Evolving consumer spending preferences, growing population, and rapid urbanization are driving the demand for retail properties. Also, the incorporation of sustainable and innovative design features in retail properties will boost the retail REITs growth. Further, uniform dividend payments from REITs make them suitable revenue-generating investments.
Given the backdrop, fundamentally sound retail REITs Simon Property Group, Inc. (SPG), Alexander’s, Inc. (ALX), and Saul Centers, Inc. (BFS) could be ideal additions to your portfolio for instant diversification and steady income stream.
Retail real estate investment trusts (REITs) own, operate, and manage income-generating retail properties. Retail REITs majorly focus on large shopping centers, regional malls, strip malls, outlet centers, and power centers featuring big-box retailers and generate revenue by leasing space to retail businesses.
Strong consumer confidence and higher disposable income tend to result in increased retail sales, thereby benefiting retail REITs. Also, population growth, particularly in urban areas and regions with favorable demographics, can boost demand for retail properties.
In recent times, consumers have increasingly been engaging with wellness-oriented brands, emphasizing experience in retail stores. The number of welcome retail openings grew by 2.8% last year, or around five thousand new stores, as per chain opening data from ChainXY. This trend will reshape the retail real estate sector in 2024 and beyond.
Moreover, like all REITs, retail REITs are considered a suitable investment for income-oriented investors due to their historically high and reliable dividend payouts that have mostly grown over time and have often grown faster than the rate of inflation.
The mandatory requirement for REITs to distribute at least 90 percent of their taxable income to shareholders as dividends further stimulates their presence in the market and their demand. The dividends paid by REITs have provided wealth accumulation, reliable income returns, reduced portfolio volatility, and inflation protection.
According to UBS, global REIT earnings are forecasted to grow by over 10% cumulatively in the years 2024 and 2025. This growth rate includes higher property taxes, payroll costs, and higher interest expenses from raised rates. The ability of REIT to deliver mid-single digit earnings CAGR that is more than twice the rate of real GDP growth is attracting the market.
In light of these encouraging trends, let’s look at the fundamentals of the three best Retail - REITs, beginning with number 3.
Stock #3: Simon Property Group, Inc. (SPG)
SPG is a real estate investment trust that engages in the ownership of premier shopping, dining, entertainment, and mixed-use destinations. Its properties across North America, Europe and Asia offer community gathering places for millions of people every day and generate billions in annual sales.
On February 8, 2024, SPG authorized a new common stock repurchase program. Under the new program, SPG may purchase up to $2 billion of its common stock over the next 24 months, as market conditions warrant. This new program replaced the prior program that had been scheduled to expire on May 16, 2024, for which about $1.7 billion was available.
On February 6, SPG’s board of directors declared a quarterly common stock dividend of $1.95 for the first quarter of 2024. This reflects an increase of $0.15, or 8.3% year-over-year. The quarterly dividend will be payable on March 29, 2024, to shareholders of record on March 8, 2024.
On the same day, the company’s board declared the quarterly dividend on its 8 3/8% Series J Cumulative Redeemable Preferred Stock of $1.046875 per share, payable on March 29, 2024, to shareholders of record on March 15, 2024.
SPG pays an annual dividend of $7.80, which translates to a yield of 5.13% at the current share price. Its four-year average dividend yield is 6.42%. Moreover, the company’s dividend payouts have increased at a CAGR of 3.1% over the past three years.
In terms of forward non-GAAP P/E, SPG is trading at 24.09x, 28.6% lower than the industry average of 33.74x. Also, the stock’s forward P/AFFO of 13.88x is 5.2% lower than the industry average of 14.64x.
For the fourth quarter that ended on December 31, 2023, SPG’s total revenue increased 9.1% year-over-year to $1.52 billion, of which its lease income rose 5.8% from the year-ago value to $1.36 billion. The company’s funds from operations (FFO) was $1.38 billion, or $3.69 per share, compared to $1.27 billion, or $3.40 per share, a year ago, respectively.
As per the fiscal 2024 guidance, SPG currently expects net income to be within a range of $6.45 to $6.70 per share and FFO to be within a range of $11.85 to $12.10 per share.
Analysts expect SPG’s revenue and FFO for the fiscal year (ending December 2025) to increase 2.9% and 3.2% year-over-year to $5.59 billion and $12.49, respectively. Furthermore, the company surpassed the consensus revenue estimates in each of the trailing four quarters.
SPG’s stock has gained 30.4% over the past six months and 21% over the past year to close the last trading session at $149.86.
SPG’s solid outlook is reflected in its POWR Ratings. The stock has an overall rating of B, which translates to a Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, each weighted to an optimal degree.
The stock has a B grade for Stability and Quality. Within the REITs - Retail industry, SPG is ranked #3 out of 29 stocks.
