Analyzing 3 of the Best REIT Stocks to Buy Now

Capison Pang

The three best REIT stocks to buy now include the owner and operator of the most extensive temperature-controlled warehouse network in the United States, the seventh-largest real estate investment trust (REIT) in the world and an investment fund that has made over $21 billion in acquisitions in 2021 alone.

A REIT does not just invest in real estate but issues shares that can be traded on stock exchanges, similar to index funds. This makes REITs more convenient and liquid for most investors to buy shares.

Most REITs specialize in owning and operating real estate in a specific industry, such as restaurants or hospitals. There are five major REIT categories, each defined by the real estate sector they invest in: retail, residential, health care, office (buildings) and mortgages.

REITs are a must-have for nearly every well-diversified portfolio. Real estate investment trusts have been one of the best performing asset classes historically, especially in the long-term. Over the past 25 years, equity REITs have averaged a total annual return of 12.6% compared to the S&P 500’s 11.9%. The difference becomes even more pronounced over longer investment periods. Over the last 30 years, REITs have outperformed United States stocks 56% of the time. Since 1990, REIT investments held for 19 years or more have outperformed U.S. stocks every year.

REITs also possess high dividend yields. REITs are required by law to pay out at least 90% of their annual net earnings as dividends to stockholders regardless of whether their stock price goes up or down, making them excellent securities for investors seeking consistent income payments.

However, there are more than 225 publicly traded REITs listed on major stock exchanges in the United States alone, making finding the right one challenging and time-consuming. To aid you in your REIT search, we have compiled a list of the three best REIT stocks to buy now.

3 Best REIT Stocks to Buy Now: #3

Realty Income Corp (NYSE:O)

Realty Income Corp (NYSE:O) is a real estate investment trust founded in 1969 and headquartered in San Diego, California. The investment fund boasts a market capitalization (market cap) of $37.3 billion with properties across all 50 states, Puerto Rico, the United Kingdom and Spain. Its real estate investments primarily reside in freestanding, single-tenant, triple-net-leased retail properties but have expanded in recent years to include various industrial, manufacturing, distribution and office properties.

In early fall 2021, Realty Income was already a force in the real estate industry. The investment fund was the second-largest retail REIT in the United States by market capitalization, behind only Simon Property Group (NYSE:SPG). Realty Income boasted a well-diversified portfolio of over 7,000 properties, totaling approximately 125.0 million square feet.

However, Realty Income’s $11 billion merger with VEREIT, which closed on November 1, 2021, has transformed the company into a true industry titan. VEREIT was a commercial REIT with over 3,800 properties across 49 states. The combined entity has become the seventh-largest REIT globally by market cap, with over 10,000 properties under management across the globe.

The 2021 merger with VEREIT is only the latest in Realty Income’s aggressive expansion in recent years, including the company’s expansion into Europe in 2019, and the REIT has shown no signs of slowing down. Realty Income has poured $3.8 billion into new real estate investments in 2021, including $1.6 billion in Q3 alone. Comparatively, Realty has $19.8 billion in total real estate investments on its balance sheet.

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Realty Income has always accomplished above-average returns with annual average sales growth of 16.3% and a 257.4% rate of return over the past 10 years, compared to the REIT (retail) industry average of 0.2% and 84.1%, respectively, over the same period. However, Realty’s merger with VEREIT and recent expansion efforts can double or triple the company’s growth in the coming years.

Analysts project that Realty Income will see a 21.9% growth in revenue in 2021, followed by a 42.8% increase in 2022. The merger is also expected to increase profits significantly. The investment fund, which has averaged 2.4% annual growth in earnings per share (EPS) over the last 10 years, is forecast to experience a 15.2% jump in EPS in 2022. As a result, O has seen its share price surge by 18.0% over the trailing 12 months, depicted below alongside a 50-day moving average.

Chart provided by Stock Rover.

A downside of Realty Income is that the stock’s upside, which has resulted in a Stock Rover growth rating of 95/100 for the company, has caused O to become a relatively pricey investment. O has a (share) price-to-book (P/B) ratio of 2.8 and an enterprise value-to-earnings before interest, taxes, depreciation and amortization (EV/EBITDA) ratio of 30.5. The industry average P/B ratio is 1.5 and 25.6 for the EV/EBITDA ratio. Realty Income’s dividend yield of 4.2% is also only slightly above the industry average of 3.9%.

