Real estate investment trusts, or REITs, manage, own, or operate income-producing real estate. These trusts typically own various residential and commercial properties, including hotels, apartments, warehouses, and others.
The primary appeal of REITs is their track record of consistently paying large dividends that increase over time. REITs are often more liquid than traditional stocks as well. The best REITS are those who have high dividend yields and healthy stock price appreciation.
“Real estate is an incredibly interesting investment vehicle and few investment advisors seriously consider it in the portfolio of their advisees (even though it makes up the largest asset in the portfolio of most investors),” wrote Thomas Ruchti, assistant professor of accounting at Carnegie Mellon University, in an email to InvestorPlace.
“However, real estate in the form of residential or commercial property, owned outright, leads to substantial risks in terms of location, business, and liquidity,” he said. “REITs fill a role by providing passive exposure to this asset class, especially for less sophisticated investors.”
The novel coronavirus slowed down the progress in the sector. Commercial real estates, in particular, have been marred by the effects of the pandemic. The S&P 500, with year-to-date gains of 15.3%, dramatically outperformed the Real Estate Sector SPDR, which generated a loss of 1% in the same period. Ruchti pointed out that due to the danger of defaults, REITS may be best suited for more seasoned investors.
It you feel confident wading into this area of the market, several REITS provide consistent returns and somehow weathered the storm. Let’s look at three such stocks.
- Kimco Realty Corp (NYSE:KIM)
- Brandywine Realty Trust (NYSE:BDN)
- Brookfield Property Partners (NYSE:BPY)
Best REITs to Buy: Kimco Realty Corp (KIM)
Kimco Realty is among the largest shopping center REITs globally, owning roughly 400 properties in growing markets. The company’s management is thinning out properties in the secondary markets, focusing on the growing populations. It generates 85% of its average base rent from its core markets, reaching 6.3 million in the next five years.
Covid-19 has weighed down Kimco stock. It remains one of the best dividend stocks in the sector.
Kimco recently reported its third-quarter results, which were heavily impacted by the pandemic. The quarter’s net loss was at $44.7 million compared to the $59 million it made in the same quarter last year.
One of the more impressive aspects of the quarter was its rent collection, which averaged at 89%. Additionally, it ended the quarter with a massive liquidity balance of $2.3 billion. Its current yield is at an impressive 6.6% and a payout ratio of 34.6% in terms of its dividend performance.
Brandywine Realty Trust (BDN)
Brandywine Realty Trust is a REIT that owns high-rise office buildings specifically in Philadelphia and Austin, Texas. It specializes in specific core areas and has a diverse tenant base.
It has done relatively well compared to its competition in tackling the global pandemic’s effects. BDN stock has taken a beating this year, but its dividend yield of over 7% is what makes it attractive.
Third-quarter results were impressive, considering the impact of Covid-19 on the industry. Net income came in significantly higher at $274.4 million than the $6.7 million it made in the prior-year period. The massive increase in net income was attributable to a $271.9 million net gain from a joint venture with Commercial Square.
Tenant retention ratio remained strong at 60%, and cash-based collections were at 99.5%. Moreover, it has $600 million in its undrawn credit facility, along with $62 million in cash. Furthermore, the company’s dividend position remains stable, with a 54.2% payout ratio and a five-year growth rate of approximately 5%.
Brookfield Property Partners (BPY)
Brookfield Property Partners is a REIT that owns more than 170 premier office retail properties in 43 states. One of the critical elements of the company’s strategy is capital and asset recycling. It involves purchasing properties at favorable valuations and selling them at their targeted internal rate of return. Covid-19 has negatively impacted the company’s progress, but BPY stock’s six-month return relative to the S&P 500 is at an incredible 67%.
The New York office landlord had a torrid third quarter, with a $135 million net loss, from an $870 million profit in the same period last year. Funds from operations were down to $161 million from $324 million in the prior-year period. Results were impacted by the pandemic’s economic slowdown, leading to a drop in mall revenues, fee income, and an increase in credit losses.
One of the positives for the company in the third quarter was its liquidity, which rose to $6 billion through effective debt management efforts.
Though the company did not provide an outlook for the upcoming quarter or the full year, CEO Brian Kingston believes that” the worst of the economic shutdown is now behind us.” BPY stock boasts an 8.3% dividend yield, one of the best in the sector, with a 5.7% growth in the past five years.
On the date of publication, Muslim Farooque did not have (either directly or indirectly) any positions in the securities mentioned in this article.
