Online real estate platform Zillow (NASDAQ:ZM) recently shook up the industry when it announced its departure from the iBuying business. Sizeable losses had built up in its home-flipping business, so the company shut it down. However, Zillow’s other business segments, such as mortgages and media, haven’t made much money either. Nevertheless, the Zillow debacle shouldn’t deter investors from betting on other top real estate stocks.
The housing supply had already been low before Covid-19 engulfed the world. However, the lockdowns and resultant raw material shortages have significantly increased real estate prices. Hence, these stocks have performed well in the past year and continue to outpace the S&P 500’s returns.
Let’s look at seven of the best real estate stocks that are doing incredibly well and have massive upside potential:
- Duke Realty (NYSE:DRE)
- CyrusOne (NASDAQ:CONE)
- Opendoor (NASDAQ:OPEN)
- Prologis (NYSE:PLD)
- Realty Income Corp (NYSE:O)
- Kimco Realty (NYSE:KIM)
- Simon Property Group (NYSE:SPG)
Real Estate Stocks: Duke Realty (DRE)
Duke Realty is an Indiana-based industrial real estate investment trust (REIT) focusing on the logistics markets. It is among the top players in the distribution space and has been one of the best performers in the sector.
For the past three years, its average funds from operations (FFO) have grown considerably and comfortably exceeded the sector average.
Duke recently announced its third-quarter results, where revenues improved 7% on a year-over-year (YOY) basis to $280 million. It generated a healthy FFO of 46 cents per share, up six cents from the same period last year.
The pandemic tailwinds have significantly increased e-commerce activity, which has created high demand for industrial warehouses and distribution centers. The trend is likely to continue in the post-pandemic world, leading to robust sales growth.
Moreover, Duke Realty boasts a colossal $1.4 billion development pipeline which positions DRE stock for strong growth ahead.
CyrusOne is a Texas-based REIT that specializes in the provision of carrier-neutral data center properties. It currently owns more than 50 data centers globally and continues to build new ones for customers.
Additionally, CONE stock offers an attractive dividend yield of more than 2.5%. It also boasts a substantial cash flow base.
CyrusOne has had an incredible track record of producing industry-leading FFOs. In the third quarter, its normalized FFO per share came in at $1.02, which was three cents higher than consensus estimates.
Additionally, its adjusted EBITDA of $149.2 million grew 13% from the prior-year period. CyrusOne also raised its guidance for full-year revenue, FFOs and operating profit by a considerable margin in its second-quarter earnings call.
On top of that, it has robust financial flexibility with a $2.15 billion liquidity balance as of Sept. 30.
Real Estate Stocks: Opendoor (OPEN)
Zillow’s plan to shut down its home-flipping business now makes Opendoor the undisputed king in the iBuying space.
In contrast to Zillow, Opendoor’s iBuying technology is more responsive and dynamic. It’s also based on a richer dataset compared to its competitors. With its top-of-the-line management team, Opendoor has done exceedingly well to improve its margins and revenues.
Opendoor recently reported its second-quarter results. The company’s sales rose 59% to $1.2 billion on a sequential basis. Moreover, it ended the quarter with contracts valued at $3 billion.
Looking ahead, analysts expect the company’s 2022 revenue growth rate to be more than 80%. That should narrow down its losses significantly. Additionally, OPEN stock has performed well over the past year, but still trades at less than two times forward sales.
Prologis is among the top three REITs operating in the U.S. in terms of market capitalization. The firm is involved in the acquisition and management of logistics and industrial assets.
Its portfolio is comprised of a mammoth 4,675 properties covering close to one billion square feet. Over the years, Prologis has been an excellent performer, boasting healthy dividend yields and FFO growth.
The industrial asset class has been a major beneficiary of the pandemic-led disruption. This is why the firm witnessed double-digit growth in its top-line across each of the four quarters last year.
In its most recent quarter this year, its core FFO rose to $1.04, a 15.5% increase on a YOY basis. Additionally, its adjusted EBITDA in its third-quarter increased to $1.1 billion from $980 million in the prior-year period.
Looking ahead, its next few quarters will continue to exhibit the strength of its fundamentals and should send PLD stock to new heights.
Real Estate Stocks: Realty Income Corp (O)
Realty Income is a blue-chip REIT with stakes in more than 7,000 commercial properties across the United States and the United Kingdom.
Not only does it have a pristine balance sheet, but O stock has also grown at a compound annual rate of more than 15% since listing in 1994. On top of that, it has increased its dividends for 24 years with a payout ratio of more than 80%.
Realty Income has recovered in the past couple of quarters after a relatively sluggish 2020. In the third quarter this year, it generated $491.9 million in revenue, a 21.6% improvement from the previous year. Its third-quarter adjusted FFO of 91 cents was in line with expectations.
Looking ahead, Realty Income forecasts its 2022 adjusted FFO per share to increase by 9.2%. Its recent merger with Vereit will unlock a lot of value for the firm, giving access to a better cost of capital.
Kimco Realty (KIM)
Earlier this year, Kimco Realty was already among the top shopping center REITs in the U.S. with more than 350 properties in its portfolio. However, after its merger with Weingarten, it is now the biggest shopping center REIT with an enormous portfolio of 559 properties.
KIM stock hasn’t performed particularly well over the years. But now with a more diversified portfolio, it is likely to flip the script.
In the third quarter, its FFO of 32 cents came in well ahead of last year’s FFO of 25 cents. Revenue shot up an impressive 41.9% to $368.6 million with a marked increase in portfolio occupancy at 94.1%.
Looking ahead, the Weingarten acquisition is likely to pay a lot of dividends for Kimco, providing it with an expanded reach and access to younger demographics.
Real Estate Stocks: Simon Property Group (SPG)
Simon Property Group is one of the most well-known REITs in America with a massive commercial and retail properties portfolio. The Indiana-based firm is currently the leading shopping mall REIT in America.
Naturally, the pandemic impacted its results significantly. But Simon Property Group is now back to its winning ways with a couple of solid quarters.
In its third quarter, it posted sales of $1.3 million, rising 21.7% from the prior-year period. Moreover, its FFO of $3.13 per share came in 52.7% higher than last year’s figure.
On top of that, Simon Property Group witnessed a whopping 330% increase in net income per share. SPG stock also has a solid dividend profile with a 4% yield and a $6.60 annual payout. Hence, SPG stock is the cream of the crop as far as real estate stocks are concerned.
On the date of publication, Muslim Farooque did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Muslim Farooque is a keen investor and an optimist at heart. A life-long gamer and tech enthusiast, he has a particular affinity for analyzing technology stocks. Muslim holds a bachelor’s of science degree in applied accounting from Oxford Brookes University.