Realty Income’s high share price is caused by the market’s new perception of the company as more of a growth stock due to Realty’s recent expansion tactics. As with most choices in life, there is a tradeoff. The possibility for higher returns correlates with a higher stock price. However, with over 24 hedge funds holding long positions in O, including the legendary Two Sigma Advisors,Realty’s high upside could be well worth the tradeoff.

A discounted cash flow (DCF) analysis, using Stock Rover, values the stock at $76.75, well above its latest closing price, earning O a “BUY” recommendation from Stock Rover and a place among our three best REIT stocks to buy now.

3 Best REIT Stocks to Buy Now: #2

AmeriCold Realty Trust (NYSE:COLD)

AmeriCold Realty Trust (NYSE:COLD) is an American REIT founded in 1997 and headquartered in Atlanta, Georgia. AmeriCold is the largest owner and operator of temperature-controlled warehouses in the United States. The company derives 85% of its sales from the United States but also possesses investments in Australia, Europe, Asia and South America. AmeriCold has a market cap of $8.4 billion.

Like most REITs, AmeriCold specializes in one industry: supply chain solutions. The company’s portfolio contains 248 warehouses across the globe with a combined storage capacity of 1.5 billion cubic feet. Within the warehouse investment space, AmeriCold has an added focus on cold storage and perishable goods. The company retains several major food retailers and suppliers on its client list, such as Krogers (NYSE:KR), Kraft Heinz (NASDAQ:KHC), Unilever (NYSE:UL) and Sprouts Farmers Market (NASDAQ:SFM).

Unlike the other stocks on this list, COLD has seen its price drop in recent weeks. The decrease in AmeriCold’s share price is mainly contributable to global supply chain disruptions. The company is more susceptible to supply chain disruptions since its primary source of revenue comes from handling perishable products such as food. COLD’s movement over the past year is shown below. The graph also includes a 50-day moving average.

Chart provided by Stock Rover.

The recent decline in stock price makes COLD a great value play for any individual seeking to invest in a stock at a significant discount on its actual value.

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AmeriCold has more than enough capital to keep its operations running with $153 million in cash on the balance sheet, even if shortages continue until 2023. The company has even seen its debt-to-equity ratio decline from 1.0 in Q3 2020 to 0.8 in Q3 2021. Although global supply chain disruptions are a significant short-term issue for a REIT specializing in warehouse investments, food is a necessity, making its demand inelastic. In the long run, revenue and profit will undoubtedly rebound.

However, AmeriCold has an ace in its pocket that will allow the company to grow leaps and bounds in the coming years. The growth of global e-commerce has touched many industries, and real estate is one of them. As traditional brick-and-mortar storefronts become less traveled, one real estate asset has surged in price: warehouses. E-commerce companies require tremendous amounts of space to store the billions of dollars of goods bought from their sites each day. Prologis (NYSE:PLD), the second-largest REIT globally, estimates that the average e-commerce company requires 1.2 million square feet of warehouse space for every $1 billion in revenue.

It was estimated in July 2020 that the United States would likely need an additional one billion square feet of warehouse space by 2025 as e-commerce continues to grow. Even Wall Street is betting on warehouses as private equity giants Blackstone (NYSE:BX) and KKR (NYSE:KKR) recently revealed significant investments in storage spaces across the globe.

Although grocery shopping is not the primary product attributed to e-commerce, online shopping is forecast to account for 9.5% of the U.S. grocery market in 2021. By 2026, more than 20% of all grocery shopping in the United States is projected to be conducted online. With AmeriCold being the largest investor in temperature-controlled warehouses in the United States, the company is expected to profit heavily from the growth in grocery e-commerce.

The company has already encountered some of the expected revenue windfalls. AmeriCold saw its revenue jump by 29.3% over the past year as e-commerce sales spiked during the COVID-19 pandemic. The increase in AmeriCold’s sales is not a one-time event. The company is projected to see its revenue skyrocket by 51.4% in 2021 and climb by an additional 16.2% in 2022.

COLD may have experienced a rough few weeks, but its recent downturn has made it one of the most undervalued REITs in the market and an excellent stock for any value investor.

