The prevailing wisdom on Wall Street is that recessions follow massive interest rate hikes, as high-interest rates slow down sales of real estate, automobiles and credit card spending on nonessential retail goods.
What’s more, popular thought is that everyone is shopping online rather than driving to their local stores. So naturally many believe real estate investment trusts (REITs) that specialize in retail outlets could not possibly do well in a recessionary environment.
But some Wall Street analysts are starting to look past the recessionary fears. Take a look at three retail REITs that have recently received the blessings of Wall Street analysts with action upgrades as well as higher price targets.
National Retail Properties Inc. NNN is a net-lease retail REIT that owns a diversified group of 3,349 properties across 48 states. National Retail Properties’ tenant roster includes stable, well-known names like 7-Eleven, Sunoco LP, Best Buy Co, Camping World Holdings, BJ's Wholesale Cluband Chuck E. Cheese.
On its company website, National Retail Properties says it has produced 33 consecutive annual dividend increases. The current annual dividend is $2.20, and yields 4.7%. Forward funds from operations (FFO) of $3.13 cover the dividend with a 70% payout ratio.
In its third-quarter operating results, National Retail Properties stated its properties are 99.4% occupied with a weighted average remaining lease term of 10.4 years. These are excellent numbers and should bode well for investors, even if 2023 brings about a hard recession.
On Jan. 3, Jefferies analyst Linda Tsai upgraded National Retail Properties from Hold to Buy and increased its price target from $43 to $52. This represents a potential 13% upside from its most recent closing price of $46.02.
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Regency Centers Corp. REG is a Jacksonville, Florida-based self-managed retail REIT that acquires, develops and manages shopping centers that are mostly anchored by grocery stores. Its portfolio includes 398 properties with over 8,000 tenants. Its third-quarter occupancy rate was 94.7%.
Regency Centers recently raised its quarterly dividend from $0.625 to $0.65. The $2.60 annual dividend is easily covered by FFO of $4.02 and currently yields 4.1%.
On Dec. 12, Michael Mueller of J.P. Morgan upgraded Regency Centers from Neutral to Overweight, while raising his price target from $70 to $72. This represents a potential upside of 14.5% from its most recent closing price of $62.83. In a research note, Mueller noted his “improved relative view of the strip center group” and that Regency’s leasing has been “broad-based and robust.”
Brixmor Property Group Inc. BRX is a New York-based retail REIT that owns and operates 378 open-air shopping centers housing over 5,000 retailers. Some of its well-known tenants are TJX Companies, The Kroger Co, Publix Super Markets Inc. and Ross Stores.
Brixmor Property Group recently raised its quarterly dividend from $0.24 to $0.26. The annual dividend rate of $1.04 yields 4.6% and is easily covered by FFO of $1.96, for a conservative payout ratio of 53%.
On Dec. 12, Wolfe Research LLC analyst Andrew Rosivach upgraded Brixmor Property Group from Peer Perform to Outperform and announced a $29 price target for year-end 2023. Rosivach noted that the price target assumes that shares trade at roughly 20% discount to FFO coverage and that, combined with the dividend yield, implies a total return of about 31%.
Investors should keep in mind that analysts are not always right, and it’s best to do your own research. It’s interesting that analysts are upgrading certain REITs that have struggled over the past year, perhaps believing that while the worst may not be over, the current share prices have already discounted the potential recessionary headwinds of 2023.
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