Best REITs to Buy in May

April was a difficult month for REITs, as comments from the Federal Reserve about economic strength hampering efforts to achieve a 2% inflation goal, thus triggering a further delay in cutting interest rates took a toll on all interest-sensitive stocks. However, despite the uncertain interest-rate outlook, many first quarter REIT earnings reports have been quite favorable, beating estimates and year-over-year numbers.

Given the present environment, REIT investors must look for the highest quality issues and those with strong Q1 earnings reports.

The following list of REITs contains three distinct categories (Best High Yield, Best Growth, and Best Value), while utilizing both long and short performance time frames, and provides what could be the best opportunities in the REIT sector as we move into May.

Best High Yield REITs

When selecting REITs to buy, investors shouldn’t be drawn to high-yielding dividends without considering the overall recent performance, safety, and reliability of the dividend and the company.

NewLake Capital Partners (OTCMKTS: NLCP) is a New Canaan, CT internally managed specialized industrial REIT with 31 properties of 1.6 million square feet across 12 states. Newlake Capital Partners specializes in triple-net leasing to cannabis companies, and providing capital to them if necessary.

Newlake was founded in 2019 and launched its Initial Public Offering (IPO) in August 2021. Its tenants include the largest companies in the cannabis industry, such as Curaleaf, Cresco Labs, and Truelieve. As of March 2024, it had a 100% occupancy rate, with an average of 14.3 years remaining on its lease terms and 2.6% annual rent escalations on 15-20 year lease terms.

On March 11, NewLake announced its Q4 2023 operating results. Funds from operations (FFO) of $0.51 beat the estimates of $0.45 and topped its FFO of $0.48 in Q1 2023. Revenue of $13.02 million beat the forecast of $11.41 million and topped Q4 2022 revenue of $12.18 million.

Additionally, on March 11, Newlake Capital Partners raised its quarterly dividend from $0.40 per share to $0.41 per share. The $1.64 annualized dividend presently yields 8.24%.

On April 2, the Florida Supreme Court approved an initiative to legalize recreational marijuana in Florida through a referendum on the November ballot. Newlake has one property leased to Curaleaf Holdings in Florida and will stand to benefit if the referendum is passed. Several other tenants of Newlake have a presence in Florida as well. It would not be surprising to see Newlake begin acquiring more properties in Florida, since polls have shown support for recreational use legalization in that state. 

More good news for cannabis companies was forthcoming on May 1 when the U.S. Drug Enforcement Administration (DEA) was said to be moving toward reclassifying marijuana from the Schedule I group to the less regulated Schedule III group. The proposal still needs to be reviewed by the White House Office of Management and Budget, then another review by an administrative judge.

Newlake Capital Partners had a total return of - 0.68% in April. 

Alpine Income Trust Inc (NYSE: PINE) replaces OutFront Media Inc (NYSE: OUT) as one of the best high-yield REITs to buy in May. Alpine Income is a Daytona Beach, FL based retail REIT that owns and operates 138 high-quality net-leased properties of 3.8 million square feet across 35 states. 65% of its tenants are investment-grade companies such as Lowes, Dollar Tree, Walgreens, Walmart, Advanced Auto Parts and Dick’s Sporting Goods. As of March 30, Alpine Income Property Trust had an occupancy rate of 99%.

On April 18, Alpine Income reported its first quarter 2024 operating results. FFO of $0.41 per share topped the street’s view of $0.38 per share and its Q1 2023 FFO of $0.36 per share. Revenue of $12.47 million ahead of analysts’ estimates of $11.66 million and was 116% above revenue of $11.17 million in Q1 2023. Alpine Income Property Trust additionally maintained its full-year 2024 adjusted funds from operations (AFFO) guidance from $1.53-$1.58 per share, slightly above the consensus estimate of $1.54 per share. 

On April 19, Jones Trading analyst Jason Weaver maintained Alpine Income Property Trust with a Buy but lowered the price target from $19 to $18. On the same day, Stifel analyst Nathan Jones maintained a Buy on Alpine Income Property Trust but lowered the price target from $19 to $18.75. 

