12 Best Real Estate Stocks To Buy Now

Published on September 28, 2022 at 9:13 am by Aima Zaheer in Hedge Funds, News

In this article, we discuss the 12 best real estate stocks to buy now. If you want to skip our discussion on the real estate sector, go directly to 5 Best Real Estate Stocks To Buy Now.

The high level of inflation and increasing benchmark interest rates have raised investor concerns over the possibility of a recession in the near future. Under these circumstances, investors are looking for safe investment opportunities that can guarantee healthy returns accompanied by low risk. This is where real estate stocks come into the limelight. Post the recovery from the financial crisis of 2008, the real estate sector has recovered well and has observed continuous growth in the past few years. After a disappointing performance in 2020, returns in international closed-end real estate funds improved significantly. For the first three quarters of 2021, the combined net internal rate of return (IRR) for real estate funds was 12.2%, which was a substantial increase over the 0.1% return in 2020 and the strongest performance since 2016. Long-term returns on investments in real estate have been extraordinarily constant. Every year from 2009 to 2018, real estate funds have generated a cumulative net IRR between 9.3% and 13.0%. Real estate funds currently have a median net IRR of 10.7%.

Investors looking for strong dividend yields to combat the impact of raging inflation look towards the real estate sector with a special focus on the real estate investment trust (REIT) industry. These entities distribute the majority of their taxable income to investors to obtain beneficial tax status. Unlike the IT and retail sectors, the real estate sector is less cyclical and provides investors an opportunity to diversify their portfolios. It must be noted that during the stagflation of the 1970s, the real estate sector was the top-performing sector. Investors were able to benefit from the depressed real estate prices and earn through dividends and capital appreciation.

On September 14, CNBC’s Mad Money’s host Jim Cramer also suggested gaining exposure in the real estate sector. He highlighted that the retail sector is struggling due to high inflation and rising interest rates. However, the real estate owners of these retail companies are doing well. Mr. Cramer believes that although the economic conditions are tough, the landlords should not be worried as leading retail corporations are unlikely to go bankrupt or skip on their rental payments. Real estate stocks such as CBRE Group, Inc. (NYSE:CBRE), American Tower Corporation (NYSE:AMT), and Equinix, Inc. (NASDAQ:EQIX) are among the notable stocks attracting hedge fund investment currently.

Our Methodology

We have looked at the business fundamentals and the growth outlook of these companies. The analyst ratings have been discussed to understand the overall market sentiment. We have ranked these stocks in terms of the number of hedge funds having a stake in them as of Q2 2022.

12 Best Real Estate Stocks to Buy Now

12. Tanger Factory Outlet Centers, Inc. (NYSE:SKT)

Number of Hedge Fund Holders: 14

Tanger Factory Outlet Centers, Inc. (NYSE:SKT) is a Greensboro, North Carolina-based operator of outdoor shopping centers. The company has outlet stores and a portfolio of 37 shopping centers located in Canada and the US.

Tanger Factory Outlet Centers, Inc. (NYSE:SKT) has an experience of over four decades under its belt. The company has leased over 2,700 stores on its facilities, covering an area of nearly 14 million square feet. Tanger Factory Outlet Centers, Inc. (NYSE:SKT) claims that 90% of its locations are located in the top 50 metropolitan statistical areas (MRA), and 94% of its facilities are open-air. The company has a forward annual dividend yield of 5.67% as of September 26.

Experts believe that Tanger Factory Outlet Centers, Inc. (NYSE:SKT) has a strong net operating income (NOI) growth outlook for 2022 and 2023 due to the fixed increase in rent and a strong backlog of the “signed but not opened” pipeline, making it one of the best real estate stocks to buy now.

Altron Capital Management shared its outlook on Tanger Factory Outlet Centers, Inc. (NYSE:SKT) in its Q4 2021 investor letter. Here’s what the firm said about the company:

“SKT’s business has recovered nicely from its pandemic lows, although the effect of the Omicron variant is yet to be determined. Otherwise, it appears that SKT still sees strong demand from consumers with foot traffic having largely returned to pre-pandemic levels. Rent spreads have finally started ticking upward, increasing 240 basis points in the third quarter. Occupancy has also rebounded to 94.3%. While most metrics are up, it seems that retailers’ willingness to expand and open new stores remains muted due to uncertainty surrounding COVID and the broader economy. In the meantime, management is making some strategic shifts to better position the company’s outlets in this type of environment. One such change in direction involves increasing the presence of food & beverage services across its outlets. We think this is a positive strategic decision that allows SKT more options in bringing in strong, long-term tenants to replace short-term popups and tenants lost to the pandemic. We remain bullish on SKT’s recovery and management’s ability to execute.”

