The 5 Best-Performing REITs Under $5 – Generation Income (NASDAQ:GIPR), Industrial Logistics (NASDAQ:ILPT

The 5 Best-Performing REITs Under $5 – Generation Income (NASDAQ:GIPR), Industrial Logistics (NASDAQ:ILPT

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Every so often, certain stocks get beaten down so badly, they end up trading in the low single digits. Some stocks never find their way back to higher prices, but others rebound and may allow investors to make significant profits on both appreciation and higher dividend yields.

But deciding which low-priced stocks to buy as turnaround plays can be tricky. One of the best ways to determine which ones have the highest probability of being profitable is to look at recent performance as an indicator of potential future gains.

Take a look at five real estate investment trusts (REITs) selling for less than $5 that have outperformed all other sub-$5 REITs over the past three months.

Industrial Logistics Properties Trust ILPT is a Newton, Massachusetts-based REIT that owns and leases 60 million square feet in 413 industrial and logistics properties throughout the United States. Industrial Logistics owns properties in 39 states, with 54% of those properties located in Hawaii. It derives 78% of its annualized rental revenue from investment-grade tenants, such as Amazon, Home Depot and FedEx. Industrial Logistics is externally managed by the RMR Group Inc. RMR. Its occupancy is 99.1%.

On July 25, Industrial Logistics reported its second-quarter operating results. Funds from operations (FFO) of $0.12 per share was $0.02 above estimates but was down 72.09% from FFO of $0.43 in the second quarter of 2022. Revenue of $108.04 million missed the consensus estimate of $109.43 million but was a 0.77% increase over second-quarter revenue of $107.22 million.

There have been significant insider purchases recently. Director Lisa Harris Jones purchased 50,000 shares at an average price of $3.77, for a total cost of $188,390. On the same day, Director Joseph Morea bought 20,000 shares of company stock at $3.68 per share for a total of $73,654. On Aug. 10, Director Kevin C. Phelan purchased 5,000 shares of Industrial Logistics Properties Trust stock for the Anne D. Phelan Trust for $3.7999. That shows a great deal of faith in the stock among corporate insiders.

Industrial Logistics has risen 62.83% over the past 13 weeks. It was recently at $3.68 per share.

This REIT has some risks — its dividend yield is only 1.09%, the huge rise in price over the last three weeks could make it ripe for a pullback, and it’s already lost over 5% this week.

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Lument Finance Trust Inc. LFT is a mortgage REIT (mREIT) focused on commercial real estate debt investments, especially the middle-market multifamily sector. Of its $1 billion loan portfolio, 23% is in Texas and 17.7% is in Florida. Multifamily assets account for 89.5% of its loans, with the remainder divided between senior housing and healthcare and self-storage facilities. Ninety-eight percent of its loans are currently performing.

On Aug. 8, Lument Finance delivered second-quarter earnings per share (EPS) of $0.04, which missed estimates of $0.07 and was a penny worse than the second quarter of 2022. Revenue of $7 million was above revenue of $6.42 million in the second quarter of 2022 but missed the estimates of $7.51 million.

Lument pays a quarterly dividend of $0.06 and has an annual dividend yield of 11.42%. But its payout ratio is 100%, so the dividend could be shaky. Lument stock has risen 10.47% over the past 13 weeks.

Brandywine Realty Trust BDN is a Philadelphia-based REIT that owns, develops, leases and manages 163 mixed-use commercial properties from the Northeast to Texas. It has 23 million square feet of rentable space.

On July 25, Brandywine Realty Trust released second-quarter operating results. FFO of $0.29 per share beat the estimates by $0.02 but was down 17.14% from FFO of $0.35 in the second quarter of 2022. Revenue of $125.88 million missed the estimate of $127.63 million but was a 1.48% increase over revenue of $124.04 million in the second quarter of 2022.  

On Sept. 7, Brandywine Realty Trust announced the closing of the sale of a 173,302-square-foot office building in Austin, Texas, for $53.3 million, the closing of a construction loan for a 144,685-square-foot, fully leased office building in Radnor, Pennsylvania, and that it’s signed its first commercial lease in Philadelphia’s Schuylkill Yards office.

On Sept. 12, KeyBanc Capital Markets initiated coverage on Brandywine Realty Trust with an Overweight rating and a price target of $6. Brandywine’s most recent closing price was $4.88, so the target price represents a potential 23% increase.

Brandywine has a dividend yield of 15.57%. The payout ratio of 66.66% is still reasonable and the price/FFO of 4.27 is quite low. With short interest at 8%, investor bearishness is still prevalent.

Brandywine has gained 9.42% over the past 13 weeks.

Generation Income Properties Inc. GIPR is a Tampa-based diversified REIT that owns single-property retail, office and industrial net lease properties in densely populated areas. Seventy-two percent of its tenants have investment-grade credit or equivalent. Founded in 2015, Generation Income is still a small company. It went public in 2021.

On Aug. 14, Generation Income reported second-quarter FFO of negative $0.03, in line with expectations. Revenue of $1.33 million missed the estimates of $1.32 million and was down 5% from the second quarter of 2022.

Generation Income also announced it had closed its $42 million acquisition of a 13-property portfolio from Modiv Industrial Inc. MDV consisting of 11 retail and two office properties.

Generation Income has a dividend yield of 11.64%. But forward FFO of negative 0.16 does not cover the present dividend rate of $0.48, so a major risk is that the present dividend is likely to be a yield trap.

Despite this, Generation Income is up 7.91% over the past trading week, yet is down 1.47% for the past 13 weeks.

Braemar Hotels & Resorts BHR is a Dallas-based REIT that invests in luxury hotels and resorts across the U.S. and Puerto Rico. Braemar Hotels & Resorts is invested in 16 properties with 4,184 rooms.

On Aug. 2, Braemar Hotels & Resorts reported mixed second-quarter operating results. FFO of $0.20 per share was in line with estimates, but 45.95% below FFO of $0.37 per share in the second quarter of 2022. Revenue of $186.71 million beat the consensus estimate of $173.87 million and was an increase over revenue of $174.89 million in the second quarter of 2022.

On Aug. 14, B. Riley Securities analyst Bryan Maher downgraded Braemar Hotels & Resorts from Buy to Neutral and lowered the price target from $7 to $3.50. Maher noted, “As it relates to Braemar’s luxury resort hotels, we have been writing about RevPAR [revenue per available room] weakening for several quarters.” 

Over the past 13 weeks, Braemar Hotels is down over 30%, but in the last five trading days, it has risen 6.2%. Perhaps this is the beginning of a turnaround.

The $0.16 annual dividend yields 6.2% and has a 20.77% payout ratio. The P/FFO is a meager 3.8, so this REIT is certainly undervalued and not likely to have its dividend cut, despite about $400 million in 2024 debt maturities.

Braemar Hotels soared 15.57% in one day after the sale of Hersha Hospitality Trust HT to KSL Capital Partners was announced. Investors are seeing value in this hotel REIT as a possible takeover candidate.

Note: The preceding REITs are all somewhat speculative and can be quite volatile, so they are not well-suited for conservative investors or those on fixed incomes.  

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