Editor’s note: This article is regularly updated with the latest information.
Given the recent performance of the sector, now may not seem like a great time to buy real estate investment trusts (REITs). Using the Dow Jones U.S. Select REIT Index as a proxy, REITs are down about 20% year-to-date (YTD).
The sharp rise in interest rates in response to high inflation is playing a big role in this decline. Growing fears that climbing interest rates will cause a recession are also factoring in. Yet, while both of these factors should be accounted for in REIT valuations, plenty of names in the space have also become oversold.
This — plus the benefits of owning REITs during an inflationary period — have created some opportunity for investors looking to increase their exposure to the sector. So, what are some of the best REITs to buy now? Consider these seven names. Many of them offer solid dividend yields, but long-term upside potential may be their main appeal.
REITs to Buy: Crown Castle (CCI)
Crown Castle (NYSE:CCI) is a cell tower REIT that leases over 40,000 cell towers to U.S. telecommunication companies.
Investors have many choices when it comes to cell tower REITs. In fact, InvestorPlace contributor Ian Bezek called both CCI stock and American Tower (NYSE:AMT) two of the best undervalued REITs back in June. AMT stock is also a great choice for investors looking for long-term capital growth. But if you’re looking for income from your REIT portfolio, Crown Castle may be more up your alley.
At current prices, Crown Castle has a dividend yield of 3.42%. It has also raised its dividend for years, with its annual dividend growth averaging at 8.97% over the past five years. Down 16% year-to-date (YTD), you may want to take advantage of CCI now and enter a position.
City Office REIT (CIO)
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I discussed City Office REIT (NYSE:CIO) back at the start of 2022. At the time, I recommended investors keep an eye on CIO, suggesting that the market selloff could make it more of a bargain later. Flash forward a few months and that moment may have arrived.
CIO stock is down 40% YTD. So, why is it one of the REITs to buy now? The impact of higher interest rates is more than accounted for in its valuation. It currently trades at a forward price-fund-from-operations (P/FFO) ratio of 7.43 times. A P/FFO ratio is the equivalent of price-earnings (P/E) for REITs.
Peers like Franklin Street Properties (NYSEMKT:FSP) trade at a forward P/FFO ratio of around 8.18. On top of a lower valuation, CIO stock also has a dividend yield of 7.09%.
REITs to Buy: Farmland Partners (FPI)
Farmland Partners (NYSE:FPI), as its name suggests, owns farmland. Plus, in contrast to other REITs on this list, it’s actually up for the year. Soaring inflation and the global food shortage are pushing FPI stock up more than 20% YTD. Fortunately, it’s not too late to stake a claim and add shares to your portfolio, however.
If you’re focused on portfolio income, FPI may not excite you too much. The stock currently has a dividend yield of 1.69%. But if you’re looking for long-term capital growth, Farmland Partners is definitely one to consider.
As Seeking Alpha pointed out in June, Farmland Partners currently trades at around its net asset value. If you’re looking for exposure to rising farmland prices, you don’t have to worry about paying a high premium to do so. Other catalysts, such as the use of acreage for renewable energy, could also help move the needle.
Gaming and Leisure Properties (GLPI)
Another specialty REIT, Gaming and Leisure Properties (NASDAQ:GLPI) leases property to casino operators. Buying a REIT with exposure to such a cyclical industry may not seem ideal at this stage of the economic cycle. Upon taking a closer look, though, the current economic environment may not be a reason to stay away.
For starters, whether “the house” wins or loses, casinos have to pay rent. That is, an economic downturn may hurt casino profitability, but GLPI’s earnings will likely stay stable. This casino REIT also has most of its portfolio in regional gaming markets as well; these tenants may be more resilient in a downturn than Las Vegas resort properties, for instance.
Currently, GLPI stock sports a dividend yield of 5.85%. Expected to grow FFO by 6.3% over the next year, it may have room to raise this dividend payout, too. Consider Gaming and Leisure Properties a buy, now or on any further weakness.
REITs to Buy: Postal Realty Trust (PSTL)
Looking for a REIT with a steady tenant? Postal Realty Trust (NYSE:PSTL) may be a great choice. Owning more than 1,000 properties leased to the United States Postal Service (USPS), this REIT has carved a niche in an admittedly prosaic segment of the real estate industry.
Sure, it’s not as exciting as owning shares in a casino landlord, but don’t let that cloud your judgment. PSTL stock stands to produce steady returns — and not just from its dividend with a yield of 6.38%. Unlike some other niche real estate segments — for instance, self-storage — this area has seen far less consolidation. Postal Realty Trust is still able to acquire more properties at attractive valuations.
That will enable the REIT to continue growing its FFO, increasing the price of PSTL stock in turn. Hit hard by the REIT selloff and tumbling more than 20% YTD, now may be a great time to buy Postal Realty Trust.
Sabra Health Care REIT (SBRA)
Sabra Health Care REIT (NASDAQ:SBRA) owns skilled nursing and senior housing communities. With its operating performance severely affected by the pandemic, the REIT has struggled to make a full recovery. But troubles notwithstanding, Sabra may be another one of the REITs to buy this month.
Sabra has a dividend yield of 8.24% and has been able to maintains this rate of payout so far in 2022. Further, occupancy rates are improving. This could steadily increase the chance that the REIT’s payout stays as-is. So, consider SBRA an opportunity, if you have a higher risk appetite. Otherwise, you may want to stick with some of the other REITs to buy on this list.
REITs to Buy: Simon Property Group (SPG)
Simon Property Group (NYSE:SPG) may seem like another odd choice among REITs to buy. After all, investors may be most bearish about shopping mall REITs — mainly because their brick-and-mortar tenants have been hit hard by soaring inflation.
Of course, a recession could make things worse. Store closures and retailer bankruptcies may result in increased vacancies at Simon’s portfolio of shopping malls. So, why buy SPG stock? Dropping more than 30% YTD, these risks and uncertainties appear more than accounted for in the share price.
Right now, SPG trades at a forward P/FFO ratio of just 9.3 times. When you account for the higher quality of its properties relative to peers, this valuation may be too low. Couple that with a high 6.91% dividend yield and buying it today could prove to be a profitable move for investors.
On the date of publication, Thomas Niel did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Thomas Niel, contributor for InvestorPlace.com, has been writing single-stock analysis for web-based publications since 2016.