Real estate is one of the most important sectors of our economy. Despite the worrying health and economic effects of the pandemic, U.S. housing data has been exceptionally strong in the second half of the year. Meanwhile, since November, commercial real estate stocks have been buoyed by optimistic vaccine news. Therefore, today’s article will introduce three real estate stocks and real estate investment trusts (REITs) that can rebound in 2021.
According to the monthly NAHB/Wells Fargo Housing Market Index (HMI), the past month has shown a robust reading in the residential real estate sector. Another bright spot has been specialized REITs. They typically give access to data centers, which have benefited from increased use of technology in 2020, or cell towers, which have benefited from the current 5G rollout.
However, commercial real estate, which includes properties like office, retail or warehouse space as well as hotels and entertainment venues, has been suffering. Closures as a result of the pandemic have meant loss of business and income.
Meanwhile, interest rates are at record lows, which encourages passive-income-seeking investors to consider real estate stocks and REITs for long-term portfolios. Nonetheless, returns from these stocks and REITs have not been uniform so far in the year.
For example, the Dow Jones US Real Estate Investment & Services Index is up around 18% year-to-date (YTD). On the other hand, the Real Estate Select Sector SPDR ETF (NYSEARCA:XLRE), an exchange-traded fund (ETF) that is widely followed, is down about 5% YTD. Many investors now wonder if the sector can show better performance in 2021.
Let’s now take a closer look at three real estate stocks and REITs:
Real Estate Stocks and REITs: Schwab US REIT ETF (SCHH)
Current price: $37.74
52-week range: $26.31 – $48.62
Distribution yield (as of Nov. 30): 3.06%
Expense ratio: 0.07%, or $7 annually on a $10,000 investment
Our first choice for today is an exchange-traded fund, namely the Schwab US REIT ETF. The fund provides access to a range of domestic REITs. It started trading in January 2011, and net assets are around $4.6 billion.
SCHH, which has 148 holdings, tracks the Dow Jones Equity All REIT Capped Index. In terms of sectors, specialized, residential, industrial, retail, health care, office, as well as hotel and resort REITs are held in the fund. The top 10 holdings constitute more than 40% of the funds.
American Tower (NYSE:AMT), Prologis (NYSE:PLD), Crown Castle International (NYSE:CCI), Equinix (NASDAQ:EQIX) and Digital Realty Trust (NYSE:DLR) lead the names in the fund. YTD, the ETF is down about 18%. Those investors who are looking for passive income and wanting to be bullish on REITs should keep the fund on their radar.
Store Capital (STOR)
Current price: $33.51
52-week range: $13.00 – $40.11
Dividend yield: 4.34%
Scottsdale, Arizona-based Store Capital is a net-lease real estate investment trust. Net-lease REITs “focus on leasing properties to single tenants under net leases wherein the tenants are responsible for the payment of most, if not all, operating expenses including property taxes, insurance and maintenance.”
“Store” stands for single tenant operational real estate properties. The company focuses on retail, manufacturing and industrial sectors of the economy. Some of its customers include restaurants, early childhood education centers, movie theaters, health clubs and furniture stores.
In early November, Store Capital released Q3 metrics. Total revenues were $175.2 million, an increase of 2% year-over-year. Net income was $54.6 million, compared to $111.6 million for the sastorme quarter in 2019. This net income represented diluted earnings per share (EPS) of 21 cents, compared to 48 cents a year ago.
CEO Christopher Volk said, “Our third quarter performance reflects the strength of our investment strategy, with a highly diverse net lease contract portfolio backed by well-positioned, strong regional and national tenants … [W]e were proud to raise our dividend by 2.9%, while accelerating our investment activity, which we expect to carry into 2021.”
Potential investors may be interested to know that Warren Buffett is an investor in STOR stock. YTD, the shares are down about 10%. Forward price-to-earnings (P/E) and price-to-sales (P/S) ratios are 39.68 and 11.55, respectively. A potential decline toward $30 or below would improve the margin of safety for long-term investors.
WP Carey (WPC)
Current price: $71.05
52-week range: $38.62 – $88.99
YTD % change: -11.23%
Dividend yield: 5.9%
Our final real estate stock for the day is a diversified real estate investment trust (REIT). WP Carey owns and manages commercial real estate both in the U.S. and Europe, primarily net leased to companies on a long-term basis. Thus, a given tenant is typically responsible for paying the costs associated with operating and maintaining the property.
In late October, WP Carey announced Q3 results. Revenues were $302.4 million, down 4.9% from $318 million in 2019. Over a third of the revenues came from Europe. Net income was $149.4 million, representing an EPS of 85 cents per diluted share.
CEO Jason Fox said, “Our third quarter results reflect the consistently high rent collections our portfolio has generated since the start of the pandemic, including a 98% collection rate for the period. I’m also pleased to say that after a pause in deal flow due to the pandemic we’ve resumed external investment activity … The strength of our collections and balance sheet ensure we’re well positioned amid renewed uncertainty over the course of the pandemic.”
WP Carey’s asset base includes industrial, warehouse, office, retail and self-storage properties. InvestorPlace readers may be interested to know that the company has increased its dividend annually since it went public in 1998.
On the date of publication, Tezcan Gecgil did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Tezcan Gecgil has worked in investment management for over two decades in the U.S. and U.K. In addition to formal higher education in the field, she has also completed all 3 levels of the Chartered Market Technician (CMT) examination. Her passion is for options trading based on technical analysis of fundamentally strong companies. She especially enjoys setting up weekly covered calls for income generation.