11. Realty Income Corporation (NYSE:O)

Number of Hedge Fund Holders: 19

Realty Income Corporation (NYSE:O) is a San Diego, California-based REIT that invests in single-unit freestanding commercial locations and rents them out on long-term net lease arrangements. The company has a portfolio of over 11,400 commercial properties with an occupancy rate of 98.9% and over 1,100 different clients.

On June 22, Tayo Okusanya at Credit Suisse initiated coverage on Realty Income Corporation (NYSE:O) stock with an Outperform rating and a target price of $75. The target price reflects a potential upside of over 21% from the closing price as of September 26. The analyst picked Realty Income Corporation (NYSE:O) as one of his Top picks. He believes that the company can narrow down the discount gap in its valuation through rationalization of its portfolio and making reinvestment decisions that are value enhancing. Realty Income Corporation (NYSE:O) has long-term lease agreements with a weighted average of nearly 8.8 years. Furthermore, the company’s annual forward dividend yield stands at 4.81%, translating into an annual payout of $2.98 per share as of September 26.

10. Kimco Realty Corporation (NYSE:KIM)

Number of Hedge Fund Holders: 19

Kimco Realty Corporation (NYSE:KIM) is a Jericho, New York-based REIT that has the distinction of being the biggest operator of open-air, grocery-anchored shopping centers across North America. The company has a portfolio of 533 shopping centers and mixed-use assets with a covered area of 92 million square feet.

Kimco Realty Corporation (NYSE:KIM) has a rich experience of over six decades with a strong focus on the environment, social, and governance (ESG) criteria. In the last five years, Kimco Realty Corporation (NYSE:KIM) has made a dynamic transformation by selling its properties in lower-quality areas and improving the overall quality of its portfolio. The company is trying its best to increase the contribution of an annual base rent from grocery-anchored properties from the current level of around 80% to 85%. Kimco Realty Corporation (NYSE:KIM) has been a major beneficiary of trends like sub-urbanization due to work-from-home (WFM). The company pays a quarterly dividend of $0.22 per share, translating into an annual forward dividend yield of 4.68% as of September 26.

Overall, 19 funds held a stake in Kimco Realty Corporation (NYSE:KIM) as of Q2 2022.

9. Federal Realty Investment Trust (NYSE:FRT)

Number of Hedge Fund Holders: 24

Federal Realty Investment Trust (NYSE:FRT) is a Rockland, Maryland-based REIT with an experience of over five decades. The company owns and leases grocery-anchored shopping centers in California, Mid-Atlantic States, Northeastern US, and South Florida.

Federal Realty Investment Trust (NYSE:FRT) has the distinction of being a member of the Dividend Aristocrat List as it has been increasing its annual dividend for the past 55 consecutive years. The company’s annual forward dividend yield stands at 4.78% as of September 26. On August 9, Craig Schmidt at Bank of America upgraded Federal Realty Investment Trust (NYSE:FRT) stock from a Neutral to a Buy rating and increased the target price from $110 to $130. The analyst believes that with the mandates and regulatory hindrances removed from its path, Federal Realty Investment Trust (NYSE:FRT) has reached an inflection point and is in a position to deliver future growth. Schmidt concluded that the REIT has the competitive benefit of having its properties in high-quality demographics, meriting its inclusion in the list of the best real estate stocks to buy now.

Of the 895 hedge funds in Insider Monkey’s database, 24 funds held a stake in Federal Realty Investment Trust (NYSE:FRT) as of Q2 2022.

8. Extra Space Storage Inc. (NYSE:EXR)

Number of Hedge Fund Holders: 27

Extra Space Storage Inc. (NYSE:EXR) is a Utah-based REIT that is involved in owning and leasing self-storage spaces for residential and commercial purposes. The second biggest self-storage company in the US has a presence at over 2,000 locations.

Extra Space Storage Inc. (NYSE:EXR) offers an attractive annual dividend of $6 per share, reflecting an annual dividend yield of 3.47% as of September 26. Ki Bin Kim at Truist increased the target price for Extra Space Storage Inc. (NYSE:EXR) from $200 to $225 on August 15, implying a potential upside of over 30% from the closing price as of September 26. The analyst sees a significant potential upside in the stock at a time when the broader market is concerned about the growth in NOI and funds from operations (FFO) during the second half of 2023 and the first half of 2024. Extra Space Storage Inc. (NYSE:EXR) could face higher debt financing costs on its long-term debt due to rising benchmark yields.

