Smart Defense: 7 REITs to Shield Your Portfolio From Today’s Turbulence
Even with the allure and the rising potential of a soft landing, investors ought to consider the benefits of certain REITs to buy. With real estate investment trusts (REITs), investors generally enjoy a wide footprint of business exposure. As well, their legal structure requires that they pay 90% or more of their taxable profits to shareholders in the form of dividends.
To be sure, the focus about REITs to buy isn’t about robust capital gains. To use a football analogy, you’re not the quarterback attempting to throw 60-yard bombs. Instead, you’re the defensive back, a free safety in a prevent defense. As the last line of defense, it’s your job to make sure the ball doesn’t go behind you.
Put another way, you’re going to give up garbage yards to the opposing offense. That’s fine. What you’re doing with REITs to buy is not so much about scoring points but rather managing the game. Thanks to the lead you’ve built from high-flying innovators, you’re trying to hold the lead going into the fourth quarter. On that note, below are the REITs to buy to shield your portfolio from today’s turbulence.
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REITs to Buy: Welltower (WELL)
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One of the top REITs to buy based on compelling fundamentals, Welltower (NYSE:WELL) primarily invests in properties related to healthcare infrastructure. Specifically, the company specializes in senior living, including offering senior housing communities, post-acute care facilities and outpatient medical properties. Given the vast number of baby boomers retiring and entering their golden years, WELL should offer significant viability for years.
To be fair, Welltower isn’t exactly the greatest deal in town. Conspicuously, WELL trades at 25.57x funds from operations (FFO). That’s well above the REIT sector’s median value of 12.55X. However, on the positive side, it’s a consistently profitable enterprise. And just to reiterate, the longer-term framework of serving baby boomers is compelling.
At the moment, Welltower carries a forward yield of 3.08%. Combined with its capital gains potential – it’s up over 18% year-to-date – WELL brings an intriguing package to the table. Finally, analysts peg WELL a moderate buy with an $88.45 price target, implying almost 12% upside potential.
Stag Industrial (STAG)
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Headquartered in Boston, Massachusetts, Stag Industrial (NYSE:STAG) ranks among the popular REITs to buy thanks to ongoing relevance. Focused on the acquisition and operation of industrial properties throughout the U.S., Stag primarily targets warehouses and distribution centers. That’s significant thanks to the e-commerce revolution.
While Stag isn’t a direct player in the e-commerce ecosystem, the rise of online sales has significantly increased demand for warehousing, distribution centers and logistics hubs. After incurring a post-pandemic lull, since the second quarter of 2022, e-commerce as a percentage of total retail sales jumped from 14.4% to 15.4% in Q2 of this year.
Put another way, even with challenges to consumer sentiment during the post-pandemic period, people still turn to online transactions. Therefore, investors should be able to at least somewhat trust the 4.41% forward yield. Lastly, analysts rate STAG a moderate buy with a $39 price target, implying nearly 17% growth potential.
REITs to Buy: AvalonBay (AVB)
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As one of the best REITs to buy in the apartment space, AvalonBay (NYSE:AVB) symbolizes a love-hate affair. Thanks to the record lows in interest rates immediately following the initial impact of the Covid-19 crisis, those with means were able to secure real estate at compelling borrowing costs. However, those without robust means were forced to rent. Naturally, landlords took advantage of this dynamic.
In fairness, AvalonBay presents high risks because it’s quite possible that the consumer base may have hit a breaking point. Since the start of the year, AVB gained under 4%. Much of this modest return stems from its trailing one-month loss of nearly 7%. Therefore, caution is key.
Still, for contrarians, the buy argument may center on AvalonBay’s three-year revenue growth rate of 3.6%, beating out 62.6% of its peers. It’s also consistently profitable as you might imagine. Analysts rate AVB as a moderate buy with a $198.08 target, implying over 18% growth.
