Real estate investment trusts (REITs) have struggled as a whole this year because of the impact COVID-19 has had on tenants' ability to pay rent. According to NAREIT, REITs have generated a total return of negative 9.3% this year. Many have fared even worse.
However, there is a silver lining to the sell-off in the REIT sector, which is that valuations are lower and dividend yields are higher. Because of that, several REITs look like compelling buys these days. Three that stand out this August are Agree Realty (NYSE: ADC), AvalonBay Communities (NYSE: AVB), and Medical Properties Trust (NYSE: MPW).
Embarking on a buying binge
Agree Realty has been an outlier among retail REITs this year. The company's net lease portfolio has proven to be highly resilient as it collected 90% of its rent during the second quarter and 94% in July. Because of that, Agree Realty bucked the trend in the retail REIT sector this year by increasing its dividend when most others have suspended their payouts.
Despite the company's strength amid the storm, shares of Agree Realty have fallen about 5.5% this year. Combine that with its dividend increases, and its yield is up to 3.6%. That payout is on pretty solid ground since Agree has only paid out about 75% of its FFO this year.
However, what stands out about Agree Realty is its near-term growth prospects. Thanks to asset sales and equity offerings, the REIT expects to invest between $900 million to $1.1 billion in acquisitions this year. Those deals should boost its FFO, which, when combined with its growing dividend and lower share price, could enable Agree Realty to produce market-beating total returns.
Seeing value in itself
Shares of apartment REIT AvalonBay Communities have tumbled about 28% this year. Driving down its stock are concerns that it will struggle to collect rent if the economy remains weak. While the REIT has experienced some issues -- residential rent receipts were 97.7% in April, 96.4% in May, and 95.5% in June -- it reported that rental rates improved slightly in July and that occupancy could start to stabilize in August.
Even though the company hasn't been immune to this year's challenges, and the outlook remains uncertain, AvalonBay believes that the sell-off in its stock price is an overreaction. Because of that, the company's board of directors has authorized a $500 million share repurchase program (enough to retire about 2.3% of its currently outstanding stock). This repurchase plan suggests the company sees more value in its shares than in new developments or acquisitions. Add that upside catalyst to AvalonBay's 4.2%-yielding dividend, and it's an attractive REIT to buy this month.
Healthy results despite COVID-19
Shares of healthcare REIT Medical Properties Trust are down about 6% this year. That slump comes even though the company has either collected or signed repayment agreements covering 100% of the rent it has billed this year. Overall, it expects to receive 98% of this year's rent, with the remaining 2% subject to payment plans with interest.
Meanwhile, instead of harming the company, COVID-19 has opened new opportunities for the REIT to acquire hospital real estate. It has already signed deals to buy $3.1 billion of assets this year and expects to capitalize on more opportunities in the coming months. These new additions to its portfolio will help boost its FFO, giving the company more cash to pay its 5.4%-yielding dividend. When combined with the REIT's lower share price and improved growth prospects, that big yield provides investors with the potential to earn healthy total returns in the coming years.
Great REITs for better prices
These three high-quality REITs have gone on sale this year because of the impact COVID-19 has had on the real estate sector. While they've all experienced some near-term challenges, the downturn has also presented opportunities that they can take advantage of thanks to their strong financial profiles. Because of that, they should come out ahead, which is why they're great REITs to buy this month.