5 Great REITs To Buy In 2024
Investors looking ahead into 2024 will find real estate investment trusts (REITs) to be an attractive sector of the stock market to own. After two years of inflation and Federal Reserve interest rate hikes, the tide seems to have turned. The Fed has paused rate hikes for three consecutive meetings and is telling Wall Street to expect three rate cuts in 2024. Some on Wall Street are surmising there actually could be more than three cuts this year, yet REITs have rallied hard recently, taking the Fed at its word.
While it's difficult to say for sure which of the approximate 200 REITs will have the highest total gain over a full year, there are certain measures to look for to assist investors in selecting high-quality REITs that should perform very well over the full year ahead. They are:
A strong finish in the final two months of 2023
A still moderate price to funds from operations (P/FFO) ratio
A dividend yield that's high enough to compete with fixed-income assets, yet low enough to reduce the risk of being a yield trap
A payout ratio that still covers the dividend without the risk of a dividend cut
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Take a look at five REITs that encompass most or all of the parameters cited above and could perform well for investors in 2024:
Healthcare Realty Trust Inc. (NYSE:HR) is a Nashville, Tennessee-based healthcare REIT with 697 properties covering 41 million square feet across 35 states. It was established in 1992 with 21 facilities and has evolved into a delivery model in which 72% of its properties are multitenant medical outpatient service buildings on the campus of hospitals or other types of healthcare facilities. Its third-quarter occupancy rate was 90%.
In 2022, Healthcare Realty merged with Healthcare Trust of America in an $18 billion deal and became Healthcare Realty Trust. The top locations of its properties include Dallas, Seattle and Houston.
Healthcare Realty Trust has been a major seller of assets since June, disposing of $318 million worth of properties. On Oct. 5, it reaffirmed its 2023 dispositions guidance of $350 million to $450 million. The intent is to increase its portfolio exposure to higher-growth, multitenant, on-campus medical outpatient buildings, and the sales proceeds will be used to fund development obligations and to repay its floating-rate debt.
On Oct. 12, JP Morgan analyst Michael Mueller upgraded Healthcare Realty Trust from Neutral to Overweight and announced a $19 price target. Mueller noted that Healthcare Realty Trust should improve its relative valuation in future quarters because of recent gains in occupancy.
On Nov. 13, Wells Fargo analyst Connor Siversky maintained an Equal-Weight rating on Healthcare Realty, while lowering the price target from $17 to $16. On Nov. 6, Wedbush Securities analyst Richard Anderson reiterated his Outperform rating on Healthcare Realty and maintained a $17 price target.
Healthcare Realty has a P/FFO ratio of 11.03, well below the average for REITs of between 15 and 18. Its annual dividend yield of 7.15% has a moderate payout ratio of 78%. Over the last two months of 2023, it performed well, with a total return of 22.23%. This is an improving healthcare REIT with occupancy gains and debt reduction that could perform well going forward. Healthcare Realty's recent closing price was $17.35.
Host Hotels & Resorts Inc. (NASDAQ:HST) is a Bethesda, Maryland-based hotel REIT with 77 hotels containing 42,000 rooms in large markets across the U.S. Host Hotels has been a member of the S&P 500 since 2007 and is the only hotel REIT in the index. Its hotel brands include Marriott, Hyatt, Four Seasons and Hilton.
On Dec. 15, Host Hotels & Resorts announced an 11% increase in its fourth-quarter dividend from $0.18 to $0.20 per share and a special dividend of $0.25 per share. The dividend is payable on Jan. 16 to shareholders of record on Dec. 29.
On Jan. 2, Jefferies analyst David Katz maintained a Buy rating on Host Hotels and raised the price target from $21 to $24. That's a 23.5% potential upside from its most recent closing price of $19.42.
On Dec. 22, Wells Fargo analyst Dori Kesten maintained an Overweight rating on Host Hotels and raised the price target from $20 to $22.
Host Hotels had a 17% increase in its revenue per available rooms (RevPAR) between 2017 and 2023, and like many other hotel REITs, it anticipates further RevPAR improvement in 2023. It's still quite undervalued with only a 10.21 P/FFO. The 4.06% dividend yield is slightly less than desirable, but with the recent quarterly dividend increase and only a 41% payout ratio, another dividend increase could be in the cards for 2024.
Host Hotels has had a total gain of 28.66% since Nov. 1.
Boston Properties Inc. (NYSE:BPX) is a Boston-based office REIT with 190 properties with 53.5 million square feet concentrated in five large cities: Boston; Manhattan, New York; Washington, D.C.; San Francisco; and Seattle. The firm calls itself "the largest publicly traded developer, owner and manager of premier workplaces in the United States." Boston Properties is a member of the S&P 500.
As of the end of the third quarter, Boston Properties had a 90.4% occupancy rate with a weighted average lease term (WALT) of 7.5 years. That compares favorably with several other office REITs. About 10% of its office properties are for life sciences, which means little risk of its employees working from home. Its top 20 tenants include Google, Microsoft Corp., Biogen Inc., Fannie Mae and Bank of America Corp.
