This year has been tough for real estate investment trusts (REITs) — even more than the overall market in general.
While the S&P 500 is down about 20% for the year, the Real Estate Select Sector SPDR Fund (NYSEARCA: XLRE) — considered the benchmark exchange-traded fund (ETF) for REITs — is down around 30%.
One reason for the poor sentiment on REITs is the rapid rise in interest rates. High interest rates are typically bad for REITs because these companies often rely on debt to fund growth. Because REITs are required to pay out at least 90% of their taxable income to shareholders in the form of dividends, stockpiling cash isn’t really an option.
Another way interest rates are affecting the price of REITs is that the yield on the 3 Month Treasury Bill has climbed from 0.08% to over 4% this year. The yield on the three-month Treasury Bill is regularly quoted as the risk-free rate for U.S. investors.
Because REITs are most popular among income investors, a REIT has to provide a greater yield than the risk-free rate to remain attractive. This is especially true when growth is limited because of higher debt costs.
But some REITs are still performing exceptionally well this year. These five companies have total returns for the year that would be impressive in any market condition.
See also: Best REITs to Buy This Month
VICI Properties Inc. (NYSE: VICI)
VICI Properties is a net lease REIT with a vast portfolio of experiential properties. The company is most well-known for its gaming properties, mainly along the Las Vegas Strip. VICI Properties has experienced significant growth since it was founded in 2017, and its solid performance this year indicates that investors expect to see that growth continue long-term.
VICI’s share price is up 1.8% year-to-date, and its 5% dividend yield boosted its total return to nearly 6%. The REIT’s dividend payout has also grown by over 8% in the past year.
Omega Healthcare Investors Inc. (NYSE: OHI)
Omega Healthcare Investors is the largest REIT focused on skilled nursing facilities. With 921 properties in the U.S. and U.K., Omega is a favorite among dividend investors and delivers an 8.6% yield. The COVID-19 pandemic had a major impact on the REIT’s tenants, which is still affecting its revenue. However, Omega has been able to maintain its sizeable dividend payments and the effects of the pandemic continue to improve.
Omega’s share price is up 6.12% year-to-date, and its high dividend yield has brought its total return up to 13.57%.
Farmland Partners Inc. (NYSE: FPI)
Farmland Partners is one of only two REITs focused on agricultural land. While it’s far from a high-dividend REIT with a yield of only 1.7%, the potential for strong price appreciation for farmland became apparent to more investors this year as global food shortages have become a growing problem.
While wheat and corn prices have come down from their April and May highs, prices are still up 15% and 20% year-to-date, respectively.
Farmland Partners owns approximately 160,000 acres of farmland and manages another 15,000 acres across 18 states. Its share price is up 18% for the year with a total return of 19.85%.
LTC Properties Inc. (NYSE: LTC)
LTC Properties is a healthcare REIT that invests in senior housing and other healthcare-related assets. Its portfolio includes 202 properties and 41 mortgage loans. Similar to Omega Healthcare Investors, LTC Properties suffered lasting effects from the COVID-19 pandemic but has shown significant improvement so far in 2022.
Investors may be attracted to this REIT in hopes of a dividend increase in the near future. The company has increased its funds from operation (FFO) by about 14% over the past 12 months and reduced its FFO payout ratio.
LTC Properties’ share price is up 14.8% year-to-date and its 5.9% dividend yield has given its investors a total return of 19.4%.
Growth eREIT III
You may notice there isn’t a ticker associated with this REIT, which is because it doesn’t trade on a stock exchange. The Fundrise-sponsored fund is a nontraded REIT, which shields it from the market volatility affecting most other REITs.
Fundrise regularly updates the REIT’s share price based on the net asset value (NAV) of its portfolio. If the portfolio grows or increases in value, so does its share price. Because the Growth eREIT III has a value-add strategy in the multifamily sector, it’s able to force appreciation and consistently create value in its portfolio even while the market struggles. This same strategy is popular among many private equity real estate investment firms.
The Growth eREIT III’s share price is up 13.5% for the year with a total return of 17.2%. This strong performance demonstrates the benefits of nontraded REITs, especially with the growing uncertainty in the stock market.
Fundrise has several similar funds and has produced average returns of 5.4% year-to-date across all client accounts. Only one of its funds has suffered losses this year but is down just 0.6%.
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