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On Wall Street, the prevailing view is that a recession will follow a big interest rate hike, as high interest rates will slow down real estate and car sales and credit card spending on non-essential retail items. .
Additionally, the general idea is that everyone is shopping online rather than driving to the local store. So, not surprisingly, many believe that retail-focused real estate investment trusts (REITs) will not fare well in a recessionary environment.
But some Wall Street analysts are beginning to dispel fears of a recession. Let’s take a look at his three retail REITs that recently won Wall Street analyst endorsements with action upgrades and higher pricing targets.
National Retail Properties Inc. (NYSE: NNN) is a netlease retail REIT that owns a diverse group of 3,349 properties across 48 states. National Retail Properties’ tenant roster includes well-known names such as 7-Eleven, Sunoco LP, Best Buy Co, Camping World Holdings, BJ’s Wholesale Club and Chuck E. Cheese.
National Retail Properties said on its website that it has increased its annual dividend for the 33rd consecutive year. The current annual dividend is $2.20, giving him a yield of 4.7%. A forward fund from operation (FFO) of $3.13 covers the dividend with a payout rate of 70%.
National Retail Properties said in its third quarter operating results that its properties were 99.4% occupied and had a weighted average remaining lease term of 10.4 years. These are impressive numbers and should bode well for investors, even in the face of a severe recession in 2023.
On Jan. 3, Jefferies analyst Linda Tsai upgraded National Retail Properties from Hold to Buy, raising the price target from $43 to $52. This represents her 13% upside from her recent close of $46.02.
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Regency Centers Corporation (NASDAQ: REG) is a self-managed retail REIT based in Jacksonville, Florida that acquires, develops and manages shopping centers primarily focused on grocery stores. Its portfolio includes 398 properties with over 8,000 tenants. The occupancy rate for the third quarter was 94.7%.
Regency Centers recently increased its quarterly dividend from $0.625 to $0.65. The annual dividend of $2.60 is easily covered by an FFO of $4.02, giving a current yield of 4.1%.
On December 12, JP Morgan’s Michael Mueller upgraded Regency Center from Neutral to Overweight, raising the price target from $70 to $72. This represents a 14.5% upside from the recent close of $62.83. Mueller said in his research notes that “the relative view of strip center groups has improved” and that Regency’s leases are “extensive and robust.”
Brixmor Property Group Ltd. (NYSE: BRX) is a New York-based retail REIT that owns and operates 378 outdoor shopping centers housing more than 5,000 retailers. Its notable tenants include TJX Companies, The Kroger Co, Publix Super Markets Inc. and Ross Stores.
Brixmor Property Group recently increased its quarterly dividend from $0.24 to $0.26. The annual payout rate of $1.04 yields a yield of 4.6%, easily covered by the FFO of $1.96, resulting in a modest payout rate of 53%.
On December 12, Wolfe Research LLC analyst Andrew Rosivach announced that Brixmor Property Group has upgraded from Peer Perform to Outperform, with a year-end 2023 price target of $29. And when combined with the dividend yield, the total return is around 31%.
Investors should keep in mind that analysts are not always right and it is best to do your own research. What’s interesting is that analysts are upgrading certain REITs that have struggled over the past year. Perhaps the worst isn’t over, but the current stock price makes him think he’s already discounted potential recession headwinds in 2023.
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