A discounted cash flow (DCF) analysis, using Stock Rover, values the stock at $38.00, 21.0% higher than its latest closing price of $31.41, earning COLD a “BUY” recommendation from Stock Rover and a place among our three best REIT stocks to buy now.

3 Best REIT Stocks to Buy Now: #1

Vici Properties Inc (NYSE:VICI)

Vici Properties Inc (NYSE:VICI) is a U.S. real estate investment trust headquartered in New York City. The investment fund was spun-off from Caesars Entertainment Corporation in 2017 as part of the company’s bankruptcy proceedings. Vici possesses a market cap of $16.8 billion and specializes in acquiring and operating gaming, leisure, hospitality and entertainment real estate assets between its real property and golf business segments.

Vici Properties currently boasts over 47 million square feet of real estate holdings across 12 states, containing four championship golf courses, approximately 17,800 hotel rooms and over 200 bars, restaurants and nightclubs. Tenants include Caesars Entertainment (NASDAQ:CZR), Penn National Gaming (NASDAQ:PENN), Hard Rock Cafe, Century Casinos (NASDAQ:CNTY and other major entertainment and hospitality companies.

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With an average lease term of 33.0 years and large corporations as its tenants, Vici Properties has maintained 100% occupancy and on-time rent collection throughout the COVID-19 pandemic. The company even saw a 37.0% increase in revenue in 2020, despite the travel and tourism industry experiencing significant disruptions from the pandemic.

Vici has seen an annual average sales growth of 20.3% and a return rate of 54.4% over the last three years. The REIT (diversified) industry average stands at 1.0% and 29.0%, respectively, over the same period.

Vici Properties has capitalized on its strong performance with a spate of recent acquisitions and investments. In March 2021, the company announced a $4.0 billion acquisition of Venetian Resorts Las Vegas and the Sands Expo and Convention Center from Las Vegas Sands Corp. Vici then finalized a $79.5 million mezzanine loan investment in Great Wolf Resorts in July. In a mezzanine loan, the lender has the option to convert the debt into equity. Finally, in early August 2021, Vici publicized a $17.2 billion buyout deal of MGM Growth Properties, a rival REIT with 15 casinos and resorts in its portfolio across eight states.

The $21+ billion worth of deals drastically increases Vici Properties’ real estate portfolio and directly reduces the number of its competitors. Combined with a recovering travel and tourism industry, the recent acquisitions ensure strong growth for Vici for the foreseeable future. Analysts project a 22.5% increase in revenue in 2021 and 20.0% growth in 2022. Comparatively, the REIT (diversified) industry is forecast to experience a sales growth of only 6.0% in 2022 and a 0.6% decline in 2021.

Due to VICI’s strong past and expected future performance, the stock has seen an 8.9% increase in share price over the past year, including an 11.5% increase year-to-date. VICI’s rise over the past 12 months is displayed below, along with a 50-day moving average.

Chart provided by Stock Rover.

Even in an industry known for large dividend payments, Vici stands out for income investors. Vici Properties has a dividend yield of 5.1% compared to the REIT (diversified) industry average of 3.7%. The company has also consistently increased its dividend payments since its 2017 initial public offering (IPO), including by 9.1% in 2021.

Despite its 98/100 growth score and 91/100 quality score from Stock Rover, VICI is relatively cheap. The stock trades at a (share) price-to-earnings (P/E) ratio of 14.5 and an EV/EBITDA ratio of 14.7, both below the industry averages of 26.8 and 18.6, respectively. The company also has a P/B ratio of 1.4, which is in line with the rest of the REIT (diversified) industry.

A stock seldom offers the trifecta of tremendous growth, high dividends and trades at a discount. At best, investors can usually only pick two. However, Vici Properties is one of the few companies that offers prospective investors access to all three.

A discounted cash flow (DCF) analysis, using Stock Rover, values the stock at $36.52, 26.5% higher than its closing price of $26.75 at the time of this write-up, earning VICI a “STRONG BUY” recommendation from Stock Rover and a place among our three best REIT stocks to buy now.

Capison Pang is an editorial intern who writes for www.stockinvestor.com and www.dividendinvestor.com.

 

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