The stock market has been on the rise for the past few months. That sent most stocks higher, which makes it look like there are less compelling values.
However, some shares are still for sale. Alexandria Real Estate Shares (we are 1.63%)And American tower (AMT 0.13%)And Residential property (EQR 0.71%) Stand out against the few Fool.com shareholders because their stock prices are still low. Moreover, they all have excellent dividend paying records. This makes them look like compelling investment opportunities right now.
This REIT desk is not like the others – and it’s ready to assemble
Mark Roth (Alexandria Real Estate Stocks): Office real estate has been particularly hard hit in the past couple of years as high inflation and rising interest rates have piled on top of doubt that demand for such space will return to pre-pandemic levels.
Alexandria Real Estate Equity was one of the victims of this crisis, but the Real Estate Investment Trust (REIT) operates using a very different model than its peers in the sector.
The first REIT focused entirely on life sciences and biotechnology companies, Alexandria is approaching its 30th year in business with a portfolio of nearly 30 office suites occupied by 850 tenants—including many bright lights at major pharmaceutical companies, university research, and institutes—in and around the North Carolina Research Triangle, Seattle, San Francisco, Boston, Washington, D.C., and the city of San Diego.
Much work in the life sciences world involves things that simply cannot be done from home, and Alexandria’s property remains stocked and growing considerably. The company is also increasing its payout, posting 13 consecutive years of dividend increases in which the stock has brought in about 4.2% with its last share price in the $118 range.
Alexandria missed the recent stock market rally. It’s down about 20% so far this year and is 47% below its all-time closing high of $223.57 from December 29, 2021. Al-Talia Real Estate ETF in both price and total return over the past 10 years, even with the recent swoon.
ARE data by YCharts.
Is Alexandria’s share price rising from the rubble? That’s up to the market, of course, and only time will tell. However, some analysts recently upgraded it to a Buy; The agreed price target of $166.43 expects an upside of around 42% over the next year. I agree with this optimism and intend to regularly add to my share in the owner of this life sciences property while it is still for sale.
Record significant earnings growth
Matt DeLallo (American Tower): Despite the rally in the stock market, shares of American Tower are currently closing about 25% below their 52-week high. This has the data REIT Infrastructure Trade at a relatively cheap rate and provide an attractive dividend yield. It trades at about 19 times its adjusted funds from operations (FFO), and its earnings yield at the current share price is 3.4% – Near the company’s historic high.
American Tower has a proven track record of increasing its profits. The company has increased its payments every year since it converted to a REIT more than a decade ago, and it has increased those payments at a compound annual rate of more than 20%. While payments growth has slowed in recent years, management expects another 10% increase in 2023.
Meanwhile, this push is on solid ground. American Tower expects to generate about $4.5 billion in cash flow this year. That’s enough to cover its growing profits ($3 billion) and growth in capital spending ($1.5 billion to build additional international cell towers and expand US data centers).
The company also supports its payments with a strong investment-grade balance sheet. While that Leverage ratio 5.2 times at the end of the first quarter Were above our long-term target range of 3 to 5, leverage should improve in the coming years. Capital investments and growth in organic tenant billings should boost earnings, which, along with non-core asset sales (it sold its fiber business in Mexico in the first quarter for about $250 million), should help trim its balance sheet. This will put the company’s earnings on a more stable footing, enabling it to continue to increase payments in the future.
Equity Residential is taking advantage of a tight housing market
Brent Netray (property)Equity Residential is a real estate investment fund that specializes in luxury apartments in desirable urban areas. As of the end of March, the company owned or had a part interest in 301 buildings in 10 metropolitan areas, totaling 79,351 units. The company focuses on metropolitan areas with tight labor markets, growing populations, and high demand for highly paid knowledge workers. It has buildings in Southern California, Northern California, Boston, Seattle, and Washington, D.C., and is building its presence in Austin and Denver.
Most of the Equity residential markets are characterized by very tight housing markets, where single-family start-up homes are very expensive. The tenants are higher earners who are less likely to be affected by inflation and see strong wage growth. Occupancy at the end of March was 95.9%, which has almost returned to pre-pandemic levels of 96.1%.
While house price increases peaked nationwide in June 2022, rent inflation tends to retard house price increases by about 21 months. This means that housing stocks will likely continue to see a rise in rents, especially as house prices are rising again.
Equity Residential recently raised its guidance for 2023 funds of operations (FFO) per share to between $3.69 and $3.79. At current levels, this stock gives a price-to-FFO ratio of 18 times. The company has a dividend yield of 3.9%. Although there is a lot of apartment construction in the pipeline, Equity Residential is competing more with new home construction, which is still tight in much of the Equity Residential market. This will give the company pricing power going forward.
