Real estate investment trusts, commonly known as REITs, faced challenges in 2023, marked by a widespread decline in most stocks. The surge in interest rates contributed to investor hesitancy, mainly due to the substantial debt often associated with these businesses.
However, with indications suggesting that the Federal Reserve is poised to reduce interest rates in 2024, several REITs staged an end-of-year rally, aligning with the overall upward trend in equities. This dynamic shift positions 2024 as an especially intriguing year for the sector. In light of this, Finbold has identified specific REITs with significant potential for investment in 2024.
Realty Income (NYSE: O)
Realty Income (NYSE: O) is an enticing investment for 2024, potentially offering a future brighter than the market anticipates. As a REIT, it holds a substantial portfolio of over 13,000 properties in the U.S. and four European countries, operating under long-term, net lease agreements with single tenants. Noteworthy lessees include prominent names like Walgreens, Dollar General, and Tractor Supply.
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Recognized as the “monthly dividend company,” Realty Income lives up to its reputation by providing monthly payouts, with the current annual dividend standing at nearly $3.08 per share, resulting in an appealing 5.4% yield.
Despite a dip in stock value in 2023 due to rising interest rates, the first nine months of last year saw Realty Income achieve a 22% increase in revenue, reaching $3 billion. Although interest costs impacted the bottom line, the company generated $2.1 billion in funds from operations income, effectively covering the $1.6 billion in dividend costs over the same period.
Overall, Realty Income’s focus on retail and net-leased commercial real estate and a high portfolio occupancy rate above 95% reinforces its stability.
Elsewhere, Wall Street analysts at TipRanks project a positive trajectory for Realty Income in the next 12 months, with an average price target of $59.45—indicating a 3.54% change from the last recorded price of $57.42. The high and low forecasts are $67.50 and $54.00, respectively.
Over the past year, O has dropped 10%, but the stock is up over 5% in the last month.
Public Storage (NYSE: PSA)
Given various compelling factors, investing in Public Storage (NYSE: PSA) in 2024 can be deemed a strategic move. The company stands out as a key player in the self-storage industry, boasting a robust market presence in major metropolitan centers and a well-established brand recognition that positions it favorably for capitalizing on economies of scale.
Public Storage has actively pursued growth through strategic acquisitions, such as the notable $2.2 billion acquisition of Simply Self Storage in September 2023. This acquisition trend is evident in the addition of 459 facilities, totaling 38 million net rentable square feet, acquired for $8.3 billion from the beginning of 2021 to September 30, 2023, with further facilities in the acquisition pipeline.
Financially, Public Storage maintains a solid profile with low leverage relative to total capitalization and strong operating cash flows. Its investment-grade credit ratings provide advantageous access to the debt market, strengthening its capacity to fund potential expansion opportunities.
Public Storage has also demonstrated a noteworthy commitment to consistent dividend payments, even during challenging periods like the pandemic. For instance, in February 2023, it announced a substantial 50% increase in its regular quarterly dividend, resulting in an annualized common dividend payment of $12 per share.
At the same time, based on the stock’s performance in the last three months, Wall Street analysts at TipRanks have provided its outlook for the next 12 months. The analysts have provided an average price target of $296.38, with a high forecast of $315 and a low forecast of $278. While the average target implies a -2.83% change from the last price of $305, the overall sentiment from analysts suggests potential growth with a ‘moderate buy’ rating.
Over the past years, the stock has rallied over 11%.
Prologos (NYSE: PLD)
Prologis (NYSE: PLD) is an attractive investment option in 2024 due to several compelling factors. The company is among the market leaders in industrial real estate, experiencing increased demand driven by the e-commerce boom, industrial growth, and efforts to enhance supply-chain efficiencies.
Additionally, Prologis has demonstrated resilience and strong operating performance, with a high average occupancy level of 97.5% in its owned and managed portfolio. The company has achieved substantial lease commencements, focusing on the U.S. market, where it recorded an all-time high share of net effective rent change at 91.7% in the second quarter of 2023.
The company has also strategically capitalized on growth opportunities through acquisitions and developments, including the acquisition of Duke Realty and the purchase of 14 million square feet of industrial properties from Blackstone-affiliated funds for $3.1 billion.
However, potential investors should be mindful of challenges, including a high supply in the industrial real estate market, which could lead to increased competition and impact pricing power. Additionally, the prolonged recovery in the industrial market and concerns about high interest rates may pose challenges for Prologis, affecting its borrowing costs and dividend attractiveness compared to alternative investments.
Analyzing the stock’s performance in the past three months, Wall Street analysts have established a consensus average price target of $137.94 for Prologis over the next 12 months. The high forecast is $154, while the low forecast is $119. This suggests a 3.48% change from the recent recorded price of $133.30, reflecting an optimistic outlook for the stock.
Over the past year, the PLD stock has rallied 18%.
Overall, while the highlighted REITs exhibit underlying fundamentals that suggest potential gains in 2024, their progress will primarily depend on other factors, such as macroeconomic elements.
Disclaimer: The content on this site should not be considered investment advice. Investing is speculative. When investing, your capital is at risk.
