2023-11-11 07:00:00 ET
Summary
- One reader asked me to write an article on where to invest $10,000 in REITs right now and keep the share price between $10 and $20.
- So, here's my reply, with an article on five REITs trading under $20 per share.
- The importance of diversification and personal preferences in constructing a stock portfolio is emphasized.
I’ve been on a “where to invest” kick lately, writing about where I’d put different amounts of money provided:
- I had it specifically set aside for real estate investment trusts, or REITs.
- I already had a proper spread of investments elsewhere.
That’s how Nov. 6's article, “ Where to Invest $100,000 in REITs Right Now ” came about. As the summary reads:
The article provides a list of six REITs to invest $100,000 in, including:
- Realty Income ( O )
- VICI Properties ( VICI )
- Rexford Industrial Realty ( REXR )
- American Tower ( AMT )
- Mid-America Apartment Communities ( MAA )
- Alexandria Real Estate ( ARE )
- Each REIT is described in detail, including its portfolio, financial performance, and growth potential.
- I emphasize the importance of diversification and personal preferences in constructing a stock portfolio.
It was pretty good, if I do say so myself, garnering a total of 41 likes and 61 comments, one of them being from this reader:
“I liked today’s article. I’m wondering if, in the future, you could do a similar article on where to invest $10,000 in REITs right now and keep the share price between $10 and $20? I’m pretty sure there’s other people out there who want to develop a diversified portfolio but can’t afford the share price of stocks like Mid-America Apartments or Prologis.
“Thanks so much.”
I told him I would get right on that, and so I am.
But First a Word on Proper Diversification. Again.
That is to say I’m getting right on that after this disclosure…
I wouldn’t recommend purchasing a company just because the price drops below a certain level, especially if you’re looking to diversify.
Which you should.
Diversification is exceptionally important.
I’ve said it before – including in the article that inspired this one, as evidenced by its summary points – but I’m going to risk boring you all to pieces by mentioning it all over again.
Maybe it will make a difference if I put at least a bit of it in Wells Fargo’s words instead of mine this time.
“Heard the adage about not putting (all your) eggs into one basket? The same concept applies to managing your investments. Diversification essentially means allocating your investment dollars strategically among different assets and asset categories to help manage risk. Here are three ways to do it.”
Those three ways begin with spreading your risk:
“If you invested all of your money into one company’s stock and it plunged, you’d lose some if not all your money.
If you put all of your money into a single bond and the issuer declared bankruptcy, you’d lose some if not all your funds, too.
Diversification helps mitigate the risk to you about such scenarios by choosing different investments and types of investments.”
Wise words, but so is its added note of caution that “diversification doesn’t guarantee investment returns or eliminate risk of loss including in a declining market.”
There’s more to appropriately applying it that you need to know.
Diversification Matters – Points 2 and 3
The article also mentions the need to “diversify across asset classes.”
I already touched on this when I mentioned the two provisions to my “where to invest” premise.
The second one, if you remember, is having “a proper spread of investments elsewhere” along with the REITs you want to buy. Because the same issue applies here as with the previous point. Just like a single stock or bond can dive far too easily, a single asset class can do the same.
Sometimes, the entire market goes up or down.
But there are plenty of times when one sector will wildly outperform or underperform.
Take the dot.com crash, which saw tech stocks fall flat on their digital faces. Or the housing market crash that left real estate stocks struggling to build back up.
Anyone fully invested in either when those bubbles burst lost everything. Trust me. I was all-in on commercial real estate in 2008.
It took a whole lot of work to dig myself out of the resulting financial pit. That and proper diversification – a feat that includes one more step, which Wells Fargo sums up as making sure to “diversify within asset classes.”
You don’t just want to own one asset in multiple asset classes.
You want to own multiple assets in multiple asset classes.
Which is why, in case readers don’t have the money to do that, I’m also including a bonus ETF at the end of this article.
ETFs exist as one-stop shopping in a set investing category, and there’s a real estate-specific one I’m thinking of right now.
