The election may be close to over. But, the novel coronavirus pandemic continues to rage on. What will be the impact on real estate stocks in the coming months?
Earlier this year, when the virus first made headlines, shares across the REIT (real estate investment trust) sector got hammered. In the months since, a few have rebounded. But, many remain near their lows.
And that’s understandable. While industrial/warehouse REITS have thrived in the “new normal,” office building and retail REITS have stayed in the doghouse. However, with Wall Street sentiment for these types of real estate plays still negative, there could be opportunities abound.
How so? Many quality REITS now offer dividend yields that look quite temping in this zero-interest rate environment. As well, with the pandemic’s impact still priced in, there’s opportunity for fast gains if the virus lets up in the coming year.
Finally, REITS offer some degree of diversification for your portfolio. With low correlation to regular stocks, there’s a case to be made REITs, especially as some talk of the S&P 500 index barely beating inflation in the next decade.
So, among real estate stocks, which ones offer great opportunity for both yield and gains? Taking a look at the many names in this sector, these five stand out, for a variety of reasons, which I expand on below:
- AvalonBay Communities (NYSE:AVB)
- Boston Properties (NYSE:BXP)
- Innovative Industrial Properties (NYSE:IIPR)
- Realty Income (NYSE:O)
- WP Carey (NYSE:WPC)
Real Estate Stocks: AvalonBay Communities (AVB)
The pandemic may have affected demand for office and retail space. But, you still need somewhere to live, right? Yet, with urban centers affected by both the virus as well as this summer’s civil unrest, residential REITS like AvalonBay Communities remain hammered from their pre-pandemic highs.
But, while its properties are clustered in areas hit hard by either 2020 headwinds, AVD stock could be a steal at current prices. Right now, this stock offers a dividend yield of 3.86%. Sure, it’s not the fattest dividend out there. But, in a low-interest world, it’s decent yield for a high-quality name.
And, given shares remain nearly 31% below their pre-pandemic prices, there’s big potential for gains, if the problems of 2020 subside as we enter 2021. Sure, we have yet to see a reversal in the failing rents seen in major Avalon markets like New York and Washington, DC.
However, at today’s prices, this headwind may be more than priced into AVB stock. For a decent yield, and the potential for substantial upside, this remains one of the best real estate stocks out there.
Boston Properties (BXP)
Like AvalonBay, Boston Properties is a REIT with high exposure to America’s most affluent metropolitan areas (New York, San Francisco, Washington, D.C.). But, while residential landlords are feeling the pain from falling rents, it pales in comparison to the potential risks in the office building sector. Yet, the specter of a permanent remote workforce may not spell doom for BXP stock.
Why? As this Seeking Alpha commentator noted back in September, the office will remain relevant. There are many aspects to work life that can’t be substituted with a Zoom (NASDAQ:ZM) call. Also, consider the types of businesses that thrive in the cities where Boston Properties owns buildings. The service industries in power centers like New York and Washington depend heavily on developing/maintaining client relationships.
Looking at positives specific to BXP stock, consider the company’s Class A portfolio, as well as its strong balance sheet. Combine it with the REIT’s decent yield (4.42%) and rebound potential (shares remain more than 37% below their 52-week high). Put it all together, and this out of favor real estate play is definitely one to keep an eye on in the near-term.
Innovative Industrial Properties (IIPR)
Granted, Innovative Industrial Properties is a much more speculative REIT than the other names discussed in this gallery. Yet, despite its massive post-election rally, it may still be worthwhile to keep IIPR stock on your watch list.
Why? Don’t let the name fool you. This industrial REIT isn’t a mere owner of warehouses. As InvestorPlace’s Josh Enomoto noted on Oct. 26, this is one of the largest owners of medicinal marijuana-related real estate.
In short, think of this as a conservative play on liberalizing marijuana laws. Sure, we may be many steps away from full-on U.S. federal legalization. But, as trends bode well for the pot space, expect big runway over the long-term with this REIT.
And, while shares have skyrocketed, they still offer a decent yield (3.23%). Tread carefully as pot stocks rip post-election. But, even after the Biden boost, you still enter this name at the ground floor.
Realty Income (O)
Investor sentiment for retail REITs overall may remain low. But, the situation may not be so dire for Realty Income. With major investment grade tenants, and dividend aristocrat status, O stock may be one of the strongest names in this hard-hit segment of the real estate economy.
But, don’t think of Realty Income as a dividend play alone. Sure, sporting a nearly 4.56% yield, paid monthly, this is one of the best stocks out there for income investors. Yet, with shares today (around $65 per share) still far below their pre-coronavirus prices (above $80 per share), there’s still big potential for gains as the recovery continues.
Granted, while most of the REIT’s largest tenants are in industries less affected by the virus, quite a few hard-hit tenants stand out on the list as well. I’m talking about the movie theater and gym chains that are also major tenants of Realty Income properties.
However, much of this risk was captured in the massive share price declines seen earlier this year. Yes, a second wave could send this popular dividend stock back to its 2020 lows ($38 per share). But, whether at today’s prices, or on another major pullback, consider this one of the best of the retail-focused real estate stocks.
WP Carey (WPC)
As our own Ian Cooper wrote back in October, WP Carey is a REIT with a history of offering steady, high-yielding dividends. Unlike the other real estate stocks listed above, WPC stock isn’t a pure-play owner of a particular type of real estate.
Instead, its portfolio is split between industrial, office, and retail properties. Nevertheless, investors continue to price this like its a hard hit retail REIT. As a result, shares yield a fairly high 6.26%.
Yes, shares have partially recovered from their pandemic. Since March, the stock has bounced back from around $39 per share, to prices around $68. But, considering the REIT traded north of $80 per share before the pandemic, there are plenty of additional gains left on the table.
That’s not to say a full rebound in the near-term is guaranteed. A second wave could mean continued troubles for WPC stock, given its large office and retail exposure. But, with its strong track record, keep this name near the top of your REIT shopping list.
On the date of publication, Thomas Niel did not (either directly or indirectly) hold any positions in the securities mentioned in this article.
Thomas Niel, a contributor to InvestorPlace, has written single stock analysis since 2016.