Top REITs

NLY, PSA, and VICI lead the pack for value, growth, and momentum, respectively

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The top-performing real estate investment trusts (REITs) this month include storage-facility chain Public Storage, apartment investor AvalonBay Communities Inc., and healthcare real estate investor Healthpeak Properties Inc., which are leading their peers in profit and revenue growth even as the broader U.S. real estate market is weakening.

REITs, as represented by an exchange-traded fund (ETF)—the Real Estate Select Sector SPDR Fund (XLRE)—have fallen 17% over the past 12 months, compared with a 15% drop in the Russell 1000 Index. Many REITs's are experiencing falling prices and demand for residential and commercial properties thanks to rising interest rates. The downturn places a unique stress on REITs because they are required to pay out at least 90% of their taxable income as dividends.

Amid this difficult environment, we look at the top three REITs with the best value, fastest growth, and most momentum. These market performance numbers above and the statistics in the tables below are as of Nov. 22, 2022.

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) 20.79 9.7 2.6
Rithm Capital Corp. (RITM) 8.79 4.2 4.5
Apartment Income REIT Corp. (AIRC) 36.83 5.5 6.1

Source: YCharts

  • Annaly Capital Management Inc.: Annaly Capital invests in agency mortgage-backed securities (MBS), residential and commercial real estate, and middle-market loans. Annaly announced on Nov. 9 preferred dividends for its Series F, Series G, and Series I shares, which are payable Dec. 30.
  • Rithm Capital Corp.: Rithm, formerly New Residential Investment Corp., invests in the residential housing sector, including in mortgage-servicing-related assets, residential loans, and non-agency securities.
  • Apartment Income REIT Corp.: Apartment Income specializes in U.S. multi-family properties. It owns and manages apartment communities and invests in properties for sale or lease to third parties. The company in sold its New England portfolio more than 1,300 apartments for $500 million in early November, bringing the company's property sales and joint venture transactions over the past two years to $2.2 billion.

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. Both sales and earnings are critical factors in the success of a company. Therefore, 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) 299.35 52.6 510.3 21.6
AvalonBay Communities Inc. (AVB) 168.90 23.6 530.4 14.6
Healthpeak Properties Inc. (PEAK) 25.40 13.7 550.0 8.1

Source: YCharts

  • Public Storage: Public Storage acquires, develops, owns, and operates self-storage facilities in 40 states. The company on Nov. 1 reported a six-fold increase in EPS for the third quarter, driven by rising net operating income and the $2.1 billion sale of an equity investment.
  • AvalonBay Communities Inc.: AvalonBay owns and invests in nearly 300 apartment communities in metropolitan areas across 12 states and Washington, D.C. On Nov. 3, AvalonBay reported a six-fold rise in EPS, aided by the sale of real estate properties and rising same store residential net operating income.
  • Healthpeak Properties Inc.: Healthpeak owns and develops healthcare real estate assets, including life science, medical office, and continuing care retirement communities. The company on Nov. 1 reported a nearly seven-fold increase in net income, driven in part by rising same store performance in its life science and medical office assets.

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) 33.23 32.0 23.9
Iron Mountain Inc. (IRM) 52.96 15.4 19.1
Omega Healthcare Investors Inc. (OHI) 30.98 7.3 17.2
Russell 1000 N/A N/A -14.7
Real Estate Select Sector SPDR Fund (XLRE) N/A N/A -17.2

Source: YCharts

  • VICI Properties Inc.: VICI owns a portfolio of gaming, hospitality, and entertainment properties. In early November, the company announced a public offering of 16,500,000 shares of common stock expected to raise $509.9 million.
  • Iron Mountain Inc.: Iron Mountain provides information management, storage, and data services to companies, including data center space for enterprise-scale tasks. Its customers are in industries including entertainment, healthcare, insurance, and energy.
  • Omega Healthcare Investors Inc.: Omega invests in assisted living, skilled nursing, and rehabilitation facilities. The company's last dividend of $0.67 per common share was paid on Nov. 15, 2022.

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 to 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.

Article Sources
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  1. YCharts. “Financial Data

  2. YCharts. “Financial Data.”

  3. Wall Street Journal. "Public REITs Are Down, Nontraded REITs Are Up. Which Is Right?"

  4. Bloomberg. "US Commercial-Property Prices Slide 13% From Peak as Rates Jump."

  5. YCharts. “Financial Data

  6. Annaly Capital Management Inc. "Annaly Capital Management, Inc. Announces Preferred Dividends."

  7. Apartment Income REIT Corp. "AIR Communities Announces Sale of its New England Multi-Family Portfolio."

  8. Public Storage. "Public Storage Reports Results for the Three and Nine Months Ended September 30, 2022."

  9. AvalonBay Communities Inc. "AVALONBAY COMMUNITIES, INC. ANNOUNCES THIRD QUARTER 2022 OPERATING RESULTS AND FOURTH QUARTER 2022 FINANCIAL OUTLOOK," Pages 1, 2, 10.

  10. Healthpeak. "Healthpeak Properties Reports Third Quarter 2022 Results."

  11. VICI Properties Inc. "VICI Properties Inc. Announces Pricing of Public Offering of Common Stock."

  12. Omega Healthcare Investors Inc. "OMEGA ANNOUNCES QUARTERLY DIVIDEND AND SCHEDULES THIRD QUARTER EARNINGS RELEASE DATE AND CONFERENCE CALL," Page 1.

  13. Yahoo! "A Guide to Understanding REITS: Metrics for Analysis."

  14. Management Study Guide. "Advantages to Investing in Real Estate Investment Trusts."

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