Apple Hospitality (APLE)
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Perhaps a controversial idea – and undoubtedly risky – Apple Hospitality (NYSE:APLE) deserves to be on your radar if you have an adventurous (and patient) personality. Based in Richmond, Virginia, the other “fruit” company owns one of the largest and most diverse portfolios of upscale, rooms-focused hotels in the U.S.
Now, I say Apple Hospitality may be controversial not because of anything sordid but rather, the relevance (or lack thereof) underlying the business. With consumers facing pressures associated with stubbornly high interest rates – along with persistent mass layoffs – the hospitality sector faces risks. If anything, the trade-down effect can rear its ugly head.
That said, if you’re a contrarian, you might be interested in the value proposition. Since the start of the year, APLE lost about 5% of equity value. However, that also means APLE trades at 9.2x FFO, below the sector median 12.55x. Also, analysts peg APLE a moderate buy with an $18 price target, implying nearly 22% upside potential.
REITs to Buy: Prologis (PLD)
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Headquartered in San Francisco, California, Prologis (NYSE:PLD) invests in logistics facilities. From its public profile, Prologis’ strategy centers on acquiring warehouses located close to large urban areas where land is scarce. Presently, the company serves approximately 6,600 tenants. Interestingly, Prologis began expanding its non-real estate business called Essentials, offering customers solar power, racking systems and forklifts, among other equipment.
To be sure, PLD isn’t exactly a sterling hidden gem. For example, shares trade at 19.38x FFO, which ranks worse than nearly 78% of the competition. At the same time, for that premium, you get an enterprise with a three-year revenue growth rate of 13.1%. That’s above 87.8% of sector rivals. Also, during the same period, its EBITDA growth rate impresses at 14.2%.
In terms of passive income, Prologis offers a forward yield of 3.24%. That’s a bit lower than other REITs to buy, with the sector average hitting 4.46%. However, the company also enjoys 10 years of consecutive dividend increases. In closing, analysts peg PLD a strong buy with a $145.13 target, implying 35% growth.
Realty Income (O)
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Ranking among the most popular REITs to buy, Realty Income (NYSE:O) invests in free-standing, single-tenant commercial properties in the U.S. As well, its footprint has expanded to Spain and the U.K. Notably, retail investors look to Realty Income because it offers monthly dividends. Naturally, a monthly payout is useful for income purposes because it aligns with other billing cycles.
On a fundamental level, O could be one of the top REITs to buy during the present market turbulence because of consumer relevance. Per its website, Realty’s top three holdings are convenience stores, grocery stores and discount dollar stores. Should economic headwinds bite, households will almost invariably look to save money. Thus, Realty Income could rise higher.
To be fair, O is volatile, losing over 23% since the January opener. Still, that also means that its price-to-FFO ratio declined from 17.11x in Q2 2022 to its current 12.01x. For some contrarians, that might be too hard to ignore. Lastly, analysts rate O a moderate buy with a $68.13 target, implying over 39% upside.
REITs to Buy: Innovative Industrial Properties (IIPR)
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Perhaps the riskiest name among REITs to buy on this list, Innovative Industrial Properties (NYSE:IIPR) simultaneously offers a compelling narrative. For cannabis advocates, Innovative Industrial may well be the most compelling real estate company. Specializing in leased properties to state-licensed cannabis operators, the enterprise depends heavily on legislative momentum.
After peaking in November 2021, IIPR has crashed hard. Much of the volatility stems from the Federal Reserve raising interest rates. Subsequently, the spike in borrowing costs killed business expansionary incentives. Even this year, IIPR has shed just over 26% of equity value since the January opener. It’s a tough ride, no doubt about it.
However, high-level governmental rumblings have materialized regarding marijuana legalization. It’s too early to make any serious prognostications. Still, if the green flag drops, the sector could rebound from its long-term slump. That would be quite helpful for IIPR. On a final note, analysts rate shares a hold. Still, the price target stands at a lofty $118, implying almost 63% upside.
On the date of publication, Josh Enomoto did not have (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.
A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare. Tweet him at @EnomotoMedia.
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