But first, here are your $10-$20 REITs you asked for. Stay safe out there!
Armada Hoffler Properties ( AHH )
Armada Hoffler is a diversified real estate investment trust (“REIT”) that specializes in the development, construction, and ownership of institutional-grade real estate that is primarily located in the Mid-Atlantic and Southeastern regions of the United States.
AHH’s portfolio consists of multiple property types including grocery-anchored shopping centers, office buildings, and apartments. In addition to developing commercial properties for its own portfolio, Armada Hoffler also provides construction services for select third-party clients and has been ranked among “The Top 50” Retail Contractors by Shopping Center World.
Armada Hoffler holds a commercial portfolio which includes retail centers and office properties as well as a multifamily portfolio that consists of residential real estate.
Within its commercial portfolio, AHH has 38 stabilized retail properties covering 3.9 million net rentable square feet with an average occupancy of 98.1% and 10 stabilized office properties covering 2.3 million net rentable square feet with an average occupancy of 96.1%.
Within its multifamily portfolio AHH owns or has an ownership interest in 11 stabilized multifamily properties that contain 2,492 units and has an average occupancy rate of 96.0%.
Armada Hoffler released its third quarter operating results on Nov. 2 and reported total revenues during the quarter of $166.0 million, compared to $126.3 million in the third quarter of 2022. Funds from operations (“FFO”) during the quarter came in at $27.6 million, or $0.31 per share, compared to $22.7 million, or $0.26 per share during the same period in 2022.
Normalized FFO was reported at $27.7 million, or $0.31 per share, compared to Normalized FFO of $22.7 million, or $0.26 per share during the third quarter of 2022.
When compared to 3Q-22, AHH’s retail same store net operating income (“NOI”) increased 6.4% on a cash basis, their office same store NOI increased by 8.1% on a cash basis, and their multifamily same store NOI increased by 2.2% on a cash basis.
AHH also provided updated debt metrics including a net debt plus preferred to adjusted EBITDA of 8.1x and a fixed charge coverage ratio of 2.2x. Their debt is 62.4% fixed rate and 52.4% unsecured with a weighted average interest rate of 4.2% and a weighted average term to maturity of 4.2 years.
Since 2014 Armada Hoffler has had a blended average adjusted funds from operations (“AFFO”) growth rate of 4.16% and a compound dividend growth rate of 6.75%. The company steadily increased its dividend from 2014 to 2019, but then cut it by -47.62% in 2020, likely due to the pandemic.
The following year AHH raised the dividend by 45.45% and then increased it by 12.50% in 2022.
The company pays a 7.56% dividend yield that is well covered with a 2022 year-end AFFO payout ratio of 73.47% and the stock is currently trading at a P/AFFO of 10.53x, which is a significant discount to their average AFFO multiple of 15.02x.
We rate Armada Hoffler Properties a Strong Buy.
Highwoods Properties ( HIW )
Highwoods is a Sunbelt-focused office REIT that specializes in the development, acquisition, and ownership of office properties which are primarily located in the best business districts (“BBDs”) of Raleigh, Richmond, Atlanta, Charlotte, Nashville, Dallas, Orlando and Tampa.
As a percentage of their net operating income, HIW’s largest market is Raleigh at 22%, followed by Nashville and Atlanta at 21% and 16%, respectively. While Highwoods has a small portion of their portfolio located outside of the Sunbelt, the vast majority of their properties are located in the Sunbelt, which enables HIW to generate 95% of its NOI from the Sunbelt region of the country.
In 2022 HIW increased its Sunbelt exposure when it entered the Dallas market through several joint ventures with Granite Properties and currently receives 6% of its NOI from Dallas.
As of their most recent update, Highwoods’ portfolio of office properties totals 28.5 million square feet with a weighted average age of roughly 20 years, an in-service occupancy rate of 88.7%, and a weighted average lease term of approximately six years.
In addition to their in-service properties, HIW has an additional 1.6 million square feet in their development pipeline that is 25% pre-leased as of the end of the third quarter.
