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3 REITs That Could Double Your Money

Sep 11, 2020 by Matt Frankel, CFP

Generally speaking, real estate investment trusts, or REITs, aren't investments you'd buy for a quick double. By nature, REITs are designed to produce long-term growth and steady income, and investors are wise to approach them with these goals in mind.

Having said that, the COVID-19 pandemic has led to some REITs trading for less than half of their previous highs, and if they are able to turn things around, their stock prices could certainly double within the next year or two. Three in particular that could double in the right circumstances are Seritage Growth Properties (NYSE: SRG), Ryman Hospitality Properties (NYSE: RHP), and Simon Property Group (NYSE: SPG). Here's why you might want to put them on your radar.

Lots of execution risk, but a tremendous opportunity

Seritage Growth Properties is the most beaten-down stock on this list. Even after a recent surge, the company's stock price is still down more than 60% in 2020.

Seritage was created to purchase and redevelop a portfolio of real estate assets formerly owned and/or occupied by Sears (OTCMKTS: SHLDQ). And the progress has been impressive -- as of the second quarter, Seritage has redeveloped properties that are currently generating $169 million in annual non-Sears rental income. What's more, Seritage has only re-leased about one-third of its total square footage, so it is still in the very early stages of its transformation plan.

Aside from the fact that Seritage's retailers were largely forced to close as the pandemic began and rent collection hasn't been stellar (Seritage collected 66% of its second-quarter rent), one major obstacle for Seritage is liquidity. The company has $92.6 million in cash, no immediate access to a credit line, and is producing negative FFO to the tune of $45 million in the second quarter. And this isn't just because of the pandemic -- Seritage was FFO-negative before the coronavirus outbreak.

Seritage has a $400 million credit line provided by Berkshire Hathaway (NYSE: BRK.A)(NYSE: BRK.B), but it can't access it until it has $200 million in signed non-Sears leases. It has $91.5 million in pending asset sales that give it a bit of breathing room, but if Seritage can boost its liquidity and show investors a clear path to a sustainable redevelopment strategy, its shares could certainly double from here.

Group events could make a big comeback in 2021

Ryman Hospitality Properties is still more than 50% below where it started 2020 and has been one of the worst-performing major hotel REITs. Simply put, Ryman's Gaylord hotels focus on conventions, conferences, and other large events, and these simply aren't happening right now.

That said, there seems to be quite a bit of pent-up demand. Ryman has successfully rebooked nearly a half million cancelled room nights and actually has more business on the books for 2021 and 2022 than it did at the same time in 2019. With the company's entertainment assets like the Grand Ole Opry and Ryman Auditorium starting to already dip their toes into hosting live concerts, it's just a matter of time before Ryman's business recovers.

The best-in-breed mall operator at a fire-sale valuation

When it comes to U.S. mall operators, there's Simon Property Group and there's everyone else. There are certainly some other good ones out there, but Simon is simply in a class by itself.

In short, the company aims to create shopping destinations that incorporate the most popular restaurants, entertainment venues, hotels, and other non-retail elements to keep foot traffic at a high level. And the proof is in the numbers -- Simon's retailers reported 2019 sales per square foot that increased by 4.8% year over year at a time when many physical retailers were seeing sales plummet.

Based on its second quarter FFO, which declined significantly as the pandemic hit, Simon trades at a rock-bottom valuation of just eight times annualized FFO. If Simon's malls return to their year-end 2019 productivity, the share price could certainly double.

These stocks could double your money

As a final thought, it's important to emphasize that I'm saying these stocks could double your money, not that I necessarily think they will. While I own all three in my personal portfolio, I also acknowledge that a lot of things would need to go well before a doubling would be possible. Seritage would need to create some more financial breathing room, Ryman would need group events to restart at near-normal volumes, and Simon would need to show that its malls could still thrive in a post-pandemic world, just to name the key factors.

If these companies can do these things, a 100% gain (or more) is certainly possible. But it's important to know that's a big "if."

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