Analysts have expressed favorable views recently. On Dec. 20, Piper Sandler analyst Alexander Goldfarb maintained a Neutral rating on Boston Properties but raised the price target from $60 to $77. On Jan. 2, Jefferies analyst Peter Abramowitz upgraded Boston Properties from Hold to Buy and raised the target price from $57 to $80. Boston Properties' most recent closing price was $72.10.
The office REIT subsector has been scorching hot over the past two months, and Boston Properties has been one of the main beneficiaries of that. It had a total gain of 32.82% over that period. With a P/FFO of 9.92, there is still room for plenty of price appreciation and the dividend yield of 5.44% has a 32.82% payout ratio.
With declining interest rates and many companies demanding a return to office work or at least hybrid hours, there is much to like about Boston Properties for 2024.
Cousins Properties Inc. (NYSE:CUZ) is an Atlanta-based office REIT, founded in 1958, with a portfolio of 19.1 million square feet of Class A office towers located in high-growth Sun Belt markets.
Most of Cousins' portfolio consists of newer office buildings, with an average construction year of 2004. Many of its buildings include upscale amenities like exercise facilities, meeting rooms, wellness centers and cafes. Because of this, it's able to command rents that are 24% higher than the Class A average in its core markets of Atlanta; Austin, Texas; Charlotte, North Carolina; Dallas; Phoenix; and Tampa, Florida. Its tenants are higher grade and well diversified by industry. Cousins' November occupancy rate of 91.1% was well above many of its office REIT peers.
Cousins' top 25 tenant portfolio includes Bank of America, Briggs & Stratton Corp., HD Supply, Deloitte and the American Cancer Society. The top 25 tenants have a weighted average lease term of seven years. Cousins also has one of the strongest balance sheets among the office REIT subsector.
On Dec. 18, JP Morgan analyst Anthony Paolone upgraded Cousins Properties from Neutral to Overweight and increased the price target from $26 to $27. Also that day, Truist Securities analyst Michael Lewis maintained a Buy rating on Cousins Properties and lowered the price target from $28 to $27.
There is much to like about Cousins Properties. It's still quite undervalued with a P/FFO of 9.43. The annual dividend yield of 5.18% is well covered with only a 49% forward payout ratio.
Cousins Properties' most recent closing price was $24.71. It had a total gain of 36.26% over the last two months, the best performance of this group.
Four Corners Property Trust Inc. (NYSE:FCPT) is a Mill Valley, California-based diversified REIT, with a focus on owning net-leased restaurants, medical and dental services, automotive services and other retail properties in the Sun Belt. It's been one of the fastest-growing REITs over the past few years.
Four Corners was created in November 2015 with 418 restaurants spun out from Darden Restaurants Inc. (NYSE:DRI). As time has progressed, many of the Darden properties were sold, but Olive Garden and LongHorn Steakhouse restaurants still make up about 51% of Four Corners' total rents.
Four Corners is one of the most aggressively growing REITs through acquisitions, and its acquisition standards are very carefully planned. Over the past seven years, Four Corners has steadily acquired more diversified properties, and its portfolio includes 1,106 long-term leased properties with 148 brands across 47 states. Four Corners has a strong occupancy rate of 99.8% with a weighted annual lease term of eight years. Its main strategy is to secure properties in a cap rate range between 6% to 7%, but it often exceeds those numbers.
On Nov. 1, Four Corners reported its third-quarter operating results. FFO of $0.42 was in line with estimates but above its third-quarter 2022 FFO of $0.42. Revenue of $64.84 million beat the analysts' estimate of $64.69 million and was 15.77% above revenue of $56.01 million in the third quarter of 2022.
On Nov. 10, Four Corners announced an increase in its quarterly dividend from $0.34 per share to $0.345 per share. It was the fifth dividend raise over the past five years. The new $1.38 annual dividend yields 5.39%.
While most REITs were fairly inactive around the end of the year, between Dec. 27 and Dec. 29, Four Corners announced it was acquiring two Popeyes Louisiana Kitchen properties in Arizona and Illinois for $4.7 million and two Tire Discounters properties in Ohio and Kentucky for $1.7 million and $1.8 million. The Popeyes properties were in the final stages of construction and have triple-net leases with 20 years of term remaining. The Tire Discounter properties were sale-leaseback contracts.
Four Corners Property Trust has increased its revenue for 13 consecutive quarters as it continues its massive acquisition spree. Although it has the highest payout ratio (85%) and P/FFO (15.76%) of the group, the ongoing acquisitions in safer, higher cap rate properties and high occupancy rates could make Four Corners a big winner among REITs in 2024.
The chart below sums up the various parameters of the REITs cited above:
NAME | SYMBOL | P/FFO | DIVIDEND YIELD | PAYOUT RATIO | GAIN OVER PAST TWO MONTHS |
Four Corners Property Trust | FCPT | 15.76 | 5.39% | 85% | 20.4% |
Healthcare Realty Trust Inc. | HR | 11.03 | 7.15% | 78% | 22.23% |
Boston Properties | BXP | 9.92 | 5.44% | 54% | 32.82% |
Cousins Properties | CUZ | 9.43 | 5.18% | 49% | 36.26% |
Host Hotels & Resorts | HST | 10.21 | 4.06% | 41% | 28.68% |
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