Redditor Says REITs Will Boom Over The Next Year, Is He Right?

A Redditor named Jeffbak recently posted that after a few difficult years, the time has finally come for real estate investment trusts (REITs) to boom over the next year.

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The writer provides several reasons for his prediction, including:

• The delta, or spread in yield, between REITs and the 10-year Treasury bonds, is widening. This makes REITs more attractive to private investors and pension funds seeking greater income. In 2023, when interest rates on treasuries shot up to 5%, Wall Street dumped REITs because investors could get the same yield with zero risk by buying treasuries. With the 10-year treasury at 3.883%, those 5% REITs have become much more attractive.
• Upcoming interest rate cuts will help improve REIT funds from operations (FFO) because REITs can refinance existing properties less expensively or acquire new properties at lower rates than over the past two years.
•  If a recession causes a market slowdown, REITs provide safety and value because they have already suffered since 2022. 

Another factor the Redditor did not mention is that while REIT share prices are lower than a few years ago, many have increased quarterly dividends over the last few years. Thus, many REITs pay higher dividend yields today than before the pandemic, and inflation has created multiyear headwinds for the sector.

Ok, great, as the Redditor points out, REITs are set to boom, but which ones should be purchased? How does an investor know which will perform the best over the long term? Here are a few tips to find the crème de la crème of the 192 REITs identified by the National Association of Real Estate Investment Trusts on its All REIT Index: 

• Look for REITs with a strong dividend growth record of at least three to five years. Also, give a checkmark to REITs that never cut the dividend during the pandemic.
• Look for niche REITs that own what few others own.
• Look for REITs with strong revenue and FFO growth.
• Look for REITs with payout ratios below 80% (annual dividend/forward FFO).
• Look for REITs equal to or below peers in Price/FFO ratio.
• Look for REITs that are performance leaders within each subsector.
• Look for REITs that are acquiring rather than dumping properties.

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Some examples of historically well-performing REITs are:

Realty Income

Realty Income Corp. O is a diversified REIT with over 15,450 properties in all 50 states and seven other countries. It pays a monthly dividend and has increased its dividend for 107 consecutive quarters. Therefore, Realty Income is extremely popular with those at or near retirement age.

Lamar Advertising

Lamar Advertising Co. LAMR is a specialty REIT. It is one of only two REITs that own and operate outdoor advertising displays. Lamar now has over 363,000 advertising displays across the U.S. and Canada. Its shares have increased from $30 to $119 over the past 10 years, and its dividend yield is 4.36%.

Iron Mountain 

Iron Mountain Inc. IRM is an industrial REIT that once stored company paperwork but has since gone digital, storing data for firms in over 60 countries. Iron Mountain owns data centers, warehouse and fulfillment centers and storage facilities. Iron Mountain has had an incredible history of appreciation for decades. During the 2020 COVID market crash, Iron Mountain's share price fell to about $17. Since then, over four and a half years, it has exploded and recently traded above $108.

SL Green Realty 

SL Green Realty Corp. SLG is the largest commercial landlord in New York City, with interests in 55 of the most prestigious city properties that attract the best tenants and get the best rents per square footage. SL Green had a few off years as the work-from-home movement and interest rates increased but has since been returning. After touching a low below $17 per share in early 2023, this stalwart office REIT bounced back and recently traded near $63.50.

Four Corners Property Trust

Four Corners Property Trust Inc. FCPT is a retail REIT that began in 2015 as a spinoff from Darden Restaurants Inc. DRI with 418 casual dining restaurants. In only nine years, it has expanded to own 1,132 properties with 154 brands across 47 states and has diversified into fast food restaurants, auto service outlets, and medical and dental centers. Its 99.6% occupancy rate is about 4% higher than the average retail REIT.

Innovative Industrial Properties

Innovative Industrial Properties Inc. IIPR is the leading provider of real estate capital for the regulated cannabis industry and an industrial REIT specializing in owning and leasing properties to cannabis companies. Innovative owns 108 properties across 19 states. The share price has risen from $20 per share to $118 in only seven years, yet Innovative still sports a lucrative 6.44% dividend yield.

Many other REITs besides the ones listed above will likely perform well over time. Investors should do their due diligence. For those seeking an index of REITs, rather than purchasing individual issues, one can purchase the Vanguard Real Estate Index Fund ETF VNQ, an index comprised of many of the best REITs and other real estate-related stocks.

Better Yields Than Some REITs?

The current high-interest-rate environment has created an incredible opportunity for income-seeking investors to earn massive yields, but not through REITs.

Arrived Homes, the Jeff Bezos-backed investment platform has launched its Private Credit Fund, which provides access to a pool of short-term loans backed by residential real estate with a target 7% to 9% net annual yield paid to investors monthly. It paid 8.1% in July. The best part? Unlike other private credit funds, this one has a minimum investment of only $100. 

As long-term rates go down and short-term rates stay high, there’s a unique chance to invest in fix & flip loans before yields drop. Check out Benzinga's favorite high-yield offerings.