Click here to access additional ratings of SPG (Growth, Momentum, Value, and Sentiment).
Stock #2: Alexander's, Inc. (ALX)
ALX is a real estate investment trust engaged in leasing, managing, developing and redeveloping properties. Its activities are conducted through its manager, Vornado Realty Trust. It has five properties in the greater New York City metropolitan area consisting of 731 Lexington Avenue office and retail (including Bloomberg, L.P.’s world headquarters), and others.
On February 7, 2024, ALX announced that its board of directors declared a regular quarterly dividend of $4.50 per share paid on March 1, 2024, to stockholders of record on February 20, 2024. The company pays an annual dividend of $18, which translates to a yield of 8.23% at the current share price. Its four-year average dividend yield is 7.61%.
In terms of trailing-12-month EV/EBITDA, ALX is trading at 14.23x, 13.7% lower than the industry average of 16.48x. The stock’s trailing-12-month EV/EBIT multiple of 19.77 is 41.2% lower than the industry average of 33.60. Also, its trailing-12-month Price/Cash Flow of 10.24x is 17.1% lower than the industry average of 12.35x.
For the fourth quarter that ended December 31, 2023, ALX’s revenue grew 18.6% year-over-year to $62.93 million. Its net income was $16.29 million and $3.17 per common share, up 23.6% and 23.3% from the prior year’s quarter, respectively. Further, the company’s non-GAAP FFO came in at $25.60 million, an increase of 24% year-over-year.
Street expects ALX’s FFO for the first quarter (ending March 2024) to increase 66.9% year-over-year to $6.06, and its revenue for the current quarter is expected to grow 27.3% year-over-year to $67.40 million. In addition, the company’s revenue is estimated to increase 3.9% year-over-year to $233.70 million for the fiscal year 2024.
Shares of ALX have surged 13.3% over the past six months and 5.9% over the past year to close the last trading session at $216.72.
ALX’s POWR Ratings reflect its bright prospects. The stock has an overall rating of B, which equates to a Buy in our proprietary rating system.
ALX has a B grade for Stability. The stock is ranked second among 48 stocks in the REITs - Retail industry.
In addition to the POWR Ratings I’ve just highlighted, you can see ALX’s ratings for Growth, Value, Quality, Momentum, and Sentiment here.
Stock #1: Saul Centers, Inc. (BFS)
BFS is a self-managed and self-administered equity REIT operating and managing a real estate portfolio of 61 properties, including 50 community & neighborhood shopping centers and seven mixed-use properties with approximately 9.8 million square feet of leasable area, and four non-operating land and development properties.
On December 7, 2023, BFS declared a quarterly dividend of $0.59 per share on its common stock, paid on January 31, 2024, to holders of record on January 16, 2024. BFS pays an annual dividend of $2.36, which translates to a yield of 6.35% at the current share price. Its four-year average dividend yield is 5.82%.
In terms of trailing-12-month EV/EBITDA, BFS is trading at 16.07x, 2.2% lower than the industry average of 16.43x. Also, the stock’s trailing-12-month Price/Sales multiple of 3.47 is 20.4% lower than the industry average of 4.36. Similarly, its trailing-12-month Price/Cash Flow of 7.56x is 38.3% lower than the industry average of 12.26x.
For the fourth quarter that ended December 31, 2023, BFS’ total revenues increased 7% year-over-year to $66.68 million. Its total shopping center revenue grew 8.5% from the year-ago value to $47.14 million. The company’s net income was $17.46 million and $0.43 per share, up 13.5% and 13.1% year-over-year, respectively.
Furthermore, BFS’ FFO available to common stockholders and noncontrolling interests was $26.90 million, or $0.79 per share, increases of 8.9% and 9.7% from the prior year’s period, respectively.
Over the past six months, the stock has gained 1.9% and 3.8% over the past nine months to close the last trading session at $37.10.
BFS’ sound fundamentals are reflected in its POWR Ratings. The stock has an overall grade of B, translating to a Buy in our proprietary rating system.
BFS has an A grade for Stability and a B for Sentiment. It has topped the list of 29 stocks within the REITs - Retail industry.
To see the other ratings of BFS for Quality, Value, Growth, and Momentum, click here.
What To Do Next?
43 year investment veteran, Steve Reitmeister, has just released his 2024 market outlook along with trading plan and top 11 picks for the year ahead.
SPG shares were unchanged in premarket trading Wednesday. Year-to-date, SPG has gained 5.06%, versus a 6.71% rise in the benchmark S&P 500 index during the same period.
About the Author: Mangeet Kaur Bouns
Mangeet’s keen interest in the stock market led her to become an investment researcher and financial journalist. Using her fundamental approach to analyzing stocks, Mangeet’s looks to help retail investors understand the underlying factors before making investment decisions.
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