3 REITs That Make Great Long-Term Investments

While inflation has slightly dipped in July from the 40-year high level, it remained uncomfortable for policymakers. Given the better-than-expected economic data, the elevated inflation strengthens the case for aggressive interest rate hikes.

However, real estate demand is witnessing an uptrend, thanks to the rising need for logistics infrastructure. In addition, the inclination of businesses toward local sourcing after the pandemic is expected to drive further growth in this sector. The real estate sector in the United States is projected to grow at a 3.7% CAGR to $412.60 billion by 2025.

Real Estate Investment Trusts (REITs) have historically outperformed other asset classes during periods of high inflation owing to appreciating property prices and rising rental incomes. With a mandate to pay out at least 90% of their taxable income as dividends, REITs are ideal all-weather investment vehicles for long-term income investors.

Investors’ interest in REITs is evident from Vanguard Real Estate ETF’s (VNQ) 9.3% gains over the past month.

Therefore, we think investing in quality REITs Public Storage (PSA), The GEO Group, Inc. (GEO), and LTC Properties, Inc. (LTC) could offer diversification, inflation hedge, and superior returns to long-term investors.

Public Storage (PSA)

PSA is involved with the acquisition, development, ownership, and operation of self-storage facilities. It is also a member of the S&P 500 and FT Global 500. The REIT operates through two segments: Self Storage Operations; and Ancillary Operations.

On August 1, PSA declared a regular common quarterly dividend of $2.00 per common, payable to shareholders as of record as of September 14, 2022. Its dividend payouts have grown at a 0.5% CAGR over the last five years. Its current dividend translates to a 2.3% yield annually. Also, the stock’s four-year average dividend yield is 3.3%.

On July 22, PSA announced a special dividend of $2.3 billion, translating to $13.15 per common share, as a projected tax gain from the completion on July 20 of the previously announced acquisition of PS Business Parks, Inc. (PSB). This reflects the company’s strong financial position.

PSA’s total revenues came in at $788.94 million, up 15.9% year-over-year for the second quarter ended June 30, 2022. Its rental income came in at $765.08 million, up 15.7% year-over-year. Also, its net operating income came in at $608.61 million, up 18.7% year-over-year.

The company’s core FFO amounted to $703.98 million, up 27.4% year-over-year. Its core FFO per common share improved 26.7% from the year-ago value to $3.99.

Analysts expect PSA’s revenue for fiscal 2022 (ending December 2022) to increase 25.8% year-over-year to $4.03 billion. The consensus FFO per share of $15.71 is expected to increase 21.5% year-over-year. The company has exceeded FFO estimates in each of the trailing four quarters.

Over the past year, the stock has gained 14.7% to close the last trading session at $352.85.

PSA’s POWR Ratings reflect this promising outlook. The stock has an overall B rating, which equates to a Buy in our rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.

It has a B grade for Growth, Stability, Sentiment, and Quality. PSA is ranked #1 among 20 stocks in the REITs – Industrial industry. Click here to see the additional ratings for PSA (Value and Momentum).

The GEO Group, Inc. (GEO)

GEO is a diversified government service provider specializing in design, financing, development, and support services for secure facilities in the United States., Australia, South Africa, and the United Kingdom. The company operates through four segments: U.S. Secure Services; Electronic Monitoring and Supervision Services; Reentry Services; and International Services. 

On August 17, GEO announced that it had successfully received the mandatory participation and consent of its secured and unsecured creditors to close the previously announced transactions to address the majority of GEO’s outstanding debt comprehensively.

George C. Zoley, Executive Chairman of GEO, expects this to significantly reduce the company’s total recourse debt due in 2023 and 2024 and stagger its debt maturities over a more extended period.

GEO’s total revenues increased 4% year-over-year to $588.18 million in the fiscal 2022 second quarter ended June 30, 2022. Its operating income amounted to$95.07 million, up 31.3% year-over-year. Net income attributable to GEO increased 28% from the year-ago quarter to $53.73 million. The company’s adjusted EBITDA grew 11.8% year-over-year to $132.34 million.

The consensus revenue estimate of $2.35 billion for the fiscal year 2022 represents a 4.1% increase from the previous year. Also, analysts expect the company’s revenue for the next year to grow 4.3% year-over-year to $2.45 billion. GEO has surpassed the consensus FFO estimates in each of the trailing three quarters.

GEO has gained 22.7% over the past month to close the last trading session at $8.00.

GEO’s POWR Ratings reflect this stable outlook. The company has an overall rating of B, which translates to a Buy in our proprietary rating system. It also has a B grade for Growth and Value. In the REITs - Diversified industry, it is ranked #4 among 49 stocks.

Beyond what we’ve stated above, we have also given GEO grades for Momentum, Stability, Sentiment, and Quality. Get all the GEO ratings here.

LTC Properties, Inc. (LTC)

LTC invests in senior housing and healthcare properties. It operates in four business segments: Skilled Nursing centers (SNF); Assisted Living Facilities (ALF); Independent Living Facilities (ILF); and Memory Care facilities (MC). Its operations include sale-leasebacks, mortgage financing, joint ventures, construction financing, and structured financing solutions.

On July 1, LTC declared a monthly cash dividend of $0.19 per common share for July, August, and September 2022. Its dividend payouts have grown at a 6.3% CAGR over the last three years. Its dividend payout ratio is 98.28%, while its current dividend translates to a 5.15% yield annually. Also, the stock’s four-year average dividend yield is 5.55%.

On May 12, LTC confirmed a $36 million investment for refinancing debt on four assisted living communities and a land parcel.

According to LTC’s Chairman and CEO, Wendy Simpson, “Year-to-date, LTC has used its flexibility and creativity to invest more than $110 million, with a current focus on newer construction. We will continue to identify new and strategic opportunities across various financing vehicles to put our capital to work in a way that benefits all LTC’s stakeholders.”

LTC’s total revenues increased 12.8% year-over-year to $43.02 million in the fiscal 2022 second quarter ended June 30, 2022. Its operating income came in at $54.11 million, up 201.4% year-over-year. FFO attributable to common shareholders, excluding non-recurring items, amounted to $24.49 million, up 9.8% year-over-year. Its FFO per common share improved 12.3% year-over-year to $0.64.

The consensus FFO per share estimate of $2.55 for the fiscal year 2022 represents an 8.1% improvement year-over-year. The consensus revenue estimate of $169.91 million for the current year represents a 9.4% increase from the previous year. The company has surpassed the consensus FFO estimates in each of the trailing four years.

LTC has gained 30.6% over the past six months and 27.9% over the past year to close the last trading session at $44.29.

LTC’s POWR Ratings reflect this stable outlook. The REIT has an overall rating of B, which translates to a Buy in our proprietary rating system. It is also rated B in Sentiment. Within the REITs - Healthcare industry, it is ranked #1 of 16 stocks.

To see additional POWR Ratings for Growth, Value, Momentum, Stability, and Quality for LTC, click here.

PSA shares were trading at $353.47 per share on Friday afternoon, up $0.62 (+0.18%). Year-to-date, PSA has declined -0.58%, versus a -10.43% rise in the benchmark S&P 500 index during the same period.

Mangeet’s keen interest in the stock market led her to become an investment researcher and financial journalist. Using her fundamental approach to analyzing stocks, Mangeet’s looks to help retail investors understand the underlying factors before making investment decisions.

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