On Oct. 24 HIW released its third quarter operating results and reported rental and other revenues at $207.1 million, compared to $207.0 million in the third quarter of 2022. Funds from operations during the quarter came in at $99.8 million, or $0.93 per share, compared to FFO of $111.6 million, or $1.04 per share for the same period in 2022.
During the third quarter HIW leased 655,000 square feet, which includes 152,000 square feet of new leases, at a dollar-weighted average term of 5.4 years. Their second generation leasing activity delivered GAAP rent growth of approximately 10% and cash rent growth of negative -1.2%.
In the earnings release HIW provided an update on its financial position with a debt to adjusted EBITDAre ratio of 6.0x and disclosed there were no consolidated debt maturities prior to the fourth quarter of 2025.
Over the past decade Highwoods has had an average AFFO growth rate of 2.05% and a compound dividend growth rate of 1.64%. While the dividend growth has been modest, it should be noted that they did not cut the dividend during the pandemic in 2020.
Currently the stock pays a 10.68% dividend yield that's well covered with a 2022 year-end AFFO payout ratio of 76.74% and trades at a P/AFFO of 7.81x, which is a massive discount to their 10-year average AFFO multiple of 21.69x.
We rate Highwoods Properties a Strong Buy.
NETSTREIT Corp ( NTST )
NETSTREIT is an internally managed REIT that invests in single-tenant commercial properties that are net-leased to leading retail tenants. NTST’s net-lease portfolio consists of 547 properties covering approximately 10.0 million square feet across 45 states within the U.S.
The properties are leased to 85 tenants operating in 26 separate retail sectors with a portfolio occupancy of 100% and a weighted average lease term of 9.3 years. NTST receives 68.6% of its annualized base rent (“ABR”) from investment-grade tenants which include prominent names such as CVS Health, Home Depot, and Walgreens.
Eight out of their top 10 tenants are investment-grade rated while the remaining two tenants have an investment-grade profile. NTST has a high amount of concentration in their top three tenants.
As a percentage of ABR, their top tenant CVS makes up 8.2%, followed by Dollar General and Walgreens which make up 8.2% and 7.5%, respectively.
NTST targets retail tenants that operate in industries which are resistant to e-commerce such as necessity-based retailers, discount retailers, and retailers that provides services.
As a percentage of ABR, their top industry is drug stores and pharmacies, followed by grocery stores, dollar stores, home improvement, and convenience stores. In total, 87.0% of their ABR is derived from necessity, discount, or service retailers.
On Oct. 25 NETSTREIT released third quarter operating results and reported total revenues during the quarter of $34.0 million, compared to total revenues of $25.0 million in the third quarter of 2022.
Core FFO was reported at $21.2 million, or $0.31 per share, compared to Core FFO of $14.5 million, or $0.28 per share for the same period in 2022. AFFO came in at $21.4 million, or $0.31 per share, compared to AFFO of $15.4 million, or $0.30 per share in the third quarter of 2022.
NTST provided an update on their financial health with a net debt adjusted for outstanding forward equity to adjusted EBITDAre of 4.2x and approximately $564.6 million of total pro forma liquidity as of Sept. 30, 2023.
The debt is 93% fixed rate with a weighted average interest rate of 3.57% and a weighted average term to maturity of 4.2 years. Additionally, NTST has no debt maturities until 2027 which gives them a lot of flexibility in the current interest rate environment.
NETSTREIT is a relatively new company as it was formed in 2019 and started publicly trading in late 2020 so we don’t have much history to go on. Since the beginning of 2021, NTST has delivered a blended average AFFO growth rate of 13.42%.
Analysts expect growth to moderate in the coming years with AFFO growth projected at 5% in 2023, and then 2% and 4% in the years 2024 and 2025, respectively.
NTST pays a 5.36% dividend yield that is well covered with a 2022 year-end AFFO payout ratio of 68.97% and currently trades at a P/AFFO of 12.68x, compared to their normal AFFO multiple of 22.80x.
