As we approach to end of 2023, commercial real estate continues to make headlines, with concerns shifting from cost of finance, in current environment of interest hikes, to concerns around availability of credit for real estate during the time of banking crisis in the US, and with concerns around, mainly, the US office sector. Now, despite those difficulties, global REITs are largely unchanged, again exhibiting that a lot of repricing which was needed in real estate took place very quickly in listed REIT market over course of 2022. Real estate investment trusts are the companies which invest in both commercial and residential income-generating real estate. Such companies focus on distributing at least 90.0% of their taxable income to shareholders. As the result, income-hungry investors are always on the hunt for top REIT stocks.
Over the previous 5 years, industry expanded significantly because of increasing property values and higher investment by institutional investors in the recent years. The US industrial real estate sector, while exhibiting hints regarding normalization after extraordinary demand spike at the time of pandemic, has been depicting healthy fundamentals. Industrial real estate sector has been normalizing after 2 years of strong demand supporting cumulative rent growth of 30% or higher. Net absorption for 2Q measuring 44.9 million square feet (msf) exhibits a decline from heights of the prior year. However, it is still in line with stable and healthy pre-pandemic absorption levels. Top REIT stocks were able to outpace sectoral growth in 1H23 as a result of strong market demand and favourable liquidity profile of the companies.
With this in mind, we will now have a look at top REIT stocks investors should consider buying.
1. Ventas, Inc.
Ventas owns diversified healthcare portfolio of ~1,200 in-place properties which are spread throughout senior housing, medical office, hospital, life science, and skilled nursing/post-acute care.
The company has released results for 2Q ended June 30, 2023 and it saw broad-based organic property growth throughout its diverse portfolio. Net income attributable to common stockholders per share came in at $0.26, with normalized funds from operations per share of $0.75. Its long-term success was supported by the company’s scale, strong liquidity and access to multiple sources of attractive capital.
During 2Q, the company sold ~24% of successful investment in Ardent OpCo for the consideration of $50 million in total cash proceeds. Valuation on partial sale exhibits more than 4x equity multiple versus its original investment basis.
Total company net operating income (NOI) grew by 7.9% year-over-year. Same-Store Cash NOI year-over-year growth came at 7.0%. The company’s long-term success continues to be supported by scale, strong liquidity and access to several sources of attractive capital. YTD, its active capital markets activities have totalled ~$2.4 billion, which was used to refinance 2023 and 2024 maturing debt and improve floating rate debt exposure to ~10% of the company’s total consolidated debt, while increasing its liquidity at June 30, 2023 to more than $2.7 billion.
It has given attributable net income per share range of $0.20 – $0.34 for FY23. In FY23, the company expects normalized per share FFO of between $2.90 – $3.04.
2. Public Storage
Public Storage has been categorised as largest owner of self-storage facilities in the US with over 2,800 self-storage facilities across 39 states and ~200 million square feet of rentable space.
The company has announced operating results for the 3 and 6 months ended June 30, 2023, with net income allocable to common shareholders coming at $3.00 per diluted share.
For 3 months ended June 30, 2023, net income allocable to the company’s common shareholders came at $528.3 million in comparison to $603.4 million or $3.42 per diluted common share for same period in 2022, exhibiting a rise of $75.1 million or $0.42 per diluted common share. Decline was because of a $102.8 million fall in foreign currency exchange gains mainly associated with its Euro denominated notes payable and $39.0 million decline in equity in earnings of unconsolidated real estate entities because of the sale of its equity investment in PSB in July 2022, partially offset by the $63.1 million rise in self-storage net operating income.
The $63.1 million rise which was seen self-storage net operating income in 3 months ended June 30, 2023 in comparison to same period in 2022 was because of $41.4 million rise attributable to the same store facilities and $21.7 million rise attributable to the company’s non-same store facilities.
During 3 months ended June 30, 2023, it has closed acquisition of 11 self-storage facilities (7 in South Carolina and 1 each in Florida, Massachusetts, North Carolina, and Virginia), equating to 0.9 million net rentable square feet for the consideration of $144.0 million.
Same store revenue growth for FY23 is expected in the range of 3.25%-5% and net operating income growth is anticipated between 2.20%-5.10%.
3. Simon Property Group, Inc.
Simon Property Group has been categorised as second-largest real estate investment trust in the United States.
In 2Q23, the company saw net income attributable to common stockholders of $486.3 million, or $1.49 per diluted share, in comparison to $496.7 million, or $1.51 per diluted share in 2022. Construction continues on redevelopment and expansion projects at the properties which are situated in North America, Europe and Asia. In April, the company opened new shopping destination in Paris-Giverny, France.
The company estimates net income to be in between $6.39 – $6.49 per diluted share and FFO to be between $11.85 to $11.95 per diluted share for the year ending December 31, 2023. FFO per diluted share range exhibits a rise from $11.80 – $11.95 per diluted share range which was provided on May 2, 2023, or a rise of $0.02 per diluted share at mid-point.
Investing in top REIT stocks provide increased dividends plus potential for moderate, long-term capital appreciation. Long-term total returns of REIT stocks are generally similar to those of value stocks and more than the returns which are provided by lower risk bonds. Top REIT stocks can provide investors benefits of real estate investment and ease and advantages of making investment in publicly traded stock.