Top REITs for September 2022

NLY, CPT, and IRM lead the pack for value, growth, and momentum, respectively

Real estate investment trusts (REITs) are publicly traded companies that allow individual investors to buy shares in real estate portfolios that receive income from a variety of properties. They allow investors to invest easily in the real estate sector, which includes companies that own, develop, and manage residential, commercial, and industrial properties.

Among other requirements, REITs are required to pay out at least 90% of their taxable income as dividends. A key REIT metric is funds from operations (FFO), a measure of earnings particular to the industry, which this article examines in more detail below. Some big names within the sector include American Tower Corp. (AMT), Crown Castle Inc. (CCI), and Prologis, Inc. (PLD).

The COVID-19 pandemic has significantly disrupted the commercial real estate industry, as workers around the world have adapted to working from home and various lockdown measures have been enacted. Despite the economy's recovery, the real estate industry's recovery has been uneven. Some companies are moving to new commercial office locations, others are repurposing existing spaces, and others are redesigning their existing space. Spurred by interest rates hikes imposed by the Federal Reserve, some analysts say that the housing market is already in a recession.

REITs, as represented by an exchange-traded fund (ETF)—the Real Estate Select Sector SPDR Fund (XLRE)—have outperformed the broader market. XLRE's -6.4% total return over the past 12 months bested the benchmark Russell 1000 index, which has provided a total return of -11.1%. These market performance numbers and the statistics in the tables below are as of Aug. 29, 2022.

Here are the top three REITs with the best value, fastest growth, and most momentum.

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) 6.54 11.3 2.6
Rithm Capital Corp. (RITM) 9.76 4.6 4.9
Apartment Income REIT Corp. (AIRC) 41.9 6.5 6.9

Source: YCharts

  • Annaly Capital Management Inc.: Annaly Capital invests in real estate and related assets, including agency mortgage-backed securities (MBS), residential and commercial real estate, and middle-market lending. On Aug. 18, Annaly Capital announced Q3 cash dividends for its Series F, Series G, and Series I Preferred Stock. The dividends are payable Sept. 30 to shareholders of record as of Sept. 1, 2022.
  • Rithm Capital Corp.: Rithm Capital, formerly known as New Residential Investment Corp., is a public REIT investing in the residential housing sector. The company's portfolio includes mortgage-servicing-related assets, residential loans, non-agency securities, and similar investments. The company first announced the name and stock ticker change, as well as an internalization of management, in June 2022.
  • Apartment Income REIT Corp.: Apartment Income REIT, known as AIR Communities, is a self-managed REIT investing in multi-family real estate across the U.S. The company owns properties that it manages as well as properties that it expects to sell or lease to a third party.

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 (%)
Camden Property Trust (CPT) 132.49 14.1 1,410 30.8
Realty Income Corp. (O) 69.99 43.2 12.1 74.9
The Howard Hughes Corp. (HHC) 64.67 3.2 366.7 30.2

Source: YCharts

  • Camden Property Trust: Camden Property Trust is a REIT that owns, manages, develops, and builds multifamily apartment communities. It owns interests in 171 properties in the U.S., which includes more than 58,000 apartments. On July 28, Camden reported earnings for Q2 2022. Net income surged roughly 16-fold on rising property revenues year-over-year (YOY). During the quarter, the company issued 2.9 million common shares through a public equity offering, earning more than $490 million in net proceeds.
  • Realty Income Corp.: Realty Income is a REIT that owns and manages commercial properties across the U.S. and Europe. Its monthly dividends are fueled by cash flow from more than 11,400 commercial real estate properties owned under long-term agreements.
  • The Howard Hughes Corp.: The Howard Hughes Corp. is a REIT that owns, manages and develops commercial, residential and mixed-use real estate across the U.S. It focuses on master planned communities in New York, Maryland, Texas, Nevada, and elsewhere. On Aug. 22, Howard Hughes announced that JDM Partners had exercised its option to reacquire a stake in one of Howard Hughes' master planned communities in Phoenix called Douglas Ranch. JDM acquired an additional 2.8% interest in the joint venture for about $15 million, boosting its total stake to roughly 12%. In 2021 Howard Hughes acquired the community from JDM and El Dorado Holdings for $541 million.

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 (%)
Iron Mountain Inc. (IRM) 54.01 15.7 22.7
Duke Realty Corp. (DRE) 60.17 23.2 20.8
W.P. Carey Inc. (WPC) 86.02 17.8 17.3
Russell 1000 N/A N/A -11.1
Real Estate Select Sector SPDR Fund (XLRE) N/A N/A -6.4

Source: YCharts

  • Iron Mountain Inc.: Iron Mountain focuses on information management and storage. It provides data center, secure record storage, art storage, and similar offerings.
  • Duke Realty Corp.: Duke Realty is a self-managed REIT that owns, manages, and develops industrial real estate. It also provides services related to construction management and development. On June 13, the company reported that it would be acquired by logistics real estate company Prologis in an all-stock transaction worth roughly $26 billion. Prologis plans to retain 94% of Duke's assets. The transaction is expected to close in Q4 2022.
  • W.P. Carey Inc.: W.P. Carey is a REIT with a portfolio commercial real estate including industrial, warehouse, office, retail, and self-storage properties across the U.S. and in Europe. On Aug. 1, the company announced the completion of its merger with Corporate Property Associates 18 – Global Incorporated, known as CPA:18. The merger is valued at roughly $2.7 billion and completes W.P. Carey's exit from the non-traded REIT business.

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 a net income of $1 million. It also incurred $50,000 and $100,000 in depreciation and amortization costs during the same reporting period. Additionally, the company made 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. McKinsey & Company. "Workplace Real Estate in the COVID-19 Era: From Cost Center to Competitive Advantage."

  2. Barron's. "The Housing Market Is in Recession. What It Means for Home Buyers."

  3. YCharts. “Financial Data.”

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

  5. Rithm Capital Corp. "New Residential Investment Corp. Announces Internalization and Rebrand to Rithm Capital, and Declares Second Quarter 2022 Dividends."

  6. Camden Property Trust. "Camden Property Trust Announces Second Quarter 2022 Operating Results."

  7. Howard Hughes Corp. "JDM PARTNERS REACQUIRES STAKE IN DOUGLAS RANCH MASTER PLANNED COMMUNITY FROM THE HOWARD HUGHES CORPORATION®."

  8. Duke Realty Corp. "Prologis to Combine with Duke Realty in $26 Billion All-Stock Transaction."

  9. W.P. Carey Inc. "W. P. Carey Inc. Completes $2.7 Billion Merger with CPA®:18."

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

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

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