Given the rapid urbanization trends and growing population, the REIT industry is poised to expand. Moreover, its consistent dividend payments make it a safe investment for stable income growth.
Therefore, fundamentally robust REIT stocks Gaming and Leisure Properties, Inc. (GLPI), Saul Centers, Inc. (BFS), and Alexander's, Inc. (ALX) could be ideal portfolio additions now.
REITs, or real estate investment trusts, are companies that own or finance income-producing real estate across various property sectors. REITs ended 2023 on a solid note and are poised for a strong performance in 2024 compared to the previous year, owing to low asset prices, several optimistic trends, and potential interest rate cuts by the Federal Reserve.
Reduced interest rates lower borrowing expenses for REITs, potentially boosting REITs' stock prices. Nareit’s executive VP of research and investor outreach, John Worth, said, “Historically, at the end of that tightening cycle, REITs tend to perform quite well-outperforming both private real estate, as well as equities in general.”
Morgan Stanley’s head of global listed real assets, Laurel Durkay, said, “They look compelling versus where REITs have historically traded, and they look pretty fairly valued versus fixed income. The macro backdrop is favorable with interest rate stabilization and the increasing likelihood of cuts this year.” Meanwhile, Citi projects total returns between 10% and 15% this year for REITs in the U.S.
Diversified REITs own various types of properties, generating rental income from different sectors like offices, hotels, and retail spaces. This spread minimizes risk and offers stable returns, making them resilient in economic downturns.
Moreover, investing in REIT is a safe and stable option for investors due to the strict compliance with IRS regulations requiring them to pay 90% of their taxable income in dividends, which makes it an attractive investment.
The REIT market is estimated to grow at a 2.8% CAGR, reaching $333.01 billion by 2027.
Considering these conducive trends, let's take a look at the fundamentals of the three REIT stocks.
Gaming and Leisure Properties, Inc. (GLPI)
GLPI is a self-administered and self-managed Pennsylvania real estate investment trust that acquires, finances, and owns real estate property to lease it to gaming operators in triple-net lease arrangements.
On March 29, GLPI paid its shareholders the first quarter dividend of $0.76 per share on the company's common stock. Its annualized dividend of $3.04 per share translates to a dividend yield of 6.72% on the current share price. Its four-year average yield is 6.40%. Over the past three and five years, GLPI’s dividend payments have grown at CAGRs of 6.3% and 2.3%, respectively.
On February 6, GLPI acquired the real estate assets of Tioga Downs Casino Resort in Nichols, NY from American Racing & Entertainment, LLC for $175 million. Simultaneously, GLPI and American Racing entered into a triple-net master lease agreement for an initial 30-year term.
The initial annual rent for the new master lease is $14.50 million and represents an 8.3% capitalization rate. The initial annualized rent coverage ratio for the lease is expected to be over 2.3x.
GLPI’s trailing-12-month cash from operations of $1.01 billion is 320% higher than the industry average of $240.35 million. Its trailing-12-month EBIT and EBITDA margins of 74.04% and 93.23% are 256.4% and 73.6% higher than the industry averages of 20.78% and 53.70%, respectively.
Over the past three and five years, its revenue grew at CAGRs of 7.7% and 6.4%, respectively, while its normalized net income grew at 14.2% and 12.2% CAGRs over the same periods.
For the fiscal fourth quarter that ended December 31, 2023, GLPI’s total income from real estate and income from operations stood at $369.03 million and $295.28 million, up 9.7% and 7.2% year-over-year, respectively. Moreover, its adjusted EBITDA increased 6.2% from the prior-year quarter to $331.41 million.
For the same quarter, its net income attributable to common shareholders and earnings per common share attributable to common shareholders increased 8.8% and 4% from the year-ago quarter to $211.29 million and $0.78, respectively.
Street expects GLPI’s revenue for the fiscal first quarter that ended March 2024 to increase 3.8% year-over-year to $368.75 million. Its FFO is expected to be $0.93 for the same quarter. The company surpassed consensus revenue estimates in each of the trailing four quarters and consensus FFO estimates in three of the trailing four quarters, which is impressive.
The stock has gained 2.1% over the past six months to close the last trading session at $45.20.
GLPI’s POWR Ratings reflect its positive prospects. The stock has an overall B rating, equating to Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.
GLPI has a B grade for Stability, Sentiment, and Quality. Within the REITs - Diversified industry, it is ranked #3 out of 46 stocks.
To see additional POWR Ratings for Growth, Value, and Momentum for GLPI, click here.
