Amid inflation dips and interest rate hike pauses, it seems wise to consider fortifying your portfolio with robust Real Estate Investment Trusts (REITs): SmartCentres Real Estate Investment Trust (CWYUF), Simon Property Group, Inc. (SPG), and Saul Centers, Inc. (BFS), which are rated B (Buy) in our proprietary POWR Ratings system. Let's understand this in more detail.
Last month, inflation edged lower due to reduced gasoline prices and a general easing of price pressures across the economy. According to the U.S. Bureau of Labor Statistics, the consumer price index in November rose by 3.1% from a year earlier, indicating a slight decrease from October's 3.2%.
On top of it, the Federal Reserve paused an interest rate hike this month, further indicating at least three rate cuts in 2024.
That said, the economic backdrop remains shrouded in uncertainty. REITs consistently distribute at least 90% of taxable income as dividends to shareholders, providing a dependable income source during turbulent periods. Their high-yield dividends could provide a shield against the potential impacts of an unpredictable economic landscape.
Looking forward, the REIT market is projected to expand by $333.01 billion from 2022 to 2027, with a CAGR of 2.8%. Furthermore, investors’ interest in REITs is evident from the SPDR Dow Jones REIT ETF's (RWR) 10.7% returns over the past month.
Moreover, as the holiday season kicked off, consumer spending showed an uptick, underscoring consumer resilience. Retail sales rose 0.3% in November from October, while it rose 0.6%, excluding car and gas sales. This bodes well for the retail REIT sector.
In light of these trends, let’s look at the fundamentals of the three REITs - Retail stocks.
Stock #3: SmartCentres Real Estate Investment Trust (CWYUF)
One of the most fully integrated REITs in Canada, CWYUF has 191 strategically located mixed-use properties across the country that total $12.0 billion in assets. It has a 98.5% occupancy across 3,500 acres of owned Canadian property and holds 35 million square feet of income-generating retail and top-tier office space.
On December 18, CWYUF's trustees announced a December 2023 distribution of $0.15417 per unit, equivalent to an annualized rate of $1.85 per unit. The distribution is scheduled for January 15, 2024, to unitholders recorded as of December 29, 2023.
CWYUF pays a $1.26 per share dividend annually, translating to a 6.85% yield on the current price level. Its four-year average dividend yield is 7.17%.
Additionally, in its fiscal third-quarter release, the company reported the initiation of construction or initial site works on four new mixed-use development projects. This could enhance the REIT's portfolio diversification and income potential and also fortify its overall position, benefiting unitholders.
For the third quarter that ended September 30, 2023, CWYUF’s rentals from investment properties and other increased 4.6% year-over-year to $206.02 million. Its net income and comprehensive income grew significantly from the year-ago value to $215.18 million. Moreover, the company’s AFFO rose 5.8% from the prior year’s period to $85.79 million.
Analysts expect CWYUF’s revenue to increase 4.8% year-over-year to $637.99 million for the fiscal year ending December 2023. Moreover, the company’s revenue for the next fiscal year (ending December 2024) is estimated to grow 1.6% from the prior year to $648.48 million.
Shares of CWYUF have gained 9.1% over the past month to close the last trading session at $18.23.
CWYUF’s positive fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, equating to Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, each weighted to an optimal degree.
CWYUF has a B grade for Growth and Stability. It is ranked #3 out of 29 stocks within the REITs - Retail industry.
In addition to the POWR Ratings I’ve highlighted, you can see CWYUF’s Value, Momentum, Sentiment, and Quality ratings here.
Stock #2: Simon Property Group, Inc. (SPG)
SPG is a prominent real estate investment trust that owns and operates prime shopping, dining, and entertainment destinations worldwide. With properties spanning North America, Europe, and Asia, it serves as community hubs, attracting millions daily and generating billions in annual sales through its diverse and vibrant mixed-use offerings.
On October 30, SPG declared a quarterly common stock dividend of $1.90 per share for the fourth quarter of 2023. This represents a 5.6% year-on-year increase. The dividend will be paid on December 29, 2023, to shareholders on record on December 8, 2023.
