2023 has been a challenging year for the Real Estate sector, one of the worst-performing sectors year-to-date. However, with the latest market run, the Real Estate sector has finally crossed into positive territory, albeit slightly underperforming the S&P 500.
One key reason for this underperformance is rising interest rates. The Federal Reserve's hiking cycle was the fastest in recent history, impacting REITs, which heavily rely on debt to acquire more real estate. However, with inflation decreasing and investors expecting the Federal Reserve to decrease interest rates in 2024, REITs are starting to rebound.
Knowing this, it's an opportune time to invest in high-quality REITs that are currently undervalued. In this article, we will explore 10 of the BEST REITs to buy for 2024.
REIT #1 - Realty Income Corporation (O)
Realty Income Corporation, also known as "The Monthly Dividend Company," is a net lease REIT that's loved by retail and institutional investors. With a market cap of $39 billion, Realty Income has a portfolio of over 13,250 properties. The company primarily operates in the retail sector, with an occupancy rate of 98.8%.
Realty Income is renowned for its reliable and growing dividend. The company is part of the dividend aristocrat list, as it has paid and increased its dividend for 25 consecutive years. Currently, Realty Income offers a high dividend yield of 5.7%.
Analysts expect Realty Income to generate an AFFO (Adjusted Funds from Operations) of $4.16 per share in 2024, resulting in an AFFO multiple of 12.9x. This valuation is well below the company's historical average, providing great value for investors.
REIT #2 - VICI Properties Inc. (VICI)
VICI Properties is a favorite REIT, particularly for its significant presence as the largest landlord on the Las Vegas strip. The company has a market cap of $32 billion and offers exposure to the thriving hospitality and casino sectors.
With high-quality assets like Caesars Palace, MGM Grand, and Mandalay Bay, VICI Properties works with renowned hospitality and casino operators. The REIT has demonstrated strong resilience, maintaining a 100% collection rate throughout the pandemic.
VICI's dividend has also been growing every year since its IPO, with a current yield of 5.4%. Analysts forecast an AFFO of $2.25 per share in 2024, resulting in an AFFO multiple of 13.5x, which is below its historical average.
REIT #3 - Agree Realty Corporation (ADC)
Agree Realty Corporation is often referred to as the "little sibling" of Realty Income. This net lease retail REIT operates within the retail sector and has a market cap of $6 billion.
Agree Realty's portfolio includes grocery, home improvement, and auto service sectors, with Walmart, Tractor Supply Company, and Dollar General as top tenants. The company has consistently generated strong shareholder returns over the years.
The REIT offers a dividend yield of 5.0% and has been increasing its dividend every year since 2011. Analysts predict an AFFO of $4.11 per share in 2024, resulting in an AFFO multiple of 14.1x, well below their historical average.
REIT #4 - Prologis, Inc. (PLD)
Prologis, Inc. is the largest industrial and warehouse REIT, providing indirect exposure to the growth of e-commerce. With a market cap of $112 billion, Prologis owns and leases properties used by e-commerce giants like Amazon.
As e-commerce sales continue to grow, Prologis is expected to benefit from the increased demand for logistics space. The REIT offers a dividend yield of 2.9% and has a track record of consistently increasing its dividend.
Analysts estimate an AFFO of $4.52 per share in 2024, resulting in an AFFO multiple of 26.5x. This valuation is below the company's historical average, making it an attractive investment opportunity.
REIT #5 - Alexandria Real Estate Equities, Inc. (ARE)
Alexandria Real Estate Equities has a unique focus on the pharmaceutical and biotech sectors. With a market cap of $21 billion, Alexandria operates in a niche market that serves the growing demand for research and development facilities.
The REIT's portfolio includes properties for pharmaceutical, biotech, and medical research companies. Alexandria offers a low valuation and a dividend yield of 4.25%. Analysts expect an AFFO of $7.59 per share in 2024, resulting in an AFFO multiple of 15.7x.
REIT #6 - Extra Space Storage Inc. (EXR)
Extra Space Storage is one of the largest self-storage REITs in the market. With a market cap of $30 billion, Extra Space operates more than 3,600 properties across the United States.
The self-storage sector has proven to be recession-proof over the years, making it an attractive long-term investment. Extra Space offers a dividend yield of 4.7% and has a consistent track record of increasing its dividend.
Analysts predict an AFFO of $7.96 per share in 2024, resulting in an AFFO multiple of 17.4x, below its historical average.
REIT #7 - American Assets Trust, Inc. (AAT)
American Assets Trust, Inc. is a diversified REIT with exposure to retail, apartments, and office properties. The REIT has a market cap of less than $2 billion and primarily operates along the West Coast of the United States.
Despite the challenges faced by the office sector, American Assets Trust manages to offer attractive value as a quality REIT. The company pays a high dividend yield of over 6% and has a long history of dividend growth.
Analysts estimate an AFFO of $1.73 per share in 2024, resulting in an AFFO multiple of 12.4x, significantly below its historical average.
REIT #8 - Crown Castle Inc. (CCI)
Crown Castle Inc. is a telecommunications infrastructure REIT that has faced pressure due to higher interest rates and increased competition. The company has a market cap of $50 billion and offers cell towers, small cells, and fiber communication operations.
While there is a need for change within the company, there is also strong demand for their products from major carriers. Crown Castle offers a dividend yield of 5.4% and has a track record of increasing its dividend.
Analysts forecast an AFFO of $6.93 per share in 2024, resulting in an AFFO multiple of 16.7x, below its historical average.
REIT #9 - Mid-America Apartment Communities, Inc. (MAA)
Mid-America Apartment Communities is one of the largest apartment REITs, with a market cap of $15 billion. The REIT has been impacted by high interest rates and slowing rental growth.
However, with much of the rental news already priced in, Mid-America Apartment Communities presents an attractive long-term entry point. The company offers a dividend yield of 4.4% and has a history of dividend growth.
Analysts predict an AFFO of $8.30 per share in 2024, resulting in an AFFO multiple of 15.3x, below its historical average.
REIT #10 - NNN REIT, Inc. (NNN)
NNN REIT, formerly known as National Retail Properties, is a net lease retail REIT that has been overshadowed by Realty Income. The company has a market cap of $7 billion and operates more than 3,500 properties across different states.
NNN REIT has a diversified portfolio with top tenants such as Texas and Florida. The company has a long history of increasing its dividend, offering a dividend yield of 5.55%.
Analysts estimate an AFFO of $3.32 per share in 2024, resulting in an AFFO multiple of 12.2x, below its historical average.
Investor Takeaway
REITs have faced challenges due to higher interest rates, but with the expectation of rate cuts, the sector presents an opportunity for value investors. These 10 REITs offer great entry points, as they are currently undervalued.
Remember to conduct your own due diligence and consider your personal investment goals before purchasing any stocks mentioned in this article.
Disclosure: This article is for informational purposes only and should not be considered as financial advice.