Real-estate investment trusts are enjoying a solid start to 2021, despite a rise in interest rates, as investors favor industries that stand to benefit from a reopening of the economy.
The Vanguard Real Estate exchange-traded fund (ticker: VNQ) is up 7% so far in 2021 to around $91, ahead of the S&P 500’s 5% advance after lagging behind the index during 2020.
Economically sensitive REITs like malls, hotels, and shopping strips have been standouts this year, while the more defensive parts of the sector, like warehouses and data centers, have trailed—a reversal of the situation last year.
Even with the sector’s gains, REITs offer attractive yields, averaging about 3.5%, against 1.5% for the S&P 500.
Barron’s identified a half-dozen midsize REITs, all members of the S&P Mid-Cap 400 index, with yields of 4% or more that could advance as the economy strengthens in 2021.
They are: Spirit Realty Capital (SRC), National Retail Properties (NNN), Macerich (MAC), Weingarten Realty (WRI), American Campus Communities (ACC), and Brixmor Property Group (BRX).
American Campus Communities is the leading provider of high-end student housing on and near college campuses around the country. The company made it through the pandemic sustaining only a moderate hit on its revenue and profitability. The company should get a boost if university life returns to normal in the fall.
Its attractive portfolio—spacious apartments and amenities like gyms and pools in some areas — contrasts with often decrepit college dorms dating to the 1960s or earlier and sometimes rundown off-campus student housing. Its shares, at a recent $44, trade for about 22 times projected 2021 funds from operations, or FFO, an important REIT financial measure. They yield 4.3%.
The REIT Stuff
Here are six real-estate investment trusts, all members of the S&P Mid-Cap 400 index, with yields of 4% or more that could advance as the economy strengthens in 2021.
*Based on funds from operations. E=Estimate.
Sources: Bloomberg; FactSet
Brixmor is one of the largest operators of strip malls, with most anchored by grocery stores. With tenants catering to “essential needs,” Brixmor could be insulated from the trend toward online shopping. Its shares, at around $21, trade for 13 times projected 2021 FFO and yield 4.1%.
Brixmor is favored by Piper Sandler analyst Alexander Goldfarb, who recently wrote that he likes the shopping center group, including Brixmor and rival Kimco Realty (KIM).
“Not only is retail trading at similar or lower multiples (15.5 times [Piper Sandler’s estimate for 20222 earning] than other sectors like coastal apartments (23.5 times) or office (14.6 times), which are trying to recover, but retail has effectively had no new supply in over a decade, while seeing demand growing. That’s a math equation we like,” Goldfarb wrote.
Macerich, a leading mall operator, was hit hard in 2020, but it has rebounded along with mall traffic.
The company is favored by Smead Value fund manager Bill Smead, who likes the quality of its mall locations and sees it as a comeback story “as reopening will trigger people to want to do things which they couldn’t do prior to herd immunity or a vaccination,” he wrote to shareholders.
One negative is Macerich’s sizable debt load. The company’s shares, at around $13, trade for just six times projected 2021 FFO and yield 4.5%. The dividend looks more sustainable after it was cut 80% in 2020.
Weingarten, a grocery-anchored strip center company operating mainly in the Sun Belt, lifted its quarterly dividend 67%, to 30 cents a share, in February in a sign of confidence after a tough 2020 when FFO per share fell more than 20%.
The company said it was “very optimistic” about the business on its fourth-quarter conference call. Its shares, around $27, trade for about 16 times projected 2021 FFO and yield 4.4%.
Spirit Realty is a leading triple-net-lease REIT. It has a large base of retailer tenants, led by Life Time Fitness, Church’s Chicken, and BJ’s Wholesale. The company’s FFO is expected to rise 8% this year after falling 19% in 2020. Management highlights a solid balance sheet and investment-grade debt ratings. The shares, at around $43, trade for 14 times projected 2021 FFO and yield 5.8%.
National Retail Properties rents free-standing properties to retailers including convenience stores, restaurants, and automotive service providers.
It boasts 31 straight years of annual dividend increases, one of the longest streaks in the REIT industry. Its shares have generated higher returns than the benchmark NAREIT REIT index and the S&P 500 over the past 25 years. At a recent industry conference, management highlighted the company’s steady cash flows and strong balance sheet.
The company’s FFO per share is seen rising 2% in 2021 after falling 6% in 2020, according to FactSet. The stock, at around $44, trades for around 17 times projected 2021 FFO and yields 4.7%.
Write to Andrew Bary at [email protected]
