Advertiser Disclosure

advertising disclaimer
Skip to main content
REIT cubed spelling gold and white

3 Best REITs to Buy in May


[Updated: Jul 17, 2020 ] May 12, 2020 by Matthew DiLallo
Get our 43-Page Guide to Real Estate Investing Today!

Real estate has long been the go-to investment for those looking to build long-term wealth for generations. Let us help you navigate this asset class by signing up for our comprehensive real estate investing guide.

*By submitting your email you consent to us keeping you informed about updates to our website and about other products and services that we think might interest you. You can unsubscribe at any time. Please read our Privacy Statement and Terms & Conditions.

The best real estate investment trusts (REITs) are those that can produce market-beating total returns for investors, which is a combination of their dividend yield and stock price appreciation. To deliver those gains, a REIT must be able to grow the income generated from its real estate portfolio so that it can increase its dividend. Here's a closer look at three top REITs with outsized upside potential that investors can buy this month.

With the REIT market tumbling this year, lots of stocks look attractive. However, three that stand out as excellent buys this month are AvalonBay Communities (NYSE: AVB), Medical Properties Trust (NYSE: MPW), and Prologis (NYSE: PLD). Not only do they trade at lower prices, but they also boast having all the characteristics of the best REITs.

AvalonBay Communities

Shares of multifamily REIT AvalonBay have tumbled more than 20% this year. Driving that downdraft is the market's view that the company will struggle to collect rent and keep its properties occupied because of the impact the COVID-19 outbreak is having on the U.S. economy.

The company, however, has weathered this storm much better than the market feared, as its first-quarter results were a bit higher than expected. Further, April rent payments came in at 96% of what it typically collects in a month. Meanwhile, leasing activity, which slowed in March, rebounded in April, though move-ins did decline.

While AvalonBay withdrew its full-year outlook due to the potential impact the COVID-19 outbreak could have on its results, it initially anticipated it would generate between $9.62 to $10.02 per share of core FFO. If it were to deliver earnings in that range, then the payout ratio for its 3.9%-yielding dividend would be a comfortable 65%.

AvalonBay also has a strong balance sheet, backed by a 4.6 times leverage ratio. That conservative financial profile provides AvalonBay with the flexibility to continue developing new apartment communities. While it had to slow construction activity due to the COVID-19 outbreak, it has several projects underway as part of a $4 billion development rights pipeline.

Medical Properties Trust

Shares of healthcare REIT Medical Properties Trust have declined by about 20% this year. That's because of market worries that the company's hospital tenants might not have the cash to pay rent as they battle the COVID-19 outbreak. Instead, Medical Properties Trust recently reported that it collected 96% of its April rent, which is a much higher percentage than REITs in other subsectors.

Because of that, the company is increasingly confident that it can deliver on its guidance that it will generate between $1.65 to $1.68 per share of normalized FFO. This forecast implies that it trades for an attractive value of around 10 times FFO. Further, Medical Properties Trust boasts a conservative dividend payout ratio of 65% and a low leverage ratio of 5.5 times net debt-to-EBITDA. Those factors put its 6.5% yielding dividend on solid ground. Finally, it has seen its acquisition opportunity set rise as a result of the pandemic because more hospitals are looking to sell their real estate to free up this capital for patient care.

Prologis

Shares of industrial REIT Prologis have declined by about 3% this year. That's because the economic downturn will have some impact on its customers, which will reduce demand for industrial space.

However, the company remains in excellent financial shape to weather this storm. It has a top-notch balance sheet and a well-covered dividend that will only consume about 65% of its FFO this year. That provides it with the financial flexibility to continue expanding. It expects to invest between $500 million and $800 million to start new developments this year while spending another $450 million on the acquisition of additional industrial properties. Meanwhile, it's well positioned to continue expanding in the future since more businesses will likely need industrial space such as warehouses and distribution centers to support the continued growth of e-commerce.

These top-tier REITs look even more attractive this May

While the COVID-19 outbreak is putting significant pressure on the real estate sector, the conservative financial profiles of these REITs will help them navigate through these challenging times. It also provides them with the flexibility to continue expanding their portfolios so that they can keep growing their FFO and dividends. Add that upside potential to their lower prices, and these REITs could produce attractive total returns for investors who buy shares this month.

Unfair Advantages: How Real Estate Became a Billionaire Factory

You probably know that real estate has long been the playground for the rich and well connected, and that according to recently published data it’s also been the best performing investment in modern history. And with a set of unfair advantages that are completely unheard of with other investments, it’s no surprise why.

But those barriers have come crashing down - and now it’s possible to build REAL wealth through real estate at a fraction of what it used to cost, meaning the unfair advantages are now available to individuals like you.

To get started, we’ve assembled a comprehensive guide that outlines everything you need to know about investing in real estate - and have made it available for FREE today. Simply click here to learn more and access your complimentary copy.

Matthew DiLallo owns shares of AvalonBay Communities and Medical Properties Trust. The Motley Fool recommends AvalonBay Communities. The Motley Fool has a disclosure policy.