Baron Funds shared its bullish long-term outlook on Extra Space Storage Inc. (NYSE:EXR) in its Q2 2022 investor letter. Here’s what the firm said:

“Following a sharp correction in its share price during the second quarter, we acquired shares in Extra Space Storage Inc. This REIT has assembled the second-largest self-storage portfolio in the country and has the largest portfolio of third-party managed self-storage facilities. In our opinion, Extra Space’s management team is excellent. Over the last decade, management has delivered strong occupancy gains, rent growth, and expense control that has led to a cost of capital advantage relative to its peers. Management has capitalized on its cost of capital advantage by tripling its owned self-storage count since 2010. We believe the long-term growth opportunity for the company remains strong.”

7. Public Storage (NYSE:PSA)

Number of Hedge Fund Holders: 33

Public Storage (NYSE:PSA) is a Glendale, California-based REIT that is the biggest provider of residential and commercial self-storage services in the world. The company has more than 2,500 facilities across the US and over 1 million customers.

In a research note issued to investors on August 16, Johnathan Hughes at Raymond James gave Public Storage (NYSE:PSA) stock an Outperform rating and increased the target price from $360 to $385. The analyst believes that Public Storage (NYSE:PSA) stock is the perfect play against recession and inflation in the REIT sector due to the company’s strong balance sheet. However, James believes that investors need to control their enthusiasm following the recent outperformance of the stock. Hughes sees more upside to the company’s same-store forecast for 2022 as it has not been modified since February despite the robust fundamentals. Public Storage (NYSE:PSA) pays an annual dividend of $8 per share.

Baron Funds discussed its outlook on Public Storage (NYSE:PSA). Here’s what the firm said about the company:

“Following strong performance in the first quarter of 2022, the shares of Public Storage Incorporated, a REIT that is the world’s largest owner, operator, and developer of self-storage facilities, declined 21% in the second quarter (a similar decline to most other REITs). We remain optimistic about the company’s long-term prospects. Public Storage’s nearly 2,500 self-storage facilities across the U.S. serve more than one million customers. The company has achieved the #1 market position in 14 of its top 15 markets.

We are encouraged about the company’s prospects due to our expectations for the continuation of strong occupancy and rent trends, limited new supply, mid-teens organic cash flow growth, the potential for mergers and acquisitions activity in part due to the company’s well-capitalized and low leverage balance sheet, and the ability to increase rents monthly to combat inflation headwinds. We believe Public Storage’s shares are currently valued at a discount to private market self-storage values and offer prospects for mid-teens total returns in the next few years.”

6. Equity Residential (NYSE:EQR)

Number of Hedge Fund Holders: 34

Equity Residential (NYSE:EQR) is a Chicago, Illinois-based REIT that develops and manages 310 properties that comprise over 80,000 apartment units. The company has a strong presence in all the dynamic cities of the US.

On September 19, Steve Sakwa at Evercore ISI gave Equity Residential (NYSE:EQR) stock a target price of $81, along with an Outperform rating. Experts are increasing the Equity Residential’s (NYSE:EQR) forecast for 2022 and 2023 to reflect the robust but slowing growth in rent in Q3 2022 and better than expected results for Q2 2022. There is a widespread consensus on the Street about the decelerating rent growth across the US. However, experts also pointed out the rising interest rate and premium valuation as a headwind for Equity Residential (NYSE:EQR) stock. There is a strong conviction about 2023 estimates as the current leases are 12% below market rates and would receive significant revisions. Equity Residential’s (NYSE:EQR) annual forward dividend yield stands at 3.66% as of September 26.

Here’s what Baron Funds said about Equity Residential (NYSE:EQR) in its Q2 2022 investor letter:

“The Fund’s multi-family REITs–Equity Residential (NYSE:EQR) has been generating strong occupancy, rent, and cash flow growth. We expect in-place rents, which remain below market rents, to be a source of ongoing strong cash flow growth in the near term. Equity Residentialis the largest U.S. apartment REIT and maintains a strong and liquid balance sheet. The company is currently valued at a 25% discount to net asset value and a 5.2% capitalization rate.”

As of Q2 2022, Equity Residential (NYSE:EQR) was held by 34 hedge funds.

In addition to Equity Residential (NYSE:EQR), stocks like CBRE Group, Inc. (NYSE:CBRE), American Tower Corporation (NYSE:AMT), and Equinix, Inc. (NASDAQ:EQIX) are also on our list of the 12 best real estate stocks to buy now.

Click to continue reading and see 5 Best Real Estate Stocks To Buy Now.

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Published on December 13, 2024 at by Inan Dogan, PhD

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