We rate NETSTREIT Corp a Strong Buy
Healthpeak Properties ( PEAK )
Healthpeak Properties is a REIT that develops, acquires, owns, and leases healthcare-related real estate across the United States.
PEAK’s focus is on investing in a portfolio of healthcare properties across three core asset classes including life science / laboratories, outpatient medical facilities, and continuing care retirement communities (“CCRC”).
Including developments and redevelopments, PEAK’s portfolio consists of 146 lab facilities which makes up $157.3 million, or 50.6% of their portfolio income, 295 outpatient medical facilities which makes up $114.0 million, or 36.7% of their portfolio income, while CCRC assets makes up $29.0 million, or 9.3% of their portfolio income.
On Oct. 30, 2023, Healthpeak Properties ((PEAK)) and Physicians Realty Trust ( DOC ) announced that the two companies would combine in an all-stock merger valued at approximately $21.0 billion.
Under the merger agreement, each common share of DOC will be converted into 0.674 of newly issued PEAK shares.
The all-stock merger is expected to close in the first half of 2024 and is expected to increase PEAK’s property count from 475 to 753, their outpatient medical square footage from 24 million to 40 million, and their lab square footage is expected to remain the same at 12 million square feet.
Additionally, the combined company is expected have a outpatient medical occupancy of 92%, a lab occupancy of 98%, and $1.7 billion in annualized base rent.
Healthpeak recently released its third quarter operating results and reported total revenues during the quarter of $556.2 million, compared to $520.4 million of total revenues in the third quarter of 2022.
Nareit FFO was reported at $252.6 million, or $0.46 per share, compared to $227.4 million, or $0.42 per share for the same period in 2022. AFFO during the third quarter came in at $219.6 million, or $0.40 per share, compared to $195.0 million, or $0.36 per share in the third quarter of 2022.
PEAK - IR
Healthpeak Properties also provided an update on their financial condition with a net debt to adjusted EBITDAre of 5.2x and a fixed charge coverage ratio of 4.8x. Currently, their debt is 94% fixed rate with a weighted average interest rate of 3.83% and a weighted average term to maturity of 5.3 years.
After the merger, the combined company is expected to have a weighted average interest rate of 3.80%, a weighted average term to maturity of 5.3 years, and approximately $3.0 billion in liquidity.
Healthpeak has an investment-grade balance sheet with a Baa1 credit rating from Moody’s and a BBB+ credit rating from S&P Global.
Over the past 10 years PEAK has had a blended average AFFO growth rate of negative -2.42%. The company went through a rough stretch between 2016 and 2021 when their AFFO per share fell each year.
The most significant drop was in 2017, when AFFO went from $2.58 to $1.71 per share, representing a decrease of -34%. However, in the last several years PEAK has delivered positive AFFO growth with an 8% increase in 2022 and an expected increase of 5% in 2023.
PEAK also has had its share of issues with growing or even maintaining its dividend. In 2013 the company paid a dividend of $1.91 per share whereas in 2022 they paid a dividend of $1.20 per share.
Between 2013 and 2015 PEAK raised its dividend each year, but then cut it by -5.69% in 2016, and then by -23.73% the following year. From 2018 to 2020 the company maintained its dividend at $1.48 per share, but then cut it to $1.20 per share in 2021 for a -18.92% dividend cut.
PEAK pays a 7.28% dividend yield that is well covered with a 2022 year-end AFFO payout ratio of 82.76% and trades at a P/AFFO of 10.91x, which is a significant discount compared to their 10-year average AFFO multiple of 17.07x.
We rate Healthpeak Properties a Strong Buy.
Kimco Realty ( KIM )
Kimco Realty is the largest publicly traded REIT in North America that specializes in open-air, grocery-anchored shopping centers. KIM is a S&P 500 company that started trading in 1991, but the company has been engaged in the acquisition, management, and the value-add redevelopment of shopping centers for over 60 years.
Most of Kimco’s shopping centers are located in the first-ring suburbs of the top metro sunbelt and coastal markets and the company has a tenant mix that operates in retail industries which specialize in providing essential and necessity-based goods and services.
