The housing market and real estate stocks have understandably had a grueling 2020. According to the Urban Land Institute survey in May, economists predicted a $275 billion drop in real estate transaction volumes this year. Additionally, the Real Estate Select Sector SPDR Fund (NYSEARCA:XLRE) declined by 5.8% since the start of 2020, while the S&P 500 rose 4.7%.
However, at the same time, a sizeable number of economists believe that the novel coronavirus recession will be less severe in real estate markets compared to the 2008 financial crisis. Moreover, they predict volumes to rise substantially over the next two years.
“While the top-line economic impact of Covid-19 will be much worse than the global financial crisis, U.S. real estate market fundamentals and values will fare much better,’ stated William Maher, a key member of the Urban Land Institute. Therefore, the medium and short term will prove to be challenging for the industry.
With that being said, there is a lot of room for specific types of real estate to do well. For example, logistics real estate, medical office buildings, and those providing online colocation space are doing well. Additionally, shopping centers and restaurants will be opening up, and demand should rise accordingly.
Here are three real estate stocks that would perform the best in such conditions.
Real Estate Stocks to Buy: Kimco Realty Corp. (KIM)
Kimco is a real investment trust (REIT) that owns and invests in shopping centers across the U.S. and Puerto Rico. Supermarket chains control these properties. KIM stock currently has an impressive forward price-earnings ratio of 25.6 and is up 3% in the last month.
The company recently reported its blowout second-quarter results where net income improved by 637.9%. The significant chunk of this growth was driven by a $715.5 million gain in the company’s Albertsons Companies (NYSE:ACI) investment. The third-quarter outlook looks promising as well with the steady rise in foot traffic at malls. Additionally, rent collections improved by 85% in August from 82% in the previous month.
Moreover, the company announced a quarterly dividend of 10 cents per share on the back of the improvements in its bottom-line results. “We expect to establish a more normalized and well-covered dividend level based on our adjusted funds from operations and REIT taxable income in 2021,” Chief Executive Conor Flynn said.
The five-year dividend growth rate for Kimco is roughly 55% higher than its peers.
Alexandria Real Estate Equities (ARE)
Alexandria Real Estate Equities is a REIT that holds properties specifically in the life science sphere. It leases property research institutions, biotech companies, personal care companies, pharmaceutical companies and related agencies. ARE stock has had a healthy three-month return of 2.3%.
The company’s second-quarter results blew away analyst estimates. Earnings per share was at $1.82 per share, while analysts estimated 53 cents per share. Net income grew by a whopping 179.4% on the back of 16.9% revenue growth. Rental revenues came in 20% than the prior-year period with almost a 70% EBITDA margin. Rent collections were above 99.5%. Additionally, the company has an impressive liquidity balance of $3.7 billion.
Alexandria also announced a quarterly dividend of $1.06 per share for the third quarter, representing a growth of 6% year-over-year. The company’s five-year dividend growth rate is roughly 73% higher than its peers.
Prologis is a company that primarily owns and invests in logistics properties in more than 19 countries. It essentially leases facilities for companies falling in either the business to the business category or retail/online fulfillment. PLD stock is generating a healthy 3-month return of 8%.
With the e-commerce industry experiencing tailwinds amid lockdown restrictions, the company witnessed a 60.2% increase in revenues to $1.27 billion year-over-year. Adjusted funds from operations improved 38.5% to $822 million from the prior-year period. Moreover, the adjusted EBITDA grew almost 35% to $1.11 billion.
The company has also had a solid dividend history, paying a dividend for the last seven years. It has a strong dividend yield of roughly 2.3%, paying an annual dividend of $2.32. Despite the coronavirus-led market slowdown, dividends grew 9.2% from early March.
On the date of publication, Muslim Farooque did not have (either directly or indirectly) any positions in the securities mentioned in this article.