VICI, GLPI, and IRM lead their peers in momentum

A construction worker uses a saw to cut wood as he builds framing for a new house in a development

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Top-performing real estate investment trusts (REITs) this month include VICI Properties Inc., Gaming and Leisure Properties Inc., and Omega Healthcare Investors Inc., which have risen as much as 70% in the past year even as the U.S. real estate market weakens. REITs, represented by the Real Estate Select Sector SPDR Fund (XLRE), have declined by 15% over the past 12 months compared with a 13% drop in the Russell 1000 Index.

Rising interest rates have helped cut demand and prices for residential and commercial properties. The downturn places a unique stress on many REITs because they are required to pay out at least 90% of their taxable income as dividends.

We look below at the top REITs in three categories: best value, fastest growth, and most momentum. All data are as of Jan 19, 2023.

Best Value REITs

These are the REITs with the lowest 12-month trailing price-to-earnings (P/E) ratio. Because profits can be returned to shareholders in the form of dividends and buybacks, a low P/E ratio shows that you're paying less for each dollar of profit generated.

Best Value REITs
  Price ($) Market Cap ($B) 12-Month Trailing P/E Ratio
Annaly Capital Management Inc. (NLY) 22.46 10.5 2.8
Rithm Capital Corp. (RITM) 8.88 4.2 4.6
Apartment Income REIT Corp. (AIRC) 35.96 5.4 6.0

Source: YCharts

  • Annaly Capital Management Inc.: Annaly invests in agency mortgage-backed securities (MBS), residential and commercial real estate, and middle-market loans. Annaly recently promoted CFO Steven F. Campbell to president, reporting to CEO and CIO David Finkelstein, who until now had also held the president's title.
  • Rithm Capital Corp.: Rithm, formerly New Residential Investment Corp., invests in the residential housing sector, including in mortgage-servicing-related assets, loans, and non-agency securities.
  • Apartment Income REIT Corp.: The company manages various apartment communities throughout the United States. Apartment Income said in November that its net income fell by 68% in the third quarter from a year earlier although revenue rose 5%.

Fastest-Growing REITs

These are the top REITs as ranked by a growth model that scores companies based on a 50/50 weighting of their most recent quarterly year-over-year (YOY) percentage revenue growth and their most recent quarterly YOY earnings-per-share (EPS) growth.

Sales and earnings are critical factors in the success of a company, so ranking companies by only one growth metric makes a ranking susceptible to the accounting anomalies of that quarter (such as changes in tax law or restructuring costs) that may make one figure or the other unrepresentative of the business in general. Companies with quarterly EPS or revenue growth of more than 2,500% were excluded as outliers.

Fastest-Growing REITs
  Price ($) Market Cap ($B) EPS Growth (%) Revenue Growth (%)
Public Storage (PSA) 287.55 50.5 510.3 21.6
AvalonBay Communities Inc. (AVB) 168.70 23.6 530.4 14.6
Healthpeak Properties Inc. (PEAK) 26.61 14.3 550.0 8.1

Source: YCharts

  • Public Storage: Public Storage acquires, develops, owns, and operates self-storage facilities in 40 states. The company recently announced the opening of a 195,000-square-foot, 2,600-unit storage property in Cupertino, California.
  • AvalonBay Communities Inc.: AvalonBay owns and invests in nearly 300 apartment communities in metropolitan areas across 12 states and Washington, D.C. The company reported third-quarter EPS that came in six times higher than the prior-year quarter as revenue increased 15%, driven by sales of properties and rising same-store residential net operating income.
  • Healthpeak Properties Inc.: Healthpeak owns and develops healthcare real estate, including life science, medical office, and continuing care retirement communities.

REITs With the Most Momentum

These are the REITs that had the highest total return over the past 12 months.

