Real Estate Investment Trusts (REITs) are investment companies that own, operate, or finance income-generating real estate. Investing in REITs is an opportunity for investors to profit from real estate without owning any physical property. They provide investors with several benefits, including regular income from dividends, portfolio diversification, tax benefits, professional management, and liquidity through publicly traded shares.
Although the REIT industry has struggled since the 2020 Covid pandemic and underperformed the broader stock market, the three REITs discussed in this article have outperformed the market and the industry, and are good investments for investors to consider in the current environment.
Brookfield Infrastructure Partners BIP, EastGroup Properties EGP, and Iron Mountain IRM all have high Zacks Ranks, and market-beating performances. Furthermore, they belong to different industries within the REIT sector, thus offering a broad range of investment opportunities.
Brookfield Infrastructure Partners
Brookfield Infrastructure Partners is a renowned global infrastructure company that owns and operates a diversified portfolio of high-quality infrastructure assets focused on sectors such as utilities, transportation, energy, and data infrastructure. Through active investment and leveraging its expertise in asset management, the partnership looks for growth potential opportunities and a chance to contribute to the infrastructure essential needs of societies around the globe.
Since 2016, BIP annual revenue has grown from $2.1 billion to over $15 billion currently. Brookfield’s reputation as an asset manager has grown to be one of the most respected in the industry. Thus, it has seen growth in assets under management (AUM) and the acquisition of new infrastructure assets.
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One of the benefits of owning REITs is the regular dividend payments. BIP offers a 4.3% dividend yield, which has on average increased by 3.1% yearly in the last five years.
Brookfield Infrastructure Partners is trading at a one-year forward earnings multiple of 11.7x, which is lower than the industry average of 14.3x and below its 10-year median of 12x. Since BIP is an asset manager who has outperformed the market, it is quite compelling to own it at a valuation less than the industry standard.
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EastGroup Properties
EastGroup Properties is a self-administered real estate investment trust that targets ownership, acquisition, and selective industrial property development. Its primary investment approach is three-fold: acquisition of industrial properties at favorable initial yields with potential to improve cash flow; selective industrial property development, and acquisition of existing private and public companies.
EastGroup targets buying properties in local economies that have faster growth rates than those of the U.S. economy, with top holdings in Texas (35%), Florida (24%), California (20%), Arizona (7%), and North Carolina (6%). With a total of 57 million square feet, mostly multi-tenant properties, and a focus on last-mile e-commerce in supply-constrained markets, EPG provides a good investment opportunity.
Currently, EastGroup Properties has a Zacks Rank #2 (Buy) with an indication of upward earnings revisions. Analysts have almost unanimously upgraded earnings estimates across the board. The current quarter earnings estimate growth rate is expected to be 9% YoY to $1.87, and sales are expected to increase by 15% to $136 million over the same period.
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EGP is trading at a one-year forward earnings multiple of 20x, which is higher than the industry average of 14.3x, and marginally below its 10-year median of 20.5x. Its properties’ geographic location and the industries it serves may justify its premium valuation.
EGP pays a 3.1% dividend yield, which has increased by an average of 14.7% annually in the last five years.
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Iron Mountain
Iron Mountain is a global information management company established in 1951 that specializes in secure storage for vital records. It expanded its services to include offsite tape storage, document imaging, data centers, digital archiving, and other comprehensive information management and storage solutions, serving over 225,000 customers from different industries through its 1400 facilities.
Iron Mountain’s sales are expected to grow 5% YoY in the current quarter and 8.2% in FY23. Current quarter earnings are projected to increase by 4.3%, and FY23 earnings are expected to rise by 4.2%.
Iron Mountain holds a very well positioned balance sheet, having the lowest level of leverage since 2017 and having over $1 billion of liquidity. Additionally, it currently pays an average interest rate of 5.3% on its debt, of which 75% is at a fixed rate.
IRM is trading at a one-year forward earnings multiple of 14.2x, which is aligned with the industry average and below its 10-year median of 16x. Iron Mountain pays a 4.6% dividend yield, which it has maintained for the past five years.
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Conclusion
Brookfield Infrastructure Partners, EastGroup Properties, and Iron Mountain are three REITs that have shown resilience under challenging industry conditions. With BIP focusing on infrastructure, EGP covering industrial and e-commerce, and IRM targeting the digital economy, these REITs offer alternatives to traditional real estate investments, thus allowing shareholders access to broad investment options.
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