Saul Centers, Inc. (BFS)
BFS owns, operates, manages, leases, acquires, renovates, expands, develops, and finances community and neighborhood shopping centers and mixed-used properties. The company operates through two business segments: Shopping Centers; and Mixed-Use Properties.
On March 14, BFS declared a quarterly dividend of $0.59 per share on its common stock, payable to holders on April 30. Its annualized dividend of $2.36 per share translates to a dividend yield of 6.32% on the current share price. Its four-year average yield is 5.81%. Over the past three and five years, BFS’ dividend payments have grown at CAGRs of 3.6% and 2.5%, respectively.
BFS’ trailing-12-month EBIT and EBITDA margins of 45.95% and 63.14% are 121.1% and 17.6% higher than the industry averages of 20.78% and 53.70%, respectively.
Over the past three and five years, its revenue grew at CAGRs of 4.5% and 2.5%, respectively, while its total assets grew at 6.6% and 5.5% CAGRs over the same periods.
For the fiscal fourth quarter that ended December 31, 2023, BFS’ total revenue increased 7% year-over-year to $66.68 million. For the same quarter, its FFO available to common stockholders and noncontrolling interests, and FFO per share available to common stockholders and noncontrolling interests stood at $26.87 million and $0.79, up 8.9% and 9.7% from the prior-year quarter, respectively.
As of December 31, 2023, BFS’ net mortgage notes payable amounted to $935.45 million, compared to $961.58 million as of December 31, 2022.
The stock has gained 11.2% over the past six months to close the last trading session at $38. Over the past month, it has gained 2.4%.
BFS’ POWR Ratings reflect this promising outlook. It has an overall rating of B, which indicates Buy in our proprietary rating system.
BFS has an A grade for Stability and a B for Sentiment. Within the REITs - Retail industry, it is ranked first out of 29 stocks.
For BFS’ other ratings (Growth, Value, Momentum, and Quality), click here.
Alexander's, Inc. (ALX)
ALX leases, manages, develops, and redevelops its properties. It has five properties in New York City.
On March 1, ALX paid its stockholders a regular quarterly dividend of $4.50 per share. Its annualized dividend of $18 per share translates to a dividend yield of 8.50% on the current share price. Its four-year average yield is 7.65%.
ALX’s trailing-12-month cash per share of $104.14 is significantly higher than the industry average of $0.80. Its trailing-12-month EBIT and net income margins of 37.57% and 45.52% are 80.8% and 411% higher than the industry averages of 20.78% and 8.91%, respectively.
Over the past three and five years, its net income grew at CAGRs of 34.7% and 25.5%, respectively, while its diluted EPS grew at 34.6% and 25.5% CAGRs over the same periods.
For the fiscal fourth quarter that ended December 31, 2023, ALX’s revenues increased 18.6% year-over-year to $62.94 million. For the same quarter, its non-GAAP FFO and non-GAAP FFO per share stood at $25.60 million and $4.99, up 24.1% and 23.8% from the prior-year quarter, respectively.
As of December 31, 2023, ALX’s cash and cash equivalents amounted to $531.86 million, compared to $194.93 million as of December 31, 2022.
Street expects ALX’s FFO for the fiscal first quarter that ended March 2024 to increase 76.6% year-over-year to $6.41.
The stock has gained 25.3% over the past six months to close the last trading session at $215.86. Over the past nine months, it has gained 17%.
ALX’s robust prospects are reflected in its POWR Ratings. The stock has an overall B rating, equating to Buy in our proprietary rating system.
ALX has a B grade for Stability. It is ranked #2 within the REITs - Retail industry.
Click here for the additional POWR Ratings for ALX (Growth, Value, Momentum, Sentiment, and Quality).
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GLPI shares were unchanged in premarket trading Thursday. Year-to-date, GLPI has declined -6.89%, versus a 9.62% rise in the benchmark S&P 500 index during the same period.
About the Author: Neha Panjwani
From her school days, Neha harbored a profound fascination for finance, a passion that steered her toward a career as an investment analyst following the completion of her bachelor's degree in commerce. Currently enrolled in the CFA program, Neha is dedicated to further enriching her comprehension of investment fundamentals. Neha's primary objective is to aid retail investors in discerning optimal investment opportunities by diligently evaluating crucial aspects of financial instruments, with a primary focus on stocks and ETFs. Her commitment lies in empowering individuals to make informed and strategic investment decisions in the dynamic world of finance.
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