Many REITs were down big earlier this year due to fears surrounding interest rates and lack of demand. But for some, the market settled around June, and the turnaround began. Interest rates are still rising (and will probably stay high for the foreseeable future), but demand isn't going down for all real estate. When market sentiment turns sour, the stocks of good performers sometimes get thrown out like the baby with the bathwater.
Three real estate investment trusts (REITs) -- Federal Realty Investment Trust (FRT 0.44%), Agree Realty (ADC 0.77%), and Public Storage (PSA -0.07%) -- have rebounded from their 2022 lows and have businesses that can resist a future economic recession or prolonged inflationary period.
At one point, Federal Realty was down more than 30% on the year. It has since risen from that low price of around $94 per share to almost $105. The rebound came thanks to record funds from operations (FFO) numbers, a 92% occupancy rate, and comparable property income growth of 8.2% in the second quarter.
Federal Realty is a retail REIT with 104 open-air shopping center properties in the first-ring suburbs of nine big cities in the U.S. That's fewer properties than you'd see in other REITs its size, but Federal Realty has around 3,100 commercial tenants and another 3,400 residential tenants in its 25 million square feet of space. It has a concentrated portfolio of locations but a diversified revenue stream from its tenants.
This diversified revenue stream performed well during the pandemic -- the REIT had just one down year -- and revenue is already 8% higher than 2019 levels. Federal Realty also never cut the dividend, and it now has a yield of 3.9%.
Agree Realty didn't take quite the hit that Federal Realty did. In fact, the stock is actually up this year. The stock hasn't just done well this year -- it has had a 12.4% compound average annual total return since 1994. Pretty good for a slow-growing dividend stock.
Agree is also a retail REIT, but instead of concentrating on about 100 properties and nine cities, it spreads 34 million square feet across 1,607 properties in 48 states. Most of those properties are leased to big-box retailers with names like Walmart, Best Buy, and Home Depot. No single tenant occupies more than 7% of the space, and no tenant category (like auto service or grocery) has a concentration of more than 9.4%.
Agree also kept churning out rental revenue and cash flow during the pandemic. Trailing 12-month revenue of $380 million is much more than 2019 revenue of $187 million. The dividend is paid monthly and was raised every quarter through the pandemic like clockwork. Today, the yield is 3.5%, and you can count on it continuing to increase.
By mid-June, Public Storage shares had fallen about 20% on the year. However, the stock has since recovered from $295 per share to $341. Core FFO was up 27% in Q2, same-store operating income grew 16%, and the REIT acquired 10 new facilities with another 24 under contract.
Public Storage is a self-storage REIT that has rolled up much of the industry over the past few decades. It currently owns 200 million rentable square feet in 2,807 properties and 39 states and has 1.7 million total customers. Talk about diversification of revenue streams.
Public Storage's business should do well in a recession. As people downsize their homes or offices, they need somewhere to store their stuff until the economy turns around and they can move back into bigger spaces. Public Storage's revenue growth actually accelerated post-pandemic. From 2016 to 2019, it grew by about $350 million; from 2019 to the last 12 months, it has grown by $1 billion. And, of course, it's still pumping out a strong dividend. The yield is currently 2.3%. That yield is lower than you'd get with many REITs, but Public Storage has the strength and growth prospect to trade for a premium.