There is an adage among real estate investors that basically says, “You can’t make or create any more land.” While you can always build higher, you still need the land. One of the best assets that most investors are underweighted on is real estate, and while those that own a home are technically real estate investors, homeownership does not produce any income unless you have rental homes. That can be very capital intensive, not to mention time-consuming.
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In a new Goldman Sachs research report, real estate investment trust (REIT) analysts dissect the top stocks looking for the best ideas for 2022. The report noted this about the best silos of the REIT arena:
We expect finds-from-operations growth will be positive in 2022 for almost all our REITs, where we expect most companies’ earnings in 2022 will surpass pre-covid 2019 levels. Industrial, Single Family Rental, and Storage earnings have proven to benefit most from COVID-induced trends, driven by strong e-commerce growth, urban to suburban migration, and life changes requiring more space (e.g., work from home), respectively. Overall, we expect these sectors to continue growing in 2022, where the aforementioned trends are proving to be relatively sticky.
We looked for the Buy-rated companies in the strong subsectors and found five that make good sense for investors who are concerned that next year could bring far fewer gains and more volatility than this year. Remember that no single analyst report should be used as a sole basis for any buying or selling decision.
American Campus Communities
This is one of the top ideas from the Goldman Sachs team, and it pays a dependable dividend. American Campus Communities Inc. (NYSE: ACC) is the largest owner, manager and developer of high-quality student housing communities in the United States.
This fully integrated, self-managed and self-administered equity REIT offers expertise in the design, finance, development, construction management and operational management of student housing properties. As of September 30, 2020, the company owned 166 student housing properties containing approximately 111,900 beds. Including its owned and third-party managed properties, the total managed portfolio consisted of 204 properties with approximately 139,900 beds.
Investors receive a 3.36% distribution. The Goldman Sachs price target is $60, while the consensus target is $60.25. The stock closed on Wednesday at $55.94 per share.
Extra Space Storage
This top REIT has very solid upside potential for investors and is a top pick across Wall Street. Extra Space Storage Inc. (NYSE: EXR) is a fully integrated, self-administered and self-managed REIT headquartered in Salt Lake City, Utah. Like many self-storage companies, it offers rentable storage space offering customers conveniently located and secure storage units across the country, including boat storage, recreational vehicle storage and business storage.
At the beginning of 2021, the company owned or operated 1,971 self-storage stores in 40 states, the District of Columbia and Puerto Rico. The portfolio consists of approximately 149.2 million square feet of rentable space and 1.4 million units, making the company the second-largest owner/operator of self-storage stores and the largest self-storage management company in the country.
Extra Space Storage stock investors receive a 2.28% distribution. Goldman Sachs has a price target of $239, and the consensus target is $219.36. Shares closed on Wednesday at $219.05 apiece.
Invitation Homes
This more off-the-radar idea is a favorite at Goldman Sachs and across Wall Street. Invitation Homes Inc. (NYSE: INVH) is the nation’s premier single-family home leasing company, meeting changing lifestyle demands by providing access to high-quality, updated homes with valued features such as proximity to jobs and access to good schools.
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The company’s mission, “Together with you, we make a house a home,” reflects its commitment to providing homes where individuals and families can thrive and high-touch service that continuously enhances residents’ living experiences.
Top hedge funds have been piling into the stock recently. The number of long hedge funds adding the shares increased by in recent months. Invitation Homes was in 36 hedge fund portfolios at the end of the third quarter of 2021. The all-time high for this previously was 33. This means the amount of hedge fund positions in this stock is at an all-time high.
Investors receive a 1.55% distribution. The $48 Goldman Sachs target price compares with the $47.05 consensus target and the most recent close at $43.98 per share.
Kimco Realty
This top REIT makes sense for more conservative investors and is on the Goldman Sachs Conviction List. Kimco Realty Corp. (NYSE: KIM) has specialized in shopping center acquisitions, development and management. It owns and operates the nation’s largest portfolio of neighborhood and community shopping centers with interests in the company-owned interests in 430 U.S. shopping centers comprising 75 million square feet of leasable space, primarily concentrated in the top major metropolitan markets.
Investors receive a 2.89% distribution. Goldman Sachs has set a $31 price target on Kimco Realty stock. The consensus target is $26.05, and the shares closed on Wednesday at $23.55.
Realty Income
This is an ideal stock for growth and income investors looking for a safer, inflation-busting idea for 2022. Realty Income Corp. (NYSE: O) is an S&P 500 company dedicated to providing stockholders with dependable monthly income, and its monthly distributions are supported by the cash flow from over 6,500 real estate properties owned under long-term lease agreements with commercial tenants.
To date, the company has declared 604 consecutive common stock monthly dividends throughout its 51-year operating history and increased the dividend 108 times since its public listing in 1994, and it is a member of the S&P 500 Dividend Aristocrats index.
Investors receive a 4.28% distribution. The $92 price objective at Goldman Sachs is well above the $78.71 consensus target on Realty Income stock, which closed at $69.14 close on Wednesday.
The highest inflation reading in nearly 40 years was a very concerning data point for investors recently, and while prices may moderate some, between increased demand and supply constraints, it is a good bet it will be much later in 2022 before we see sharp declines in prices. All these top REIT stocks offer attractive entry points at current levels and a degree of safety in an inflationary environment.
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