Over the past year, many sectors have suffered from the COVID-19 pandemic. Some companies in the affected sectors have been pushed into bankruptcy, while others have teetered on the brink. One sector that was hit especially hard was real estate, including the real estate investment trusts (REITs). With restaurants, bars and many stores closed for months at a time, numerous well-known companies got hit hard, but the good news for investors is that three of the best REIT stocks are on sale, and they all pay outstanding dividend distributions.
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A new Goldman Sachs research report, while certainly not pounding the table, does indicate there is a solid opportunity for investors to take advantage of the dislocations in the sector, especially the retail-focused companies. The report noted this when discussing upcoming earnings and guidance expectations:

Each company giving guidance (or not) will provide an indication of how much visibility each has into 2021 earnings, and could (to the extent they provide outlooks) be a positive indicator versus 2020, when they did not have that visibility. Guidance ranges may be wider than historical ranges have been. In the past, retail REITs had decent visibility into earnings given multi-year leases. However, current uncertainties remain with respect to payment of deferred rents, final outcome of rents still under negotiation, retailer strength (especially in small shops), and the pace of a vaccine-led recovery in leasing, sales, and traffic.

Three top REITs are rated Buy at the firm, pay dependable distributions and make good sense for growth investors looking for income and some upside from a very damaged sector. It is important to remember that no single analyst report should be used as a sole basis for any buying or selling decision.

Brixmor Property

This is among the highest yielding REITs, and it offers a solid total return proposition for investors. Brixmor Property Group Inc. (NYSE: BRX) is an internally managed REIT that owns and operates the largest wholly owned U.S. shopping center portfolio. Brixmor owns 522 community and neighborhood centers totaling 86.7 million square feet in 38 states.

The largest real estate concentrations by state are Texas (11%), Florida (10%) and Pennsylvania (7%). The portfolio is primarily the aggregate of Centro Properties Group United States acquisitions from 2005 to 2007. Centro Properties Group was an Australian-based company with two primary investment arms.

The report noted this when discussing the payout to shareholders:

The company has stated that the level at which its quarterly dividend was reinstated in 2020 ($0.215 per share) was sustainable, even if pandemic related headwinds were to persist. We assume that the company stays at this level through 2021, resulting in a 2021 estimated Adjusted Funds From Operations payout ratio of 73.0%.

So, shareholders receive an outstanding 4.88% dividend. Goldman Sachs has set a $20 price target on the shares, which compares with the lower Wall Street consensus target of $17.53 and Thursday’s closing price of $17.61 per share.

This top REIT also makes sense for more conservative accounts. Kimco Realty Corp. (NYSE: KIM) has specialized in shopping center acquisitions, development and management. It owns and operates the nation’s largest portfolio of neighborhood and community shopping centers with interests in the company-owned interests in 430 U.S. shopping centers comprising 75 million square feet of leasable space, primarily concentrated in the top major metropolitan markets.
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The company has a large position in a national grocery chain, and Goldman Sachs noted this:

As of the third quarter of 2020 the company held 39.8 million shares of Albertsons’ (ACI) common stock, worth $655 million. To the extent that ACI’s share price performs well (Goldman Sachs is Buy-rated on ACI), the monetization opportunity for Kimco will grow, giving the company more financial flexibility in general. This is an improvement versus pre-COVID times because in 2019, Albertsons was not yet public; versus now, when the value of Kimco’s investment is now clear, and management has commented that it can be monetized (at a pace of 25% of the investment every 6 months).

Kimco stock investors receive a 3.88% distribution. The Goldman Sachs price target is $20, and the consensus target is $16.67. The shares closed on Thursday at $16.70.

Simon Property

Simon Property Group Inc. (NYSE: SPG) invests in real estate markets across the globe. It engages in investment, ownership, management and development of properties. The company primarily invests in regional malls, premium outlets, mills and community/lifestyle centers to create its portfolio.

Through its subsidiary partnership, it owns or has an interest in about 230 properties in the United States and Asia. The company also has a 28.9% interest in Klepierre, a European REIT with over 260 shopping centers in 13 countries.

Many on Wall Street feel that one key driver of growth will include the over $1.0 billion of development/redevelopment planned over the next few years. Goldman Sachs also feels that the company’s high-quality portfolio is weathering the retail storm better than most. The report said this:

SPG’s investment grade balance sheet and liquidity differentiate it from peers as it has the capacity to pursue external growth opportunities. Versus the company’s target net debt to net operating income of 5.5x-6.5x, the company was at 6.2x as of third quarter of 2020, where leverage increased in the fourth quarter as a result of the Taubman Centers acquisition (completed at the end of 2020). Additionally, Simon’s senior unsecured debt rating was downgraded by Moody’s from A2 to A3 on September 30, 2020. Given this backdrop, SPG bolstered its liquidity position by completing a $1.6 billion equity offering in November.

Shareholders receive a 5.46% distribution. The $124 Goldman Sachs price target is well above the $93.29 consensus target. Simon Property Group stock ended trading on Thursday at $95.16 a share.

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Needless to say, the real estate world was hammered during the yearlong and ongoing pandemic, but as is almost always the case, the strong survive and likely will get stronger as the economy improves and things start to open back up and return to a more normal setting. All three of these sector leaders are smart ideas for growth and income investors. It is important to remember that REIT distributions can contain return of principal.

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