The world has been through a very difficult period, and some companies have been harder hit than others. This trio of real estate investments trusts (REITs) have made it through and, more importantly, think that there's a brighter future ahead. Here's why investors should take a closer look at these three real estate stocks today.
1. The second half
Federal Realty Investment Trust (NYSE: FRT) knows a thing or two about rewarding investors while managing to muddle through tough times. The proof of that is the more-than-five-decade streak of annual dividend increases it's amassed, including one in 2020. The REIT extended that incredible streak despite rent collections at its portfolio of around 100 shopping centers and mixed-use developments falling into the mid-60% range during the coronavirus pandemic's early days. By January 2021, that figure had improved to 85%.
The thing is, management expects the first half of 2021 to continue these difficult trends. Most notably, during Federal Realty's fourth-quarter 2020 earnings conference call, it projected occupancy would drop into the high 80% range before starting to improve toward the second half of 2021 and into 2022. It has seen tough times over the last 50 years, so there's a good reason to believe it has a good handle on the cycles here.
Meanwhile, the REIT's roughly 4.2% dividend yield hasn't been this high since the 2007 to 2009 recession. It's going to get worse before it gets better, but Federal Realty is telegraphing that the future is bright. Based on the relatively high yield, now could be a good time to jump aboard.
2. Ready to grow
The next name up is VEREIT (NYSE: VER), which managed to get its business through a long turnaround effort (after an accounting error in 2014) just as the world was hit by the coronavirus pandemic. Like most companies, it chose to be cautious, including a decision to cut its dividend roughly 45%. Since that time, however, its portfolio has excelled, with rent collections of 87% in the second quarter of 2020. That figure is now up to 99%. The REIT's portfolio, rejiggered during its turnaround, has been stress-tested -- and it did great.
During VEREIT's fourth-quarter 2020 earnings conference call, the company said it plans to make $1 billion worth of acquisitions in 2021. That was basically the same figure it put up before the pandemic, but there's a big difference this time around.
In early 2020, the company had $30 million of cash on the balance sheet and $150 million of its $1.5 billion revolver drawn. At the start of 2021, it has roughly $500 million of cash on its balance sheet and nothing drawn on its revolver. In fact, it doesn't think it will need to raise any capital in 2021 to make its $1 billion investment goal. And it just increased its dividend by about 20%. VEREIT's return to growth was delayed, but it looks like it's back on track now.
3. In the center of the storm
Ventas (NYSE: VTR) is the final name here, and it's a bit more controversial. This healthcare-focused REIT owns senior housing assets, which have been hit particularly hard by the pandemic -- coronavirus spreads easily in group settings and is more dangerous for older people.
In fact, 2020 was a harrowing year for the REIT, which saw adjusted funds from operations (FFO), a REIT metric similar to earnings for an industrial company, fall nearly 14%. Turning that decline around is probably going to be tough. But during Ventas' fourth-quarter 2020 earnings conference call, it highlighted that nearly all of its senior communities have been vaccinated at this point. That means the REIT can start operating in a more normal manner.
Meanwhile, the company's office business, which includes both medical office and medical research space, did just fine in 2020, growing net operating income by 3.3% for the year. So the real issue was Ventas' senior housing portfolio, which, given the vaccinations, looks like it will be getting back on track in 2021.
The REIT cuts its dividend roughly 45% in 2020, and any business turnaround will take time. But investors looking for a diversified healthcare play should probably take a close look now -- before the numbers start to show things are getting better.
The Millionacres bottom line
There are no perfect investments, and Federal Realty, VEREIT, and Ventas all have some warts. But each of them is starting to hint that the tough times experienced in 2020 are behind them. This means the future is likely to be much brighter. Now is the time to dig in and get to know each of them. If you do, one (or more) might find their way into your portfolio in March.