSTL is a big player in a real estate niche (post offices) that’s yet to see a big consolidation wave.
- Sabra Health Care REIT (SBRA): Slowly recovering from the pandemic, Sabra may be able to maintain its high 8.68% dividend.
- Simon Property Group (SPG): Possibly oversold, this REIT that owns high-quality malls currently yields 7.04%.
Given the sector’s recent performance, now may not seem like a great time to buy real estate investment trusts (REITs). Using the Dow Jones U.S. Select REIT Index as a proxy, REITs are down around 21% year-to-date.
The sharp rise in interest rates, in response to high inflation, has played a big role in this. Growing fears that this rise in interest rates will cause a recession have also been a factor. Yet while both factors should be accounted for in REIT valuations, there are plenty of names in the space that have become oversold.
This, plus the benefits of owning REITs during an inflationary period, has created opportunity for investors looking to increase their exposure to the sector. So, what are some of the best REITs to buy this month? Consider these seven. Many of them offer solid dividend yields, but long-term upside potential may be their main appeal.
|Crown Castle International
|City Office REIT
|Gaming and Leisure Properties
|Postal Realty Trust
|Sabra Health Care REIT
|Simon Property Group
Crown Castle International (CCI)
Crown Castle International (NYSE:CCI) is a cell tower REIT. It leases over 40,000 cell towers to U.S. telecommunications companies. Investors have many choices when it comes to cell tower REITs.
In fact, my InvestorPlace colleague Ian Bezek, in a recent article, noted another name, American Tower (NYSE:AMT) alongside CCI stock, as two of the best undervalued REITs out there. AMT stock is also a great choice for investors looking for long-term capital growth, but if you’re looking for income from your REIT portfolio, CCI may be right up your alley.
At current prices, Crown Castle has a forward dividend yield of 3.63%. It has also raised its dividend eight years in a row. Annual dividend growth over the past five years has averaged 8.97%. Down 19% so far this year, you may want to take advantage, and enter a position.
City Office REIT (CIO)
City Office REIT (NYSE:CIO), is a name I discussed earlier this year. At the time, I recommended keeping an eye on it, as the market selloff could make it more of a bargain. Flash forward a few months, and that moment may have arrived.
CIO stock is down nearly a third. So, why is it one of the REITs to buy now? The impact of higher interest rates is more than accounted for in its valuation. It currently trades at a price-to-fund-from-operations (P/FFO) ratio of 7.62x. P/FFO is the equivalent of price-to-earnings (P/E) for REITs.
Peers like Franklin Street Properties (NYSEAMERICAN:FSP), trade at a P/FFO ratio of around 10.3x. This comes despite forecasts calling for City Office to see FFO growth this year. Besides a low valuation, CIO has a forward dividend yield of 6.76%.
Farmland Partners (FPI)
Farmland Partners (NYSE:FPI), as its name suggests, owns farmland. In contrast to the REITs discussed above and below, it’s actually up for the year. Soaring inflation, and the global food shortage, has pushed it up 15% year-to-date.
Fortunately, it’s not too late to stake a claim, and add FPI stock to your portfolio. Now, if you’re focused on portfolio income, it may not excite you too much. The stock currently has a forward dividend yield of 1.65%.
But if you’re looking for long-term capital growth, it’s definitely one to consider. As a Seeking Alpha commentator recently discussed, FPI currently trades at around its net asset value. If you’re looking for exposure to rising farmland prices, you don’t have to worry about paying a high premium to do so. Also, other catalysts (such as the use of acreage for renewable energy) could also help move the needle.
Gaming and Leisure Properties (GLPI)
Another specialty REIT, Gaming and Leisure Properties (NASDAQ:GLPI) leases real property to casino operators. Buying a REIT with exposure to such a cyclical industry may not seem ideal at this stage of the economic cycle, yet taking a closer look, the current economic environment may not be a reason to stay away.
For starters, whether “the house” wins or loses, it has to pay its rent. That is, an economic downturn may hurt casino profitability, but GLPI’s earnings could stay stable. This casino REIT also has most of its portfolio in regional gaming markets. Tenants of such properties could be more resilient in a downturn than Las Vegas resort properties.
Currently, GLPI stock sports a forward yield of 6.04%. Expected to grow FFO by 6.3% over the next year, it may have room to raise this payout. Consider it a buy, now or on any further weakness.
Postal Realty Trust (PSTL)
Looking for a REIT with a steady tenant? Postal Realty Trust (NYSE:PSTL) may be a great choice. Owning more than 1,000 properties leased to the United States Postal Service (USPS), this REIT has carved a niche in an admittedly prosaic segment of the real estate industry.
Sure, it’s not as exciting as owning shares in a casino landlord, but don’t let that cloud your judgment. PSTL stock stands to produce steady returns. Not only from its dividend (6.41% forward yield). Unlike some other niche real estate segments, for instance self-storage, this is an area that has seen far less consolidation. It’s still able to acquire more properties at attractive valuations.
This will enable it to continue growing FFO. In turn, this should increase the price of PSTL shares. Hit hard by the REIT selloff, tumbling 24% since January, this month may be a great time to buy it.
Sabra Healthcare REIT (SBRA)
Sabra Healthcare REIT (NASDAQ:SBRA) owns skill nursing and senior housing communities. With its operating performance severely affected by the pandemic, it has struggled to make a full recovery. Its struggles notwithstanding, this may be another one of the REITs to buy this month.
Yes, it makes sense why it has a forward dividend yield of 8.68%. There is a lot of uncertainty over whether it maintains this rate of payout. Yet as one analyst (Mizuho’s Vikram Malhotra) recently argued, in an upgrade of SBRA stock, occupancy rates are slowly improving.
This could steadily increase the chance its payout stays as-is. A clearing up of this uncertainty could help the stock continue to climb to higher prices. Consider it an opportunity to consider, if you have a high risk appetite. Otherwise, you may want to stick with some of the other REITs to buy that I’ve detailed above and below.
Simon Property Group (SPG)
Simon Property Group (NYSE:SPG) may seem like another odd choice among REITs to buy. After all, investors may be most bearish about shopping mall REITs. Mainly, because their tenant base (bricks-and-mortar retailers) has been hit hard by soaring inflation.
A recession, of course, could make things worse. Store closures and retailer bankruptcies could result in increased vacancies at Simon’s portfolio of shopping malls. With this in mind, why buy it? Dropping nearly 40% so far in 2022, these risks and uncertainties may be more than accounted for in the SPG stock price.
Right now, SPG trades at a P/FFO ratio of just 8.2x. When you account for the higher quality of its properties relative to peers, this valuation may be too low. Couple that with a high dividend yield at current prices (7.04%), and buying it today could prove to be a profitable move hindsight.
On the date of publication, Thomas Niel 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.