To say that real estate prices have been on a rollercoaster ride for the last few years is something of an understatement. We’ve gone from pandemic-induced fears of a collapse of commercial real estate to the hottest housing market in a decade to a moderate recovery of the former and incredibly rapid cooling of the latter.
If you haven’t experienced it personally, you most likely have friends and family that have (or you’ve at least seen the headlines). Unsurprisingly, this has served to mute the performance of real estate investment trusts (REITs) and has made high-performing REITs a rare breed.
That’s not to say it’s impossible to find a suitable REIT these days, but if you’ve bought or sold a home this year you’ve likely come to the conclusion that residential property REITs will be struggling for a while.
Anecdotally, my family and I moved when the real estate market was red-hot but had not quite peaked yet. It was a good time to sell our old house (we didn’t have too much trouble finding a buyer, at a price higher than we initially anticipated); finding a new house that we liked, at a somewhat reasonable price, required some luck – and a good realtor. We moved into our new house in February 2021. Two or three months later, when demand always surges in Vermont, we probably wouldn’t have been able to find a house in our price range. Prices had surged another 20% or so.
Fast forward to today, and suddenly it’s not such a sellers’ market; there’s a house down the street from us that’s had a “For Sale” sign on the front lawn for about three months. A similar cooling phase has surfaced in housing markets all across America of late.
To wit: The all-important Case-Shiller 20-city home price index slowed to 18.6% year-over-year growth in June, down from 20.5% growth in May and a peak of 21.2% growth in April. June home prices were only 0.3% higher than May – the lowest monthly increase in two years. In cities such as Seattle (-1.9%), San Francisco (-1.3%) and Los Angeles (-0.7%), home prices were lower in June than they were in May.
It’s no mystery as to why. The Federal Reserve has had its foot on the federal funds rate gas pedal since May. That has pushed the 30-year fixed mortgage rate to an average of 6%, more than double the 2.68% average from this time a year ago. As a result, fewer people are buying houses, and prices are stagnating, and in some places even being slashed.
No wonder it’s been a down year for housing and real estate-related stocks, especially since the Fed started raising rates in March. (Well, that’s not the only reason – ALL stocks not in the energy sector have taken it on the chin in 2022.) The SPDR S&P Homebuilders ETF (XHB) is down 31% year to date, including a 19% drop-off since March. The iShares U.S. Home Construction ETF (ITB) has fallen even further, down 33% this year.
Most REITs (real estate investment trusts) are down considerably as well. But not all of them. Those that invest in specific segments of the economy have performed quite well; thus, the best REITs of 2022 (so far) are quite niche.
It’ll be easy to identify at least one of those niches from the list below. Here are the five best-performing REITs so far this year.
BEST REITS OF 2022
LTC Properties, Inc. (LTC): +22.8%
Apartment Investment and Management Company (AIV): +15.3%
VICI Properties (VICI): +10.5%
National Health Investors, Inc. (NHI): +7.1%
Sabra Health Care REIT (SBRA): -1%
You’ll notice the two healthcare REITs. While healthcare stocks haven’t performed all that well this year (-10.2% YTD), with Covid-19 still lingering and an aging U.S. population as most Baby Boomers are now in their 60s and 70s, the need for healthcare and eldercare has rarely been greater in this country.
Thus, National Health Investors, which specializes in senior housing, achieved record sales ($323 million) in 2020, and while revenues were down this year and last, they’re expected to hit new record highs ($332 million) in 2023.
Similarly, Sabra Health Care invests in skilled nursing, senior housing and behavioral health facilities across the U.S. and Canada. Its sales are expected to grow 9.7% this year.
The other healthcare-related REIT name from the list that’s not obviously associated with the sector is the best-performing REIT by a mile, LTC Properties. It too invests in senior housing and healthcare through a combination of sale leasebacks, mortgage and construction financing and joint ventures. Its sales are expected to rise 3.5% this year and another 9.3% in 2023. More importantly, earnings per share are on track for 81% growth this year.
As for the two non-healthcare REITs on the list, Apartment and Investment Management Company (AIMCO) is easily the least niche, though it does focus on apartments, with 27 apartment communities across 12 states and Washington, D.C. Rent costs aren’t slowing as quickly as housing prices; in July, one-bedroom prices shot up 39% year over year and were 4% higher than in June, while two-bedroom prices increased 38.3% year over year and 2.8% from June. In the last three years, AIMCO’s revenues are up 28.5%, improving incrementally every year.
The last name on the list is perhaps the most surprising: VICI Properties. A spin-off of Caesars Entertainment Corp. when it went bankrupt in 2017, VICI owns 44 casinos, hotels and racetracks, plus four golf courses. While those were terrible investments in the first year or so of Covid, they’re all making a comeback now, and VICI anticipates record revenues this year, with 67% top-line growth. And the stock is just down from hitting new all-time highs last month.
WHICH REIT TO BUY NOW?
VICI is the largest company of the group, with a $32 billion market cap and a nice 4.7% dividend yield to boot. While it has pulled back more than the others in the last few weeks, it’s still holding just above its 50-day moving line. If it can bounce off that support (32-33) in the coming days, it might be the safest buy of the group.
The other four companies are either mid-cap stocks or small-cap stocks, meaning they inherently carry a bit more risk. LTC has both the most momentum and far and away the best EPS growth estimates. For a slightly higher-risk play on the healthcare sector, I’d go with that one.
But you can’t go too wrong with any of these five best-performing REITs of 2022. All of them have good charts and strong numbers – scarce commodities in today’s wobbly stock market.