Investing in real estate has been a popular investment approach for decades. The basic way of investing in the real estate market is to buy a house. An easier way is to invest through a real estate investment trust (REIT). In this blog post, we look at three REIT stocks that offer you solid exposure to the real estate market in the United States.
Generally speaking, the potential return on real estate investments is influenced by a variety of factors, with market conditions playing a pivotal role. Supply and demand significantly affect market dynamics; limited supply and high demand lead to price increases, enhancing seller returns.
Interest rates, closely tied to Federal Reserve policies, also have a substantial effect. Higher interest rates can depress the real estate market, lowering demand and selling prices, thus reducing profit margins.
An investment strategy is key, with different approaches yielding varying returns. In the U.S., the median annual return on real estate stands at 8.6%. Residential properties typically yield a 10.6% return, commercial properties 9.5% and REITs 11.8%.
As a REIT investor, you would want to consider metrics such as the capitalization rate, internal rate of return (IRR) and cash-on-cash return. These measures provide a more comprehensive view of an investment’s performance, beyond simply looking at Return on Investment (ROI).
Let’s take a look at these three REIT stocks showing great results.
Public Storage (PSA)
Public Storage (NYSE:PSA) is a major self-storage company, best known for offering secure and accessible storage solutions. The company has existed for more than 50 years and has grown to become one of the largest self-storage providers in the world, operating thousands of facilities across the United States and Europe.
Public Storage caters to a wide range of needs, including personal, business and vehicle storage, distinguishing itself with various unit sizes and climate-controlled options. As a REIT, it also offers investors a way to gain exposure to the lucrative self-storage market.
Most recently, Public Storage reported record revenues and net operating income for the fourth quarter of 2023. More precisely, the company reported a net income of $2.21 per diluted share, along with a Core FFO (funds from operations) of $4.20 per diluted share.
During the quarter, Public Storage acquired 11 self-storage facilities, adding 0.8 million net rentable square feet for $171.9 million. Moreover, the company opened five newly developed facilities and undertook various expansion projects, further adding 0.8 million net rentable square feet at a cost of $190.3 million.
Public Storage stock is down 6% year-to-date (YTD) as investors continue to aggressively invest in AI-linked companies and sectors.
Prologis (PLD)
Prologis (NYSE:PLD) is a global leader in logistics real estate, specializing in the ownership, operation and development of high-quality warehouses and distribution centers. With properties strategically located across the Americas, Europe and Asia, Prologis is one of the largest REIT stocks by market capitalization.
Back in January, Prologis reported fourth-quarter results and full-year guidance that came in light with analyst expectations. Prologis announced a core FFO of $1.26, a slight increase from the previous year, with rental revenue rising by 10% to $1.76 billion. That growth contributed to a total consolidated revenue of $1.89 billion, marking a 7.8% year-over-year (YoY) increase.
Last year marked the fourth consecutive year of double-digit earnings growth for Prologis, making it a solid candidate for one of the best REIT stocks out there. The projected full-year core FFO ranges between $5.42 and $5.56, closely encompassing the consensus estimate of $5.52. Adjusted projections, excluding net promote, suggest a near 9% YoY increase at the midpoint.
The fourth quarter saw stable occupancy rates at 97.1%, with a slight YoY decrease. Prologis successfully commenced leases for 43.7 million square feet, the company said. More notably, the net effective rent change over the lease term surged to 74.1%.
Prologis shares are down 3% YTD.
Mid-America Apartment Communities (MAA)
Unlike Prologis and Public Storage, Mid-America Apartment Communities (NYSE:MAA) is a REIT specializing in residential properties, primarily focusing on apartment communities across the Sunbelt region of the United States. As a residential REIT, MAA owns, manages and develops a diversified portfolio of apartment homes, offering housing solutions that cater to a wide range of residents.
Mid-America Apartment Communities reported a decrease in Diluted EPS to $1.37 in the fourth quarter of 2023 from $1.67 in Q4 2022. However, the FFO per diluted share saw an increase to $2.53 from $2.12 in the same period, while Core FFO per diluted share remained consistent at $2.32 YoY.
The company also reported a 2.1% YoY growth in Same Store Portfolio revenue during Q4 2023. MAA also reported a very strong Average Physical Occupancy rate of 95.5%. The quarter saw the acquisition of two new multifamily communities, further enhancing MAA’s portfolio. MAA offers a solid way to gain exposure to residential properties in the U.S.
MAA stock trades 2% lower YTD.
On the date of publication, Shane Neagle did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
