2020 has been a volatile year. Initially uncertainty as to how the coronavirus pandemic would play out led to the stock market crashing and businesses closing. While many economies are starting the slow ascent to recovery, a number of real estate investment trusts (REITs) are still well below their pre-coronavirus highs. This means investors may be able to pick up certain REITs for a bargain. Take a look at why Regency Centers (NASDAQ: REG), Boston Properties (NYSE: BXP), and Realty Income (NYSE: O) are three cheap REITs to buy right now.
Regency Centers is one of the largest owners of open-air retail shopping centers in the country, having 415 centers and over 56 million rentable square feet under management. The company focuses on the development, acquisition, and management of shopping centers in affluent, populated markets with 80% of their shopping centers being grocery store anchored and 43% of their tenants operating as essential retail and service. Their tenant base includes big name companies like Whole Foods, Publix, Sprouts (NASDAQ: SFM), Safeway, Staples, and Petco among many others.
Many states forced nonessential businesses to close their doors at the onset of the pandemic. Regency Centers definitely felt the initial heat, with 59% of their tenants being closed at the end of April 2020. But people have adapted to life during a pandemic, and 95% of their tenants are now open. As of the second quarter of 2020, rent collections were at 72% with 23% of rents uncollected and 5% uncollected on deferral.
Even as rental collections remain below target levels, the company has maintained a positive financial footing. Debt to EBITDAre is 5.6x, which is on the higher end of the REIT debt spectrum but still within normal ratios. They also have $1.5 billion in liquidity, meaning the company should be able to maintain their dividend payments for some time even at their current payout ratio of 97%. Currently, share prices are roughly 36% below March highs, allowing investors to achieve a 6% return and gain access to a top-rated REIT for cheap.
Boston Properties is a leader in the office sector specializing in Class A office space across five top-tier markets, including its namesake Boston. Share prices for the company are down 44% from February 2020 highs, despite maintaining a strong portfolio and collection rate during COVID-19. As of June 2020, the company's total rent collection across all tenants was 95% and 98% among their office tenants.
Despite many businesses having their employees work from home right now, many companies seem to have a positive outlook on the opportunity to return to working in an office again soon. In Q2 2020, Microsoft (NASDAQ: MSFT) renewed or entered new lease agreements for 942,000 square feet for the next year. The company has just under $1.7 billion in liquidity and several projects underway that position them well for steady growth over the next few years. Investors who are interested can purchase shares for cheap, earning a 4.75% return.
Realty Income owns and leases free-standing commercial office buildings in the retail, office, and industrial sectors. Their stable monthly dividend returns have made them a popular REIT for decades, but uncertainty and volatility in the commercial market has caused share prices to drop drastically. The company utilizes net leases, which are a special type of lease that requires the tenant to not just maintain or improve the property but pay for ongoing expenses relating to the property such as property taxes.
With a mixture of tenant bases including institutional tenants such as national name brands like Walmart (NYSE: WMT), Walgreens (NASDAQ: WBA), FedEx (NYSE: FDX), and 7-Eleven, the company has a number of essential retail tenants, which undoubtedly helps them maintain a relatively high rent collection. As of the month ended September 2020, 93.8% of portfolio rents were collected with deferral plans for all tenants uncollected.
Net to EBITDAre is 5.1x, which is well within the normal range for a REIT, meaning they aren't carrying too much debt at this time. Payout ratios are also stable, at 81% with $2.9 billion in liquidity. The current 24% discount means investors can receive around 4% return while buying into a company with a great track record, top-notch portfolio, and strong financials for a cheaper than normal price.
These three REITs are my top picks as cheap buys right now because of their overall performance and signs of resiliency given market conditions. Q3 2020 income earnings will be released for each company at the end of October. I have a strong feeling reports will be positive, providing further evidence that there are signs of better times ahead. As with any investment, they're not without risk, and just because they're cheap buys right now doesn't mean they're necessarily the right investment for your portfolio. Always consider the potential risks, and if you do choose to invest in these companies, be patient as they very well could have a rough couple of quarters or years ahead.