The company pays a $7.60 per share dividend annually, translating to a 5.26% yield on the current price level. Its dividend payouts have grown at a 3.1% CAGR over the past three years, and its four-year average dividend yield is 6.47%.
Presently, the company anticipates net income for the year ending December 31, 2023, to range between $6.67 and $6.77 per diluted share and FFO between $12.15 and $12.25 per diluted share. This FFO range reflects an upward revision from the previous guidance on August 2, 2023, showcasing an increase of $0.30 per diluted share at the midpoint.
SPG’s total revenue increased 7.2% year-over-year to $1.41 billion for the third quarter that ended September 30, 2023. Its consolidated net income grew 9.5% from the year-ago value to $680.76 million.
Furthermore, the FFO of the operating partnership amounted to $1.20 billion, up 9.3% year-over-year, while FFO per share rose 9.2% from the prior year’s quarter to $3.20.
The consensus revenue estimate of $5.34 billion for the fiscal year ending December 2024 reflects a 3.3% year-over-year improvement. Similarly, the consensus FFO estimate of $12.19 for the next fiscal year exhibits a marginal rise from the previous year. Also, the company topped the consensus revenue estimates in all four trailing quarters.
The stock has gained 29.7% over the past six months to close the last trading session at $143.62.
SPG’s sound prospects are reflected in its POWR Ratings. The stock has an overall rating of B, which translates to a Buy in our proprietary rating system.
SPG has a B grade for Quality and Sentiment. It is ranked #2 out of 29 stocks within the same industry.
Click here to access the additional SPG ratings (Growth, Value, Stability, and Momentum).
Stock #1: Saul Centers, Inc. (BFS)
BFS is a self-managed and self-administered equity REIT that presently oversees a real estate portfolio comprising 61 properties. This includes 50 community and neighborhood shopping centers, seven mixed-use properties, totaling around 9.8 million square feet of leasable area, along with four non-operating land and development properties.
On December 7, BFS announced a quarterly dividend of $0.59 per share on its common stock. The dividend is scheduled for payment on January 31, 2024, to shareholders of record as of January 16, 2024, maintaining consistency with the previous quarter and the corresponding quarter of the preceding year.
BFS pays a $2.26 per share dividend annually, translating to a 5.95% yield on the current price level. The company’s dividend payouts have grown at a 3.6% CAGR over the past three years. Moreover, its four-year average dividend yield is 5.72%.
For the third quarter that ended September 30, 2023, BFS’ total revenue increased 4.4% year-over-year to $63.78 million. Its net income grew 7.7% from the year-ago value to $16.71 million.
Also, FFO available to common stockholders and noncontrolling interests rose 4.4% from the prior year’s period to $26.01 million, while FFO per share available to common stockholders and noncontrolling interests increased 4.1% year-over-year to $0.76.
Over the past month, the stock has gained 10.3%, closing the last trading session at $39.58.
BFS’ robust outlook is apparent in its POWR Ratings. The stock has an overall rating of B, which equates to a Buy in our proprietary rating system.
BFS has an A grade for Stability and a B for Sentiment. It has topped the 29-stock REITs - Retail industry.
Click here to access additional BFS ratings for Growth, Value, Quality, and Momentum.
What To Do Next?
43 year investment veteran, Steve Reitmeister, has just released his 2024 market outlook along with trading plan and top 11 picks for the year ahead.
SPG shares were trading at $145.55 per share on Tuesday morning, up $1.93 (+1.34%). Year-to-date, SPG has gained 31.88%, versus a 25.30% rise in the benchmark S&P 500 index during the same period.
About the Author: Aanchal Sugandh
Aanchal's passion for financial markets drives her work as an investment analyst and journalist. She earned her bachelor's degree in finance and is pursuing the CFA program. She is proficient at assessing the long-term prospects of stocks with her fundamental analysis skills. Her goal is to help investors build portfolios with sustainable returns.
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