Alpine Income Trust pays a quarterly dividend of $0.275 per share, and the annual dividend of $1.10 yields 7.21%.

TPG Real Estate Finance Trust (NYSE: TRTX) replaces EPR Properties (NYSE: EPR) as one of the best high-yield REITs to buy in May. TPG RE Finance Trust, a subsidiary of TPG Real Estate, is a mortgage REIT with a $3.5 billion portfolio of first mortgage loans with an average loan size of $69.4 million, in geographically diversified primary and select secondary markets across the U.S.

On April 30, TPG RE Finance Trust reported its Q1 2024 operating results. Adjusted earnings per share (EPS) of $0.30 beat the forecast of $0.18 and topped EPS from Q1 2023 of $0.17. Revenue of $3.927 million was ahead of estimates of $23.180 million and 54.14% above Q1 2023 revenue of $25.255 million.

TPG RE Finance’s total return was -5.91% in April. However, since the earnings report after the closing bell on April 30, the stock has soared 14.05%. 

On April 12, Raymond James analyst Stephen Laws downgraded TPG RE Finance Trust from Strong Buy to Outperform while maintaining the price target at $8.50. 

On April 25, the Board of Directors approved a share repurchase program for up to $25.0 million of common stock.

TPG Real Estate pays a quarterly dividend of $0.24 per share. The dividend yield on the $0.96 annual dividend is 11.8081%.

Best Growth REITs

When looking to purchase the best growth REIT stocks, investors can feel confident about making the best selections by considering the long-term price history of the company, regardless of where that price is today. These three REITs have a terrific appreciation history but have lower dividend yields than most REITs: 

Iron Mountain Inc (NYSE: IRM) is a Portsmouth, NH based specialty REIT focused on information management and storage, data center infrastructure, and asset life cycle management. Iron Mountain was founded in 1951 and has more than 240,000 customers worldwide. In recent years, Iron Mountain has shifted its focus from paper storage to data storage. 

Analysts remain positive on Iron Mountain. On March 15, Wells Fargo analyst Eric Luebchow maintained an Overweight position on Iron Mountain and raised the price target from $80 to $90. Barclays’ analyst Brendan Lewis also has an Overweight position from early March on Iron Mountain, with a $91 price target.

On May 2, Iron Mountain reported its Q1 2024 operating results. FFO of $1.10 per share beat the consensus estimate of $0.92 per share and trounced FFO from Q1 2023 of $0.71 per share. Revenue of $1.48 billion beat the analyst estimates of $1.45 billion and was 12.40% better than revenue of $1.31 billion in Q1 2023.

Iron Mountain is the premiere growth REIT today. Over the past 10 years, a 19.20% annualized total return leads all other REITs. Since February 1996, Iron Mountain’s long-term total return is 3,500.26%.

American Tower Corp (NYSE: AMT) is a Boston, MA based specialty REIT that calls itself “a global leader in wireless infrastructure.” Founded in 1995, American Tower owns, operates, and develops wireless and broadcast communications real estate. Most of its business is leasing space on wireless and broadcast towers and it also leases portions of the land below the tower for equipment storage. Typical tower components are coaxial cabling and fiber optic cables.

American Tower has a presence in 224,000 global communication sites across 25 different countries in six continents. About 43,000 properties are in the U.S. and Canada, and approximately 181,000 are international. Contracts usually have a term from five to 10 years with renewal options and annual lease escalators of about 3%.

American Tower has a new CEO/President, Steven Vondran, replacing retiring longtime CEO/President Tom Bartlett on Feb. 1. Mr. Bartlett remains as an adviser to the new CEO.

On April 30, American Tower released its first quarter 2024 operating results. Adjusted Funds from Operations (AFFO) of $2.79 per share easily beat the consensus estimate of $2.54 per share, and AFFO of $2.54 in Q1 2023. Revenue of $2.834 billion also beat the street’s view of $2.795 billion and topped revenue of $2.767 billion from Q1 2023.

