Real estate may not be the most exciting industry to invest in, but it is one of the most consistent in terms of returns. With the current uncertainty in the markets, investors are craving something that will provide consistent returns without being overly risky. One Wall Street analyst has a few ideas on this.
JMP Securities issued a few calls recently focused on real estate investment trust (REIT) stocks. Analyst Mitch Germain thinks that a handful of companies within this industry are due for a turnaround, and then some.
Historically speaking, one of the best assets that most investors are underweighted on is real estate. Those who own a home are technically real estate investors, but home ownership does not produce any income, unless you have rental properties, which can be very capital intensive, not to mention time-consuming.
Many investors are concerned that REITs will get hit hard in a rising interest rate environment, which the Federal Reserve appears to be kicking into gear as it recently raised the federal funds rate by 50 basis points. Many expect similar or even bigger hikes coming in June and July, as well as in the rest of the year.
Looking back, REITs have performed well in rising long-term interest rate environments. For instance, REITs outperformed the S&P 500 in roughly half the periods when Treasury yields were rising, and this positive momentum has been consistent with an improvement in underlying fundamentals.
Though headwinds have put a damper on the markets in general, JMP Securities believes that a few of these REITs could stand up to those headwinds. Even though this industry has been hurt by the recent semiconductor shortage and supply chain issues in general, it could stand to benefit going forward.
It is important to remember that no single analyst report should be used as a sole basis for any buying or selling decision.
Agree Realty
Germain initiated coverage on Agree Realty Corp. (NYSE: ADC) with an Outperform rating and $81 price target. That implies upside of 21% from the most recent closing price of $66.98. This firm is his “top pick” as its portfolio has proven to be “stout,” with the company being able to collect almost all rents during the pandemic. He adds that Agree Realty’s asset-recycling efforts have positioned rents to high-credit tenants while its concepts are “less susceptible to economic volatility.”
Agree Realty stock has a 52-week trading range of $61.62 to $75.95, and it traded at $65.83 a share early Tuesday. The dividend yield is 4.2%. The stock is down about 8% year to date.
Getty Realty
Getty Realty Corp. (NYSE: GTY) was started with an Outperform rating and $32 price target, implying upside of 25% from the most recent closing price of $25.67. This stock is Germain’s “favorite small cap idea,” as the company has been methodically growing its auto and convenience portfolio while conservatively managing its balance sheet, the analyst tells investors in a research note.
The stock was trading at $25.16, in a 52-week trading range of $24.66 to $34.21. The dividend yield is 6.4%. Shares are down nearly 22% year to date.
Global Net Lease
Coverage on Global Net Lease Inc. (NYSE: GNL) was initiated with a Market Perform rating. The company’s management has done an admirable job repositioning the portfolio, growing its industrial holdings to 54% of rents, and reducing office exposure, though Germain remains “generally negative” on the office sector and sees potential for leasing headwinds.
The 52-week trading range is $12.79 to $20.11, and shares traded at $13.01 Tuesday morning. It has a dividend yield of 11.7%. Shares are down about 16% year to date.
Necessity Retail
Germain initiated coverage of Necessity Retail REIT Inc. (NASDAQ: RTL) with a Market Perform rating. The company’s shopping center portfolio stands 89% leased, offering some potential operating upside, but the risk profile of its cash flows has changed.
The stock traded at $6.98 early Tuesday, and it has a 52-week trading range of $6.83 to $9.61. The dividend yield is 11.7%, and the stock is down 23% year to date.
Spirit Realty Capital
JMP Securities initiated coverage of Spirit Realty Capital Inc. (NYSE: SRC) with an Outperform rating and $54 price target, implying upside of 36% from the most recent closing price of $39.79. As part of its operating portfolio upgrade, the company has better diversified cash flows by reducing tenant and industry concentrations, grown both industrial and investment-grade exposures, and materially improved the balance sheet by expanding the pool of unencumbered properties and lowering net debt/EBITDA ratio.
Spirit Realty stock has a 52-week trading range of $38.77 to $52.29, and it was trading at $39.66. The dividend yield is 6.4%. Shares are down about 19% year to date.
W.P. Carey
On W.P. Carey Inc. (NYSE: WPC), Germain initiated coverage with an Outperform rating and $87 price target. That implied upside of 14% from the most recent closing price of $76.00. The REIT’s recent merger announcement with Corporate Property Associates should positively rerate the multiple as cash flow composition shifts to entirely real estate ownership company with better diversified cash flows through reduced tenant and industry concentrations.
The stock traded at $76.45 early Tuesday, in a 52-week trading range of $71.72 to $86.48. The stock has a forward dividend yield of 5.5% and is down 7% year to date.
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