If you invested in a real estate investment trust (REIT) in 2022, you know it’s been a wild ride.
While many REITs performed better than the S&P 500, many also experienced double-digit and, in some cases, as high as 50% declines over 2021 performance though performing steadily throughout the year.
The hope is that the Federal Reserve will have successfully raised interest rates enough to corral inflation, and REITs, especially those in the residential space, are hoping to capitalize on continued demand properties in cities that still lack inventory, meaning rent prices could continue to climb.
Heading into 2023, there is hope for REITs that have found a niche in residential housing and a mix of self-storage, medical, manufactured housing and cell tower operators.
REITs investment analysts have highlighted as potential investment targets in 2023 include:
Global Medical REIT Inc.
Seeking Alphas’ Jussi Askola:
Though dropping by 40% year-to-date, Global Medical REIT Inc.’s GMRE business has performed well even as its share price collapsed. Askola believes the crash is unjustified and as a result has become deeply undervalued. Priced at a large discount to fair value, it offers a margin of safety that should limit the downside. It also offers significant upside potential in a future recovery. Its share price could rise by over 50%, and its valuation would still be reasonable.
Equity Residential
Zacks Investment Research:
Based in Chicago, Equity Residential EQR is one of the leading, publicly-traded multifamily REITs in the U.S. It is well-positioned to benefit from its portfolio rebalancing efforts and a strong balance sheet. Equity Residential’s efforts to diversify its portfolio in the urban and suburban markets with an affluent tenant base bode well.
Its strategic buyouts and focus on technology and organizational capabilities to drive innovation and efficiency of its operating platform act as tailwinds. Estimates have been revised marginally upward over the past two months to $3.53, though the company’s shares have declined 12.3% so far in the fourth quarter.
Public Storage
Kiplinger.com:
Self-storage REITs are one of the world's most recession-resistant segments. While other real estate suffered 25% to 67% net losses during the Great Recession, the self-storage segment grew profits by 5%. Public Storage PSA, the self-storage behemoth, is the market leader and has top market shares in 14 of the 15-largest U.S. markets and more than twice as many locations as its next-largest competitor.
Since 2019, Public Storage has expanded its portfolio by 23% and made over $7.4 billion of new investments. While dividend growth has been a lower priority than portfolio expansion and debt reduction, the REIT recently rewarded its investors with a $13.15 per share special dividend. With operating cash flow exceeding $2.4 billion so far this year, total liquidity exceeding $1 billion and payout from funds from operations (FFO) currently at 52%, Public Storage has plenty of dry powder to support dividend growth.
Sun Communities Inc.
Kiplinger and Zacks:
America's leading owner/operator of manufactured housing, recreational vehicle (RV) parks and marinas, Michigan-based Sun Communities Inc.’s SUI existing portfolio is made up of 352 manufactured housing communities, 179 RV parks and 131 marinas. Additionally, the REIT boasts a strong development pipeline consisting of 9,000 manufactured housing sites and 7,000 RV sites. Sun Communities' portfolio occupancy levels are 97.1% in North America and 91.7% in the U.K., where it owns 55 RV holiday parks. It benefits from compelling supply-demand fundamentals for manufactured housing. Sun Communities received approximately 43,000 applications for sites in its housing communities this year.
Over the past decade, Sun Communities has generated 9.2% core FFO per share growth, significantly outperforming the major REIT and broad-market indexes. Dividend growth has averaged 5.5% annually over five years, and the payout is exceptionally conservative for a REIT at 47% of FFO.
American Tower Corp.
Kiplinger.com:
Boston-based American Tower Corp. AMT owns and operates wireless and broadcast communications infrastructure in several countries. It was ranked 375th on the Fortune 500 in 2022. This REIT's dividends have increased 20% annually since 2012, and analysts forecast 18% annual growth through 2025. American Tower’s dividend is well-covered, with an FFO payout of around 64%. Over the past decade, American Tower has generated robust gains in revenues of up 14.2% annually, adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) of up 14.1% per year and adjusted FFO per share, rising 13.8% annually.
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