On May 1, three different analysts assessed American Tower’s future. Scotiabank analyst Maher Yaghi maintained American Tower at Sector Outperform and lowered the price target from $243 to $223. BMO analyst Ari Klein maintained American Tower at Outperform and lowered the price target from $228 to $220. However, Raymond James analyst Ric Prentiss upgraded American Tower from Outperform to Strong Buy and raised the price target from $226 to $248. 

American Tower had a total return of -10.27% in April. But with the strong Q1 earnings and the Raymond James upgrade, American Tower has already bounced back over the first week of May. American Tower has been a leading growth REIT for many years with an annualized 10-year total return of 152.32%. It remains one of the top growth REITs to buy.

Terreno Realty Corp (NYSE: TRNO) is an industrial REIT that owns and operates 259 properties with 16.0 million square feet in six major coastal U.S. markets. Those areas are Miami, Northern New Jersey/New York City, WA D.C., Seattle, Los Angeles and San Francisco. Terreno has 580 customers as of Dec. 31, 2023.

On Feb. 7, Terreno released its fourth-quarter operating results. Funds from operations (FFO) of $0.58 beat the estimates of $0.57 and topped Q4 2022 FFO of $0.54. Revenue of $86.48 million beat the street’s view of $84.38 million and was 13.8% higher than Q4 2022 revenue of $76.01 million.

Terreno Realty has recently acquired and sold several properties. On April 1, Terreno Realty announced it sold a 25,000 square feet property in Seattle, WA for $11.0 million that Terreno originally purchased in 2016 for $4.7 million.

On April 12, Terreno announced it had begun construction of a 162,000 square feet industrial distribution building on 10 acres in Hialeah, Florida. The building is already preleased to a national tire distributor. Construction is expected to be completed by the end of 2024.

On April 16, Terreno announced it had acquired an industrial property in Alexandria, VA for $84.3 million. The property has four industrial buildings with approximately 357,000 square feet on 19.1 acres. The property is 100% leased to 21 tenants with leases extending into 2031.

On May 2, Terreno announced it acquired a portfolio of 28 industrial properties in New York City, Northern New Jersey, San Francisco and Los Angeles for a purchase price of approximately $364.5 million. The buildings are presently 91.6% leased to 70 tenants.

On April 2, Mizuho analyst Vikram Malhotra maintained a Neutral rating on Terreno and raised the price target by 19.2% from $52 to $62.

Despite a difficult April in which it was down over 10%, Terreno has a long-term growth record that is quite superior. Its ten-year total return is 264.11%. It remains one of the best growth REITs to purchase for May. 

Best Value REITs

Long-term investors looking for undervalued REITs should consider solid companies with good track records over the years who for one reason or another have fallen out of favor with Wall Street. These REITs now provide solid dividend yields for income investors, have low price/FFO ratios and over time may provide solid appreciation once economic conditions improve.

Independence Realty Trust Inc. (NYSE: IRT) is a Philadelphia based residential REIT that at the end of 2023, had 106 multifamily properties with 31,829 units across 12 states. About 70% of the portfolio is in the Sun Belt region. Its investment strategy is focused on purchasing properties near major employment centers, with good school districts and higher-class retail stores. Independence Realty had a Q1 2024 Same-Store average occupancy rate of 94.3%.

The Price/FFO ratio is 14.33, well below the P/FFO of peers such as AvalonBay Communities, Inc. (NYSE: AVB) with 17.66 and Mid-America Apartment Communities Inc (NYSE: MAA) with 14.87.

Independence pays a quarterly dividend of $0.16 per share and the annual dividend of $0.64 per share yields 3.92%. However, it should be noted that the dividend was cut from $0.18 to $0.12 in July 2020, because of COVID-19, before being raised to $0.14 in June 2022 and $0.16 in June 2023.

On March 4, Independence Realty announced it had received an investment grade rating of “BBB” from Fitch Ratings. Independence paid off $84.5 million of debt on its line of credit in January after closing on the sale of four properties for $200.70 million. 

