The real estate market is thriving this year, driven by high home prices, low inventory, and steady buyer demand. Despite elevated mortgage rates, limited property availability and new construction are keeping the market competitive. These factors are fueling price growth, making real estate an attractive investment option for high yields, and a reliable hedge against inflation.
REITs capitalize on favorable real estate market conditions, offering high yields and stability, making them a strong complement to direct real estate investments. Hence, investors could consider buying strong Real Estate stocks: Simon Property Group, Inc. (SPG), Realty Income Corporation (O), and Ladder Capital Corp (LADR), all of which are well-positioned to benefit from current market dynamics.
This year, REITs are positioned for strong growth, fueled by potential interest rate cuts and robust performance across healthcare, industrial, and data center properties. With high occupancy rates, rising rents, and ongoing tenant demand, REITs offer reliable passive income. They distribute at least 90% of taxable income as dividends, ensuring consistent high yields for income-focused investors.
Moreover, inflation pressures increased modestly from mid-July to August, with a slight softening in consumer demand. Despite past inflation spikes raising economic concerns, Fed remains confident in achieving its 2% target. Real estate, particularly REITs, remains resilient against inflation, with rising property values and rents. As interest rates ease, REITs present a promising opportunity for long-term gains.
Considering this favorable backdrop, let’s assess the fundamentals of the three Real Estate picks.
Stock #3: Simon Property Group, Inc. (SPG)
SPG is a self-administered and self-managed real estate investment trust. It owns, develops, and manages premier shopping, dining, entertainment, and mixed-use destinations, including malls, Premium Outlets, The Mills, and international properties.
On September 5, 2024, SPG launched ShopSimon, an expanded and rebranded online marketplace offering premium and luxury sale-priced merchandise from over 360 retailers. The platform enhances SPG’s omnichannel shopping experience by integrating online and in-store retail opportunities.
On July 10, 2024, SPG announced its partnership with bp to install and operate over 900 ultra-fast EV charging bays at 75 of our locations across the US. These new charging stations, launching in early 2026, will offer SPG’s customers extensive retail options while they charge.
In terms of the trailing-12-month Return on Total Capital margin, SPG’s 6.37% is 204.3% higher than the 2.09% industry average. Its 0.18x trailing-12-month asset turnover ratio is 34.5% higher than the 0.13x industry average. Moreover, its 89.53% trailing-12-month Return on Common Equity is significantly higher than the 3.08% industry average.
SPG has paid dividends for 2 consecutive years. Its annual dividend is $8.20, which translates to a yield of 5.06% at the current share price. Its four-year average dividend yield is 5.59%. Moreover, the company’s dividend payouts have increased at a CAGR of 5.1% over the past three years.
SPG’s total revenue during the second quarter ended June 30, 2024, increased 6.6% year-over-year to $1.46 billion. Its consolidated net income rose 2.1% from the year-ago value to $569.44 million. Likewise, the company’s earnings per share increased 1.3% year-over-year to $1.51.
Analysts expect SPG’s revenue for the fiscal 2025 to increase 3.1% year-over-year to $5.49 billion. Its EPS for fiscal 2024 is expected to grow 2.4% year-over-year to $12.81. SPG surpassed the consensus EPS estimates in each of the trailing four quarters. Over the past year, the stock has gained 41.3% to close the last trading session at $161.93.
SPG’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of B, which translates to a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It is ranked #2 out of 30 stocks in the REITs - Retail industry. It has a B grade for Momentum and Quality. To see SPG’s Growth, Value, Stability, and Sentiment ratings, click here.
Stock #2: Realty Income Corporation (O)
O is a Monthly Dividend Company and a member of the S&P 500 Dividend Aristocrats index. It invests in people and places to deliver dependable monthly dividends that increase over time. Structured as a REIT, the company supports its monthly dividends through cash flow from over 15,450 real estate properties, primarily owned under long-term net lease agreements with commercial clients.