REITs With the Most Momentum
  Price ($) Market Cap ($B) 12-Month Trailing Total Return (%)
VICI Properties Inc. (VICI) 33.18 32.0 25.4
Gaming and Leisure Properties Inc. (GLPI) 51.87 13.4 24.1
Iron Mountain Inc. (IRM) 51.10 14.9 24.0
Russell 1000 N/A N/A -13.0
Real Estate Select Sector SPDR Fund (XLRE) N/A N/A -15.3

Source: YCharts

  • VICI Properties Inc.: VICI owns gaming, hospitality, and entertainment properties. Net income and total revenue doubled during the third quarter, driven by incremental revenue from several acquisitions earlier in the year, including MGM Growth Properties LLC and the land and real estate assets of the Venetian Resort Las Vegas. The company's next quarterly dividend of $0.39 per common share is payable Jan. 5 to shareholders as of Dec. 22.
  • Gaming and Leisure Properties Inc.: Gaming and Leisure owns casino and entertainment properties that it leases to operators. Net income for the latest quarter rose by more than half on a 12% increase in net revenue, driven by the sale of non-land real estate assets and equity interests in Tropicana Las Vegas Hotel and Casino for $145 million.
  • Iron Mountain Inc.: Iron Mountain is an information management service company with a real estate network that protects and stores sensitive business information for various organizations.

Key Metrics for Analyzing REITs

Investors should have an understanding of specific metrics when analyzing REITs due to their specialized structure. Two key metrics used to analyze these securities include funds from operations (FFO) and adjusted funds from operations (AFFO).

FFO: This metric measures a company's cash flow generated through its business operations by adding and subtracting certain items from net income. Investors calculate FFO by adding depreciation and amortization charges to net income while deducting gains from property sales. FFO provides investors with a more accurate reflection of operational performance, as real estate investments typically appreciate, rather than depreciate like many assets, in value over time.

AFFO: This metric measures a real estate company's recurring/normalized FFO after deducting capital maintenance expenditures. Many analysts consider AFFO a superior measure to FFO as it considers the ongoing costs of managing a real estate property over its life. Investors typically use AFFO to determine a company's ability to pay dividends to stockholders in the future.

Practical Example Calculating FFO and AFFO

Let's assume XZY Limited reported net income of $1 million. It also incurred $50,000 and $100,000 in depreciation and amortization costs during the same reporting period. In addition, the company had a $200,000 profit from the sale of a property in its portfolio.

XZY also reported rents of $75,000 and recurring capital expenditures (CapEx) of $100,000, which it incurred when making maintenance repairs to properties it owns.

Step 1: Calculate the FFO value.

FFO = $1,000,000 + $50,000 + $100,000 – ($200,000)

FFO = $1,150,000 – $200,000

FFO = $950,000

Step 2: Deduct recurring capital expenditures and rents from the FFO value.

AFFO = FFO – Capital Expenditures – Rent Adjustments

AFFO = $950,000 – $100,000 – $75,000

AFFO = $775,000

Advantages of Investing in REITs

Two primary advantages REITs provide investors relate to liquidity and diversification. Real estate investments have a time-tested favorable risk/return profile with less volatility compared with other assets. However, closing real estate deals typically takes weeks or months, making the asset class extremely illiquid. REITs solve this problem by having their securities traded on major stock exchanges, allowing investors to buy and sell easily.

Real estate investment requires a significant financial commitment, often limiting buyers to a specific market or type of property. Investing in REITs solves this issue by allowing investors to diversify, with many trusts holding a portfolio of different property types, such as condos, retail space, healthcare facilities, or even telecommunication infrastructure.

The comments, opinions, and analyses expressed herein are for informational purposes only and should not be considered individual investment advice or recommendations to invest in any security or adopt any investment strategy. Though we believe the information provided herein is reliable, we do not warrant its accuracy or completeness. The views and strategies described in our content may not be suitable for all investors. Because market and economic conditions are subject to rapid change, all comments, opinions, and analyses contained within our content are rendered as of the date of the posting and may change without notice. The material is not intended as a complete analysis of every material fact regarding any country, region, market, industry, investment, or strategy.

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