This year has been tough for real estate investment trusts (REITs) – even more so than the market as a whole.
While the S&P 500 is down about 20% for the year, Real Estate Select field SPDR Fund (NYSEARCA: XLRE) — considered the benchmark exchange-traded fund (ETF) for REITs — is down about 30%.
One reason the sentiment is not good for REITs is due to the rapid increase in interest rates. High interest rates are usually not good for REITs because these companies often rely on debt to finance growth. Since REITs are required to pay out at least 90% of taxable income to shareholders in the form of dividends, cash hoarding isn’t really an option.
Another way interest rates are affecting the price of REITs is that the yield on 3-month Treasury bills has increased from 0.08% to more than 4% this year. The yield on three-month Treasury bills is generally considered the risk-free rate for U.S. investors.
Because REITs are most popular among income investors, REITs must offer a yield greater than the risk-free rate to remain attractive. This is especially true when growth is constrained because of the higher cost of debt.
But some REITs are still performing exceptionally well this year. These five companies have total returns for the year that will be impressive under any market conditions.
See more: Best REITs to buy this month
VICI Properties Inc. (NYSE: VICI)
VICI Properties is a net rental REIT with a large portfolio of real estate experience. The company is best known for its gaming properties, mainly along the Las Vegas Strip. VICI Properties has enjoyed significant growth since its inception in 2017, and this year’s solid performance shows that investors expect continued growth over the long term.
VICI’s share price increased by 1.8% YTD and a dividend yield of 5% brought the company’s total profit to nearly 6%. REIT’s dividend payout ratio has also increased by more than 8% over the past year.
Omega Healthcare Investors Inc. (NYSE: OHI)
Omega Healthcare Investors is the largest REIT focusing on skilled nursing facilities. With 921 properties in the US and UK, Omega is an investor favorite with a dividend and a yield of 8.6%. The COVID-19 pandemic has had a huge impact on REIT’s tenants, which is still affecting the company’s revenue. However, Omega has been able to maintain its substantial dividend payments and the impact of the pandemic has continued to improve.
Omega’s stock price is up 6.12% year-to-date, and its high dividend yield has brought the company’s total return to 13.57%.
Farmland Partners Inc. (NYSE: FPI)
Farmland Partners is one of only two REITs to focus on farmland. While a long way from a high dividend REIT with a yield of just 1.7%, the potential for steep upside in cropland prices has become apparent to more investors this year as global food shortages continue. Demand is becoming a growing problem.
While wheat and corn prices have fallen from their April and May peaks, prices are still up 15% and 20% respectively so far.
Farmland Partners owns about 160,000 acres of farmland and manages another 15,000 acres across 18 states. Its share price is up 18% for the year for a total return of 19.85%.
LTC Properties Inc. (NYSE: LTC)
LTC Properties is a healthcare REIT that invests in luxury housing and other healthcare-related properties. Its portfolio includes 202 properties and 41 mortgages. Similar to Omega Healthcare Investors, LTC Properties suffered long-term effects from the COVID-19 pandemic but has shown significant improvement so far in 2022.
Investors may be attracted to this REIT in the hope that the dividend will increase in the near future. The company has increased its fund from operations (FFO) by about 14% over the past 12 months and reduced its payout ratio to FFO.
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 of eREIT III
You may have noticed that there is no token associated with this REIT, that’s because it doesn’t trade on a stock exchange. The Fundrise-funded fund is an unclassified REIT, protecting it from market volatility that affects most other REITs.
Fundrise regularly update the REIT stock price based on the net asset value (NAV) of the portfolio. If the portfolio grows or increases in value, so does its stock price. Because Growth of eREIT III has a value-adding strategy in the multi-family sector, it can drive appreciation and continuously create value in its portfolio even during a tough market. This same strategy is common among many private equity real estate investment firms.
Growth eREIT III’s share price is up 13.5% on the year for a total return of 17.2%. This strong performance demonstrates the benefits of unclassified REITs, especially with growing volatility in the stock market.
Fundrise has several similar funds and has generated an average return of 5.4% year-to-date across all client accounts. Only one of its funds has lost money this year, but it’s only down 0.6%.
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