Analysts were recently upbeat on Independence Realty. On March 6, JMP Securities analyst Aaron Hecht maintained a Market Outperform rating on Independence and raised the price target from $15 to $17. On March 12, Baird analyst Wesley Golladay maintained an Outperform rating on Independence Realty and raised the price target from $16 to $17.

On April 2, Independence Realty announced the closing of the sale of three properties in three markets for $168.1 million. The sale was part of nine of 10 targeted properties since October 2023. Independence has now repaid $488.9 million in debt from these sales. 

Independence Realty had a total return of 0.77% in April and has been on an upward trend since the end of October.

Realty Income Corporation, (NYSE: O) is a San Diego based, triple-net lease REIT, with over 15,450 properties worldwide. The “Monthly Dividend Company,” as it’s widely known, is a member of the S&P 500, and an S & P 500 Dividend Aristocrat. Realty Income has increased its dividend 124 times since its IPO in 1994.

On Feb. 20, Realty Income reported its Q4 earnings. AFFO of $1.01 per share missed the estimate of $1.04 per share and was below AFFO of $1.05 per share in Q4 2022, but revenue of $1.08 billion beat the forecast of $1.02 billion and was 21.08% above revenue of $888.65 million in Q4 2022.

In addition, full-year 2024 AFFO guidance of $4.13-$4.21 per share fell short of the street’s expectation of $4.27 per share.

On March 7, Mizuho analyst Vikram Malhorta maintained a Buy rating on Realty Income and lowered the price target from $60 to $56. Realty Income was recently trading at $55.07.

On March 13, Realty Income raised its monthly dividend from $0.2565 to $0.2570 per share. On April 9, Realty Income declared its 646th consecutive common stock monthly dividend. This record is unmatched by any other REIT.

After its total return in March of 4.81%, Realty Income gained another 0.63% in April. Realty Income remains one of the foremost REITs today and with good reason. Its total return since Jan. 3, 1995, is 1,188.67%. With a P/FFO of only 13 and a history of trading above $70 as recently as 2022, this very popular REIT remains an excellent value play.

Regency Centers Corp (NASDAQ: REG) is a Jacksonville, FL based retail REIT, founded in 1963 that owns and operates 482 properties, totaling more than 61 million square feet in higher income areas, mostly on the East Coast of the U.S. Its portfolio, which has a 95.4%, lease rate, includes 80% grocery-anchored properties, along with restaurants, service providers, medical spaces and higher-class retailers. Regency Centers is a member of the S&P 500. It replaces Park Hotels & Resorts Inc (NYSE: PK) as one of the best value REITs to buy in May.

On April 18, Mizuho analyst Haendel St. Juste initiated coverage of Regency Centers with a Neutral rating and announced a price target of $60. In March, Jefferies analyst Linda Tsai lowered the price target from $75 to $72, while maintaining a Buy rating on Regency.

On May 2, Regency Centers reported its first quarter 2024 operating results. FFO of $1.08 beat the consensus estimate of $1.03 and was equal to FFO of $1.08 in Q1 2023.   Revenue of $357.46 million beat the consensus estimate of $346.96 million and topped Q1 2023 revenue of $317.977 by 12.41%.   

From its high of $67.73 in December, Regency Centers has now declined 13.43% to its recent trading price of $58.63 and the yield on its annual $2.64 dividend has climbed to 4.50%. The dividend is well covered with a payout ratio of 63% on a forward annual FFO of $4.18. 

As a value REIT, Regency Centers could be a very lucrative addition to one’s portfolio off the pullback from last winter.

Recent REIT Analysis

REIT Sector Performance

You can learn quite a bit from how the sector performs as a whole, reflecting on figures collected by Benzinga.

What to Look for When Choosing The Best REITs

While publicly-traded REITs are bought and sold on the stock market like any other publicly-traded company, REITs are a unique asset class that needs to be analyzed differently than other stocks. 

Funds From Operations (FFO)

If you're familiar with stocks, you're most likely familiar with terms like earnings per share (EPS) and price-to-earnings ratio (p/e ratio). However, these metrics don't offer much help when looking at an equity REIT.

