Most people would agree that 2022 has been a brutal year for real estate investment trusts (REITs). Inflation and the resulting interest rate hikes by the Federal Reserve are two major causes. Since March 17, 2022, the Federal Reserve has raised interest rates six times for a total of 3.75 basis points.
Most REITs are underwater since the first Fed hike, some as much as 30% to 40% despite recent strengthening in the sector. But not all REITs have fared poorly. Some of them have performed quite well during that time and have shown above-average relative strength.
Here’s a look at three REITs that have produced the best total returns versus the rest of the sector in the period from March 17 through Nov. 10, 2022. (Note: only REITs with stock prices of $12 or higher were selected for this analysis).
Getty Realty Corp. GTY is a Jericho, New York-based retail REIT that specializes in owning, leasing and financing 1,021 freestanding auto-related properties across 38 states and Washington, D.C.
About 73% of Getty Realty’s properties are gas stations and convenience stores, 12% are car washes, 11% are automotive repair shops, with the remainder being auto service and auto parts stores. Presently, it has 99.6% of its properties occupied.
Q3 revenue was $41.97 million, up from $40.10 million in Q2 of 2022. Funds from operations (FFO) was $0.54, up four cents from the previous year’s third quarter and topped estimates by four cents as well.
Getty Realty has gained 18.69% since the first Fed rate hike. In addition, dividends paid of $1.23 have boosted its total return to 21.76%.
VICI Properties Inc. VICI is a New York-based experiential REIT that specializes in owning and operating gaming, hospitality and entertainment properties. Its triple-net portfolio includes well-known Las Vegas hotels like Caesars Palace, MGM Grand and the Venetian Resort. In total, Vici Properties’ portfolio consists of 43 gaming facilities, with 58,700 hotel rooms and over 450 restaurants, bars and nightclubs.
During the 2022 rate hikes, VICI Properties has gained 19.53%. It has paid $1.11 in dividends as well for a total return of 21.29%. One main reason that VICI Properties has been able to perform well during a rising interest rate period is because over 40% of its leases have lease escalators for inflation.
Q3 operating results were also good, with total revenue increasing by 100% over the previous year’s same quarter. FFO for the quarter was $0.49, up a penny from Q3, 2021. VICI Properties also raised its previous annual FFO guidance from a range of $1.89 to $1.92 to $1.91 to $1.92.
Tanger Factory Outlet Centers Inc. SKT is Greensboro, North Carolina retail REIT that specializes in open-air outlet malls. Tanger Factory Outlet Centers owns or has part ownership of 37 outlet malls across 20 states and Canada, housing over 600 companies in more than 2,700 stores.
While most retail REITs have not performed well during this time of rising interest rates, Tanger Factory Outlet Centers has bucked the trend, rising 15.18%. It has also paid out $0.62 per share in dividends since that time for a total return of 18.86%.
One of the reasons for its performance was vastly improved operating results from the previous year. Tanger Factory Outlet Centers recently released its third quarter results. Net income of $0.22 per share doubled last year’s Q3 results of $0.11. FFO was $0.47 per share, compared to $0.16 per share for Q3 2021. The forward annual FFO of $1.80 easily covers the current $0.88 dividend per year for a payout ratio of 48.8%.
While these REITs have fared well, for now, that could easily change in the next quarter. Since stocks are traded every day, there’s always a chance your portfolio could take a massive dip in just 24 hours. However, if you’d like to explore passive real estate investments that are not subject to volatility, check out Benzinga's real estate offering screener.
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