Top-performing real estate investment trusts (REITs) this month include Getty Realty Corp. (GTY), VICI Properties Inc. (VICI), and Gaming and Leisure Properties Inc. (GLPI), which have risen as much as 25% in the past year, even as the U.S. real estate market weakened.
REITs, represented by the Real Estate Select Sector SPDR Fund (XLRE), have declined by 15% over the past 12 months compared with a 4% drop in the Russell 1000 Index.
REITs in February gave up some of their gains from January, when the category returned more than 9%, dragged down by big declines in office and infrastructure REITs. Nonetheless, researchers with the National Association of Real Estate Investment Trusts (Nareit) say REIT balance sheets remain strong, with important performance metrics like funds from operations and net operating income proving resilient.
We look below at the top REITs in three categories: best value, fastest growth, and most momentum. All data are as of March 3.
Best Value REITs
|Best Value REITs|
|Price ($)||Market Cap ($B)||12-Month Trailing P/E Ratio|
|iStar Inc. (STAR)||7.75||0.6||1.3|
|Hersha Hospitality Trust (HT)||8.48||0.3||2.9|
|Dynex Capital Inc. (DX)||13.48||0.7||3.8|
- iStar Inc.: iStar finances and develops ground lease investments. On Aug. 11, iStar and Safehold Inc. (SAFE). a ground leasing company, entered a business merger agreement.
- Hersha Hospitality Trust: Hersha Hospitality owns and operates various luxury hotel properties. The company owns 25 hotels located in California, Florida, and the northeastern U.S. Hersha Hospitality is also an umbrella partnership REIT (UPREIT).
- Dynex Capital Inc.: Dynex Capital finances mortgage-backed securities (MBS). The company primarily invests in agency and non-agency MBS, such as residential and commercial MBS. On Feb. 10, Dynex Capital announced a cash dividend of 13 cents per share, payable March 1 to shareholders of record as of Feb. 21.
|Price ($)||Market Cap ($B)||EPS Growth (%)||Revenue Growth (%)|
|Two Harbors Investment Corp. (TWO)||16.69||1.4||321||284|
|Brandywine Realty Trust (BDN)||6.08||1||467||3|
|Dynex Capital Inc. (DX)||13.48||0.7||158||149|
- Two Harbors Investment Corp.: Two Harbors Investment finances and manages mortgage-backed securities. Some of their assets include adjustable-rate mortgages (ARM) and Agency RMBs. In early August, the company announced that Matrix Financial Services Corp., a wholly-owned subsidiary, would acquire RoundPoint Mortgage Servicing from Freedom Mortgage Corp. The acquisition is intended to give Two Harbors greater control over its mortgage servicing rights (MSR).
- Brandywine Realty Trust: Brandywine Realty acquires, develops, and manages science labs, office spaces, and residential properties. The company's real estate portfolio includes properties in Austin, Washington, D.C., and Philadelphia. On Feb. 16, Brandywine Realty declared a quarterly dividend of 19 cents per share that is payable April 19.
- Dynex Capital Inc.: See company description above.
|REITs With the Most Momentum|
|Price ($)||Market Cap ($B)||12-Month Trailing Total Return (%)|
|Getty Realty Corp. (GTY)||34.39||1.6||32|
|VICI Properties Inc. (VICI)||33.29||32||27|
|Gaming and Leisure Properties Inc. (GLPI)||52.77||13.8||25|
|Real Estate Select Sector SPDR Fund (XLRE)||N/A||N/A||-15|
- Getty Realty Corp.: Getty Realty is a net lease investment trust that acquires and develops single-tenant retail real estate. The company's portfolio includes convenience stores, car wash properties, and auto service facilities located primarily in New York, California, and Texas. On Feb. 28, Getty Reality announced a common stock public offering of 3 million shares, with proceeds expected to total $100 million.
- VICI Properties Inc.: VICI owns 49 entertainment properties in the U.S. and Canada and four championship golf courses. The company also leases properties to Caesars Entertainment Inc. (CZR), PENN Entertainment (PENN), and Hard Rock International. The REIT's net income skyrocketed 117% in the final quarter of 2022, with total revenue doubling from the year before. This company credited its financial success to continued acquisitions and expanded partnerships in Las Vegas and Canada.
- Gaming and Leisure Properties Inc.: Gaming and Leisure Properties owns and leases 59 casino and entertainment properties across 18 states. The company's net income rose by 67% for the fourth quarter of 2022 on a 13% increase in total revenue.
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 XYZ 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.
XYZ 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.
YCharts. "Financial Data."
Yahoo! Finance. "The Real Estate Select Sector SPDR Fund (XLRE) - Historical Data."
WealthManagement.com. "A Rough February Reverses Some 2023 Gains for Publicly-Traded REITs."
iStar Inc. "Safehold and iStar Announce Business Combination."
Dynex Capital Inc. "Dynex Capital Declares Common Stock Dividend of $0.13."
Two Harbors Investment Corp. "Two Harbors Announces Agreement to Acquire RoundPoint Mortgage Servicing Corp."
Brandywine Realty Trust. "Brandywine Realty Trust Announces Quarterly Dividend."
Getty Reality Corp. "Getty Reality Announces Pricing of Public Offering of 3,000,000 Shares of Common Stock."
VICI Properties Inc. "VICI Properties Announces Fourth Quarter and Full Year Results."
Gaming and Leisure Properties Inc. "Gaming and Leisure Properties Reports Record Fourth Quarter Results."
Yahoo! "A Guide to Understanding REITS: Metrics for Analysis."
Management Study Guide. "Advantages to Investing in Real Estate Investment Trusts."