To understand a REIT's true cash flow, you have to look at their funds from operation (FFO). Since real estate is a depreciable asset, a REIT's reported net income includes a significant depreciation expense. It also includes capital gains and losses from the sale of properties, which don't represent what investors can expect the company to earn on a consistent basis.

FFO adds depreciation back into the REIT's net income and takes out any gains or losses on the sale of property, providing a more accurate picture of a REIT's true earnings.

To use FFO as a way to value REITs, we divide the REIT's current share price by its FFO per share to get a price to FFO ratio. We then compare the price to FFO of the different REITs in each real estate sector to find value opportunities.

Balance Sheet

REITs have to carry a lot of debt in order to finance the properties they purchase. This is especially true because REITs are required to pay out 90% of their taxable income to shareholders in the form of dividends. This doesn't leave REITs with the ability to stockpile a lot of cash.

It's important to make sure that the REIT you're investing in isn't carrying too much debt, though. The easiest way to do this is by looking at their total debt compared to their earnings before interest, tax, depreciation and amortization (EBITDA). This is called a debt to EBITDA ratio.

For instance, if a REIT has a total of $1 billion in debt and their annual EBITDA is $250 million, you would divide $1 billion by $250 million to get a debt to EBITDA ratio of 4.

Ideally, you want to look for REITs with a debt to EBITDA ratio somewhere between 4 and 6. Anything above 6 and their balance sheet starts to look risky. You also want to make sure that they're not too conservative with their debt. A debt to EBITDA ratio below 4 can indicate that they're using too much cash that could be going to investors instead of utilizing debt.

A solid REIT management team will use a reasonable amount of debt to maximize their overall returns. This means more growth and higher dividends being paid to investors.

Dividends

One of the greatest advantages to REITs is their dividends. On average, REITs pay out significantly higher dividends than most other dividend stocks. 

You want to be careful not to get caught in a yield trap, though. Some REITs may increase their dividend payments to an amount they can’t sustain in order to attract or keep shareholders. They also may put off cutting dividends when their FFO has dropped. In either case, buying a REIT with a dividend it can’t sustain is a quick way to lose money. 

To get an idea as to whether a REIT’s dividend is safe, you’ll want to look at the FFO payout ratio. This compares the company’s FFO per share to its dividend rate. 

For instance, if a REIT has an FFO per share of $2 and a dividend payment of $1.50 per share, you’ll simply divide the dividend rate by the FFO per share to get 75%. 

Ideally, the REIT’s FFO payout ratio will be somewhere between 70% - 80%. However, a lower payout ratio is fine if you’re happy with the yield. A slightly higher payout ratio isn’t necessarily a red flag as long as they’ve consistently maintained that payout ratio while either keeping or increasing their dividend payments over time. 

The Real Estate

You can’t forget that investing in a REIT is essentially investing in a real estate portfolio. If you were buying properties directly instead of investing in a REIT, you would want to invest in assets that would provide you the greatest potential return with the least amount of risk possible. You want to look at REITs the same way. 

If you’re looking for a dependable REIT, you’ll want to look at ones that invest in a property type with a strong outlook. For instance, if you think shopping malls are doomed you won’t want to invest in a REIT that owns a lot of shopping malls. 

REIT ETFs

A REIT ETF is an exchange-traded fund that invests in REITs and other real estate stocks. These funds typically follow a REIT index and have a diversified portfolio with investments spread out across multiple companies.

Investing in The Best REITs

A REIT’s recent financials provide a great basis for choosing the best ones to buy, but major changes can happen between quarterly filings. Before investing in a real estate stock, be sure to look for recent news about any acquisitions, dispositions, offerings, or any other relevant news that can affect their future performance.

Other intriguing REITs include the Plymouth Industrial REIT, Emirates REIT, U.S. REIT ETF and the Apple Hospitality REIT.

You can learn more about how to use REITs to invest in the real estate market with our guide on How to Invest in REITs.

Related content: BEST HIGH-YIELD REITS