With more signs emerging that interest rate hikes are about to ease (then possibly move lower), you may be thinking now’s the time to jump back into real estate investment trusts, or REITs. The question, then, is what are the best REITs to buy?
REITs have been hammered during the rising rate environment of the past year, but many remain richly-priced. Others sell at low valuation, yet have property-type and/or REIT-specific issues that make them unappealing as investments.
However, amid the hundreds of REITs available for sale in the public markets, there are a few standouts that hit the sweet spot. That is, these REITs offer high, sustainable yields. In addition, due to low valuations, and/or growth catalysts, they have strong potential to appreciate in value.
That’s the story here with these seven best REITs. A mix of small and large names from across the REIT investing universe, for income and growth, consider adding these real estate stocks to your portfolio this month.
|IIPR||Innovative Industrial Properties||$72.75|
|NSA||National Storage Affiliates||$42.84|
|OFC||Corporate Office Properties Trust||$23.64|
|PSTL||Postal Realty Trust||$15.14|
|SPG||Simon Property Group||$109.77|
Innovative Industrial Properties (IIPR)
Innovative Industrial Properties (NYSE:IIPR) may sound at first like a run-of-the-mill warehouse owner, but there’s a reason why the word “innovative” is in this REIT’s corporate name. IIPR leases specialized properties to state-licensed cannabis growers.
IIPR stock was a high-flier when both cannabis plays and REITs were in vogue. Yet with the change in sentiment for both types of stocks, IIPR has been hammered to significantly lower prices. However, IIPR’s price/funds from operations (P/FFO) ratio of 9.7-times may now more-than-reflect the impact of higher interest rates, not to mention concerns like a declining rent collection rate.
As seen in its latest investor presentation, this REIT continues to add new properties and diversify its tenant base. This, in time, could play a role in mitigating this risk. With a forward dividend yield of 9.9%, which is approaching the double-digits, investors should consider buying IIPR stock for both value and yield.
LTC Properties (LTC)
LTC Properties (NYSE:LTC) owns a portfolio of senior housing and skilled nursing facility (or SNF) properties. During 2022, as it became apparent that the REIT’s pandemic-related headwinds were behind it, and occupancy rates were again rising, shares appeared set on making a few recovery back to pre-2020 prices. However, LTC stock has since pulled back in more recent months.
Still, while LTC stock keeps struggling, there’s something else that could spark a major comeback, and a move to even higher prices. As InvestorPlace’s Ian Bezek recently argued, this REIT benefits from a major demographic change. That would be the baby boomer generation’s full move into Medicare/retirement age, coupled with rising longevity.
This stands to drive continued strong demand for LTC’s properties. With this in mind, LTC (which currently yields 6.7%) may be one of the best REITs to buy now, as a holding for this decade and the next.
National Storage Affiliates (NSA)
If recession worries have you worried, self-storage REITs are a great choice. Self-storage is generally regarded as a more recession-proof area of commercial real estate. Within the sector, National Storage Affiliates (NYSE:NSA) stands out as a strong choice.
That’s mostly because NSA stock is cheaper, and offers a higher dividend yield, relative to comparable REITs. Whereas large, well-known competitor Public Storage (NYSE:PSA) trades at a P/FFO ratio of 18.5-times, and has a forward dividend yield of 3.9%, NSA trades at a P/FFO ratio of 15.1-tiomes, and has a forward dividend yield of 5.1%.
Also, National Storage Affiliates has a strong track record of dividend growth. This REIT has raised its dividend seven years in a row, and the payout has grown by an average of 15.3% annually over the past five years. For value, yield, and dividend growth to boot, consider NSA stock.
Corporate Office Properties Trust (OFC)
You don’t have to look far to find headlines that are bearish about the commercial office property market. As such, you may at first be skeptical that Corporate Office Properties Trust (NYSE:OFC) is one of the best REITs to buy right now.
However, while the name may initially scare you off, taking a look at the details, you may quickly discover that OFC stock may be able to ride out the current office space downturn. That would be this REIT’s focus on leasing space to the U.S. Government and defense contractors.
This steady tenant base, coupled with the growing push to bring federal employees back into the office, bodes well for OFC. While OFC’s dividend yield (4.82%) isn’t super-high, its valuation (P/FFO of 10-times) is too low, given its greater resiliency potential than other office REITs. Erroneously bid lower alongside more vulnerable REITs, seize the opportunity with OFC stock.
Postal Realty Trust (PSTL)
After looking at OFC, let’s dive into another REIT collecting rent checks from Uncle Sam. Postal Realty Trust (NYSE:PSTL), as its name suggests, owns a portfolio of properties leased out to the United States Postal Service.
Right off the bat, PSTL stock comes across as a “boring” investment that could pay off handsomely over time. This REIT’s shares have a forward dividend yield of 6.3%. That’s not all. Dividend and share price growth could arrive over time. Why? As I have argued previously, Postal Realty Trust has one big factor in its corner: there’s yet to be a big consolidation wave with postal properties.
Given it’s the sole publicly-traded REIT in this space, Postal Realty Trust has a greater opportunity to continue what it does best – make accretive acquisitions of postal properties, providing investors with large payouts. Consider it time to start collecting mailbox money (figuratively and literally) with PSTL stock.
Sachem Capital (SACH)
There are plenty of high-yielding mortgage REITs out there, but Sachem Capital (NYSE:SACH) is one that stands out as one of the best REITs to buy. Mostly, because unlike your standard mortgage REIT, Sachem focuses on a niche area of the space: short-term “hard money” loans to real estate investors for acquisition/renovation projects.
Thus far, this focus has enabled this REIT to continue reporting strong results, even in a challenging environment for real estate lenders. This resiliency may continue. In turn, enabling SACH to keep its dividend payout at or near present levels.
Also, alongside strong potential for continued double-digit yields, shares may have the potential to make big gains. Assuming that Sachem rides out today’s uncertainty, when the bull market returns, shares may be able to close the gap between book value ($5.30 per share) and trading price ($3.70 per share).
Simon Property Group (SPG)
Like with office building REITs, investors are also very pessimistic about shopping mall REITs. This is a big reason why you can scoop up Simon Property Group (NYSE:SPG) today at a relatively low valuation.
SPG stock currently trades at a P/FFO ratio of 9.2-times, and has a forward yield of 6.6%. The investing public may be pessimistic about this mall REIT’s prospects, but dig a little deeper, and you’ll find justification to go against the grain. As a Seeking Alpha commentator recently argued, Simon Property Group continues to perform well, and its dividend (payout ratio under 60%) is sustainable.
Furthermore, SPG is making the right moves to stay thriving and profitable. Besides owning a portfolio largely of Class A malls in economically robust locations, this mall REIT is also modernizing its properties, by adding more outdoor areas and mixed use space.
On the date of publication, Thomas Niel did not hold (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.