On August 15, 2024, O declared its 650th consecutive common stock monthly dividend of $0.26 per share, payable on September 13, 2024. It also announced a quarterly preferred stock dividend of $0.38 per share, payable on September 30, 2024.
In terms of the trailing-12-month net income margin, O’s 17.88% is 93.7% higher than the 9.23% industry average. Likewise, its 49.81% trailing-12-month levered FCF margin is 52.8% higher than the 32.60% industry average. Also, its 92.75% trailing-12-month gross profit margin is 41.2% higher than the 65.69% industry average.
O’s annual dividend is $3.16, which translates to a yield of 5.02% at the current share price. Its four-year average dividend yield is 4.71%. The company’s dividend payouts have increased at a CAGR of 4.4% over the past three years. O has paid dividends for 26 consecutive years.
In the second quarter that ended June 30, 2024, O’s total revenue increased 31.4% year-over-year to $1.34 billion. Its net income available to common stockholders rose 31.4% year-over-year to $256.80 million, and its net income per share remained flat from the year-ago value at $0.29.
For the same quarter, adjusted funds from operations available to common stockholders came in at $921.07 million and $1.06 per share, up 37.1% and 6% over the prior-year quarter, respectively.
For the quarter ending September 30, 2024, O’s EPS and revenue are expected to increase 2.6% and 24.1% year-over-year to $1.07 and $1.25 billion, respectively. Over the past three months, the stock has gained 17.9% to close the last trading session at $62.86.
O’s solid prospects are reflected in its POWR Ratings. It has a B grade for Momentum. Within the REITs - Retail industry, it is ranked #21. Beyond the grades mentioned above, we have also rated O for Growth, Value, Stability, Sentiment, and Quality. Get all ratings here.
Stock #1: Ladder Capital Corp (LADR)
LADR operates as an internally managed real estate investment trust. It functions through three segments: Loans, Securities, and Real Estate.
In terms of the trailing-12-month gross profit margin, LADR’s 75.44% is 25.7% higher than the 59.99% industry average. Similarly, its 1.97% trailing-12-month Return on Total Assets is 86.6% higher than the 1.06% industry average. Its 38.20% trailing-12-month net income margin is 71.1% higher than the 22.33% industry average.
Its annual dividend is $0.92, which translates to a yield of 7.72% at the current share price. Its four-year average dividend yield is 8.22%. Its dividend payouts have increased at a CAGR of 4.8% over the past three years. LADR has paid dividends for 8 consecutive years.
For the second quarter that ended on June 30, 2024, LADR’s net interest income came in at $37.14 million. Likewise, its distributable earnings and distributable EPS came in at $40.40 million and $0.31, respectively. In addition, the company’s cash and cash equivalents stood at $1.20 billion as of June 30, 2024, compared to $1.012 billion as of December 31, 2023.
Street expects LADR’s revenue for the quarter ending December 31, 2024, to increase 21.5% year-over-year to $73.52 million. Its EPS for fiscal 2025 is expected to increase 5.9% year-over-year to $1.30. It surpassed the Street EPS estimates in each of the trailing four quarters. Over the past three months, the stock has gained 10% to close the last trading session at $11.91.
LADR’s POWR Ratings reflect its positive outlook. It has an overall rating of B, equating to a Buy in our proprietary rating system.
Within the REITs - Diversified industry, it is ranked #3 out of 45 stocks. It has a B grade for Momentum, Sentiment, and Quality. Click here to see LADR’s Growth, Value, and Stability ratings.
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SPG shares were trading at $163.79 per share on Tuesday afternoon, up $1.86 (+1.15%). Year-to-date, SPG has gained 19.34%, versus a 16.06% rise in the benchmark S&P 500 index during the same period.
About the Author: Abhishek Bhuyan
Abhishek embarked on his professional journey as a financial journalist due to his keen interest in discerning the fundamental factors that influence the future performance of financial instruments.
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