Financial advisers routinely tell investors to diversify their portfolios.
It makes sense to diversify because market sectors perform differently during various cycles of the U.S. economy, and investors never know which ones will perform the best at any given time.
The advantage of diversification can also be seen in the subsectors of real estate investment trusts (REITs). Investors can never predict with absolute certainty whether retail, industrial, office, healthcare or residential properties will perform the best. REITs that invest in multiple types of properties often have an advantage over REITs that focus on one area.
Take a look at three REITs over $10 per share that have performed the best in the diversified REIT subsector over the past four weeks:
Global Net Lease Inc. GNL is a New York-based, diversified international commercial property REIT with 311 properties in 11 countries. Its 140 tenants are spread across 50 industries. Its portfolio is 54% industrial/distribution, 42% office and 4% retail.
Global Net Lease was the best-performing diversified REIT over the past four weeks, rising 4.71%. Longer term, its total return is 50.93% since its COVID-19 low in March 2020.
Global Net Lease has paid a quarterly dividend of $0.40 since 2021. Its $1.60 annual dividend presently yields 11.6%, making it a great stock for income investors.
Third-quarter operating results were mixed. Revenue of $92.6 million was down 3.3% year over year and below Wall Street’s view, but funds from operation (FFO) of $0.46 beat analyst estimates and surpassed the $0.43 FFO in the third quarter of 2021. Global Net Lease’s current occupancy rate is 99.9%, and its weighted average lease term is 8.3 years.
On Dec. 21, Global Net Lease announced it acquired three properties for $33.3 million with a weighted-average cap rate of 7.7% and remaining lease terms of 13.6 years. Global Net Lease also has a forward acquisition pipeline of $64.7 million that will close in in the first quarter.
The diversification of this REIT gives it a long-term advantage for income investors seeking a high yield, and its strong lease rate bodes well for it down the road.
WP Carey Inc. WPC is a diversified REIT that owns and net leases 1,428 single-tenant properties in North America and Europe. Its properties are a mix of office, industrial, retail, self-storage and warehouse. It’s now celebrating its 50th anniversary as a REIT.
WP Carey’s occupancy rate at the end of the third quarter was 98.9%. In addition, 99.3% of all its leases have rent escalation clauses, which reduce inflationary expenses. A mix of 391 tenants also adds diversification to offset recessionary fears.
Third-quarter earnings were a mixed bag. Revenue of $383.62 million was 17.76% above revenue of $325.75 in the third quarter of 2021, but FFO of $1.17 was well below FFO of $1.45 in the third quarter of 2021. Last week, WP Carey announced it had achieved $1.42 billion in investment volume for fiscal 2022.
Armada Hoffler Properties Inc. AHH is a vertically integrated, diversified owner and manager of 56 multitenant class A office, mixed-use and Class A multifamily properties throughout high-demand areas of the Mid-Atlantic and Southeastern U.S. The Virginia Beach, Virginia-based company was founded in 1979 by Executive Chairman Daniel Hoffler.
Armada Hoffler Properties was the third-best-performing diversified REIT over the past four weeks, gaining 3.82%.
Third-quarter FFO of $0.29 per share was $0.03 better than $0.26 in the third quarter of 2021. Revenue of $53.74 million was 8.44% above revenue of $49.56 million in the third quarter of 2021.
Forward FFO of $1.19 easily covers the $0.76 dividend with a 63% payout ratio and yields 6.21%.
While four weeks is a fairly short time frame, these REITs could easily continue to prevail over other diversified REITS in a recessionary 2023 climate.
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