Stock market diving: 3 real estate stocks I’m buying right now
The bear market has not only been a beast for most stocks, but has also created beauties in the form of battered stocks that are garnering renewed attention from buyers.
I’m primarily an income investor interested in supplementing retirement cash flow, so the three I’m focusing on here are all real estate investment trusts (REITs): Terreno Realty (TRNO 0.39%), Alexandria Real Estate Stocks (ARE 1.58%)and Life storage (LSI 0.93%).
The chart below shows that the share price of each stock has fallen sharply and remains lower even than the beaten stocks S&P500. But each also shares long-term buy-and-hold characteristics, including strong competitive positions, enduring demands, expanding portfolios, and the ability to raise rent to increase cash flow in the face of inflation.
They also have good records for shareholder returns. Find out the difference in the table below once dividends are taken into account. Over the past five years, weathering market volatility and letting dividends do the heavy lifting – my plan here – has turned into some pretty impressive long-term returns.
A solid second quarter for ARE
As you can see, Alexandria is lagging, but this life sciences office REIT was tracking the broader market until its recent slump, and its current yield of around 3.1% is well above the 1 .7% of the S&P 500.
Additionally, the company reported strong second-quarter results on July 25, driving the stock price up about 4.5% over the next two days. Earnings highlights included a 33.9% increase in lease rates on a cash basis, the largest quarterly increase in its history. Rental activity was the third highest on record in Alexandria. Revenue grew 26% year over year, and funds from operations (FFO) for the first half of 2022 increased 8% compared to the same period last year.
The company has 7.8 million square feet of new space under construction or about to begin. Of that, 78% is already leased in a portfolio with a tenant roster that includes several of the industry’s largest biopharmaceutical companies. This revenue growth should be accompanied by dividend growth which the company expects to continue.
Alexandria has increased its dividend by 6% over the past four quarters, and its second quarter FFO payout ratio of 56% “enables us to continue to share the growth in cash flow from operations with our shareholders while retaining a significant portion for reinvestment,” the company said in its second-quarter earnings announcement.
Big business in small warehouses
Terreno Realty is an industrial REIT specializing in small warehouses, with approximately 250 buildings and 42 improved lots leased by approximately 570 customers in six major coastal markets. The strategy is to capitalize on demand for logistics space in infill locations near seaports, airports and major highways in markets where supply of these niche spaces is shrinking.
Terreno quickly grew its portfolio, adding 10 properties in the second quarter in locations that include just off I-405 in Redmond, Washington, next to a New Jersey Turnpike exit in Newark and adjacent to the airport. Los Angeles International.
The company has increased its dividend for 10 consecutive years and now pays around 2.3%, with a payout ratio of around 73% based on cash flow. Analysts rate the stock as a Moderate Buy and give it a consensus price target of around $74, which would be a nice recovery from its current around $60 per share.
Lots of life remaining in Life Storage
Life Storage is a leading player in the self-storage industry, with more than 1,100 facilities in 36 states, including owned-and-operated locations and a growing third-party management platform. The latter should help the company continue to be a strong contender in this industry, with its relatively low cost of entry.
Another strength is that those companies with monthly leases can quickly raise rents to counter inflation. Demand for self-service storage has increased during the pandemic, and inflation and recession could sustain the popularity of this option when things outgrow space for millions of Americans.
In the first quarter, Life Storage increased FFO by a third over the prior year and added 18 stores to its owned portfolio and 25 more to its managed platform. In July, the company increased its quarterly dividend by 8% from the previous quarter to $1.08 per share, a 46% increase from the year-ago quarter.
This dividend announcement included optimistic words from CEO Joe Saffire: “Our team and our platforms are well positioned to continue to generate strong cash flow to invest in our technology initiatives, operating platforms, properties and people while by returning capital to shareholders in line with our rapidly growing Core FFO per share. We look forward to continuing to deliver attractive total returns to shareholders.”
And I think I can expect, with reasonable optimism, to see this part of my portfolio grow in share price and total return in the months and years ahead as well.