After a powerful rally in the stock market, sentiment turned more negative in April. Escalating geopolitical tensions raise the risk of an escalation in oil and other commodity prices. Meanwhile, inflation remains hotter than expected, which has potentially delayed the planned Federal Reserve rate cuts.
This has made for a particularly rough time for real estate investment trusts (REITs). These property owners thrive in a strong economy with lower interest rates. Current conditions, by contrast, are more challenging. And with a potential commercial real estate bust on the horizon, many investors are bracing for the worst.
The good news, however, is that not all REITs are created equal. While the industry as a whole is facing significant challenges in 2024, some can thrive despite the headwinds. These are three great REITs to buy today.
National Storage Affiliates (NSA)
National Storage Affiliates (NYSE:NSA) is a real estate investment trust focused on self-storage units. The company was founded in 2013 to take advantage of the growth opportunities in the self-storage space, with a particular focus on fast-growing markets such as in the Sunbelt states.
The company’s strategy is paying off. National Storage Affiliates has increased revenues from $383 million in 2019 to $866 million in annual revenues in 2023. National Storage Affiliates benefits from both organic growth and a robust mergers and acquisitions strategy.
That said, NSA stock’s upward trajectory has taken a pause. Shares peaked at the end of 2021 and have fallen by about half since that point.
Higher interest rates have frightened investors. An increase in funding costs hits all REITs and is especially harsh on smaller faster-growing entities like National Storage Affiliates. It also makes the firm’s dividend less appealing compared to risk-free fixed income options.
The reasons for pessimism are understandable. However, NSA stock has fallen much too far on these concerns. Shares go for a reasonable 14 times price-to-funds from operations (FFO) and offer a 6.3% dividend yield. And self-storage has historically proven to perform well during economic downturns, making National Storage a solid defensive REIT to buy.
Realty Income (O)
Realty Income (NYSE:O) is one of America’s largest triple-net lease REITs. Triple net lease is a type of real estate contract where the tenant rather than the landlord is responsible for crucial costs including maintenance, taxes, and insurance.
Triple net lease models have proven advantageous in the past few years, giving landlords much-needed inflation protection. Realty Income also wisely unloaded its office properties several years ago, before the office market completely fell apart.
Realty Income’s tenant base today is primarily mission-critical retail, industrial and logistics properties. These tenants have proven through past economic cycles to be resilient during downturns.
O stock has underperformed the S&P 500 in recent times. Realty Income shares sold off on the industry-wide concerns around higher interest rates and a weakening commercial property outlook. However, Realty Income’s unique business model should protect shareholders. In the meantime, the company offers a compelling monthly dividend program with the yield currently sitting at 5.7%.
Mid-America Apartment Communities (MAA)
Mid-America Apartment Communities (NYSE:MAA) hasn’t been able to avoid the recent REIT downturn. Shares are down more than 10% over the past year and close to 40% from their prior all-time highs.
The usual concerns around higher interest rates and a weakening economy have hit apartment REITs as well. There is also increasing worry that the housing market could turn down, and apartments have come under pressure on those fears.
I believe that concern is misplaced, however. In fact, as people are increasingly priced out of being able to buy their own homes, we should expect to see more folks renting for longer. This should lead to steady demand for Mid-America’s units. That’s doubly true thanks to favorable demographics and underbuilding in the housing industry over the past 15 years.
All this adds up to a much better outlook for Mid-America and its 102,661 apartment units than the market is giving it credit for. With the decline in MAA’s stock price, shares now yield 4.5%.
On the date of publication, Ian Bezek held a long position in NSA stock. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
