Investing
Top Wall Street Firm Favors Big Dividend REITs for 2023: 7 to Buy Now
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Interest rates rose again in December and likely will go higher when the Federal Reserve meets at the end of January with another 25- or 50-basis-point hike. That has been one of the major headwinds for stocks over the past year. It has been especially difficult for real estate investment trusts (REITs), which are vulnerable to rising rates. REITs were hammered last year, but with the Fed closing in on the end of the rate hike cycle, and interest rates across the curve falling, a change may be coming fast for 2023.
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The team at Truist Securities is positive on the segment for 2023, noting that they feel that REITs can outperform the broader markets this year. They cite attractive valuations, especially when compared to the broader equity market and private real estate holdings. They also pointed to a forward-sloping interest rate curve later this year, as well as earnings growth that should be in line with the S&P 500, as positives for the beleaguered industry.
Truist Securities has 15 top companies as “best ideas.” Triple net lease companies (the tenant pays all expenses connected to the property) are high on the list, along with industrial names and gaming. The following seven top companies pay among the highest yields, and their shares are Buy rated and look like very timely ideas now. 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 Group
This is among the higher-yielding REITs in the group and offers a solid total return proposition for investors. Brixmor Property Group Inc. (NYSE: BRX) owns and operates a high-quality, national portfolio of open-air shopping centers. Its 395 retail centers include about 69 million square feet of prime retail space in established trade areas.
The company strives to own and operate shopping centers that reflect Brixmor’s vision “to be the center of the communities we serve” and are home to a diverse mix of thriving national, regional and local retailers. Brixmor is a real estate partner to approximately 5,000 retailers, including TJX, Kroger, Publix Super Markets, Walmart, Ross Stores and L.A. Fitness.
Shareholders receive a 4.56% distribution. The Truist Securities target price is $26, and the consensus target is $24.60. The shares closed on Thursday at $22.29.
Equity Residential
This apartment REIT owns properties in high-growth U.S. cities. Equity Residential Inc. (NYSE: EQR) is an S&P 500 company focused on the acquisition, development and management of high-quality apartment properties in top U.S. growth markets in and around dynamic cities that attract high-quality long-term renters.
Equity Residential owns or has investments in 305 properties, consisting of 78,568 apartment units located in Boston, New York, the District of Columbia, Seattle, San Francisco, southern California and Denver.
Investors receive a 4.07% yield. Truist Securities recently upgraded Equity Residential stock and set a $68 price target. The consensus target is $68.10, and the stock closed on Thursday at $60.71.
Essential Properties
This triple net lease REIT is a solid addition to conservative portfolios. Essential Properties Realty Trust Inc. (NYSE: EPRT) acquires, owns and manages single-tenant properties in the United States. It leases its properties to middle-market companies, such as restaurants, car washes, automotive services, medical and dental services, convenience stores, equipment rental, entertainment, early childhood education, grocery and health and fitness on a long-term basis.
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As of December 31, 2021, it had a portfolio of 1,451 properties. Because it qualifies as a REIT for federal income tax purposes, it generally would not be subject to federal corporate income taxes if it distributes at least 90% of its taxable income to its stockholders.
The yield here is 4.46%. The $25 Truist Securities price target compares with a $25.98 consensus target and Thursday’s closing share price of $24.38.
Gaming and Leisure
This stock is a unique and interesting way to play the gaming sector and generate income. Gaming and Leisure Properties Inc. (NASDAQ: GLPI) is engaged in the business of acquiring, financing and owning real estate property to be leased to gaming operators in triple net lease arrangements, in which the tenant is responsible for all facility maintenance, insurance required in connection with the leased properties and the business conducted on the leased properties, taxes levied on or with respect to the leased properties and all utilities and other services necessary or appropriate for the leased properties and the business conducted on the leased properties.
The company expects to continue to grow its portfolio by pursuing opportunities to acquire additional gaming facilities to lease to gaming operators. It also intends to diversify the corporate portfolio over time, including by acquiring properties outside the gaming industry to lease to third parties. The company’s current portfolio consists of 44 casinos, including two TRS properties and the real property associated with 42 facilities spread around the United States.
Shareholders receive a 5.44% distribution. Truist Securities has a $60 price target. The consensus target is lower at $55.82, and shares closed at $51.87 on Thursday.
NETSREIT
While somewhat off the REIT radar, this company is a “best idea” at Truist. NETSREIT Corp. (NYSE: NTST) is an internally managed REIT based in Dallas, Texas, that specializes in acquiring single-tenant net lease retail properties nationwide. The growing portfolio consists of high-quality properties leased to e-commerce-resistant tenants with healthy balance sheets.
Led by a management team of seasoned commercial real estate executives, the company’s strategy is to create the highest quality net lease retail portfolio in the country with the goal of generating consistent cash flows and dividends for its investors.
The company had a solid run over the final quarter of 2022 and has continued to grow the income stream to better benefit the stockholders, who are paid a dependable 4.10% distribution.
Truist Securities has set a $22 target price. The consensus target is just higher at $22.73. Shares closed on Thursday at $19.59.
Piedmont Office Realty
While way off the REIT radar, this high-yielding idea is a strong play for more aggressive investors. Piedmont Office Realty Trust Inc. (NYSE: PDM) is an owner, manager, developer, redeveloper and operator of high-quality Class A office properties located primarily in select submarkets within seven major eastern U.S. office markets. The majority of its revenue is generated from the Sunbelt. Its geographically diversified, approximately $5 billion portfolio currently encompasses approximately 17 million square feet.
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The company is a fully-integrated, self-managed REIT with local management offices in each of its markets and is investment-grade rated by S&P Global Ratings (BBB) and Moody’s (Baa2). At the end of the third quarter, approximately 63% of the company’s portfolio was Energy Star certified and approximately 41% was LEED certified.
This one offers an 8.39% distribution. The Truist Securities price target of $17 is well above the $13.67 consensus target and Thursday’s closing print of $9.83.
VICI Properties
This is the top pick across Wall Street in the net lease group, and it is an ideal pick for investors who are more conservative and looking for gaming exposure. VICI Properties Inc. (NYSE: VICI) is a triple net lease REIT that was spun out of Caesars Entertainment post-bankruptcy. It has 23 mixed-use gaming, lodging and entertainment properties in its portfolio, and a subsidiary that owns four championship golf courses. The company also owns roughly 34 acres of undeveloped land in Las Vegas, which it leases to Caesars.
Much of the focus has been on VICI’s acquisition of the real estate of the Venetian Resort in Las Vegas, with Apollo as a new tenant. Looking ahead, many on Wall Street are very positive on VICI’s embedded growth pipeline with Caesars Entertainment, including a put/call on the Centaur properties in Indiana (starting in January) and a right of first refusal on a strip asset sale for Caesars, which could occur soon after a full earnings before interest, taxes, depreciation, amortization and restructuring or rent costs recovery.
In addition, the company closed a $17.2 billion deal last April to buy out rival gaming REIT MGM Growth Properties, which owns the real estate of 15 casinos and resorts in eight states, including seven properties on the Las Vegas Strip. All of MGM Growth’s properties are operated by MGM Resorts International.
VICI Properties stock comes with a 4.77% distribution. Truist Securities’ $35 target price is less than the $37.88 consensus target. Shares closed at $33.18 on Thursday.
These top stocks have been hit by the move higher in interest rates and the large-scale selling all across Wall Street over the past year. They are all leaders in their specific REIT subsectors and offer multiple ways for investors to get steady growth, own hard assets and be paid substantial and dependable income.
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