KIM owns or has an ownership interest in 527 shopping centers and mixed-use properties that total approximately 90.0 million square feet of gross leasable area (“GLA”). 82% of their annualized base rent is derived from grocery-anchored shopping centers and Kimco ended the third quarter with a operating portfolio occupancy of 95.5%.
In late August Kimco Realty and RPT Realty ( RPT ) announced that the two companies entered into a definitive merger agreement where RPT will be acquired by KIM in an all-stock transaction valued at roughly $2.0 billion.
Under the agreement, RPT shareholders will receive 0.6049 of KIM stock for each RPT share they own and upon closing Kimco shareholders are expected to own 92% of the combined company while RPT shareholders are expected to own 8%.
The transaction is expected to be immediately accretive to Kimco’s FFO and will add 56 open-air shopping centers totaling 13.3 million square feet of GLA to their existing portfolio.
There's high alignment between the two companies’ portfolios and the addition of RPT’s properties will increase Kimco’s scale in several key markets including Boston, Atlanta, Tampa, and Miami. The transaction is expected to close in the beginning of 2024 once approved by RPT shareholders.
On the merger agreement Kimco’s CEO Conor Flynn stated that:
“This transaction presents another exciting opportunity for our Company to deepen our presence in key Coastal and Sun Belt markets, while accelerating our growth at an attractive valuation. Approximately 70% of RPT’s portfolio aligns with our key strategic markets. Furthermore, their substantial pipeline of signed, but not yet open leases and 20% or greater mark-to-market leasing spread across the portfolio, will drive higher growth for the combined company. The transaction is immediately accretive to FFO and the addition of these properties further positions Kimco as the country’s premier owner and operator of open-air, grocery-anchored shopping centers and mixed-use assets.”
On Oct. 26 Kimco released its third quarter operating results and reported total revenues during the quarter of $446.1 million, compared to $433.4 million for the same period in 2022.
Same-property NOI came in at $332.4 million, compared to $324.1 million during the third quarter in 2022. While total revenues and same-property NOI both increased year-over-year, Kimco saw a slight decline in their funds from operations.
FFO during 3Q-23 was reported at $248.6 million, or $0.40 per share, compared to FFO of $254.5 million, or $0.41 per share during 3Q-22. Kimco executed 457 leases covering 2.1 million square feet with pro-rata cash rent spreads up 34.9% on comparable new leases during the third quarter.
Additionally, the company provided several key debt metrics including a net debt to EBITDA on a look-through basis of 5.9x, a debt maturity profile of 8.8 years, and approximately $2.4 billion in available liquidity.
Since 2013 Kimco has had a blended average AFFO growth rate of 2.08% and a compound dividend growth rate of 1.01%. They increased their dividend each year between 2011 and 2018 but ran into trouble with their AFFO payout ratio exceeding 100% in both 2018 and 2019.
As we all know, the pandemic hit the following year which resulted in KIM’s AFFO per share falling by -16% and forced the company to cut its dividend by -26.79% in 2020, and by -17.07% the following year.
On a positive note, KIM increased its dividend by almost 24% in 2022 and currently has a very conservative AFFO payout ratio of 66.67% which should protect its dividend going forward. Currently KIM pays a 5.27% dividend yield and trades at a P/AFFO of 14.87x which compares very favorably to their 10-year average AFFO multiple of 19.12x.
We rate Kimco Realty a Buy.
5 REITs To Buy Under $20 per Share
I hope you enjoyed the article (a follower request) and I look forward to your comments below. Please drop me a note if you have a special request and I'll add it to my research list.
iREIT®
As always, thank you for the opportunity to be of service.
Note: Brad Thomas is a Wall Street writer, which means he's not always right with his predictions or recommendations. Since that also applies to his grammar, please excuse any typos you may find. Also, this article is free: Written and distributed only to assist in research while providing a forum for second-level thinking.
For further details see:
5 REITs To Buy Under $20 Per Share