Despite being a major laggard for much of the year, the real estate sector is starting to show signs of life. Equity REITs, or real estate investment trusts, are rebounding nicely, and second-quarter earnings have been quite strong for many that have reported so far.
With that in mind, here are three solid REITs that just reported earnings and are looking rather appealing as we head into August. I don't own any of the three in my portfolio just yet, but I could certainly see that changing in the near future.
Image source: Getty Images.
Recent Stock Price
P/FFO (2018 Midpoint)
Simon Property Group (NYSE: SPG)
AvalonBay Communities (NYSE: AVB)
EPR Properties (NYSE: EPR)
Data source: TD Ameritrade and company financials. Prices and dividend yields as of 7/30/18.
Simon Property Group is a mall REIT, but don't start getting visions of half-abandoned malls in your head. Simon operates A-class malls, which are the cream of the crop. What's more, Simon is actually embracing the retail-sector headwinds of the past few years as an opportunity to strategically transform its malls into mixed-use properties designed to appeal to today's consumer.
Simon's malls have an abundance of modern dining options, retail stores you simply can't find anywhere else, and entertainment features. Many of Simon's properties also have non-retail property types such as hotels, offices, or apartments, incorporated into them. The idea is that these amenities create a ready-made stream of foot traffic for Simon's retail tenants, thereby facilitating an excellent environment for brick-and-mortar retail.
The proof is in the numbers. Simon's FFO per share has grown by 12.5% over the past year (5.6% excluding one-time items), extremely impressive for a difficult retail environment. Simon's properties are about 95% occupied and the company is collecting a base rent that is 3.3% greater than a year ago.
Perhaps the statistic from Simon's second-quarter earnings that best sums up how effective the company's efforts have been is this: Simon's tenants reported sales per square foot of $646 for the past 12 months -- that's nearly 5% more than the year before. I think it's safe to say that Simon isn't suffering too badly because of e-commerce headwinds.
In fact, Simon has done so well that it just raised its full-year guidance and raised its dividend for the third time in the past year alone.
AvalonBay is an apartment REIT that develops, owns, manages, and sometimes strategically disposes of high-quality apartment properties in high-barrier markets. Specifically, all of the company's properties are in six core markets -- New England, New York Metro, Mid-Atlantic, Pacific Northwest, and Northern and Southern California. These are markets where new renter households are being formed at a faster-than-average pace, and where job and wage growth are also strong.
Over the past year, AvalonBay's core FFO has grown by 6.7%. Rental revenue for the company's established apartment communities grew by 2.5% last year on a combination of tenant rent increases and higher occupancy.
You'll notice from the chart that on a P/FFO valuation basis, AvalonBay is the most expensive of the three REITs listed here, and by a considerable margin. However, you get what you pay for. AvalonBay only invests in the most in-demand markets and has an exceptional capital recycling program that continuously deploys the company's resources with maximization of shareholder value in mind.
A unique REIT at a great price
EPR Properties is a diversified REIT with three core property types -- entertainment, recreation, and education. The entertainment properties are primarily composed of megaplex movie theaters, while the recreation properties include golf attractions, ski resorts, and waterparks. Both of these segments are resonating very well with the coming-of-age millennial generation which has a tendency to spend more money on experiences than older age groups.
The company's results so far in 2018 have been nothing short of spectacular. Adjusted FFO per share is up by an impressive 26%. The company's entertainment, recreation, and education segments are 99%, 100%, and 98% leased, respectively. In fact, EPR's revenue and FFO for the second quarter were both all-time highs for the company.
As a result of the excellent performance, the company recently increased its 2018 guidance and boosted its dividend by nearly 6%.
Although EPR pays the highest dividend of the bunch, and one of the highest in the equity REIT space, it is also one of the most well-covered, as it represents an FFO payout ratio of less than 70% through the first half of the year -- remarkably low for a REIT.
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